UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form
________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from____to____.
Commission File Number
________________________
(Exact name of registrant as specified in its charter)
________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
________________________
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 4, 2024, there were
WISDOMTREE, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2024
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 | 35 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 54 |
| ITEM 4. | CONTROLS AND PROCEDURES | 55 |
| PART II: OTHER INFORMATION | 56 | |
| ITEM 1. | LEGAL PROCEEDINGS | 56 |
| ITEM 1A. | RISK FACTORS | 56 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 57 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 57 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 57 |
| ITEM 5. | 57 | |
| ITEM 6. | EXHIBITS | 58 |
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree, Inc. and its subsidiaries.
WisdomTree®, WisdomTree Prime®, WisdomTree Connect™ 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 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or Report, contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in subsequent reports filed with or furnished to the Securities and Exchange Commission, or the SEC. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the SEC as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
In particular, forward-looking statements in this Report may include statements about:
| ● | 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 and their potential for success; |
| ● | 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 relating to digital assets and blockchain-enabled financial services, including WisdomTree Prime and WisdomTree Connect, 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. |
The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.
| 3 |
PART I: FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
WisdomTree, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
September 30, 2024 | December 31, 2023 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash, cash equivalents and restricted cash (including $ | $ | $ | ||||||
| Financial instruments owned, at fair value (including $ | ||||||||
| Accounts receivable (including $33,764 and $28,511 due from related parties at September 30, 2024 and December 31, 2023, respectively) | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Securities held-to-maturity | ||||||||
| Deferred tax assets, net (Note 21) | ||||||||
| Investments (Note 7) | ||||||||
| Right of use assets—operating leases (Note 13) | ||||||||
| Goodwill (Note 23) | ||||||||
| Intangible assets, net (Note 23) | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Fund management and administration payable | $ | $ | ||||||
| Compensation and benefits payable | ||||||||
| Payable to Gold Bullion Holdings (Jersey) Limited (“GBH”) (Note 12) | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities (Note 13) | ||||||||
| Accounts payable and other liabilities | ||||||||
| Total current liabilities | ||||||||
| Convertible notes (Note 10) | ||||||||
| Payable to GBH (Note 12) | ||||||||
| Operating lease liabilities—long term | ||||||||
| Total liabilities | ||||||||
| Contingencies (Note 14) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, par value $ | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income/(loss) | ( | ) | ||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating Revenues: | ||||||||||||||||
| Advisory fees | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Total revenues | ||||||||||||||||
| 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 | ||||||||||||||||
| Other | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other Income/(Expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on revaluation/termination of deferred consideration—gold payments (Note 9) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Impairments (Note 25) | ( | ) | ( | ) | ||||||||||||
| Loss on extinguishment of convertible notes (Note 10) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other losses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income before income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss)/income | $ | ( | ) | $ | $ | $ | ||||||||||
| (Loss)/earnings per share—basic | $ | ( | ) | $ | $ | $ | ||||||||||
| (Loss)/earnings per share—diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted-average common shares—basic | ||||||||||||||||
| Weighted-average common shares—diluted | ||||||||||||||||
| Cash dividends declared per common share | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss)/Income
(In Thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (loss)/income | $ | ( | ) | $ | $ | $ | ||||||||||
| Other comprehensive income/(loss) | ||||||||||||||||
| Foreign currency translation adjustment, net of income taxes | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income/(loss) | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss)/income | $ | ( | ) | $ | $ | $ | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
| Series
C Preferred Stock | Common Stock |
Additional | Accumulated Other | |||||||||||||||||||||||||||||
| Shares Issued | Par Value | Shares Issued | Par Value | Paid-In | Comprehensive | Retained Earnings | Total | |||||||||||||||||||||||||
| Balance—July 1, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Shares repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||
| Repurchase of Series A Preferred Stock (Note 11) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Excise taxes – stock repurchases | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance—September 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
Series C Preferred Stock |
Common Stock | Additional | Accumulated | |||||||||||||||||||||||||||||
| Shares Issued | Par Value | Shares Issued | Par Value | Paid-In Capital | Comprehensive Loss | Retained Earnings | Total | |||||||||||||||||||||||||
| Balance—July 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Shares repurchased | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Balance—September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||
Series C Preferred Stock |
Common Stock |
Additional | Accumulated Other | |||||||||||||||||||||||||||||
| Shares Issued | Par Value | Shares Issued | Par Value | Paid-In Capital | Comprehensive (Loss)/Income | Retained Earnings | Total | |||||||||||||||||||||||||
| Balance—January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net | ( | ) | ||||||||||||||||||||||||||||||
| Shares repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||
| Repurchase of Series A Preferred Stock (Note 11) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Excise taxes – Stock repurchases | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||
| Dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Balance—September 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
Series C Preferred Stock | Common Stock | Additional | Accumulated Other | |||||||||||||||||||||||||||||
| Shares Issued | Par Value | Shares Issued | Par Value | Paid-In Capital | Comprehensive Loss | Retained Earnings | Total | |||||||||||||||||||||||||
| Balance—January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Shares issued in connection with termination of the deferred consideration—gold payments obligation, net of issuance costs (Note 9) | ||||||||||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued in connection with convertible notes that matured on June 15, 2023 (Note 10) | ||||||||||||||||||||||||||||||||
| Shares repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||
| Balance—September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 8 |
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Advisory and license fees paid in gold, other precious metals and cryptocurrency | ( | ) | ( | ) | ||||
| Loss on extinguishment of convertible notes | ||||||||
| Stock-based compensation | ||||||||
| (Gains)/losses on financial instruments owned, at fair value | ( | ) | ||||||
| Deferred income taxes | ||||||||
| Imputed interest on payable to GBH | ||||||||
| Amortization of issuance costs—convertible notes | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Losses on investments | ||||||||
| Gain on revaluation/termination of deferred consideration—gold payments | ( | ) | ||||||
| Impairments | ||||||||
| Contractual gold payments | ||||||||
| Other | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Gold and other precious metals | ||||||||
| Other assets | ( | ) | ||||||
| Fund management and administration payable | ( | ) | ||||||
| Compensation and benefits payable | ( | ) | ( | ) | ||||
| Income taxes payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accounts payable and other liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of financial instruments owned, at fair value | ( | ) | ( | ) | ||||
| Purchase of investments | ( | ) | ||||||
| Cash paid—software development | ( | ) | ||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Proceeds from the sale of financial instruments owned, at fair value | ||||||||
| Proceeds from the exit from investment in Securrency, Inc. | ||||||||
| Proceeds from held-to-maturity securities maturing or called prior to maturity | ||||||||
| Receipt of contingent consideration—Sale of Canadian ETF business | ||||||||
| Acquisition of Securrency Transfers, Inc. (net of cash acquired) | ( | ) | ||||||
| Net cash (used in)/provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repurchase of Series A Preferred Stock | ( | ) | ||||||
| Repurchase and maturity of convertible notes (Note 10) | ( | ) | ( | ) | ||||
| Shares repurchased | ( | ) | ( | ) | ||||
| Dividends paid | ( | ) | ( | ) | ||||
| Issuance costs—convertible notes | ( | ) | ( | ) | ||||
| Repurchase costs—Series A Preferred Stock | ( | ) | ||||||
| Proceeds from the issuance of convertible notes (Note 10) | ||||||||
| Termination of deferred consideration—gold payments | ( | ) | ||||||
| Issuance costs—Series C Preferred Stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Increase/(decrease) in cash flow due to changes in foreign exchange rate | ( | ) | ||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash—beginning of year | ||||||||
| Cash, cash equivalents and restricted cash—end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| 9 |
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(In Thousands)
(Unaudited)
NON-CASH INVESTING AND FINANCING ACTIVITIES
On May 10, 2023, the Company issued 13.087 shares of Series C Non-Voting Convertible Preferred Stock (valued at $86,898) in connection with the termination of its deferred consideration—gold payments obligation. See Note 9 for additional information.
On June 15, 2023, the Company issued 1,037 shares of common stock (as the conversion option was in the money) in connection with the maturity of $60,000 aggregate principal amount of 4.25% Convertible Senior Notes.
The accompanying notes are an integral part of these consolidated financial statements.
| 10 |
WisdomTree, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
1. Organization and Description of Business
WisdomTree, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is a global financial innovator, offering a well-diversified suite of exchange-traded products (“ETPs”), models, solutions and products leveraging blockchain technology. Building on its heritage of innovation, the Company is developing and has launched next-generation digital products, services and structures, including digital or blockchain-enabled mutual funds (“Digital Funds”) and tokenized assets, as well as its blockchain-native digital wallet, WisdomTree Prime and institutional platform, WisdomTree Connect. The Company has the following wholly-owned operating subsidiaries:
| ● | WisdomTree Asset Management, Inc. (“WTAM”) is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Trust (“WTT”) and WisdomTree exchange-traded funds (“ETFs”). The WisdomTree ETFs are issued in the U.S. by WTT. WTT is a 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 (“ManJer”) is a Jersey based management company providing management services to seven issuers (the “ManJer Issuers”) in respect of the ETPs issued and listed by the ManJer Issuers covering commodity, currency, cryptocurrency and leveraged-and-inverse strategies. |
| ● | WisdomTree Multi Asset Management Limited (“WTMAML”) is a Jersey based management company providing management services to WisdomTree Multi Asset Issuer PLC (“WMAI”) in respect of the ETPs issued by WMAI. WMAI is a non-consolidated public limited company domiciled in Ireland. |
| ● | WisdomTree Management Limited (“WML”) is an Ireland based management company providing management services to WisdomTree Issuer ICAV (“WTICAV”) in respect of the WisdomTree UCITS ETFs issued by WTICAV. WTICAV is a non-consolidated public limited company domiciled in Ireland. |
| ● | WisdomTree UK Limited (“WTUK”) is a U.K. based company registered with the Financial Conduct Authority currently providing distribution and support services to ManJer, WTMAML and WML. |
| ● | WisdomTree Europe Limited is a U.K. based company which is the legacy distributor of the WMAI ETPs and WisdomTree UCITS ETFs. These services are now provided directly by WTUK. WisdomTree Europe Limited is no longer regulated and does not provide any regulated services. |
| ● | WisdomTree Ireland Limited is an Ireland based company authorized by the Central Bank of Ireland providing distribution services to ManJer, WTMAML and WML. |
| ● | WisdomTree Digital Commodity Services, LLC is a New York based company that serves as the sponsor of the WisdomTree Bitcoin Fund, which is currently effective with the SEC. The WisdomTree Bitcoin Fund is an exchange-traded fund that issues common shares of beneficial interest and is listed on the Cboe BZX Exchange, Inc. The WisdomTree Bitcoin Fund provides exposure to the spot price of bitcoin. |
| ● | 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 non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. Each Digital Fund uses blockchain technology to maintain a secondary record of its shares on one or more blockchains (e.g., Stellar or Ethereum), but does not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies. |
| ● | WisdomTree Digital Movement, Inc. (“WT Digital Movement”) is a New York based company operating as a money services business registered with the Financial Crimes Enforcement Network. WT Digital Movement has obtained and is seeking additional state money transmitter licenses to operate a platform for the purchase, sale and exchange of tokenized assets, while also providing blockchain-native digital wallet services through WisdomTree Prime to facilitate such activity. |
| ● | WisdomTree Securities, Inc. is a New York based limited purpose broker-dealer (i.e., mutual fund retailer), facilitating transactions in WisdomTree Digital Funds. |
| 11 |
| ● | WisdomTree Transfers, Inc. is a New York based transfer agent registered with the SEC, providing transfer agency and registrar services for the WisdomTree Digital Funds. The transfer agent maintains the official record of share ownership in book entry form and reconciles the official record with the secondary record of ownership of shares on one or more blockchains. |
| ● | WisdomTree Digital Trust Company, LLC is a New York based limited liability trust company chartered by the New York State Department of Financial Services to provide certain digital asset products and services (e.g., custody) via WisdomTree Prime. |
2. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial statements. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company reassesses its evaluation of whether an entity is a VOE or VIE when certain reconsideration events occur.
Segment and Geographic Information
The Company, through its subsidiaries in the U.S. and Europe, is a global financial innovator, offering a well-diversified suite of ETPs, models, solutions and products leveraging blockchain technology. The Company conducts business as a single operating segment as an ETP sponsor and asset manager, which is based upon the Company’s current organizational and management structure, as well as information used by the Company’s Chief Executive Officer (the chief operating decision maker, or CODM) to allocate resources and other factors.
Foreign Currency Translation
Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income as a component of other comprehensive (loss)/income.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.
Revenue Recognition
The Company earns a significant portion of its revenues in the form of advisory fees from its ETPs and recognizes this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Other revenues are earned from swap providers associated with certain of the Company’s European listed ETPs, the nature of which are based on a percentage of the ETPs’ average daily net assets. The Company also earns transaction-based income on flows associated with certain European listed ETPs. There is no significant judgment in calculating amounts due, which are invoiced monthly or quarterly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Contractual Gold Payments
Contractual gold payments were measured and paid monthly based upon the average daily spot price of gold. The Company’s obligation to continue making these payments terminated on May 10, 2023.
| 12 |
Marketing and Advertising
Marketing and advertising costs, including media advertising and production costs, are expensed when incurred.
Depreciation and Amortization
| Equipment | ||
| Internally-developed software |
The assets listed above are recorded at cost less accumulated depreciation and amortization.
Stock-Based Awards
Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period. Forfeitures are recognized when they occur.
Third-Party Distribution Fees
The Company pays a percentage of its advisory fee revenues based on incremental growth in assets under management (“AUM”), subject to caps or minimums, to marketing agents to sell WisdomTree ETPs and for including WisdomTree ETPs on third-party customer platforms and recognizes these expenses as incurred.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents. The Company maintains deposits with financial institutions in an amount that is in excess of federally insured limits. Restricted cash is required to be maintained in a separate account with withdrawal and usage restrictions.
Accounts Receivable
Accounts receivable are customer and other obligations due under normal trade terms. The Company measures credit losses, if any, by applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts to amounts outstanding using the aging method.
Impairment of Long-Lived Assets
The Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.
Financial Instruments Owned and Financial Instruments Sold, but Not yet Purchased (at Fair Value)
Financial instruments owned and financial instruments sold, but not yet purchased are financial instruments classified as either trading or available-for-sale (“AFS”). These financial instruments are recorded on their trade date and are measured at fair value. All equity instruments that have readily determinable fair values are classified by the Company as trading. Debt instruments are classified based primarily on the Company’s intent to hold or sell the instrument. Changes in the fair value of debt instruments classified as trading and AFS are reported in other income/(expenses) and other comprehensive income, respectively, in the period the change occurs. Debt instruments classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt instrument is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the instrument’s amortized cost basis if the Company intends to sell the impaired AFS debt instrument or it is more likely than not the Company will be required to sell the instrument before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt instrument using the specific identification method.
Securities Held-to-Maturity
The Company accounts for certain of its securities as held-to-maturity on a trade date basis, which are recorded at amortized cost. For held-to-maturity securities, the Company has the intent and ability to hold these securities to maturity and it is not more-likely-than-not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity. Held-to-maturity securities are placed on non-accrual status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on held-to-maturity securities placed on non-accrual status is recognized on a cash basis as interest income if and when received.
| 13 |
The Company reviews its portfolio of held-to-maturity securities for impairment on a quarterly basis, recognizing an allowance, if any, by applying an estimated loss rate after consideration for the nature of collateral securing the financial asset as well as potential future changes in collateral values and historical loss information for financial assets secured with similar collateral.
