QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
th Streetrd Floor |
||
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
☒ |
Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
Emerging growth company |
WISDOMTREE, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2023
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION |
4 | |||||
ITEM 1. |
FINANCIAL STATEMENTS | 4 | ||||
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 33 | ||||
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 50 | ||||
ITEM 4. |
CONTROLS AND PROCEDURES | 51 | ||||
PART II: OTHER INFORMATION |
51 | |||||
ITEM 1. |
LEGAL PROCEEDINGS | 51 | ||||
ITEM 1A. |
RISK FACTORS | 51 | ||||
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 51 | ||||
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES | 52 | ||||
ITEM 4. |
MINE SAFETY DISCLOSURES | 52 | ||||
ITEM 5. |
OTHER INFORMATION | 52 | ||||
ITEM 6. |
EXHIBITS | 53 |
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree, Inc. and its subsidiaries.
WisdomTree®, WisdomTree Prime™ and Modern Alpha® are trademarks of WisdomTree, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners.
2
• | anticipated trends, conditions and investor sentiment in the global markets and exchange-traded products, or ETPs; |
• | anticipated levels of inflows into and outflows out of our ETPs; |
• | our ability to deliver favorable rates of return to investors; |
• | competition in our business; |
• | whether we will experience future growth; |
• | our ability to develop new products and services; |
• | our ability to maintain current vendors or find new vendors to provide services to us at favorable costs; |
• | our ability to successfully implement our strategy related to digital assets and blockchain-enabled financial services, including WisdomTree Prime ™ , and achieve its objectives; |
• | our ability to successfully operate and expand our business in non-U.S. markets; |
• | the effect of laws and regulations that apply to our business; and |
• | actions of activist stockholders. |
ITEM 1. |
FINANCIAL STATEMENTS |
March 31, 2023 |
December 31, 2022 |
|||||||
(unaudited) |
||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents (Note 3) |
$ | $ | ||||||
Financial instruments owned, at fair value (including $ |
||||||||
Accounts receivable (including $ |
||||||||
Prepaid expenses |
||||||||
Income taxes receivable |
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Other current assets |
||||||||
Total current assets |
||||||||
Fixed assets, net |
||||||||
Indemnification receivable (Note 20) |
||||||||
Securities held-to-maturity |
||||||||
Deferred tax assets, net (Note 20) |
||||||||
Investments (Note 7) |
||||||||
Right of use assets—operating leases (Note 12) |
||||||||
Goodwill (Note 22) |
||||||||
Intangible assets, net (Note 22) |
||||||||
Other noncurrent assets |
||||||||
Total assets |
$ | $ | ||||||
Liabilities and stockholders’ equity |
||||||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Convertible notes—current (Note 10) |
$ | $ | ||||||
Fund management and administration payable |
||||||||
Deferred consideration—gold payments (Note 9) |
||||||||
Compensation and benefits payable |
||||||||
Income taxes payable |
||||||||
Operating lease liabilities (Note 12) |
||||||||
Accounts payable and other liabilities |
||||||||
Total current liabilities |
||||||||
Convertible notes (Note 10) |
||||||||
Deferred consideration—gold payments (Note 9) |
||||||||
Operating lease liabilities (Note 12) |
||||||||
Other noncurrent liabilities (Note 20) |
||||||||
Total liabilities |
||||||||
Preferred stock—Series A Non-Voting Convertible, par value $ |
||||||||
Contingencies (Note 13) |
||||||||
Stockholders’ equity |
||||||||
Preferred stock, par value $ |
||||||||
Common stock, par value $ |
||||||||
Additional paid-in capital |
||||||||
Accumulated other comprehensive loss |
( |
( |
||||||
Retained earnings |
||||||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ | |
$ | |||||
Three Months Ended March 31, | ||||||||
2023 |
2022 | |||||||
Operating Revenues: |
||||||||
Advisory fees |
$ | $ | ||||||
Other income |
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|
|
|
| |||
Total revenues |
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| |||
Operating Expenses: |
||||||||
Compensation and benefits |
||||||||
Fund management and administration |
||||||||
Marketing and advertising |
||||||||
Sales and business development |
||||||||
Contractual gold payments (Note 9) |
||||||||
Professional fees |
||||||||
Occupancy, communications and equipment |
||||||||
Depreciation and amortization |
||||||||
Third-party distribution fees |
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Other |
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|
| |||
Total operating expenses |
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| |||
Operating income |
||||||||
Other Income/(Expenses): |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Gain/(loss) on revaluation of deferred consideration—gold payments (Note 9) |
( |
) | ||||||
Interest income |
||||||||
Impairments (Note 7) |
( |
) | ||||||
Loss on extinguishment of convertible notes (Note 10) |
( |
) | ||||||
Other losses, net |
( |
) | ( |
) | ||||
|
|
|
|
|
| |||
Income/(loss) before income taxes |
( |
) | ||||||
Income tax expense/(benefit) |
( |
) | ||||||
|
|
|
|
|
| |||
Net income/(loss) |
$ | $ | ( |
) | ||||
|
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|
|
|
| |||
Earnings/(loss) per share—basic |
$ | $ | ( |
) | ||||
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|
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|
| |||
Earnings/(loss) per share—diluted |
$ | $ | ( |
) | ||||
|
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|
|
| |||
Weighted-average common shares—basic |
|
|||||||
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Weighted-average common shares—diluted |
|
|||||||
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|
| |||
Cash dividends declared per common share |
$ | $ | ||||||
|
|
|
|
|
|
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Net income/(loss) |
$ | $ | ( |
|||||
Other comprehensive income/(loss) |
||||||||
Foreign currency translation adjustment, net of income taxes |
( |
|||||||
|
|
|
|
|||||
Other comprehensive income/(loss) |
( |
|||||||
|
|
|
|
|||||
Comprehensive income/(loss) |
$ | |
$ | ( |
||||
|
|
|
|
For the Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings/ (Accumulated Deficit) |
Total | ||||||||||||||||||||
Shares Issued |
Par Value | |||||||||||||||||||||||
Balance—January 1, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
Restricted stock issued and vesting of restricted stock units, net |
( |
) | ||||||||||||||||||||||
Shares repurchased |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Stock-based compensation |
— | |||||||||||||||||||||||
Other comprehensive income |
— | |||||||||||||||||||||||
Dividends |
— | ( |
) | ( |
) | |||||||||||||||||||
Net income |
— | |||||||||||||||||||||||
Balance—March 31, 2023 |
|
$ | |
$ | |
$ | ( |
) | $ | |
$ | |
||||||||||||
For the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
Accumulated Deficit |
Total | ||||||||||||||||||||
Shares Issued |
Par Value | |||||||||||||||||||||||
Balance—January 1, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
Restricted stock issued and vesting of restricted stock units, net |
( |
) | ||||||||||||||||||||||
Shares repurchased |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Stock-based compensation |
— | |||||||||||||||||||||||
Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||
Dividends |
— | ( |
) | ( |
) | |||||||||||||||||||
Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
Balance—March 31, 2022 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
Three Months Ended March 31, | ||||||||
2023 |
2022 | |||||||
Cash flows from operating activities: |
||||||||
Net income/(loss) |
