UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
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
001-10932
WisdomTree Investments, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
13-3487784 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| 250 West 34 th Street3 rd FloorNew York, New York |
10119 | |
(Address of principal executive offices) |
(Zip Code) | |
212-801-2080
(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 | ||
| Common Stock, $0.01 par value |
WETF |
The NASDAQ Stock Market LLC |
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. Yes ☒ No ☐
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). ☒ Yes ☐ No 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. | Large accelerated filer | ☒ | 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 July
26
, 2022, there were
146,584,951 shares of the registrant’s Common Stock, $0.01 par value per share,
outstanding.
WISDOMTREE INVESTMENTS, INC.
Form
10-Q
For the Quarterly Period Ended June 30, 2022
TABLE OF CONTENTS
| PART I: |
4 |
|||||
| ITEM 1. |
4 |
|||||
| ITEM 2. |
34 |
|||||
| ITEM 3. |
52 |
|||||
| ITEM 4. |
53 |
|||||
| PART II: |
53 |
|||||
| ITEM 1. |
53 |
|||||
| ITEM 1A. |
53 |
|||||
| ITEM 2. |
53 |
|||||
| ITEM 3. |
54 |
|||||
| ITEM 4. |
54 |
|||||
| ITEM 5. |
54 |
|||||
| ITEM 6. |
56 |
|||||
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.
WisdomTree
®
and Modern Alpha®
are trademarks of WisdomTree Investments, 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
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, 2021, as amended. 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 Securities and Exchange Commission, or 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:
• |
the ultimate duration of the COVID-19 pandemic, or the war in Ukraine, and their short-term and long-term impact on our business and the global economy; |
• |
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 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 digital assets strategy, including WisdomTree Prime ™ , and achieve its objectives; |
• |
our ability to successfully operate and expand our business in non-U.S. markets; and |
• |
the effect of laws and regulations that apply to our business. |
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 Investments, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
June 30, 2022 |
December 31, 2021 |
|||||||
(unaudited) |
||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 109,736 | $ | 140,709 | ||||
| Securities owned, at fair value (including $12,841 and $18,526 invested in WisdomTree ETFs at June 30, 2022 and December 31, 2021, respectively) |
128,852 | 127,166 | ||||||
| Accounts receivable (including $23,905 and $25,628 due from related parties at June 30, 2022 and December 31, 2021, respectively) |
34,061 | 31,864 | ||||||
| Prepaid expenses |
7,461 | 3,952 | ||||||
| Income taxes receivable |
1,290 | — | ||||||
| Other current assets |
391 | 276 | ||||||
| |
|
|
|
|||||
| Total current assets |
281,791 | 303,967 | ||||||
| Fixed assets, net |
641 | 557 | ||||||
| Indemnification receivable (Note 20 ) |
1,351 | 21,925 | ||||||
| Securities held-to-maturity |
277 | 308 | ||||||
| Deferred tax assets, net |
6,067 | 8,881 | ||||||
| Investments (Note 7 ) |
26,012 | 14,238 | ||||||
| Right of use assets—operating leases (Note 12 ) |
2,034 | 520 | ||||||
| Goodwill (Note 22 ) |
85,856 | 85,856 | ||||||
| Intangible assets (Note 22 ) |
601,971 | 601,247 | ||||||
| Other noncurrent assets |
473 | 361 | ||||||
| |
|
|
|
|||||
| Total assets |
$ | 1,006,473 | $ | 1,037,860 | ||||
| |
|
|
|
|||||
| Liabilities and stockholders’ equity |
||||||||
| Liabilities |
||||||||
| Current liabilities: |
||||||||
| Convertible notes—current (Note 10) |
|
$ |
173,325 |
|
|
$ |
— |
|
| Fund management and administration payable |
20,797 | 20,661 | ||||||
| Compensation and benefits payable |
18,647 | 32,782 | ||||||
| Deferred consideration—gold payments (Note 9 ) |
16,626 | 16,739 | ||||||
| Operating lease liabilities (Note 1 2 ) |
1,093 | 209 | ||||||
| Income taxes payable |
— | 3,979 | ||||||
| Accounts payable and other liabilities |