Investments in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
Investments
The Company accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in Accounting Standards Codification (“ASC”) Topic 321, Investments – Equity Securities (“ASC 321”), to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses).
Goodwill
Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests goodwill for impairment at least annually and at the time of a triggering event requiring re-evaluation, if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Goodwill is allocated to the Company’s U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.
Goodwill is assessed for impairment annually on November 30th. When performing its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and a quantitative assessment using the market approach and its market capitalization when determining the fair value of the reporting unit.
Intangible Assets
Indefinite-lived intangible assets are tested for impairment at least annually and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying values.
Finite-lived intangible assets, if any, are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. These intangible assets are tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.
The Company may rely on a qualitative assessment when performing its intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for all of the Company’s intangible assets is November 30th.
Software Development Costs
Software development costs incurred after the preliminary project stage is complete are capitalized if it is probable that the project will be completed and the software will be used as intended. Capitalized costs consist of employee compensation costs and fees paid to third parties who are directly involved in the application development efforts and are included in intangible assets, net in the Consolidated Balance Sheets. Such costs are amortized over the estimated useful life of the software on a straight-line basis and are included in depreciation and amortization in the Consolidated Statements of Operations. Once the application development stage is complete, additional costs are expensed as incurred.
Leases
The Company accounts for its lease obligations in accordance with ASC Topic 842, Leases (“ASC 842”), which requires the recognition of both (i) a lease liability equal to the present value of the remaining lease payments and (ii) an offsetting right-of-use asset. The remaining lease payments are discounted using the rate implicit in the lease, if known, or otherwise the Company’s incremental borrowing rate. After lease commencement, right-of-use assets are assessed for impairment and otherwise are amortized over the remaining lease term on a straight-line basis. These recognition requirements are not applied to short-term leases, which are those with a lease term of 12 months or less. Instead, lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term.
| 14 |
ASC 842 also provides a practical expedient which allows for consideration in a contract to be accounted for as a single lease component rather than allocated between lease and non-lease components. The Company has elected to apply this practical expedient to all lease contracts, where applicable.
Deferred Consideration—Gold Payments
Deferred consideration—gold payments represented the present value of an obligation to pay gold to a third party into perpetuity and was measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate (Note 9). Changes in the fair value and settlement of this obligation were reported as gain on revaluation/termination of deferred consideration—gold payments in the Consolidated Statements of Operations.
Convertible Notes
Convertible notes are carried at amortized cost, net of issuance costs. The Company accounts for convertible instruments as a single liability (applicable to the convertible notes) or equity with no separate accounting for embedded conversion features unless the conversion feature meets the criteria for accounting under the substantial premium model or does not qualify for a derivative scope exception. Interest expense is recognized using the effective interest method and includes amortization of issuance costs over the life of the debt.
Contingencies
The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss contingency when the loss is probable and reasonably estimable.
Contingent Payments
The Company recognizes a gain on contingent payments when the contingency is resolved and the gain is realized.
Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities, as well as the loss related to the repurchase of the Series A non-voting convertible preferred stock and excise tax on stock repurchases. The Series A non-voting convertible preferred stock and Series C non-voting convertible preferred stock (Notes 9 and 11) and unvested share-based payment awards that contained non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) were participating securities while they were outstanding and were included in the computation of EPS pursuant to the two-class method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive).
Diluted EPS is calculated under the treasury stock method and the two-class method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A non-voting convertible preferred stock, the Series C non-voting convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A non-voting convertible preferred stock, the Series C non-voting convertible preferred stock and the convertible notes were computed under the if-converted method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price.
Income Taxes
The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all the deferred tax assets will not be realized.
Tax positions are evaluated utilizing a two-step
process. The Company first determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, based
solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is
measured as the largest amount of benefit that is greater than
The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax.
| 15 |
Non-income based taxes are recorded as part of other liabilities and other expenses. Excise taxes on stock repurchases are accounted for as a direct cost of the share repurchase transaction and reported as a reduction of stockholders’ equity.
Recently Issued Accounting Pronouncements
On December 14, 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Improvements to Income Tax Disclosures, which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The standard is intended to benefit stockholders by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The guidance applies to all entities subject to income taxes and is effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is considering early adoption of this standard in connection with the filing of its Annual Report on Form 10-K for the year ending December 31, 2024.
Recently Adopted Accounting Pronouncements
On January 1, 2024, the Company adopted ASU 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures, which requires public entities to provide disclosures of significant segment expenses and other segment items. The guidance requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually and also applies to public entities with a single reportable segment. Entities are permitted to disclose more than one measure of a segment’s profit or loss if such measures are used by the CODM to allocate resources and assess performance, as long as at least one of those measures is determined in a way that is most consistent with the measurement principles used to measure the corresponding amounts in the consolidated financial statements. The guidance is applied retrospectively to all periods presented in financial statements, unless it is impracticable, and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. See Note 26 for additional information.
On January 1, 2024, the Company early adopted ASU 2023-08, Accounting for and Disclosure of Crypto Assets, which contains final guidance requiring all entities to measure certain crypto assets at fair value each reporting period and to reflect changes from remeasurement in net income. Entities are required to present crypto assets measured at fair value separately from other intangible assets on the balance sheet and present changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement. Entities are required to provide interim and annual disclosures about the types of crypto assets they hold and any changes in their holdings of crypto assets. The guidance is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s financial statements.
3. Cash, Cash Equivalents and Restricted Cash
Of the total cash, cash equivalents and restricted
cash of $
Certain of the Company’s subsidiaries
are required to maintain a minimum level of regulatory capital, generally satisfied by cash on hand, which was $
4. Fair Value Measurements
The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurement, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:
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.
| 16 |
Level 3 – Instruments whose significant drivers are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
| September 30, 2024 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | ||||||||||||
| Financial instruments owned, at fair value: | ||||||||||||||||
| ETFs | ||||||||||||||||
| Pass-through GSEs | ||||||||||||||||
| Other assets—seed capital (WisdomTree Digital Funds): | ||||||||||||||||
| U.S. treasuries | ||||||||||||||||
| Equities | ||||||||||||||||
| Fixed income | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Non-recurring fair value measurements: | ||||||||||||||||
| Fnality International Limited—Series B-1 Preference Shares(1) | $ | $ | $ | $ | ||||||||||||
_____________________________
| (1) |
| December 31, 2023 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | ||||||||||||
| Financial instruments owned, at fair value: | ||||||||||||||||
| ETFs | ||||||||||||||||
| Pass-through GSEs | ||||||||||||||||
| Other assets—seed capital (WisdomTree Digital Funds): | ||||||||||||||||
| U.S. treasuries | ||||||||||||||||
| Equities | ||||||||||||||||
| Fixed income | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Non-recurring fair value measurements: | ||||||||||||||||
| Fnality International Limited—Series B-1 Preference Shares(1) | ||||||||||||||||
| Other investments(2) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
_____________________________
| (1) | ||
| (2) |
| 17 |
Recurring Fair Value Measurements – Methodology
Cash Equivalents (Note 3) – These
financial assets represent cash invested in highly liquid investments with original maturities of less than
Financial instruments owned (Note 5) – Financial instruments owned are investments in ETFs, pass-through GSEs, U.S. treasuries, equities and fixed income. ETFs and equities are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. Pricing of U.S. treasuries, pass-through GSEs and fixed income includes consideration given to date of issuance, collateral characteristics and market assumptions related to yields, credit risk and timing of prepayments and may be classified as either Level 1 or Level 2.
5. Financial instruments owned
September 30, | December 31, | |||||||
| Financial instruments owned | ||||||||
| Trading securities | $ | $ | ||||||
| Other assets—seed capital (WisdomTree Digital Funds) | ||||||||
| Total | $ | $ | ||||||
The Company recognized net trading gains on
financial instruments owned that were still held at the reporting dates of $
6. Securities Held-to-Maturity
September 30, 2024 | December 31, 2023 | |||||||
| Debt instruments: Pass-through GSEs (amortized cost) | $ | $ | ||||||
During the nine months ended September 30, 2024
and 2023, the Company received proceeds of $
September 30, 2024 | December 31, 2023 | |||||||
| Cost/amortized cost | $ | $ | ||||||
| Gross unrealized losses | ( | ) | ( | ) | ||||
| Fair value | $ | $ | ||||||
An allowance for credit losses was not provided on the Company’s held-to-maturity securities as all securities are investments in pass-through GSEs which are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
September 30, 2024 | December 31, 2023 | |||||||
| Due within one year | $ | $ | ||||||
| Due one year through five years | ||||||||
| Due five years through ten years | ||||||||
| Due over ten years | ||||||||
| Total | $ | $ | ||||||
| 18 |
7. Investments
| September 30, 2024 | December 31, 2023 | |||||||||||||||
| Carrying Value | Cost | Carrying Value | Cost | |||||||||||||
| Fnality International Limited—Series B-1 Preference Shares | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Fnality International Limited
The Company owns approximately
This investment is accounted for under the measurement
alternative prescribed in ASC 321, as it does not have a readily determinable fair value and is otherwise not subject to the equity method
of accounting. The investment is assessed for impairment and similar observable transactions on a quarterly basis. This investment was
re-measured to fair value upon the conversion of Fnality’s Series B-2 Preference Shares held by other investors into Series B-1
Preference Shares, which occurred in June 2024. Fair value was determined using the backsolve method, a valuation approach that determines
the value of shares for companies with complex capital structures based upon the price paid for shares recently issued. Fair value was
allocated across the capital structure using the Black-Scholes option pricing model.
| Inputs | ||||||||
| June
17, 2024 | December
31, 2023 | |||||||
| Expected volatility | ||||||||
| Time to exit (in years) | ||||||||
| Probability that Series B-2 Preference Shares convert into Series B-1 Preference Shares | ||||||||
Net unrealized gains/(losses) recognized on
this investment were $
There was no impairment recognized on this investment during the three and nine months ended September 30, 2024 based upon a qualitative assessment.
8. Fixed Assets, net
September 30, 2024 | December 31, 2023 | |||||||
| Equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
9. Deferred Consideration—Gold Payments
Deferred consideration—gold payments represented
an obligation the Company assumed in connection with its acquisition of the European exchange-traded commodity, currency and leveraged-and-inverse
business of ETFS Capital Limited (“ETFS Capital”) which occurred on April 11, 2018. The obligation was for fixed payments
to ETFS Capital of physical gold bullion equating to
| 19 |
On May 10, 2023, the Company terminated its
contractual gold payments obligation for aggregate consideration totaling $
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Contractual gold payments | $ | $ | $ | $ | ||||||||||||
| Contractual gold payments—gold ounces paid | ||||||||||||||||
| Gain on revaluation/termination of deferred consideration—gold payments | $ | $ | $ | $ | ||||||||||||
10. Convertible Notes
The Company has the following convertible notes outstanding as of September 30, 2024:
| ● | $ |
| ● | $ |
| ● | $ |
Each class of notes were issued pursuant to indentures dated as of the issuance dates between the Company and either U.S. Bank National Association or U.S Bank Trust Company, National Association, as trustee (or its successor in interest, the “Trustee”), in private offerings to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
In connection with the issuance of the 2029
Notes, the Company repurchased $
As of September 30, 2024, the Company had an
aggregate principal amount of $
| 2026 Notes | 2028 Notes | 2029 Notes | ||||
| Principal outstanding | $ | $ | $ | |||
| Issuance date | | |||||
| Maturity date (unless earlier converted, repurchased or redeemed) | | |||||
| Interest rate | | | | |||
| Initial conversion price | $ | $ | $ | |||
| Initial conversion rate | | | | |||
| Redemption price | $ | $ | $ |
| ● | Interest rate: Payable semiannually in arrears on February 15 and August 15 of each year for the 2029 Notes and the 2028 Notes and on June 15 and December 15 of each year for the 2026 Notes. |
| ● | Conversion price: Convertible at an initial conversion rate into shares of the Company’s common stock, per $ |
| ● | Conversion: Holders may convert at their option at any time prior to the close of business on the business day immediately
preceding May 15, 2029 and May 15, 2028 for the 2029 Notes and the 2028 Notes, respectively, and March 15, 2026 for the 2026 Notes, only
under the following circumstances: (i) if the last reported sale price of the Company’s common stock for at least |
| 20 |
| ● | Cash settlement of principal amount: Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At its election, the Company will also settle its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of its common stock or a combination of cash and shares of its common stock. |
| ● | Redemption price: The Company may redeem for cash all or any portion of the Convertible Notes, at its option, on or after August
20, 2026 and August 20, 2025 in respect of the 2029 Notes and the 2028 Notes, respectively, and June 20, 2023 in respect of the 2026 Notes
and on or prior to the 55th scheduled trading day immediately preceding the maturity date, if the last reported sale price
of the Company’s common stock has been at least |
| ● | Limited investor put rights: Holders of the Convertible Notes have the right to require the Company to repurchase for cash
all or a portion of their notes at |
| ● | Conversion rate increase in certain customary circumstances: In certain circumstances, conversions in connection with a “make-whole
fundamental change” (as defined in the indentures) or conversions of Convertible Notes called (or deemed called) for redemption
may result in an increase to the conversion rate, provided that the conversion rate will not exceed |
| ● | Seniority and Security: The Convertible Notes rank equal in right of payment and are the Company’s senior unsecured obligations. |
The indentures contain customary terms and covenants,
including that upon certain events of default occurring and continuing, either the Trustee or the respective holders of not less than
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
| 2026 Notes | 2028 Notes | 2029 Notes | Total | 2026 Notes | 2028 Notes | Total | ||||||||||||||||||||||
| Principal amount | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Less: Unamortized issuance costs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Carrying amount | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Effective interest rate(1) | ||||||||||||||||||||||||||||
_____________________________
| (1) |
Interest expense on the Convertible Notes was
$
The fair value of the Convertible Notes (classified
as Level 2 in the fair value hierarchy) was $
| 21 |
11. Series A Preferred Stock
On August 13, 2024, the Company repurchased
all of its then-outstanding Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”), which was convertible
into
Under U.S. GAAP, the premium paid on repurchase
represents a return similar to a dividend to the preferred stockholder and is required to be recorded to retained earnings along with
the related transaction costs. During the three and nine months ended September 30, 2024, the Company recorded a $
September 30, 2024 | December 31, 2023 | |||||||
| Issuance of Series A Preferred Stock | $ | $ | ||||||
| Less: Issuance costs | ( | ) | ||||||
| Series A Preferred Stock—carrying value | $ | $ | ||||||
| Cash dividends declared per share (quarterly) | $ | $ | ||||||
The Company previously classified the Series A Preferred Stock as temporary equity which is required for redeemable instruments for which redemption triggers are outside of the issuer’s control. ETFS Capital had the right to redeem all the Series A Preferred Stock specified to be converted during the period of time specified in the Series A Certificate of Designations in the event that: (a) the number of shares of the Company’s common stock authorized by its certificate of incorporation was insufficient to permit the Company to convert all of the Series A Preferred Stock requested by ETFS Capital to be converted; or (b) ETFS Capital did not, upon completion of a change of control of the Company, receive the same amount per share of Series A Preferred Stock as it would have received had each outstanding share of Series A Preferred Stock been converted into common stock immediately prior to the change of control. However, the Company would not have been obligated to make any such redemption payments to the extent such payments would have been a breach of any covenant or obligation the Company owed to any of its secured creditors or is otherwise prohibited by applicable law.