$ | $ | ( |
) | ||||
Adjustments to reconcile net income/(loss) to net cash used in operating activities: |
||||||||
(Gain)/loss on revaluation of deferred consideration—gold payments |
( |
) | ||||||
Advisory and license fees paid in gold, other precious metals and cryptocurrency |
( |
) | ( |
) | ||||
Loss on extinguishment of convertible notes |
||||||||
Impairments |
||||||||
Deferred income taxes |
||||||||
Stock-based compensation |
||||||||
Contractual gold payments |
||||||||
Losses on investments |
||||||||
(Gains)/losses on financial instruments owned, at fair value |
( |
) | ||||||
Amortization of issuance costs—convertible notes |
||||||||
Amortization of right of use asset |
||||||||
Depreciation and amortization |
||||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) | ( |
) | ||||
Prepaid expenses |
( |
) | ( |
) | ||||
Gold and other precious metals |
||||||||
Other assets |
( |
) | ||||||
Intangibles—software development |
( |
) | ||||||
Fund management and administration payable |
||||||||
Compensation and benefits payable |
( |
) | ( |
) | ||||
Income taxes payable |
( |
) | ( |
) | ||||
Operating lease liabilities |
( |
) | ( |
) | ||||
Accounts payable and other liabilities |
||||||||
|
|
|
|
|
| |||
Net cash used in operating activities |
( |
) | ( |
) | ||||
|
|
|
|
|
| |||
Cash flows from investing activities: |
||||||||
Purchase of financial instruments owned, at fair value |
( |
) | ( |
) | ||||
Purchase of investments |
( |
) | ||||||
Purchase of fixed assets |
( |
) | ( |
) | ||||
Proceeds from the sale of financial instruments owned, at fair value |
||||||||
Proceeds from held-to-maturity |
||||||||
|
|
|
|
|
| |||
Net cash used in investing activities |
( |
) | ( |
) | ||||
|
|
|
|
|
| |||
Cash flows from financing activities: |
||||||||
Repurchase of convertible notes (See Note 10) |
( |
) | ||||||
Dividends paid |
( |
) | ( |
) | ||||
Shares repurchased |
( |
) | ( |
) | ||||
Convertible notes issuance costs |
( |
) | ||||||
Proceeds from the issuance of convertible notes (Note 10) |
||||||||
|
|
|
|
|
| |||
Net cash used in financing activities |
( |
) | ( |
) | ||||
|
|
|
|
|
| |||
Increase/(decrease) in cash flow due to changes in foreign exchange rate |
( |
) | ||||||
|
|
|
|
|
| |||
Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
Cash and cash equivalents—beginning of year |
||||||||
|
|
|
|
|
| |||
Cash and cash equivalents—end of period |
$ | $ | ||||||
|
|
|
|
|
| |||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for income taxes |
$ | $ | ||||||
|
|
|
|
|
| |||
Cash paid for interest |
$ | $ | |
|||||
|
|
|
|
|
|
• | WisdomTree Asset Management, Inc. non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. |
• | WisdomTree Management Jersey Limited leveraged-and-inverse |
• | WisdomTree Multi Asset Management Limited non-consolidated public limited company domiciled in Ireland. |
• | WisdomTree Management Limited non-consolidated public limited company domiciled in Ireland. |
• | WisdomTree UK Limited |
• | WisdomTree Europe Limited |
• | WisdomTree Ireland Limited |
• | WisdomTree Digital Commodity Services, LLC |
• | WisdomTree Digital Management, Inc. (“WT Digital Management”) is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Digital Trust (“WTDT”) and WisdomTree Digital Funds. The WisdomTree Digital Funds are issued in the U.S. by WTDT. WTDT is a Delaware statutory trust registered with the SEC as an open-end management investment company. Each Digital Fund will use blockchain technology to maintain a secondary record of its shares on one or more blockchains (e.g., Stellar or Ethereum), but will not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies. |
• | WisdomTree Digital Movement, Inc ™ to facilitate such activity. |
• | WisdomTree Securities, Inc |
Equipment |
||||
Internally-developed software |
Level 1 | – | Quoted prices for identical instruments in active markets. | ||
Level 2 | – | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. | ||