Any such redemption would have been at a price
per share of Series A Preferred Stock equal to the dollar volume-weighted average price for a share of common stock for the 30-trading
day period ending on the date of such attempted conversion or change of control, as applicable, multiplied by 1,000. Such redemption payment
would have been made in one payment no later than 10 business days following the last day of the Company’s first fiscal quarter
that began on a date following the date ETFS Capital exercised such redemption right. The redemption value of the Series A Preferred Stock
was $
12. Payable to Gold Bullion Holdings (Jersey) Limited (“GBH”)
On November 20, 2023, the Company repurchased
its Series C Non-Voting Convertible Preferred Stock, par value $
Under U.S. GAAP, the obligation was recorded
at its present value utilizing a market rate of interest on the closing date of
September 30, 2024 | December 31, 2023 | |||||||
| Current: | $ | $ | ||||||
| Long-term | ||||||||
| Total | $ | $ | ||||||
| 22 |
Interest expense recognized was $
13. Leases
The Company has entered into operating leases
for its office facilities (including its corporate headquarters) and equipment. The Company has no finance leases.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Lease cost: | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Other information: | ||||||||||||||||
| Cash paid for amounts included in the measurement of operating liabilities (operating leases) | $ | $ | $ | $ | ||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | ||||||||||||||||
| Weighted-average remaining lease term (in years)—operating leases | ||||||||||||||||
| Weighted-average discount rate—operating leases | % | % | % | % | ||||||||||||
None of the Company’s leases include variable payments, residual value guarantees or any restrictions or covenants relating to the Company’s ability to pay dividends or incur additional financing obligations.
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total future minimum lease payments (undiscounted) | $ |
| Amounts recognized in the Company’s Consolidated Balance Sheets | ||||
| Lease liability—short term | $ | |||
| Lease liability—long term | ||||
| Subtotal | ||||
| Difference between undiscounted and discounted cash flows | ||||
| Total future minimum lease payments (undiscounted) | $ | |||
14. Contingencies
The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business.
SEC ESG Settlement
On August 5, 2024, WTAM received a Wells Notice
from the staff (the “Staff”) of the SEC advising WTAM that the Staff had made a preliminary determination to recommend that
the SEC file an enforcement action against WTAM alleging violations of certain provisions of the U.S. federal securities laws relating
to three exchange-traded series of WisdomTree Trust managed by WTAM that pursued ESG-focused strategies (collectively, the “Funds”).
The Funds, which were launched in March 2020 and were liquidated in February 2024, collectively had monthly average cumulative assets
under management of approximately $
Without admitting or denying the SEC’s
allegations, WTAM agreed to resolve the matter by consenting to the entry of an Order by the SEC, which was announced publicly on October
21, 2024, in which WTAM agreed to cease and desist from committing or causing any violations and any future violations of Sections 206(2)
and 206(4) of the Investment Advisers Act of 1940, as amended, Rules 206(4)-7 and 206(4)-8 thereunder, and Section 34(b) of the Investment
Company Act of 1940, as amended, and to pay a civil money penalty of $
| 23 |
Excluding the penalty, the Company expects that
all legal and other related expenses incurred by WTAM in connection with the matter will be covered by insurance, less a $
Closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP
Between December 2020 and March 2022, WMAI, WTMAML, WTUK and/or WisdomTree Ireland Limited (“WT Ireland”) were served with seven separate writs of summons to appear before the Courts of Milan, Udine or Turin, Italy by investors seeking damages resulting from the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP (“3OIL”) in March 2020. The product was dependent on the receipt of payments from a swap provider to satisfy payment obligations to the investors. Due to an extreme adverse move in oil futures relative to the oil futures’ closing price, the swap contract underlying 3OIL was terminated by the swap provider, which resulted in the compulsory redemption of 3OIL, all in accordance with the prospectus.
Since February 2022, five of the seven
actions have been resolved in the Company’s favor, of which two are subject to appeal. Total damages sought by all investors
related to the two remaining open and two appealed claims, including an appealed claim for total damages of €
Additionally, in July 2023, WT Ireland received
a letter from counsel on behalf of additional investors seeking damages of up to approximately €
The Company continues to assess the open claims
with its external counsel. The Company expects that losses, if any, arising from these claims will be covered under its insurance policies,
less a $
15. Variable Interest Entities
VIEs are entities with any of the following characteristics: (i) the entity does not have enough equity to finance its activities without additional financial support; (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights.
Consolidation of a VIE is required for the party deemed to be the primary beneficiary, if any. The primary beneficiary is the party who has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. The Company is not the primary beneficiary of any entities in which it has a variable interest as it does not have the power to direct the activities that most significantly impact the entities’ economic performance. Such power is conveyed through the entities’ boards of directors and the Company does not have control over the boards.
September 30, 2024 | December 31, 2023 | |||||||
| Carrying Amount—Assets: | ||||||||
| Fnality Series B-1 Preference Shares (Note 7) | $ | $ | ||||||
| Maximum exposure to loss | $ | $ | ||||||
| 24 |
16. Revenues from Contracts with Customers
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues from contracts with customers: | ||||||||||||||||
| Advisory fees | $ | $ | $ | $ | ||||||||||||
| Other revenues | ||||||||||||||||
| Total operating revenues | $ | $ | $ | $ | ||||||||||||
The Company recognizes revenues from contracts with customers when the performance obligation is satisfied, which is when the promised services are transferred to the customer. A service is considered to be transferred when the customer obtains control, which is represented by the transfer of rights with regard to the service. Transfer of control happens either over time or at a point in time. When a performance obligation is satisfied over time, an entity is required to select a single method of measuring progress for each performance obligation that depicts the entity’s performance in transferring control of services to the customer.
A significant portion of the Company’s revenues from contracts with customers are derived primarily from investment advisory agreements with related parties (Note 17). These advisory fees are recognized over time, are earned from the Company’s ETPs and are calculated based on a percentage of the ETPs’ average daily net assets. There is no significant judgment in calculating amounts due which are invoiced monthly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
There are no contract assets or liabilities that arise in connection with the recognition of advisory fee revenue. In addition, there are no costs incurred to obtain or fulfill the contracts with customers, all of which are investment advisory agreements with related parties.
Other revenues includes revenues the Company earns from swap providers associated with certain of the Company’s European listed ETPs, the nature of which are based on a percentage of the ETPs’ average daily net assets. The Company also earns transaction-based income on flows associated with certain European listed ETPs. There is no significant judgment in calculating amounts due, which are invoiced monthly or quarterly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Geographic Distribution of Revenues
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues from contracts with customers: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Jersey | ||||||||||||||||
| Ireland | ||||||||||||||||
| Total operating revenues | $ | $ | $ | $ | ||||||||||||
17. Related Party Transactions
Investment Advisory Agreements
The Company’s revenues are derived primarily from investment advisory agreements with related parties. Under these agreements, the Company has licensed to related parties the use of certain of its own indexes for the U.S. WisdomTree ETFs, WisdomTree Digital Funds and WisdomTree UCITS ETFs. The relevant boards of trustees or boards of directors (including certain officers of the Company) of each of the related parties is primarily responsible for overseeing the management and affairs of the entities for the benefit of their respective stakeholders and have contracted with the Company to provide for general management and administration services. The Company is also responsible for certain expenses of the related parties, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, and other non-distribution services, excluding extraordinary expenses, taxes and certain other expenses, which are included in fund management and administration in the Consolidated Statements of Operations. In exchange, the Company receives fees based on a percentage of the ETPs’ and the Digital Funds’ average daily net assets. A majority of the independent members of the respective board of trustees or board of directors are required to initially and annually (after the first two years) approve the advisory agreements of the U.S. WisdomTree ETFs and the WisdomTree Digital Funds and these agreements may be terminated by such board of trustees or board of directors upon notice.
| 25 |
September 30, 2024 | December 31, 2023 | |||||||
| Receivable from WTT | $ | $ | ||||||
| Receivable from ManJer Issuers | ||||||||
| Receivable from WMAI and WTICAV | ||||||||
| Total | $ | $ | ||||||
The allowance for credit losses on accounts receivable from related parties is insignificant when applying historical loss rates, adjusted for current conditions and supportable forecasts, to the amounts outstanding in the table above. Amounts outstanding are all invoiced in arrears, are less than 30 days aged and are collected shortly after the applicable reporting period.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Advisory services provided to WTT | $ | $ | $ | $ | ||||||||||||
| Advisory services provided to ManJer Issuers | ||||||||||||||||
| Advisory services provided to WMAI and WTICAV | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Investments in WisdomTree Products
The Company also has investments in certain
WisdomTree products of approximately $
Net unrealized and realized gains related to
trading WisdomTree products were $
18. Stock-Based Awards
On July 15, 2022, the Company’s stockholders
approved the 2022 Equity Plan under which the Company may issue up to
The Company grants equity awards to employees and directors, which include restricted stock awards (“RSAs”), restricted stock units (“RSUs”), including deferred RSUs to non-employee directors, performance-based restricted stock units (“PRSUs”) and stock options. Certain awards described below are subject to acceleration under certain conditions.
| Stock options: | Generally issued for
terms of ten years and may vest after at least | |
| RSAs/RSUs: | Awards are valued based on the Company’s stock price on grant date and generally vest ratably, on an annual basis, over three years. For non-employee directors, such awards generally vest on the one-year anniversary of the grant date. | |
| Deferred RSUs: | Awards are valued based on the Company’s stock price on grant date and generally vest on the one-year anniversary of the grant date. The awards are issued pursuant to the Company’s Non-Employee Director Deferred Compensation Program, and are settled based on timing elected by the recipient in advance. | |
| PRSUs: | These awards cliff vest three years from the grant date and contain a market condition whereby the number of PRSUs ultimately vesting is tied to how the Company’s total shareholder return (“TSR”) compares to a peer group of other publicly traded asset managers over the three-year period. A Monte Carlo simulation is used to value these awards. |
| 26 |
The number of PRSUs vesting ranges from 0% to 200% of the target number of PRSUs granted, as follows:
| ● | If the relative TSR is below the 25th percentile, then 0% of the target number of PRSUs granted will vest; |
| ● | If the relative TSR is at the 25th percentile, then 50% of the target number of PRSUs granted will vest; |
| ● | If the relative TSR is above the 25th percentile, then linear scaling is applied such that the percent of the target number of PRSUs vesting is 100% at the 50th percentile and capped at 200% of the target number of PRSUs granted for performance at the 85th percentile; and |
| ● | If the Company’s TSR is negative, the target number of PRSUs vesting is capped at 100% regardless of the relative TSR percentile. |
Stock-based compensation expense was $
| September 30, 2024 | ||||||||
Unrecognized Stock-Based | Weighted-Average Remaining Vesting Period (Years) | |||||||
| Employees and directors | $ | |||||||
| RSA | RSU | PRSU | ||||||||||
| Balance at July 1, 2024 | ||||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ||||||||||
| Forfeited | ( | ) | ( | ) | ||||||||
| Balance at September 30, 2024 | (1) | |||||||||||
_____________________________
| (1) |
19. Stockholder Rights Plan
On March 17, 2023, the Board of Directors of the Company adopted a stockholder rights plan, as set forth in the Stockholder Rights Agreement, dated March 17, 2023, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent, as amended by Amendment No. 1 thereto, dated May 4, 2023 (“Amendment No. 1”), Amendment No. 2 thereto, dated May 10, 2023 (“Amendment No. 2”), Amendment No. 3 thereto, dated March 18, 2024 (“Amendment No. 3”), Amendment No. 4 thereto, dated March 25, 2024 (“Amendment No. 4”), and Amendment No. 5 thereto, dated April 30, 2024 (“Amendment No. 5”) (as amended, the “Stockholder Rights Agreement”). At the Company’s 2024 annual meeting of stockholders held on June 12, 2024, the Company’s stockholders ratified the adoption by the Board of Directors of the extension of the Stockholder Rights Agreement.
On March 18, 2024, the Company entered into
Amendment No. 3, which extended the Stockholder Rights Agreement, such that the Rights will now expire on the close of business on March
17, 2025. Amendment No. 3 also changed the definition of “Exercise Price” in the Stockholder Rights Agreement from $
Pursuant to the terms of the Stockholder Rights
Agreement, the Board of Directors declared a dividend distribution of (i)
| 27 |
Initially, the Rights are not exercisable and
are attached to and trade with all shares of common stock and Series A Preferred Stock outstanding as of, and issued subsequent to, the
Record Date. The Rights will separate from the common stock and Series A Preferred Stock and will become exercisable upon the earlier
of (i) the close of business on the tenth calendar day following the first public announcement that a person or group of affiliated or
associated persons (an “Acquiring Person”) has acquired beneficial ownership of
For purposes of the Stockholder Rights Agreement, beneficial ownership is defined to include ownership of securities that are subject to a derivative transaction and acquired derivative securities. Swaps dealers unassociated with any control intent or intent to evade the purposes of the Stockholder Rights Agreement are excepted from such imputed beneficial ownership. Pursuant to Amendment No. 1, beneficial ownership did not include the right to vote pursuant to any agreement, arrangement or understanding with respect to voting on the proposal to approve and ratify the Stockholder Rights Agreement presented to the Company’s stockholders at the Company’s 2023 annual meeting of stockholders. Pursuant to Amendment No. 2, the parties to the SPA Agreement are not deemed to be “Acquiring Persons” solely by virtue of, or as a result of, the parties’ entry into the SPA Agreement, the issuance of the Series C Preferred Stock to GBH, and the performance or consummation of any of the other transactions contemplated by the SPA Agreement, among other conditions, under the terms and conditions set forth in Amendment No. 2. Pursuant to Amendment No. 4, beneficial ownership excludes the right to vote pursuant to any agreement, arrangement or understanding with respect to voting (i) arising solely from a revocable proxy or consent given in response to a public proxy or consent solicitation, or exempt solicitation, made pursuant to a written proxy or consent solicitation statement filed with the SEC and that is not also then reportable on Schedule 13D under the Exchange Act, or (ii) on a proposal to approve and ratify the Stockholder Rights Agreement (as amended from time to time), including any amendment thereto or extension thereof, presented to the Company’s stockholders at any annual or special meeting of the Company’s stockholders (including any adjournments or postponements thereof). Pursuant to Amendment No. 5, the Stockholder Rights Agreement was amended to (a) remove language stating that (i) the Company has the “exclusive” power and authority to administer the Stockholder Rights Agreement and (ii) all actions, calculations, interpretations and determinations necessary or advisable for the administration of the Stockholder Rights Agreement done or made by the Board of Directors of the Company in good faith are final, conclusive and binding on all parties, and (b) provide that nothing in the Stockholder Rights Agreement shall be deemed to limit or eliminate the fiduciary duties of the Board of Directors under applicable law.
In the event that a Stock Acquisition Date occurs,
proper provision will be made so that each holder of a Right (other than an Acquiring Person or its associates or affiliates, whose Rights
shall become null and void) will thereafter have the right to receive upon exercise, in lieu of a number of shares of Series B Preferred
Stock, that number of shares of common stock of the Company (or, in certain circumstances, including if there are insufficient shares
of common stock to permit the exercise in full of the Rights, Units of Series B Preferred Stock, other securities, cash or property, or
any combination of the foregoing) having a market value of two times the Exercise Price of the Right (such right being referred to as
the “Subscription Right”). In the event that, at any time following the Stock Acquisition Date, (i) the Company consolidates
with, or merges with and into, any other person, and the Company is not the continuing or surviving corporation, (ii) any person consolidates
with the Company, or merges with and into the Company and the Company is the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the shares of common stock are changed into or exchanged for stock or other securities of
any other person or cash or any other property, or (iii)
The Rights may be redeemed in whole, but not
in part, at a price of $
The Stockholder Rights Agreement may be amended by the Board of Directors in its sole discretion at any time prior to the time at which any person becomes an Acquiring Person. After such time the Board of Directors may, subject to certain limitations set forth in the Stockholder Rights Agreement, amend the Stockholder Rights Agreement only to cure any ambiguity, defect or inconsistency, to shorten or lengthen any time period, or to make changes that do not adversely affect the interests of Rights holders (excluding the interests of an Acquiring Person or its associates or affiliates).
| 28 |
Until a Right is exercised, the holder will have no rights as a stockholder of the Company (beyond those as an existing stockholder), including the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for shares of common stock, other securities of the Company, other consideration or for common stock of an acquiring company.
The Stockholder Rights Agreement provides the holders of the common stock with the ability to exempt an offer to acquire, or engage in another business combination transaction involving, the Company that is deemed a “Qualifying Offer” (as defined in the Stockholder Rights Agreement) from the terms of the Stockholder Rights Agreement. A Qualifying Offer is, in summary, an offer determined by a majority of the independent members of the Board to have specific characteristics that are generally intended to preclude offers that are coercive, abusive or highly contingent. Among those characteristics are that it be: (i) a fully financed all-cash tender offer or an exchange offer offering shares of common stock of the offeror, or a combination thereof, for any and all of the common stock; and (ii) an offer that is otherwise in the best interests of the Company’s stockholders. The Stockholder Rights Agreement provides additional characteristics necessary for an acquisition offer to be deemed a “Qualifying Offer,” including if the consideration offered in a proposed transaction is stock of the acquiror.
Pursuant to the Stockholder Rights Agreement,
if the Company receives a Qualifying Offer and the Board of Directors has not redeemed the outstanding Rights or exempted such Qualifying
Offer from the terms of the Stockholder Rights Agreement or called a special meeting of stockholders (the “Special Meeting”)
for the purpose of voting on whether to exempt such Qualifying Offer from the terms of the Stockholder Rights Agreement, in each case
by the end of the 90 business day period following the commencement of such Qualifying Offer, provided such offer remains a Qualifying
Offer during such period, the holders of
20. Earnings Per Share
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Basic Earnings per Share | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net (loss)/income | $ | ( | ) | $ | $ | $ | ||||||||||
| Less: Loss on repurchase of Series A Preferred Stock | ( | ) | ( | ) | ||||||||||||
| Less: Income distributed to participating securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Undistributed income allocable to participating securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss)/income available to common stockholders—Basic EPS | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average common shares (in thousands) | ||||||||||||||||
| Basic (loss)/earnings per share | $ | ( | ) | $ | $ | $ | ||||||||||
| 29 |
Three Months Ended | Nine Months Ended | |||||||||||||||
| Diluted Earnings per Share | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net (loss)/income available to common stockholders | $ | ( | ) | $ | $ | $ | ||||||||||
| Add back: Undistributed income allocable to participating securities | ||||||||||||||||
| Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss)/income available to common stockholders—Diluted EPS | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted Average Diluted Shares (in thousands): | ||||||||||||||||
| Weighted average common shares | ||||||||||||||||
| Dilutive effect of common stock equivalents, excluding participating securities | ||||||||||||||||
| Weighted average diluted shares, excluding participating securities (in thousands) | ||||||||||||||||
| Diluted (loss)/earnings per share | $ | ( | ) | $ | $ | $ | ||||||||||
Diluted (loss)/earnings per share presented
above is calculated using the two-class method as this method results in the lowest diluted earnings per share amount for common stock.
There were no antidilutive non-participating common stock equivalents for the three months ended September 30, 2024 and 2023 and the nine
months ended September 30, 2024. Total antidilutive non-participating common stock equivalents were
There were no potential common shares associated with the conversion options embedded in the Convertible Notes included in weighted average diluted shares for the three months ended September 30, 2024 as the Company reported a net loss. There were also no potential common shares during the nine months ended September 30, 2024 and the three and nine months ended September, 30, 2023 as the Company’s average stock price was lower than the conversion price.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Reconciliation of Weighted Average Diluted Shares (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Weighted average diluted shares as disclosed on the Consolidated Statements of Operations | (1) | |||||||||||||||
| Less: Participating securities | ||||||||||||||||
| Weighted average shares of common stock issuable upon conversion of the Series A Preferred Stock (Note 11) | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted average shares of common stock issuable upon conversion of the Series C Preferred Stock (Note 9) | ( | ) | ( | ) | ||||||||||||
| Potentially dilutive restricted stock awards | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted average diluted shares used to calculate diluted earnings per share as disclosed in the table above | ||||||||||||||||
_______________________________________
| (1) |
21. Income Taxes
Effective Income Tax Rate – Three and Nine Months Ended September 30, 2024
The Company’s effective income tax rate
during the three months ended September 30, 2024 was
The Company’s effective income tax rate
during the nine months ended September 30, 2024 was
| 30 |
Effective Income Tax Rate – Three and Nine Months Ended September 30, 2023
The Company’s effective income tax rate
during the three months ended September 30, 2023 was
The Company’s effective income tax rate
during the nine months ended September 30, 2023 was
Deferred Tax Assets
September 30, 2024 | December 31, 2023 | |||||||
| Deferred tax assets: | ||||||||
| Capital losses | $ | $ | ||||||
| Accrued expenses | ||||||||
| Stock-based compensation | ||||||||
| NOLs—Foreign | ||||||||
| Goodwill and intangible assets | ||||||||
| Software capitalization | ||||||||
| Operating lease liabilities | ||||||||
| Unrealized losses | ||||||||
| Foreign currency translation adjustment | ||||||||
| NOLs—U.S. | ||||||||
| Other | ||||||||
| Total deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Unrealized gains | ||||||||
| Fixed assets and prepaid assets | ||||||||
| Foreign currency translation adjustment | ||||||||
| Right of use assets—operating leases | ||||||||
| Unremitted earnings—European subsidiaries | ||||||||
| Total deferred tax liabilities: | ||||||||
| Total deferred tax assets less deferred tax liabilities | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
Capital Losses – U.S.
The Company’s tax effected capital losses
at September 30, 2024 were $
Net Operating Losses – Europe
One of the Company’s European subsidiaries
generated net operating losses (“NOLs”) outside the U.S. These tax effected NOLs, all of which are carried forward indefinitely,
were $
Valuation Allowance
The Company’s valuation allowance has been established on its net capital losses, as it is more-likely-than-not that these deferred tax assets will not be realized.
| 31 |
Income Tax Examinations
The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. As of September 30, 2024, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for the years before 2019.
Undistributed Earnings of Foreign Subsidiaries
ASC 740-30 Income Taxes provides guidance that
U.S. companies do not need to recognize tax effects on foreign earnings that are indefinitely reinvested. The Company repatriates earnings
of its foreign subsidiaries and therefore has recognized a deferred tax liability of $
22. Shares Repurchased
On February 22, 2022, the Company’s Board
of Directors approved an increase of $
The Company repurchased
As of September 30, 2024, $
23. Goodwill and Intangible Assets
Goodwill
| Total | ||||
| Balance at January 1, 2024 | $ | |||
| Changes | ||||
| Balance at September 30, 2024 | $ | |||
Of the total goodwill of $
Intangible Assets
| Balance at September 30, 2024 | ||||||||||||
| Item | Gross Asset | Accumulated Amortization | Net Asset | |||||||||
| ETFS Acquisition | $ | $ | $ | |||||||||
| Software development | ( | ) | ||||||||||
| Balance at September 30, 2024 | $ | $ | ( | ) | $ | |||||||
| Balance at December 31, 2023 | ||||||||||||
| Item | Gross Asset | Accumulated Amortization | Net Asset | |||||||||
| ETFS Acquisition | $ | $ | $ | |||||||||
| Software development | ( | ) | ||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | |||||||
| 32 |
ETFS Acquisition (Indefinite-Lived)
In connection with the ETFS Acquisition, which
was completed on
Software Development (Finite-Lived)
Internally-developed software is amortized over
a useful life of
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
Total expected amortization expense | $ |
The weighted-average remaining useful life of
the finite-lived intangible assets is
24. Contingent Payments
Sale of Canadian ETF Business
During the three and nine months ended September
30, 2023, the Company recognized a gain of $
25. Impairments
During the three and nine months ending September,
30, 2023, the Company recognized an impairment of $
During the three and nine months ended September
30, 2023, the Company recognized an impairment of $
26. Segment Information
The Company, through its subsidiaries in the U.S. and Europe, is a global financial innovator, offering a well-diversified suite of ETPs, models, solutions and products leveraging blockchain technology. The Company conducts business as a single operating segment as an ETP sponsor and asset manager, which is based upon the Company’s current organizational and management structure, as well as information used by the CODM to allocate resources and other factors. The accounting policies of the segment are the same as those described in Note 2.
The key measures of segment profit or loss that the CODM uses to allocate resources and assess performance are the Company’s consolidated net income, as reported on the Consolidated Statements of Operations, as well as adjusted operating income and adjusted operating income margin, which are exclusive of items that are non-recurring or not core to the Company’s operating business.
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (loss)/income | $ | ( | ) | $ | $ | $ | ||||||||||
| Adjusted Operating Income Margin | ||||||||||||||||
| Operating revenues | $ | $ | $ | $ | ||||||||||||
| Less: Legal expenses expected to be covered by insurance | ( | ) | ( | ) | ||||||||||||
| Operating revenues, as adjusted | $ | $ | $ | $ | ||||||||||||
| Operating income | $ | $ | $ | $ | ||||||||||||
| Add back: Expenses incurred in response to an activist campaign | ||||||||||||||||
| Adjusted operating income | $ | $ | $ | $ | ||||||||||||
| Operating income margin | ||||||||||||||||
| Adjusted operating income margin | ||||||||||||||||
Expenses incurred in response to an activist
campaign for the nine months ended September 30, 2024 and 2023 include $
All expense categories on the Consolidated Statements of Operations are significant and there are no other significant segment expenses that would require disclosure. Assets provided to the CODM are consistent with those reported on the Consolidated Balance Sheets with particular emphasis on the Company’s available liquidity, including its cash, cash equivalents and restricted cash, financial instruments owned, accounts receivable and securities held-to-maturity, reduced by current liabilities, seed capital and regulatory capital requirements.
There are no intra-entity sales or transfers and no significant expense categories regularly provided to the CODM beyond those disclosed in the Consolidated Statements of Operations. The CODM manages the business using consolidated expense information, adjusted for items that are non-recurring or not core to the Company’s operating business as disclosed in the table above, as well as regularly provided budgeted or forecasted expense information for the single operating segment.
Information related to the Company’s products and services and geographical distribution of revenues is disclosed in Note 16.
27. Subsequent Events
The Company evaluated subsequent events through the date of issuance of the accompanying consolidated financial statements. There were no events requiring disclosure.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in subsequent reports filed with or furnished to the SEC. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Executive Summary
We are a global financial innovator, offering a well-diversified suite of ETPs, models, solutions and products leveraging blockchain technology. We empower investors and consumers to shape their future and support financial professionals to better serve their clients and grow their businesses. We are leveraging the latest financial infrastructure to create products that provide access, transparency and an enhanced user experience. Building on our heritage of innovation, we are also developing and have launched next-generation digital products, services and structures, including Digital Funds and tokenized assets, as well as our blockchain-native digital wallet, WisdomTree Prime and institutional platform, WisdomTree Connect. WisdomTree Prime is available in the U.S. in 45 states and to approximately 80% of the U.S. population.
We had approximately $112.6 billion in AUM as of September 30, 2024. Our family of ETPs includes products that provide exposure to equities, commodities, fixed income, leveraged-and-inverse, cryptocurrency, currency and alternatives strategies. We have launched many first-to-market products and pioneered alternative weighting we call “Modern Alpha,” which combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform. Most of our equity-based funds employ a fundamentally weighted investment methodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other industry indexes use a capitalization weighted methodology. These products are distributed through all major channels in the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force. We believe technology is altering the way financial advisors conduct business and through our Advisor and Portfolio Solutions programs we offer technology-enabled and research-driven solutions including portfolio construction, asset allocation, practice management services and digital tools to help financial advisors address technology challenges and grow and scale their businesses.
We are at the forefront of innovation and believe that tokenization and leveraging the utility of blockchain technology is the next evolution in financial services. We are building the foundation that we believe will allow us to lead in this coming evolution. WisdomTree Prime, our blockchain-native digital wallet, positions us to expand our blockchain-enabled financial product and services offerings with a new direct-to-consumer channel where spending, saving and investing are united. As we continue to pursue our digital assets strategy, we are embracing what we refer to as “responsible DeFi,” which we believe upholds the foundational principles of regulation in this innovative and quickly evolving space. We believe that our expansion into digital assets and blockchain-enabled finance complements our existing core competencies in a holistic manner and will diversify our revenue streams and contribute to our growth.
We were incorporated under the laws of the state of Delaware on September 19, 1985 as Financial Data Systems, Inc. and were ultimately renamed WisdomTree, Inc. on November 7, 2022.
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Assets Under Management
WisdomTree ETPs
We offer ETPs covering equities, commodities and currency, fixed income, leveraged-and-inverse, cryptocurrency and alternatives. The chart below sets forth the asset mix of our ETPs at September 30, 2024, June 30, 2024 and September 30, 2023:
Market Environment
U.S. equity markets recovered from a correction experienced in early August and there was a rotation into small cap and value stocks. Interest rates fell in anticipation of the Federal Reserve easing cycle leading to strong total returns for fixed income.
The S&P 500, MSCI EAFE Index (local currency), MSCI EMU Index (local currency), MSCI Japan Index (local currency), MSCI Emerging Markets Index (U.S. dollar) and gold prices increased by 9.1%, 7.9%, 8.2%, 11.4%, 3.4% and 12.8%, respectively, during the quarter. The U.S. dollar weakened 4.2%, 5.7% and 13.1% versus the euro, British pound and the Japanese yen, respectively, during the quarter.
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U.S. Listed ETF Industry Flows
U.S. listed ETF industry net flows were $283.2 billion for the three months ended September 30, 2024. U.S. equity and fixed income gathered the majority of those flows.
Source: Morningstar
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European Listed ETP Industry Flows
European listed ETP industry net flows were $67.1 billion for the three months ended September 30, 2024. Equity and fixed income gathered the majority of those flows.