Level 3 | – | Instruments whose significant drivers are unobservable. |
March 31, 2023 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
Assets: |
||||||||||||||||
Recurring fair value measurements: |
||||||||||||||||
Cash equivalents |
$ |
$ |
$ |
$ |
||||||||||||
Financial instruments owned, at fair value |
||||||||||||||||
ETFs |
||||||||||||||||
U.S. treasuries |
||||||||||||||||
Pass-through GSEs |
||||||||||||||||
Other assets—seed capital (WisdomTree blockchain-enabled funds) |
||||||||||||||||
U.S. treasuries |
||||||||||||||||
Equities |
||||||||||||||||
Fixed income |
||||||||||||||||
Other |
||||||||||||||||
Investments in Convertible Notes |
||||||||||||||||
Securrency, Inc.—convertible note (Note 7) |
||||||||||||||||
Fnality International Limited—convertible note (Note 7) |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
March 31, 2023 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
Non-recurring fair value measurements: |
||||||||||||||||
Securrency, Inc.—Series A convertible preferred stock (1) |
$ |
$ |
$ |
$ |
||||||||||||
Liabilities: |
||||||||||||||||
Recurring fair value measurements: |
||||||||||||||||
Deferred consideration (Note 9) |
$ |
$ |
$ |
$ |
||||||||||||
December 31, 2022 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
Assets: |
||||||||||||||||
Recurring fair value measurements: |
||||||||||||||||
Cash equivalents |
$ |
$ |
$ |
$ |
||||||||||||
Financial instruments owned, at fair value |
||||||||||||||||
ETFs |
||||||||||||||||
U.S. treasuries |
||||||||||||||||
Pass-through GSEs |
||||||||||||||||
Corporate bonds |
||||||||||||||||
Other assets—seed capital (WisdomTree blockchain-enabled funds) |
||||||||||||||||
Investments in Convertible Notes |
||||||||||||||||
Securrency, Inc.—convertible note (Note 7) |
||||||||||||||||
Fnality International Limited—convertible note (Note 7) |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Non-recurring fair value measurements: |
||||||||||||||||
Other investments (2) |
$ |
$ |
$ |
$ |
||||||||||||
Liabilities: |
||||||||||||||||
Recurring fair value measurements: |
||||||||||||||||
Deferred consideration (Note 9) |
$ |
$ |
$ |
$ |
||||||||||||
Three Months Ended, March 31, |
||||||||||
2023 |
2022 |
|||||||||
Investments in Convertible Notes (Note 7) |
||||||||||
Beginning balance |
$ | $ | ||||||||
Purchases |
||||||||||
Net unrealized losses (1) |
( |
) | ( |
) | ||||||
Ending balance |
$ | $ | ||||||||
Deferred Consideration (Note 9) |
||||||||||
Beginning balance |
$ | |
$ | |||||||
Net realized losses (2) |
||||||||||
Net unrealized (gains)/losses (3) |
( |
) | ||||||||
Settlements |
( |
) | ( |
) | ||||||
Ending balance |
$ | $ | |
|||||||
March 31, 2023 |
December 31, 2022 |
|||||||||
Financial instruments owned |
||||||||||
Trading securities |
$ | $ | ||||||||
Other assets—seed capital (WisdomTree blockchain-enabled funds) |
||||||||||
$ | |
$ | |
|||||||
March 31, 2023 |
December 31, 2022 | |||||||||
Debt instruments: Pass-through GSEs (amortized cost) |
$ | |
$ | |
||||||
March 31, 2023 |
December 31, 2022 | |||||||||
Cost/amortized cost |
$ | $ | ||||||||
Gross unrealized losses |
( |
) | ( |
) | ||||||
Gross unrealized gains |
||||||||||
Fair value |
$ | |
$ | |
||||||
March 31, 2023 |
December 31, 2022 | |||||||||
Due within one year |
$ | $ | ||||||||
Due one year through five years |
||||||||||
Due five years through ten years |
||||||||||
Due over ten years |
||||||||||
|
|
|
|
|
| |||||
Total |
$ | |
$ | |
||||||
|
|
|
|
|
|
March 31, 2023 |
December 31, 2022 |
|||||||||||||||||
Carrying Value |
Cost |
Carrying Value |
Cost |
|||||||||||||||
Securrency, Inc.—Series A convertible preferred stock |
$ | $ | $ | $ | ||||||||||||||
Securrency, Inc.—Series B convertible preferred stock |
||||||||||||||||||
Securrency, Inc.—convertible note |
||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Subtotal—Securrency, Inc. |
$ | $ | $ | $ | ||||||||||||||