Source: Morningstar
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Our Operating and Financial Results
We operate as an ETP sponsor and asset manager, providing investment advisory services globally through our subsidiaries in the U.S. and Europe.
U.S. Listed ETFs
The AUM of our U.S. listed exchange traded funds, or U.S. listed ETFs, increased from $79.7 billion at June 30, 2024 to $81.3 billion at September 30, 2024 due to market appreciation, partly offset by net outflows.
European Listed ETPs
The AUM of our European listed (including internationally cross-listed) ETPs, or European listed ETPs, increased from $30.0 billion at June 30, 2024 to $31.3 billion at September 30, 2024 due to market appreciation, partly offset by net outflows.
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Consolidated Operating Results
The following table sets forth our revenues and net income/(loss) for the most recent five quarters.
| · | Revenues – Total revenues increased 25.2% from the three months ended September 30, 2023 to $113.2 million in the comparable period in 2024 primarily due to higher average AUM, higher other revenues attributable to our European-listed ETPs and the recognition of $3.7 million of other revenue related to legal and other related expenses, expected to be covered by insurance, incurred in connection with the SEC ESG Settlement. |
| · | Expenses – Total operating expenses increased 13.6% from the three months ended September 30, 2023 to $72.4 million in the comparable period in 2024 primarily due to higher professional fees, which is inclusive of the legal and other related expenses expected to be covered by insurance described above, as well as higher fund management and administration costs, incentive compensation and marketing expenses. |
| · | Other Income/(Expenses) – Other income/(expenses) includes interest income and interest expense, losses on extinguishment of convertible notes, gains on revaluation/termination of deferred consideration–gold payments, impairments and other losses, net. Further information is provided herein. |
| · | Net (loss)/income – We reported net (loss)/income of ($4.5) million and $13.0 million during the three months ended September 30, 2024 and 2023, respectively. |
Guidance Update for the Year Ending December 31, 2024
Compensation Expense
Our compensation to revenue ratio for the year ending December 31, 2024 is currently estimated to range from 28% to 29% (unchanged from the prior quarter). Our estimated compensation to revenue ratio takes into consideration planned hires for 2024 and variability in incentive compensation, with drivers including the magnitude of flows, revenues and operating income growth, margin expansion and share price performance in relation to our peers.
Discretionary Spending
Discretionary spending includes marketing, sales, professional fees, occupancy and equipment, depreciation and amortization and other expenses. During the nine months ended September 30, 2024, discretionary spending was $45.3 million. We currently estimate discretionary spending for the year ending December 31, 2024 to range from $62.0 million to $65.0 million (previously $64.0 million to $68.0 million).
Not included in the guidance above are non-recurring expenses in response to an activist campaign, including $5.0 million incurred during the nine months ended September 30, 2024, and $4.1 million of legal and other related expenses expected to be covered by insurance.
Gross Margin
We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. Our gross margin was 80.5% during the nine months ended September 30, 2024. We currently estimate our gross margin guidance for the year ending December 31, 2024 to be between 80% and 81% (unchanged from the prior quarter) considering current AUM levels and higher forecasted other revenues going forward. If AUM increases, we would anticipate further gross margin expansion.
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Third-Party Distribution Fees
We currently estimate third-party distribution fees to range from $10.0 million to $11.0 million (unchanged from the prior quarter), which is dependent upon the AUM growth on our respective platforms.
Interest Expense
We currently estimate our interest expense for the year ending December 31, 2024 to be $18.9 million (previously $16.5 million), which is inclusive of approximately $2.6 million of interest cost we are required to impute under U.S. GAAP related to our interest-free financing of the shares of Series C Non-Voting Convertible Preferred Stock (the “Series C Preferred Stock”) we repurchased from GBH in November 2023.
The change in guidance from the prior quarter is due to an increase in debt effectuated to facilitate the repurchase of Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”) from ETFS Capital, as well as the repurchase of shares of common stock.
Interest Income
We currently estimate our interest income for the year ending December 31, 2024 to be $6.0 million (previously $5.0 million), based upon the magnitude of our forecasted interest earning assets.
Income Tax Expense
We currently estimate that our consolidated normalized effective tax rate will be 24.0% to 25.0% (unchanged from our guidance range provided last quarter) taking into consideration the current distribution of profits among our U.S. and European businesses.
This estimated rate may change and is dependent upon our actual taxable income earned in relation to our forecasts as well as any other items which may arise that are not currently forecasted. Such items may include, but are not limited to, the non-deductible loss on extinguishment on convertible notes, a non-deductible civil money penalty of $4.0 million relating to the SEC ESG Settlement, increases or decreases in valuation allowances and any stock-based compensation windfalls or shortfalls. Additional corporate tax legislation could also impact our normalized effective tax rate.
Weighted Average Diluted Shares
Our weighted average diluted shares were 156.7 million during the three months ended September 30, 2024. We currently estimate our weighted average diluted shares to be between 147.0 million and 148.0 million during the three months ended December 31, 2024 taking into consideration the full quarter impact of the repurchase of the Series A Preferred Stock and additional shares of common stock which occurred in mid-August of 2024. Our weighted average diluted share guidance was previously 166.0 million and 168.0 million during the year ending December 31, 2024.
This guidance does not take into consideration any variability in shares associated with our convertible notes. While our convertible notes require principal to be paid in cash, our diluted shares would need to be increased for any incremental shares associated with an exercise of the conversion option if our stock price exceeds the applicable conversion price of our convertible notes of $9.54 per share for the 5.75% Convertible Senior Notes due 2028, $11.04 per share for the 3.25% Convertible Senior Notes due 2026 and $11.82 per share for the 3.25% Convertible Senior Notes due 2029.
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Key Operating Statistics
The following table presents key operating statistics that serve as indicators for the performance of our business:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
|
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, | ||||||||||||||||
| 2024 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||
| GLOBAL ETPs (in millions) | ||||||||||||||||||||
| Beginning of period assets | $ | 109,686 | $ | 107,230 | $ | 93,666 | $ | 100,124 | $ | 81,993 | ||||||||||
| (Outflows)/inflows | (2,395 | ) | 340 | 1,983 | (65 | ) | 10,651 | |||||||||||||
| Market appreciation/(depreciation) | 5,286 | 2,116 | (1,914 | ) | 12,518 | 1,091 | ||||||||||||||
| End of period assets | $ | 112,577 | $ | 109,686 | $ | 93,735 | $ | 112,577 | $ | 93,735 | ||||||||||
| Average assets during the period | $ | 110,369 | $ | 108,392 | $ | 95,743 | $ | 107,041 | $ | 91,609 | ||||||||||
| Average advisory fee during the period | 0.37 | % | 0.37 | % | 0.36 | % | 0.37 | % | 0.36 | % | ||||||||||
| Number of ETPs—end of period | 352 | 350 | 344 | 352 | 344 | |||||||||||||||
| U.S. LISTED ETFs (in millions) | ||||||||||||||||||||
| Beginning of period assets | $ | 79,722 | $ | 78,087 | $ | 65,903 | $ | 72,486 | $ | 55,973 | ||||||||||
| (Outflows)/inflows | (1,650 | ) | 1,106 | 3,601 | 1,439 | 10,862 | ||||||||||||||
| Market appreciation/(depreciation) | 3,195 | 529 | (1,486 | ) | 7,342 | 1,183 | ||||||||||||||
| End of period assets | $ | 81,267 | $ | 79,722 | $ | 68,018 | $ | 81,267 | $ | 68,018 | ||||||||||
| Average assets during the period | $ | 80,335 | $ | 78,436 | $ | 68,008 | $ | 77,834 | $ | 63,383 | ||||||||||
| Number of ETFs – end of the period | 78 | 78 | 80 | 78 | 80 | |||||||||||||||
| EUROPEAN LISTED ETPs (in millions) | ||||||||||||||||||||
| Beginning of period assets | $ | 29,964 | $ | 29,143 | $ | 27,763 | $ | 27,638 | $ | 26,020 | ||||||||||
| Outflows | (745 | ) | (766 | ) | (1,618 | ) | (1,504 | ) | (211 | ) | ||||||||||
| Market appreciation/(depreciation) | 2,091 | 1,587 | (428 | ) | 5,176 | (92 | ) | |||||||||||||
| End of period assets | $ | 31,310 | $ | 29,964 | $ | 25,717 | $ | 31,310 | $ | 25,717 | ||||||||||
| Average assets during the period | $ | 30,034 | $ | 29,956 | $ | 27,735 | $ | 29,207 | $ | 28,226 | ||||||||||
| Number of ETPs—end of period | 274 | 272 | 264 | 274 | 264 | |||||||||||||||
| PRODUCT CATEGORIES (in millions) | ||||||||||||||||||||
| U.S. Equity | ||||||||||||||||||||
| Beginning of period assets | $ | 31,834 | $ | 31,670 | $ | 26,001 | $ | 29,156 | $ | 24,112 | ||||||||||
| Inflows | 328 | 221 | 864 | 1,085 | 1,129 | |||||||||||||||
| Market appreciation/(depreciation) | 2,481 | (57 | ) | (1,222 | ) | 4,402 | 402 | |||||||||||||
| End of period assets | $ | 34,643 | $ | 31,834 | $ | 25,643 | $ | 34,643 | $ | 25,643 | ||||||||||
| Average assets during the period | $ | 33,175 | $ | 31,252 | $ | 26,501 | $ | 31,494 | $ | 25,319 | ||||||||||
| Commodity & Currency | ||||||||||||||||||||
| Beginning of period assets | $ | 21,987 | $ | 21,944 | $ | 22,384 | $ | 21,336 | $ | 22,097 | ||||||||||
| Outflows | (741 | ) | (1,499 | ) | (1,814 | ) | (2,700 | ) | (1,324 | ) | ||||||||||
| Market appreciation/(depreciation) | 1,788 | 1,542 | (104 | ) | 4,398 | (307 | ) | |||||||||||||
| End of period assets | $ | 23,034 | $ | 21,987 | $ | 20,466 | $ | 23,034 | $ | 20,466 | ||||||||||
| Average assets during the period | $ | 22,016 | $ | 22,437 | $ | 22,278 | $ | 21,764 | $ | 23,373 | ||||||||||
| Fixed Income | ||||||||||||||||||||
| Beginning of period assets | $ | 21,430 | $ | 21,218 | $ | 20,215 | $ | 21,197 | $ | 15,273 | ||||||||||
| (Outflows)/inflows | (897 | ) | 236 | 1,670 | (675 | ) | 6,654 | |||||||||||||
| Market appreciation/(depreciation) | 234 | (24 | ) | (88 | ) | 245 | (130 | ) | ||||||||||||
| End of period assets | $ | 20,767 | $ | 21,430 | $ | 21,797 | $ | 20,767 | $ | 21,797 | ||||||||||
| Average assets during the period | $ | 21,135 | $ | 21,277 | $ | 20,965 | $ | 21,165 | $ | 19,109 | ||||||||||
| International Developed Market Equity | ||||||||||||||||||||
| Beginning of period assets | $ | 19,385 | $ | 18,103 | $ | 13,423 | $ | 15,103 | $ | 10,195 | ||||||||||
| (Outflows)/inflows | (1,391 | ) | 1,253 | 798 | 1,461 | 2,841 | ||||||||||||||
| Market appreciation/(depreciation) | 81 | 29 | (319 | ) | 1,511 | 866 | ||||||||||||||
| End of period assets | $ | 18,075 | $ | 19,385 | $ | 13,902 | $ | 18,075 | $ | 13,902 | ||||||||||
| Average assets during the period | $ | 18,636 | $ | 18,809 | $ | 13,873 | $ | 18,044 | $ | 12,343 | ||||||||||
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| Three Months Ended | Nine Months Ended | |||||||||||||||||||
|
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, | ||||||||||||||||
| 2024 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||
| Emerging Market Equity | ||||||||||||||||||||
| Beginning of period assets | $ | 11,875 | $ | 11,189 | $ | 9,191 | $ | 10,726 | $ | 8,116 | ||||||||||
| (Outflows)/inflows | (20 | ) | 57 | 451 | 254 | 1,266 | ||||||||||||||
| Market appreciation/(depreciation) | 597 | 629 | (73 | ) | 1,472 | 187 | ||||||||||||||
| End of period assets | $ | 12,452 | $ | 11,875 | $ | 9,569 | $ | 12,452 | $ | 9,569 | ||||||||||
| Average assets during the period | $ | 12,083 | $ | 11,448 | $ | 9,652 | $ | 11,477 | $ | 9,105 | ||||||||||
| Leveraged & Inverse | ||||||||||||||||||||
| Beginning of period assets | $ | 1,922 | $ | 1,828 | $ | 1,864 | $ | 1,815 | $ | 1,754 | ||||||||||
| (Outflows)/inflows | 71 | (18 | ) | (1 | ) | 3 | 54 | |||||||||||||
| Market appreciation/(depreciation) | 89 | 112 | (82 | ) | 264 | (27 | ) | |||||||||||||
| End of period assets | $ | 2,082 | $ | 1,922 | $ | 1,781 | $ | 2,082 | $ | 1,781 | ||||||||||
| Average assets during the period | $ | 1,962 | $ | 1,905 | $ | 1,894 | $ | 1,886 | $ | 1,816 | ||||||||||
| Cryptocurrency | ||||||||||||||||||||
| Beginning of period assets | $ | 838 | $ | 874 | $ | 248 | $ | 414 | $ | 136 | ||||||||||
| Inflows | 201 | 75 | 10 | 434 | 22 | |||||||||||||||
| Market appreciation/(depreciation) | 15 | (111 | ) | (15 | ) | 206 | 85 | |||||||||||||
| End of period assets | $ | 1,054 | $ | 838 | $ | 243 | $ | 1,054 | $ | 243 | ||||||||||
| Average assets during the period | $ | 917 | $ | 856 | $ | 238 | $ | 796 | $ | 221 | ||||||||||
| Alternatives | ||||||||||||||||||||
| Beginning of period assets | $ | 415 | $ | 404 | $ | 340 | $ | 377 | $ | 310 | ||||||||||
| Inflows | 54 | 15 | 5 | 73 | 9 | |||||||||||||||
| Market appreciation/(depreciation) | 1 | (4 | ) | (11 | ) | 20 | 15 | |||||||||||||
| End of period assets | $ | 470 | $ | 415 | $ | 334 | $ | 470 | $ | 334 | ||||||||||
| Average assets during the period | $ | 445 | $ | 408 | $ | 342 | $ | 415 | $ | 323 | ||||||||||
| Headcount: | 314 | 304 | 299 | 304 | 299 | |||||||||||||||
Note: Previously issued statistics may be restated due to fund closures and trade adjustments.
Source: WisdomTree
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Selected Operating and Financial Information
| Three
Months Ended September 30, |
Percent | |||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| AUM (in millions) | ||||||||||||||||
| Average AUM | $ | 110,369 | $ | 95,743 | $ | 14,626 | 15.3% | |||||||||
| Operating Revenues (in thousands) | ||||||||||||||||
| Advisory fees | $ | 101,659 | $ | 86,598 | $ | 15,061 | 17.4% | |||||||||
| Other revenues | 11,509 | 3,825 | 7,684 | 200.9% | ||||||||||||
| Total operating revenues | $ | 113,168 | $ | 90,423 | $ | 22,745 | 25.2% | |||||||||
Operating Revenues
Advisory fees
Advisory fee revenues increased 17.4% from $86.6 million during the three months ended September 30, 2023 to $101.7 million in the comparable period in 2024 primarily due to higher average AUM. Our average advisory fee was 0.37% and 0.36% during the three months ended September 30, 2023 and 2024, respectively.
Other revenues
Other revenues increased 200.9% from $3.8 million during the three months ended September 30, 2023 to $11.5 million in the comparable period in 2024 due to higher other revenues attributable to our European listed products and $3.7 million of legal and other related expenses, expected to be covered by insurance, incurred in connection with the SEC ESG Settlement described in Note 14 to our Consolidated Financial Statements.
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Operating Expenses
| Three
Months Ended September 30, |
Percent | |||||||||||||||
| (in thousands) | 2024 | 2023 | Change | Change | ||||||||||||
| Compensation and benefits | $ | 29,405 | $ | 27,955 | $ | 1,450 | 5.2% | |||||||||
| Fund management and administration | 21,004 | 18,023 | 2,981 | 16.5% | ||||||||||||
| Marketing and advertising | 4,897 | 3,833 | 1,064 | 27.8% | ||||||||||||
| Sales and business development | 3,465 | 3,383 | 82 | 2.4% | ||||||||||||
| Professional fees | 6,315 | 3,719 | 2,596 | 69.8% | ||||||||||||
| Occupancy, communications and equipment | 1,397 | 1,203 | 194 | 16.1% | ||||||||||||
| Depreciation and amortization | 447 | 307 | 140 | 45.6% | ||||||||||||
| Third-party distribution fees | 2,983 | 2,694 | 289 | 10.7% | ||||||||||||
| Other | 2,463 | 2,601 | (138 | ) | (5.3% | ) | ||||||||||
| Total operating expenses | $ | 72,376 | $ | 63,718 | $ | 8,658 | 13.6% | |||||||||
| Three
Months Ended September 30, | ||||||||
| As a Percent of Revenues: | 2024 | 2023 | ||||||
| Compensation and benefits | 26.0% | 31.0% | ||||||
| Fund management and administration | 18.6% | 20.0% | ||||||
| Marketing and advertising | 4.3% | 4.2% | ||||||
| Sales and business development | 3.1% | 3.7% | ||||||
| Professional fees | 5.6% | 4.1% | ||||||
| Occupancy, communications and equipment | 1.2% | 1.3% | ||||||
| Depreciation and amortization | 0.4% | 0.3% | ||||||
| Third-party distribution fees | 2.6% | 3.0% | ||||||
| Other | 2.2% | 2.9% | ||||||
| Total operating expenses | 64.0% | 70.5% | ||||||
Compensation and benefits
Compensation and benefits expense increased 5.2% from $28.0 million during the three months ended September 30, 2023 to $29.4 million in the comparable period in 2024 due to higher stock-based compensation expense and headcount. Headcount was 299 and 314 at September 30, 2023 and 2024, respectively.
Fund management and administration
Fund management and administration expense increased 16.5% from $18.0 million during the three months ended September 30, 2023 to $21.0 million in the comparable period in 2024 primarily due to higher average AUM. We had 80 U.S. listed ETFs and 273 European listed ETPs at September 30, 2023 compared to 78 U.S. listed ETFs and 274 European listed ETPs at September 30, 2024.
Marketing and advertising
Marketing and advertising expense increased 27.8% from $3.8 million during the three months ended September 30, 2023 to $4.9 million in the comparable period in 2024 primarily due to higher spending related to digital assets and our U.S. listed products.
Sales and business development
Sales and business development expense was essentially unchanged from the three months ended September 30, 2023.
Professional fees
Professional fees expense increased 69.8% from $3.7 million during the three months ended September 30, 2023 to $6.3 million in the comparable period in 2024 primarily due to $3.7 million of legal and other related expenses incurred in connection with the SEC ESG Settlement. An equal and offsetting amount is recorded in other revenues as these expenses are expected to be covered by insurance.
Occupancy, communications and equipment
Occupancy, communications and equipment expense was essentially unchanged from the three months ended September 30, 2023.
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Depreciation and amortization
Depreciation and amortization expense increased 45.6% from $0.3 million during the three months ended September 30, 2023 to $0.4 million in the comparable period in 2024 due to amortization of software development costs.
Third-party distribution fees
Third-party distribution fees expense increased 10.7% from $2.7 million during the three months ended September 30, 2023 to $3.0 million in the comparable period in 2024 due to AUM growth we are experiencing on our various platforms and new platform relationships.
Other
Other expenses were essentially unchanged from the three months ended September 30, 2023.
Other Income/(Expenses)
| Three
Months Ended September 30, |
Percent | |||||||||||||||
| (in thousands) | 2024 | 2023 | Change | Change | ||||||||||||
| Interest expense | $ | (5,027 | ) | $ | (3,461 | ) | $ | (1,566 | ) | 45.2% | ||||||
| Interest income | 1,795 | 791 | 1,004 | 126.9% | ||||||||||||
| Impairments | — | (2,703 | ) | 2,703 | n/a | |||||||||||
| Loss on extinguishment of convertible notes | (30,632 | ) | — | (30,632 | ) | n/a | ||||||||||
| Other losses, net | (3,062 | ) | (2,512 | ) | (550 | ) | 21.9% | |||||||||
| Total other expenses, net | $ | (36,926 | ) | $ | (7,885 | ) | $ | (29,041 | ) | 368.3% | ||||||
| Three
Months Ended September 30, | ||||||||
| As a Percent of Revenues: | 2024 | 2023 | ||||||
| Interest expense | (4.4% | ) | (3.8% | ) | ||||
| Interest income | 1.6% | 0.9% | ||||||
| Impairments | — | (3.0% | ) | |||||
| Loss on extinguishment of convertible notes | (27.1% | ) | — | |||||
| Other losses, net | (2.7% | ) | (2.8% | ) | ||||
| Total other expenses, net | (32.6% | ) | (8.7% | ) | ||||
Interest expense
Interest expense increased 45.2% from $3.5 million during the three months ended September 30, 2023 to $5.0 million in the comparable period in 2024 due to a higher level of debt outstanding, partly offset by a lower average interest rate. The increase is also due to the recognition of imputed interest related to the interest-free financing of our repurchase of the shares of Series C Preferred Stock from GBH in November 2023.
Our effective interest rate during the three months ended September 30, 2023 and 2024 was 5.0% and 4.4%, respectively.
Interest income
Interest income increased 126.9% from $0.8 million during the three months ended September 30, 2023 to $1.8 million in the comparable period in 2024 due to a higher level of interest-earning assets.
Impairments
During the three months ended September 30, 2023, we recognized a non-cash impairment charge of $2.7 million, primarily related to our investment in Securrency, Inc., as we marked our investment to its estimated realizable value in connection with Securrency entering into an agreement to be acquired by an unrelated third party.
Loss on Extinguishment of Convertible Notes
During the three months ended September 30, 2023, we recognized a loss on extinguishment of convertible notes of $30.6 million arising from the repurchase of $104.2 million in aggregate principal amount of our 2028 Notes.
Other losses, net
Other losses, net were $1.3 million and $3.1 million during the three months ended September 30, 2023 and 2024, respectively. The three months ended September 30, 2024, includes a $4.0 million civil money penalty in connection with the SEC ESG Settlement. Also included are net gains of $0.8 million and $0.6 million on our financial instruments owned and investments, respectively. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.
| 45 |
Income Taxes
Our effective income tax rate during the three months ended September 30, 2024 was 216.0%, resulting in income tax expense of $8.4 million. The effective tax rate differs from the federal statutory rate of 21.0% primarily due to a non-deductible loss on extinguishment of convertible notes, a non-deductible civil money penalty of $4.0 million and non-deductible executive compensation. These items were partly offset by a lower tax rate on foreign earnings.
Our effective income tax rate during the three months ended September 30, 2023 was 31.0%, resulting in income tax expense of $5.8 million. The effective tax rate differs from the federal statutory rate of 21.0% primarily due to an increase in the deferred tax asset valuation allowance on losses recognized on the Company’s investments and non-deductible executive compensation.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Selected Operating and Financial Information
| Nine
Months Ended September 30, |
Percent | |||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| AUM (in millions) | ||||||||||||||||
| Average AUM | $ | 107,040 | $ | 91,609 | $ | 15,431 | 16.8% | |||||||||
| Operating Revenues (in thousands) | ||||||||||||||||
| Advisory fees | $ | 293,098 | $ | 246,239 | $ | 46,859 | 19.0% | |||||||||
| Other revenues | 23,942 | 11,952 | 11,990 | 100.3% | ||||||||||||
| Total revenues | $ | 317,040 | $ | 258,191 | $ | 58,849 | 22.8% | |||||||||
Operating Revenues
Advisory fees
Advisory fee revenues increased 19.0% from $246.2 million during the nine months ended September 30, 2023 to $293.1 million in the comparable period in 2024 primarily due to higher average AUM. Our average advisory fee was 0.36% during the nine months ended September 30, 2023 and 0.37% during the comparable period in 2024.
Other revenues
Other revenues increased 100.3% from $12.0 million during the nine months ended September 30, 2023 to $23.9 million in the comparable period in 2024 due to higher other revenues attributable to our European listed products and $4.1 million of legal and other related expenses expected to be covered by insurance, incurred in connection with the SEC ESG Settlement.
Operating Expenses
| Nine
Months Ended September 30, |
Percent | |||||||||||||||
| (in thousands) | 2024 | 2023 | Change | Change | ||||||||||||
| Compensation and benefits | $ | 91,249 | $ | 81,672 | $ | 9,577 | 11.7% | |||||||||
| Fund management and administration | 61,105 | 52,903 | 8,202 | 15.5% | ||||||||||||
| Marketing and advertising | 14,415 | 12,305 | 2,110 | 17.1% | ||||||||||||
| Sales and business development | 10,716 | 9,703 | 1,013 | 10.4% | ||||||||||||
| Contractual gold payments | — | 6,069 | (6,069 | ) | n/a | |||||||||||
| Professional fees | 16,539 | 15,768 | 771 | 4.9% | ||||||||||||
| Occupancy, communications and equipment | 3,921 | 3,476 | 445 | 12.8% | ||||||||||||
| Depreciation and amortization | 1,248 | 537 | 711 | 132.4% | ||||||||||||
| Third-party distribution fees | 7,977 | 6,828 | 1,149 | 16.8% | ||||||||||||
| Other | 7,617 | 7,473 | 144 | 1.9% | ||||||||||||
| Total operating expenses | $ | 214,787 | $ | 196,734 | $ | 18,053 | 9.2% | |||||||||
| 46 |
| Nine
Months Ended September 30, | ||||||||
| As a Percent of Revenues | 2024 | 2023 | ||||||
| Compensation and benefits | 28.8% | 31.6% | ||||||
| Fund management and administration | 19.3% | 20.5% | ||||||
| Marketing and advertising | 4.5% | 4.8% | ||||||
| Sales and business development | 3.4% | 3.8% | ||||||
| Contractual gold payments | n/a | 2.4% | ||||||
| Professional fees | 5.2% | 6.1% | ||||||
| Occupancy, communications and equipment | 1.2% | 1.3% | ||||||
| Depreciation and amortization | 0.4% | 0.2% | ||||||
| Third-party distribution fees | 2.5% | 2.6% | ||||||
| Other | 2.4% | 2.9% | ||||||
| Total operating expenses | 67.7% | 76.2% | ||||||
Compensation and benefits
Compensation and benefits expense increased 11.7% from $81.7 million during the nine months ended September 30, 2023 to $91.2 million in the comparable period in 2024 due to higher incentive and stock-based compensation expense and increased headcount.
Fund management and administration
Fund management and administration expense increased 15.5% from $52.9 million during the nine months ended September 30, 2023 to $61.1 million in the comparable period in 2024 primarily due to higher average AUM and product launches.
Marketing and advertising
Marketing and advertising expense increased 17.1% from $12.3 million during the nine months ended September 30, 2023 to $14.4 million in the comparable period in 2024 primarily due to higher spending related to digital assets and our U.S. listed products.
Sales and business development
Sales and business development expense increased 10.4% from $9.7 million during the nine months ended September 30, 2023 to $10.7 million in the comparable period in 2024 primarily due to increases in travel and events spending, as well as higher market data spending.
Contractual gold payments
Contractual gold payments expense decreased from $6.1 million during the nine months ended September 30, 2023 to zero in the comparable period in 2024 due to the termination of our deferred consideration—gold payments obligation on May 10, 2023. See Note 9 to our Consolidated Financial Statements for additional information.
Professional fees
Professional fees increased 4.9% from $15.8 million during the nine months ended September 30, 2023 to $16.5 million in the comparable period in 2024 primarily due to $4.1 million of legal and other related expenses incurred in connection with the SEC ESG Settlement. An equal and offsetting amount is recorded in other revenues as these expenses are expected to be covered by insurance. This increase was partly offset by lower activist campaign expenses and non-recurring expenses incurred in the prior year to settle our deferred consideration—gold payments obligation and our acquisition of WisdomTree Transfers, Inc.
Occupancy, communications and equipment
Occupancy, communications and equipment expense increased 12.8% from $3.5 million during the nine months ended September 30, 2023 to $3.9 million in the comparable period in 2024 primarily due to higher spending on office equipment.
Depreciation and amortization
Depreciation and amortization expense increased 132.4% from $0.5 million during the nine months ended September 30, 2023 to $1.2 million in the comparable period in 2024 due to amortization of software development costs.
| 47 |
Third-party distribution fees
Third-party distribution fees increased 16.8% from $6.8 million during the nine months ended September 30, 2023 to $8.0 million in the comparable period in 2024 due to AUM growth we are experiencing on our various platforms and new platform relationships.
Other
Other expenses were essentially unchanged from the nine months ended September 30, 2023.
Other Income/(Expenses)
| Nine
Months Ended September 30, |
Percent | |||||||||||||||
| (in thousands) | 2024 | 2023 | Change | Change | ||||||||||||
| Interest expense | $ | (13,295 | ) | $ | (11,484 | ) | $ | (1,811 | ) | 15.8% | ||||||
| Gain on revaluation/termination of deferred consideration—gold payments | — | 61,953 | (61,953 | ) |
n/a |
|||||||||||
| Interest income | 4,631 | 2,874 | 1,757 | 61.1% | ||||||||||||
| Impairments | — | (7,603 | ) | 7,603 | n/a | |||||||||||
| Loss on extinguishment of convertible notes | (30,632 | ) | (9,721 | ) | (20,911 | ) | 215.1% | |||||||||
| Other losses, net | (1,753 | ) | (3,233 | ) | 1,480 | (45.8% | ) | |||||||||
| Total other income/(expenses), net | $ | (41,049 | ) | $ | 32,786 | $ | (73,835 | ) | (225.2% | ) | ||||||
|
Nine Months Ended September 30, | ||||||||
| As a Percent of Revenues: | 2024 | 2023 | ||||||
| Interest expense | (4.2% | ) | (4.4% | ) | ||||
| Gain on revaluation/termination of deferred consideration—gold payments | — | 24.0% | ||||||
| Interest income | 1.5% | 1.1% | ||||||
| Impairments | — | (2.9% | ) | |||||
| Loss on extinguishment of convertible notes | (9.7% | ) | (3.8% | ) | ||||
| Other losses, net | (0.6% | ) | (1.3% | ) | ||||
| Total other income/(expenses), net | (13.0% | ) | (12.7% | ) | ||||
Interest expense
Interest expense increased 15.8% from $11.5 million during the nine months ended September 30, 2023 to $13.3 million in the comparable period in 2024 due to a higher level of debt outstanding, partly offset by a lower average interest rate. The increase is also due to the recognition of imputed interest related to the interest-free financing of our repurchase of the shares of Series C Preferred Stock from GBH in November 2023.