Fnality International Limited—convertible note |
||||||||||||||||||
Other investments |
||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | |
$ | |
$ | |
$ | |
|||||||||||
|
|
|
|
|
|
|
|
March 31, 2023 |
||||
Conversion of Securrency Series A Shares upon a future equity financing |
||||
Redemption of Securrency Series A Shares upon a corporate transaction |
||||
Default |
March 31, 2023 |
December 31, 2022 | |||
Conversion of note upon a future equity financing |
|
| ||
Redemption of note upon a corporate transaction |
|
| ||
Default |
|
| ||
Time to potential outcome (in years) |
|
|
March 31, 2023 |
December 31, 2022 | |||
Conversion of note upon a future financing round |
|
| ||
Redemption of note upon a change of control |
|
| ||
Default |
|
| ||
Time to potential outcome (in years) |
|
|
March 31, 2023 |
December 31, 2022 |
|||||||
Equipment |
$ | |
$ | |
||||
Less: accumulated depreciation |
( |
( |
||||||
Total |
$ | $ | ||||||
March 31, 2023 |
December 31, 2022 |
|||||||
Forward-looking gold price (low)—per ounce |
$ | $ | ||||||
Forward-looking gold price (high)—per ounce |
$ | $ | ||||||
Forward-looking gold price (weighted average)—per ounce |
$ | $ | |
|||||
Discount rate |
|
|||||||
Perpetual growth rate |
Three Months Ended March 31, |
||||||||
2023 |
2022 |
|||||||
Contractual Gold Payments |
$ | $ | ||||||
Contractual Gold Payments—gold ounces paid |
||||||||
Gain/(loss) on revaluation of deferred consideration—gold payments (1) |
$ | |
$ | ( |
(1) |
Gains on revaluation of deferred consideration—gold payments result from a decrease in spot gold prices, a decrease in the forward-looking price of gold, a decrease in the perpetual growth rate and an increase in the discount rate used to compute the present value of the annual payment obligations. Losses on revaluation of deferred consideration—gold payments result from an increase in spot gold prices, an increase in the forward-looking price of gold, an increase in the perpetual growth rate and a decrease in the discount rate used to compute the present value of the annual payment obligations. |
2023 Notes |
2021 Notes |
2020 Notes |
||||||||||
Principal outstanding |
$ |
$ |
$ |
|||||||||
Maturity date (unless earlier converted, repurchased or redeemed) |
||||||||||||
Interest rate |
||||||||||||
Conversion price |
$ |
$ |
$ |
|||||||||
Conversion rate |
||||||||||||
Redemption price |
$ |
$ |
$ |
• | Interest rate: |
• | Conversion price: |
• | Conversion: |
• | Cash settlement of principal amount: |
• | Redemption price: |
Convertible Notes then in effect for at least |
• | Limited investor put rights: |
• | Conversion rate increase in certain customary circumstances: |
• | Seniority and Security: Non-Voting Convertible Preferred Stock (Note 11). |
March 31, 2023 |
December 31, 2022 | |||||||||||||||||||||||||||
2023 Notes |
2021 Notes |
2020 Notes |
Total |
2021 Notes |
2020 Notes |
Total | ||||||||||||||||||||||
Principal amount |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||||
Plus: Premium |
||||||||||||||||||||||||||||
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| ||||||||
Gross proceeds |
||||||||||||||||||||||||||||
Less: Unamortized issuance costs |
( |
( |
( |
( |
( |
( |
( |
|||||||||||||||||||||
|
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Carrying amount |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
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Effective interest rate (1) |
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March 31, 2023 |
December 31, 2022 | |||||||
Issuance of Series A Preferred Stock |
$ | |
$ | |
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Less: Issuance costs |
( |
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Series A Preferred Stock—carrying value |
$ | $ | ||||||
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Cash dividends declared per share (quarterly) |
$ | $ | ||||||
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