Our effective interest rate during the nine months ended September 30, 2023 and 2024 was 4.9% and 4.8%, respectively.
Gain on revaluation/termination of deferred consideration—gold payments
We recognized a gain on revaluation/termination of deferred consideration—gold payments of $62.0 million during the nine months ended September 30, 2023. This obligation was settled on May 10, 2023 for approximately $137.0 million. See Note 9 to our Consolidated Financial Statements for additional information.
Interest income
Interest income increased 61.1% from $2.9 million during the nine months ended September 30, 2023 to $4.6 million in the comparable period in 2024 due to a higher level of interest-earning assets.
Impairments
During the nine months ended September 30, 2023, we recognized a non-cash impairment charge of $7.6 million primarily related to our investment in Securrency, Inc. upon the sale of Securrency to an unrelated third party.
Loss on Extinguishment of Convertible Notes
During the nine months ended September 30, 2024, we recognized a loss on extinguishment of convertible notes of $30.6 million, arising from the repurchase of $104.2 million in aggregate principal amount of our 2028 Notes. During the nine months ended September 30, 2023, we recognized a loss on extinguishment of convertible notes of $9.7 million, arising from the repurchase of $115.0 million in aggregate principal amount of our 4.25% Convertible Senior Notes due 2023.
| 48 |
Other losses, net
Other losses, net were $3.2 million and $1.8 million during the nine months ended September 30, 2023 and 2024, respectively. The nine months ended September 30, 2024, includes a civil money penalty of $4.0 million in connection with the SEC ESG Settlement. Also included are gains on our financial instruments owned of $2.6 million and losses on our investments of $0.6 million. Gains and losses also generally arise from the sale of gold earned on management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.
Income Taxes
Our effective income tax rate for the nine months ended September 30, 2024 was 35.6%, resulting in an income tax expense of $21.8 million. Our tax rate differs from the federal statutory rate of 21.0% primarily due to a non-deductible loss on extinguishment of convertible notes, a non-deductible civil money penalty of $4.0 million and non-deductible executive compensation. These items were partly offset by a lower tax rate on foreign earnings.
Our effective income tax rate during the nine months ended September 30, 2023 was 11.4%, resulting in an income tax expense of $10.8 million. Our effective tax rate differs from the federal statutory rate of 21.0% primarily due to a non-taxable gain on revaluation/termination of deferred consideration, a reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above and a lower tax rate on foreign earnings. These items were partly offset by a non-deductible loss on extinguishment of our convertible notes during the first quarter of 2023, an increase in the deferred tax asset valuation allowance on losses recognized on our investments and non-deductible executive compensation.
Non-GAAP Financial Measurements
In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews these non-GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measurements should be considered in the context with our GAAP results. The non-GAAP financial measurements contained in this Report include:
Adjusted Net Income and Diluted Earnings per Share
We disclose adjusted net income and diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measurements provides investors with a consistent way to analyze our performance. These non-GAAP financial measurements exclude the following:
| · | Unrealized gains or losses on revaluation/termination of deferred consideration—gold payments: Deferred consideration—gold payments was an obligation we assumed in connection with the ETFS Acquisition that was carried at fair value. This item represented the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations have had a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when calculating our non-GAAP financial measurements as it was not core to our operating business. The item was not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate. During the second quarter of 2023, we terminated this obligation for aggregate consideration totaling approximately $137.0 million. |
| · | Gains or losses on financial instruments owned: We account for our financial instruments owned as trading securities, which requires these instruments to be measured at fair value with gains and losses reported in net income. We exclude these items when calculating our non-GAAP financial measurements as the gains and losses introduce volatility in earnings and are not core to our operating business. |
| · | Tax windfalls and shortfalls upon vesting of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting as well as the difference between the price of our stock on the date the award was granted and the date the award vested. We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business. |
| 49 |
| · | Imputed interest on our payable to GBH: During the fourth quarter of 2023, we repurchased our Series C Preferred Stock, which was convertible into approximately 13.1 million shares of our common stock, from GBH for aggregate cash consideration of approximately $84.4 million. Under the terms of the transaction, we paid GBH $40.0 million on the closing date, with the remainder of the purchase price payable in equal, interest-free installments on the first, second and third anniversaries of the closing date. Under U.S. GAAP, the obligation is recorded at its present value utilizing a market rate of interest on the closing date of 7.0% and the corresponding discount is amortized as interest expense pursuant to the effective interest method of accounting over the life of the obligation. We exclude this item when calculating our non-GAAP financial measurements as recognition of interest expense is non-cash and contrary to the stated terms of our obligation. |
| · | Other items: Losses on extinguishment of convertible notes, a civil money penalty in connection with the SEC ESG Settlement, gains and losses recognized on our investments, changes in deferred tax asset valuation allowance, expenses incurred in response to an activist campaign, impairments, remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business and litigation expenses associated with certain provisions of our Stockholder Rights Agreement, dated as of March 17, 2023, as amended, are excluded when calculating our non-GAAP financial measurements. |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Adjusted Net Income and Diluted Earnings per Share: | Sept.
30, 2024 |
Sept.
30, 2023 |
Sept.
30, 2024 |
Sept.
30, 2023 | ||||||||||||
| Net (loss)/income, as reported | $ | (4,485 | ) | $ | 12,984 | $ | 39,385 | $ | 83,469 | |||||||
| Add back: Loss on extinguishment of convertible notes, net of income taxes | 30,128 | — | 30,128 | 9,623 | ||||||||||||
| Add back: Civil money penalty in connection with the SEC ESG Settlement | 4,000 | — | 4,000 | — | ||||||||||||
| (Deduct)/add back: (Gains)/losses on financial instruments owned, net of income taxes | (607 | ) | 1,479 | (1,949 | ) | 762 | ||||||||||
| Add back: Imputed interest on payable to GBH, net of income taxes | 528 | — | 1,545 | — | ||||||||||||
| (Deduct)/add back: (Gains)/losses recognized on our investments, net of income taxes | (436 | ) | 323 | 469 | 943 | |||||||||||
| (Deduct)/add back: (Decrease)/increase in deferred tax asset valuation allowance on financial instruments owned and investments | (335 | ) | 1,234 | (475 | ) | 2,393 | ||||||||||
| Deduct: Tax windfalls upon vesting and exercise of stock-based compensation awards | (25 | ) | (18 | ) | (764 | ) | (170 | ) | ||||||||
| Add back: Expenses incurred in response to an activist campaign, net of income taxes | — | — | 3,760 | 4,452 | ||||||||||||
| Deduct: Gain on revaluation/termination of deferred consideration—gold payments | — | — | — | (61,953 | ) | |||||||||||
| Add back: Litigation expenses associated with certain provisions of the Stockholder Rights Agreement, net of income taxes | — | — | — | 367 | ||||||||||||
| Add back: Impairments, net of income taxes (where applicable) | — | 2,046 | — | 5,756 | ||||||||||||
| Deduct: Remeasurement of contingent consideration—sale of Canadian ETF business | — | — | — | (1,477 | ) | |||||||||||
| Adjusted net income | $ | 28,768 | $ | 18,048 | $ | 76,099 | $ | 44,165 | ||||||||
| Deduct: Income distributed to participating securities | (463 | ) | (889 | ) | (1,387 | ) | (1,884 | ) | ||||||||
| Deduct: Undistributed income allocable to participating securities | (1,147 | ) | (2,128 | ) | (4,840 | ) | (4,033 | ) | ||||||||
| Adjusted net income available to common stockholders | $ | 27,158 | $ | 15,031 | $ | 69,872 | $ | 38,248 | ||||||||
| Weighted average diluted shares, excluding participating securities (in thousands) (See Note 20 to our Consolidated Financial Statements) | 149,353 | 148,432 | 150,080 | 147,572 | ||||||||||||
| Adjusted earnings per share – diluted | $ | 0.18 | $ | 0.10 | $ | 0.47 | $ | 0.26 | ||||||||
Adjusted net income, as reported on a non-GAAP basis during the three and nine months ended September 30, 2024, also excludes a loss of $11.4 million recognized upon the repurchase of our Series A Preferred Stock, which was convertible into 14.75 million shares of common stock from ETFS Capital and $1.9 million of stock repurchase excise taxes. Under U.S. GAAP, these amounts are excluded from net income but are required to be added to net income to arrive at income available to common stockholders in the calculation of earnings per share.
| 50 |
Liquidity and Capital Resources
The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:
|
September 30, 2024 |
December 31, 2023 | |||||||
| Balance Sheet Data (in thousands): | ||||||||
| Cash, cash equivalents and restricted cash | $ | 176,483 | $ | 129,305 | ||||
| Financial instruments owned, at fair value | 77,341 | 58,722 | ||||||
| Accounts receivable | 45,200 | 35,473 | ||||||
| Securities held-to-maturity | 212 | 230 | ||||||
| Total: Liquid assets | 299,236 | 223,730 | ||||||
| Less: Total current liabilities | (106,473 | ) | (103,216 | ) | ||||
| Less: Other assets—seed capital (WisdomTree Digital Funds) | (20,524 | ) | (18,308 | ) | ||||
| Less: Regulatory capital requirements | (35,120 | ) | (29,156 | ) | ||||
| Total: Available liquidity | $ | 137,119 | $ | 73,050 | ||||
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flow Data (in thousands): | ||||||||
| Operating cash flows | $ | 78,886 | $ | 48,350 | ||||
| Investing cash flows | (16,902 | ) | 35,860 | |||||
| Financing cash flows | (16,939 | ) | (126,389 | ) | ||||
| Foreign exchange rate effect | 2,133 | (441 | ) | |||||
| Increase/(decrease) in cash, cash equivalents and restricted cash | $ | 47,178 | $ | (42,620 | ) | |||
Liquidity
We consider our available liquidity to be our liquid assets, less our current liabilities, seed capital in WisdomTree Digital Funds and regulatory capital requirements of certain of our subsidiaries. Liquid assets consist of cash, cash equivalents and restricted cash, financial instruments owned, at fair value, accounts receivable and securities held-to-maturity. Our financial instruments owned, at fair value are highly liquid investments. Accounts receivable are current assets and primarily represent receivables from advisory fees we earn from our ETPs. Our current liabilities consist primarily of payments owed to vendors and third parties in the normal course of business, accrued incentive compensation for employees and the current portion of our payable to GBH.
Cash, cash equivalents and restricted cash increased by $47.2 million during the nine months ended September 30, 2024 due to $345.0 million of proceeds from the issuance of convertible notes, $78.9 million of cash provided by operating activities, $42.3 million of proceeds from the sale of financial instruments owned, at fair value and $2.1 million provided by other activities. These increases were partly offset by $143.8 million used to repurchase Series A Preferred Stock, $132.7 million to repurchase a portion of our 2028 Notes, $62.9 million used to repurchase common stock, $57.9 million used to purchase financial instruments owned, at fair value, $14.8 million used to pay dividends, $7.7 million used to pay convertible notes issuance costs and $1.8 million used to pay for software development.
Cash and cash equivalents decreased by $42.6 million during the nine months ended September 30, 2023 due to $184.3 million used to repurchase and settle at maturity our convertible notes, $56.8 million used to purchase financial instruments owned, at fair value, $50.0 million used to settle our deferred consideration—gold payments obligation, $14.9 million used to pay dividends, $10.0 million used to purchase investments, $3.6 million used to repurchase our common stock, $3.5 million used for convertible notes issuance costs, $1.0 million used to acquire Securrency Transfers, Inc. (renamed WisdomTree Transfers, Inc.) and $0.7 million used for other activities. These decreases were partly offset by $130.0 million of proceeds from the issuance of convertible notes, $102.3 million of proceeds from the sale of financial instruments owned, at fair value, $48.4 million provided by operating activities and $1.5 million from receipt of contingent consideration.
Convertible Notes
We have the following convertible notes outstanding as of September 30, 2024:
| · | $150.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2026 Notes”); |
| · | $25.8 million in aggregate principal amount of 5.75% Convertible Senior Notes due 2028 (the “2028 Notes”); and |
| · | $345.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2029 (the “2029 Notes”). |
| 51 |
Each class of notes were issued pursuant to indentures dated as of the issuance dates between us and either U.S. Bank National Association or U.S. Bank Trust Company, National Association, as trustee (or its successor in interest, the “Trustee”), in private offerings to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
In connection with the issuance of the 2029 Notes, we repurchased $104.2 million in aggregate principal amount of 2028 Notes. As a result of this repurchase, we recognized a loss on extinguishment of approximately $30.6 million during the three and nine months ended September 30, 2024.
As of September 30, 2024, we had an aggregate principal amount of $520,845 outstanding of the 2026 Notes, the 2028 Notes and the 2029 Notes (collectively, the “Convertible Notes”).
Key terms of the Convertible Notes are as follows:
| 2026 Notes | 2028 Notes | 2029 Notes | ||||
| Principal outstanding | $150.0 | $25.8 | $345.0 | |||
| Issuance date | June 14, 2021 | February 14, 2023 | August 13, 2024 | |||
| Maturity date (unless earlier converted, repurchased or redeemed) | June 15, 2026 | August 15, 2028 | August 15, 2029 | |||
| Interest rate | 3.25% | 5.75% | 3.25% | |||
| Initial conversion price | $11.04 | $9.54 | $11.82 | |||
| Initial conversion rate | 90.5797 | 104.8658 | 84.5934 | |||
| Redemption price | $14.35 | $12.40 | $15.37 |
| · | Interest rate: Payable semiannually in arrears on February 15 and August 15 of each year for the 2029 Notes and the 2028 Notes and on June 15 and December 15 of each year for the 2026 Notes. |
| · | Conversion price: Convertible at an initial conversion rate into shares of our common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price set forth in the table above), subject to adjustment. |
| · | Conversion: Holders may convert at their option at any time prior to the close of business on the business day immediately preceding May 15, 2029 and May 15, 2028 for the 2029 Notes and the 2028 Notes, respectively, and March 15, 2026 for the 2026 Notes, only under the following circumstances: (i) if the last reported sale price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the respective Convertible Notes on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sales price of our common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption delivered by us in accordance with the terms of the indentures but only with respect to the Convertible Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after May 15, 2029 and May 15, 2028 in respect of the 2029 Notes and the 2028 Notes, respectively, and March 15, 2026 in respect of the 2026 Notes, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. |
| · | Cash settlement of principal amount: Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At our election, we will also settle its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of its common stock or a combination of cash and shares of its common stock. |
| · | Redemption price: We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after August 20, 2026 and August 20, 2025 in respect of the 2029 Notes and the 2028 Notes, respectively, and June 20, 2023 in respect of the 2026 Notes and on or prior to the 55th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price for the respective Convertible Notes then in effect for at least 20 trading days, including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. No sinking fund is provided for the Convertible Notes. |
| · | Limited investor put rights: Holders of the Convertible Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events. |
| · | Conversion rate increase in certain customary circumstances: In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the indentures) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 103.6269 shares, 167.7853 shares and 144.9275 shares of our common stock per $1,000 principal amount of the 2029 Notes, the 2028 Notes and the 2026 Notes, respectively (the equivalent of 69,880,434 shares of our common stock), subject to adjustment. |
| · | Seniority and Security: The Convertible Notes rank equal in right of payment and are our senior unsecured obligations. |
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The indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the respective holders of not less than 25% in aggregate principal amount of the respective series of Convertible Notes outstanding may declare the entire principal amount of all such respective Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable.
Capital Resources
Our principal source of financing is our operating cash flow. We believe that current cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for the foreseeable future.
Our ability to satisfy our contractual obligations as they arise are discussed in the section titled “Contractual Obligations” below.
Use of Capital
Our business does not require us to maintain a significant cash position. However, certain of our subsidiaries are required to maintain a minimum level of regulatory capital, which at September 30, 2024 was approximately $35.1 million in the aggregate. Notwithstanding these regulatory capital requirements, we expect that our main uses of cash will be to fund the ongoing operations of our business. We also maintain a capital return program which includes a $0.03 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2025, including purchases to offset future equity grants made under our equity plans and purchases made in open market or privately negotiated transactions.
During the nine months ended September 30, 2024, we repurchased 6,800,301 shares of our common stock under the repurchase program for an aggregate cost of $62.9 million. Currently, approximately $35.5 million remains under this program for future purchases.
In addition, on August 13, 2024, we repurchased all of our then-outstanding Series A Non-Voting Convertible Preferred Stock, which was convertible into 14,750,000 shares of our common stock, from ETFS Capital for aggregate cash consideration of approximately $143.8 million. See Note 11 to our Consolidated Financial Statements for additional information.
Contractual Obligations
Convertible Notes
We currently have $520.8 million in aggregate principal amount of Convertible Notes outstanding, of which $150.0 million, $25.8 million and $345.0 million are scheduled to mature on June 15, 2026, August 15, 2028 and August 15, 2029, in respect of the 2026 Notes, the 2028 Notes and the 2029 Notes, respectively, unless earlier converted, repurchased or redeemed. Conditional conversions or a requirement to repurchase the Convertible Notes upon the occurrence of a fundamental change may accelerate payment.
The Convertible Notes require cash settlement of up to the principal amount, while settlement of the conversion obligation in excess of the aggregate principal amount may be satisfied in either cash, shares of our common stock or a combination of cash and shares of our common stock. We may settle and/or refinance these obligations when due.
See the section titled “Issuance of Convertible Notes” above for additional information.
Payable to GBH
On November 20, 2023, we repurchased our Series C Preferred Stock from GBH for aggregate cash consideration of approximately $84.4 million. The Series C Preferred Stock was originally issued to GBH on May 10, 2023 in connection with the termination of our obligations relating to the contractual gold payments. Under the terms of the transaction, we paid GBH $40.0 million on the closing date, with the remainder of the purchase price payable in equal, interest-free installments on the first, second and third anniversaries of the closing date.
Operating Leases
Total future minimum lease payments with respect to our operating lease liabilities were $1.6 million at September 30, 2024. Cash flows generated by our operating activities and existing cash balances should be sufficient to satisfy the future minimum lease payments. See Note 13 to our Consolidated Financial Statements for additional information.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing or other arrangements and have neither created nor are party to any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business.
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Critical Accounting Policies and Estimates
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. We test goodwill for impairment at least annually and at the time of a triggering event requiring re-evaluation, if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Goodwill is allocated to our U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.
Goodwill is assessed for impairment annually on November 30th. When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, and the market approach and its market capitalization when determining the fair value of the reporting unit. The results of our most recent analysis indicated no impairment based upon a quantitative assessment.
Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair value is less than their carrying value. We may rely on a qualitative assessment when performing our intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for our intangible assets is November 30th. The results of our most recent analysis identified no indicators of impairment to be recognized based upon a quantitative assessment (discounted cash flow analysis) which relied upon significant unobservable inputs including projected revenue growth rates of 3.0% and a weighted average cost of capital of 10.5%.
Investments
We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
See Note 7 to our Consolidated Financial Statements for additional information.
Revenue Recognition
We earn substantially all of our revenue in the form of advisory fees from our ETPs and recognize this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice.
Other revenues are earned from swap providers associated with certain of our European listed ETPs, the nature of which are based on a percentage of the ETPs’ average daily net assets. We also earn transaction-based income on flows associated with certain European listed ETPs. There is no significant judgment in calculating amounts due, which are invoiced monthly or quarterly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The following information, together with information included in other parts of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, describes key aspects of our market risk.
Market Risk
Market risk to us generally represents the risk of changes in the value of our ETPs and Digital Funds that results from fluctuations in securities or commodity prices, foreign currency exchange rates against the U.S. dollar, and interest rates. Nearly all our revenues are derived from advisory agreements for the WisdomTree ETPs. Under these agreements, the advisory fee we receive is based on the average market value of the assets in the WisdomTree ETP portfolios we manage.
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Fluctuations in the value of the ETPs are common and are generated by numerous factors such as market volatility, the global economy, inflation, changes in investor strategies and sentiment, availability of alternative investment vehicles, domestic and foreign government regulations, emerging markets developments and others. Accordingly, changes in any one or a combination of these factors may reduce the value of investment securities and, in turn, the underlying AUM on which our revenues are earned. These declines may cause investors to withdraw funds from our ETPs in favor of investments that they perceive as offering greater opportunity or lower risk, thereby compounding the impact on our revenues. We believe challenging and volatile market conditions will continue to be present in the foreseeable future.
Interest Rate Risk
We invest our corporate cash in short-term interest earning assets, primarily in federal agency debt instruments, WisdomTree fixed income ETFs, U.S. treasuries, corporate bonds, money market instruments at a commercial bank and other securities which totaled $109.2 million and $135.9 million as of December 31, 2023 and September 30, 2024, respectively. During the nine months ended September 30, 2024, we recognized gains on these financial instruments of $2.6 million and any gains/losses recognized in the future may be material to our operating results. We do not anticipate that changes in interest rates will have a material impact on our financial condition or cash flows.
In addition, our Convertible Notes bear interest at fixed rates of 5.75% for the 2028 Notes and 3.25% for the 2026 Notes and the 2029 Notes. Therefore, we have no direct financial statement risk associated with changes in interest rates. However, the fair value of the Convertible Notes changes primarily when the market price of our common stock fluctuates or interest rates change.
Exchange Rate Risk
We are subject to currency translation exposure on the results of our non-U.S. operations, primarily in the United Kingdom and Europe. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. dollar) for consolidation purposes. The advisory fees earned on our European listed ETPs are predominantly in U.S. dollars (and also paid in gold, other precious metals and cryptocurrency, as described below); however, expenses for corporate overhead are generally incurred in British pounds. Currently, we do not enter into derivative financial instruments aimed at offsetting certain exposures in the statement of operations or the balance sheet but may seek to do so in the future.
Exchange rate risk associated with the euro is not considered to be significant.
Commodity and Cryptocurrency Price Risk
Fluctuations in the prices of commodities and cryptocurrencies that are linked to certain of our ETPs could have a material adverse effect on our AUM and revenues. In addition, a portion of the advisory fee revenues we receive on our ETPs backed by gold, other precious metals and cryptocurrencies are paid in the underlying metal or cryptocurrency. While we readily sell the gold, precious metals and cryptocurrencies that we earn under these advisory contracts, we still may maintain a position. We currently do not enter into arrangements to hedge against fluctuations in the price of these commodities and cryptocurrencies and any hedging we may undertake in the future may not be cost-effective or sufficient to hedge against this exposure.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
We may be subject to reviews, inspections and investigations by federal regulators including, but not limited to, the SEC, Commodity Futures Trading Commission (CFTC), National Futures Association (NFA), Financial Industry Regulatory Authority (FINRA), state and foreign regulators, as well as legal proceedings arising in the ordinary course of business. See Note 14 to our Consolidated Financial Statements for additional information regarding (1) a $4.0 million civil money penalty in connection with the SEC ESG Settlement and (2) actual and potential claims brought by investors in our WisdomTree WTI Crude Oil 3x Daily Leveraged ETP totaling approximately €27.5 million ($30.7 million), including an appealed claim for total damages of €7.8 million ($8.7 million).
| ITEM 1A. | RISK FACTORS |
In addition to the updated risk factor and other information set forth below and elsewhere in this Report, you should carefully consider the information set forth in Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in subsequent reports filed with or furnished to the SEC.
Legal and Regulatory Risks
Compliance with extensive, complex and changing regulation imposes significant financial and strategic costs on our business, and non-compliance could result in fines and penalties.
We are subject to extensive regulation of our business and operations. One of our U.S. subsidiaries, WTAM, is a registered investment adviser and is subject to oversight by the SEC pursuant to its regulatory authority under the Investment Advisers Act of 1940, as amended. We also must comply with certain requirements under the Investment Company Act of 1940, as amended, with respect to the WisdomTree U.S. listed ETFs for which WTAM acts as investment adviser. WTAM is also a member of the NFA and registered as a commodity pool operator for certain of our ETFs. As a commodity pool operator, we are subject to oversight by the NFA and the CFTC pursuant to regulatory authority under the Commodity Exchange Act. In addition, the content and use of our marketing and sales materials and the conduct of our sales force in the U.S. regarding our U.S. listed ETFs are subject to the regulatory authority of FINRA. The SEC also has recently adopted rule amendments that are designed to modernize sales and marketing materials and, as a result, could impact our marketing materials. We are also subject to foreign laws and regulatory authorities with respect to operational aspects of our products that invest in securities of issuers in foreign countries, in the marketing, offer and/or sales of our products in foreign jurisdictions and in our offering of investment products domiciled outside of the U.S., such as our ETPs issued by the ManJer Issuers, UCITS ETFs and ETPs issued by WMAI. Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of our business, including the authority to grant, and, in specific circumstances to cancel, permissions to carry on particular businesses. Our ETPs’ failure to comply with applicable laws or regulations has in the past, and could in the future, result in fines, censure, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser. For example, on August 5, 2024, WTAM received a Wells Notice from the staff (the “Staff”) of the SEC advising WTAM that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against WTAM alleging violations of certain provisions of the U.S. federal securities laws relating to three exchange-traded series of WisdomTree Trust managed by WTAM that pursued ESG-focused strategies (collectively, the “Funds”). Without admitting or denying the SEC’s allegations, WTAM agreed to resolve the matter by consenting to the entry of an Order by the SEC, which was announced publicly on October 21, 2024, in which WTAM agreed to cease and desist from committing or causing any violations and any future violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, as amended, Rules 206(4)-7 and 206(4)-8 thereunder, and Section 34(b) of the Investment Company Act of 1940, as amended, and to pay a civil money penalty of $4.0 million.
Even if a sanction imposed against us, our personnel or our ETPs is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us, our personnel or our ETPs by regulators could harm our reputation and thus result in redemptions from our products and impede our ability to retain and attract investors in WisdomTree ETPs, all of which may reduce our revenues.
We face the risk of significant intervention by regulatory authorities, including extended investigation activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we have been and could be fined or be prohibited from engaging in some of our business activities. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect investors in WisdomTree ETPs and our advisory clients and are not designed to protect our stockholders. Consequently, these regulations often serve to limit our activities, including through WisdomTree ETP investor protection and market conduct requirements.
The regulatory environment in which we operate also is subject to modifications and further regulation. Concerns have been raised at various times about ETFs’ possible contribution to market volatility as well as the disclosure requirements applicable to certain types of more complex ETFs. In addition, the SEC recently approved a broad set of rules regarding data reporting and fund liquidity, fund valuation and funds’ use of derivatives, which are imposing additional expense and require additional administrative services and requirements, among other matters, in seeking to comply with these rules. New laws or regulations, or changes in the enforcement of existing laws or regulations, applicable to us or investors in our products also may adversely affect our business, and our ability to function in this environment will depend on our ability to constantly monitor and react to these changes. Compliance with new laws and regulations may result in increased compliance costs and expenses.
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Specific regulatory changes also may have a direct impact on our revenues. In addition to regulatory scrutiny and potential fines and sanctions, regulators continue to examine different aspects of the asset management industry. New regulations, revised regulatory or judicial interpretations, revised viewpoints, outcomes of lawsuits against other fund complexes or growth in our ETP assets and/or profitability related to the annual approval process for investment advisory agreements may result in the reduction of fees under these agreements, which would mean a reduction in our revenues or otherwise may lead to an increase in costs or expenses.
Our operations outside the U.S. are subject to the laws and regulations of various non-U.S. jurisdictions and non-U.S. regulatory agencies and bodies. As we have expanded our international presence, a number of our subsidiaries and international operations have become subject to regulatory systems in various jurisdictions, comparable to those covering our operations in the U.S. Regulators in these non-U.S. jurisdictions may have broad authority with respect to the regulation of financial services including, among other things, the authority to grant or cancel required licenses or registrations.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent Sales of Unregistered Securities
None.
Use of Proceeds
Not applicable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” of shares of our common stock.
| Total Number of Shares Purchased |
Average Price Paid Per Share |
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||
|
Period |
(in thousands) | |||||||||||||||
| July 1, 2024 to July 30, 2024 | — | $ | — | — | ||||||||||||
| August 1, 2024 to August 31, 2024 | — | $ | — | — | ||||||||||||
| September 1, 2024 to September 30, 2024 | 5,704,023 | $ | 9.65 | 5,704,023 | ||||||||||||
| Total | 5,704,023 | $ | 9.65 | 5,704,023 | $ | 33,535 | ||||||||||
On February 22, 2022, our Board of Directors approved an increase of $85.7 million to our share repurchase program and extended the term for three years through April 27, 2025. During the nine months ended September 30, 2024, we repurchased 6,800,301 shares of our common stock under this program for an aggregate cost of approximately $62.9 million. As of September 30, 2024, $33.5 million remained under this program for future repurchases.
In addition, on August 13, 2024, we repurchased all of our then-outstanding Series A Non-Voting Convertible Preferred Stock, which was convertible into 14,750,000 shares of our common stock, from ETFS Capital for aggregate cash consideration of approximately $143.8 million. See Note 11 to our Consolidated Financial Statements for additional information.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
10b5-1 Trading Arrangements
During the three months ended September 30, 2024,
none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified
a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation
S-K).
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| ITEM 6. | EXHIBITS |
EXHIBIT INDEX
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__________________________________________________________
| (1) | Filed herewith. |
| (2) | Furnished herewith. |
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SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on this 7th day of November 2024.
| WISDOMTREE, INC. | ||
| By: | /s/ Jonathan Steinberg | |
| Jonathan Steinberg | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| WISDOMTREE, INC. | ||
| By: | /s/ Bryan Edmiston | |
| Bryan Edmiston | ||
|
Chief Financial Officer (Principal Financial Officer and Principal
| ||
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