11,135 | 9,297 | ||||||
| |
|
|
|
|||||
| Total current liabilities |
241,623 | 83,667 | ||||||
| Convertible notes—long term (Note 10 ) |
146,592 | 318,624 | ||||||
| Deferred consideration—gold payments (Note 9 ) |
226,141 | 211,323 | ||||||
| Operating lease liabilities (Note 12 ) |
941 | 328 | ||||||
| Other noncurrent liabilities (Note 20 ) |
1,351 | 21,925 | ||||||
| |
|
|
|
|||||
| Total liabilities |
616,648 | 635,867 | ||||||
| Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $81,970 and $90,741 at June 30, 2022 and December 31, 2021, respectively) (Note 11 ) |
132,569 | 132,569 | ||||||
| |
|
|
|
|
|
|
|
|
| Contingencies (Note 13) |
||||||||
| Stockholders’ equity |
||||||||
| Preferred stock, par value $0.01; 2,000 shares authorized: |
— | — | ||||||
| Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 146,511 and 145,107 at June 30, 2022 and December 31, 2021, respectively |
1,465 | 1,451 | ||||||
| Additional paid-in capital |
282,017 | 289,736 | ||||||
| Accumulated other comprehensive (loss) income |
(1,525 | ) | 682 | |||||
| Accumulated deficit |
(24,701 | ) | (22,445 | ) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity |
257,256 | 269,424 | ||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 1,006,473 | $ | 1,037,860 | ||||
| |
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements
4
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Operating Revenues: |
||||||||||||||||
| Advisory fees |
$ | 75,586 | $ | 74,169 | $ | 152,103 | $ | 144,211 | ||||||||
| Other income |
1,667 | 1,606 | 3,518 | 2,820 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total revenues |
77,253 | 75,775 | 155,621 | 147,031 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating Expenses: |
||||||||||||||||
| Compensation and benefits |
24,565 | 20,331 | 49,352 | 42,958 | ||||||||||||
| Fund management and administration |
16,076 | 14,367 | 31,570 | 28,314 | ||||||||||||
| Marketing and advertising |
3,894 | 3,594 | 7,917 | 6,600 | ||||||||||||
| Sales and business development |
3,131 | 2,159 | 5,740 | 4,304 | ||||||||||||
| Contractual gold payments (Note 9 ) |
4,446 | 4,314 | 8,896 | 8,584 | ||||||||||||
| Professional fees |
4,308 | 1,921 | 8,767 | 3,934 | ||||||||||||
| Occupancy, communications and equipment |
1,049 | 1,266 | 1,802 | 2,741 | ||||||||||||
| Depreciation and amortization |
53 | 256 | 100 | 508 | ||||||||||||
| Third-party distribution fees |
1,818 | 2,130 | 4,030 | 3,473 | ||||||||||||
| Other |
2,109 | 1,752 | 3,954 | 3,323 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
61,449 | 52,090 | 122,128 | 104,739 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating income |
15,804 | 23,685 | 33,493 | 42,292 | ||||||||||||
| Other Income/(Expenses): |
||||||||||||||||
| Interest expense |
(3,733 | ) | (2,567 | ) | (7,465 | ) | (4,863 | ) | ||||||||
| Gain/(loss) on revaluation of deferred consideration–gold payments (Note 9 ) |
2,311 | 497 | (14,707 | ) | 3,329 | |||||||||||
| Interest income |
770 | 225 | 1,564 | 456 | ||||||||||||
| Impairments (Note 12 ) |
— | — | — | (303 | ) | |||||||||||
| Other losses and gains, net |
(4,474 | ) | 49 | (29,181 | ) | (5,844 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Income/(loss) before income taxes |
10,678 | 21,889 | (16,296 | ) | 35,067 | |||||||||||
| Income tax expense/(benefit) |
2,673 | 4,259 | (14,040 | ) | 2,290 | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) |
$ | 8,005 | $ | 17,630 | $ | (2,256 | ) | $ | 32,777 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings/(loss) per share—basic |
$ | 0.05 | $ | 0.11 | $ | (0.02 | ) | $ | 0.20 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings/(loss) per share—diluted |
$ | 0.05 | $ | 0.11 | $ | (0.02 | ) | $ | 0.20 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average common shares—basic |
143,046 | 145,542 | 142,915 | 145,652 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average common shares—diluted |
158,976 | 164,855 | 142,915 | 163,062 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash dividends declared per common share |
$ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.06 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements
(See Note 2 for revisions made to certain amounts previously reported)
5
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income/(Loss)
(In Thousands)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net income/(loss) |
$ | 8,005 | $ | 17,630 | $ | (2,256 | ) | $ | 32,777 | |||||||
| Other comprehensive (loss)/income |
||||||||||||||||
| Foreign currency translation adjustment, net of income taxes |
(1,721 | ) | 170 | (2,207 | ) | 53 | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive (loss)/income |
(1,721 | ) | 170 | (2,207 | ) | 53 | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive income/(loss) |
$ | 6,284 | $ | 17,800 | $ | (4,463 | ) | $ | 32,830 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements
6
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
For the Three Months Ended June 30, 2022 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—April 1, 2022 |
146,560 | $ | 1,466 | $ | 284,421 | $ | 196 | $ | (32,706 | ) | $ | 253,377 | ||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
(49 | ) | (1 | ) | 1 | — | — | — | ||||||||||||||||
| Stock-based compensation |
— | — | 2,432 | — | — | 2,432 | ||||||||||||||||||
| Other comprehensive loss |
— | — | — | (1,721 | ) | — | (1,721 | ) | ||||||||||||||||
| Dividends |
— | — | (4,837 | ) | — | — | (4,837 | ) | ||||||||||||||||
| Net income |
— | — | — | — | 8,005 | 8,005 | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2022 |
146,511 | $ | 1,465 | $ | 282,017 | $ | (1,525 | ) | $ | (24,701 | ) | $ | 257,256 | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the Three Months Ended June 30, 2021 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—April 1, 2021 |
149,811 | $ | 1,498 | $ | 314,274 | $ | 985 | $ | (42,573 | ) | $ | 274,184 | ||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
(134 | ) | (2 | ) | 2 | — | — | — | ||||||||||||||||
| Shares repurchased |
(4,631 | ) | (46 | ) | (31,830 | ) | — | — | (31,876 | ) | ||||||||||||||
| Exercise of stock options, net |
68 | 1 | 435 | — | — | 436 | ||||||||||||||||||
| Stock-based compensation |
— | — | 2,121 | — | — | 2,121 | ||||||||||||||||||
| Other comprehensive loss |
— | — | — | 170 | — | 170 | ||||||||||||||||||
| Dividends |
— | — | — | — | (4,928 | ) | (4,928 | ) | ||||||||||||||||
| Net income |
— | — | — | — | 17,630 | 17,630 | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2021 |
145,114 | $ | 1,451 | $ | 285,002 | $ | 1,155 | $ | (29,871 | ) | $ | 257,737 | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
7
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
(In Thousands)
(Unaudited)
For the Six Months Ended June 30, 2022 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—January 1, 2022 |
145,107 | $ | 1,451 | $ | 289,736 | $ | 682 | $ | (22,445 | ) | $ | 269,424 | ||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
1,993 | 20 | (20 | ) | — | — | — | |||||||||||||||||
| Shares repurchased |
(589 | ) | (6 | ) | (3,388 | ) | — | — | (3,394 | ) | ||||||||||||||
| Stock-based compensation |
— | — | 5,368 | — | — | 5,368 | ||||||||||||||||||
| Other comprehensive loss |
— | — | — | (2,207 | ) | — | (2,207 | ) | ||||||||||||||||
| Dividends |
— | — | (9,679 | ) | — | — | (9,679 | ) | ||||||||||||||||
| Net loss |
— | — | — | — | (2,256 | ) | (2,256 | ) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2022 |
146,511 | $ | 1,465 | $ | 282,017 | $ | (1,525 | ) | $ | (24,701 | ) | $ | 257,256 | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the Six Months Ended June 30, 2021 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance—January 1, 2021 |
148,716 | $ | 1,487 | $ | 317,075 | $ | 1,102 | $ | (53,399 | ) | $ | 266,265 | ||||||||||||
| Reclassification of equity component related to convertible notes, net deferred taxes of $1,022, upon the implementation of Accounting Standards Update 2020-06 (Note 10 ) |
— | — | (3,682 | ) | — | 616 | (3,066 | ) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—January 1, 2021 (as adjusted) |
148,716 | $ | 1,487 | $ | 313,393 | $ | 1,102 | $ | (52,783 | ) | $ | 263,199 | ||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
1,376 | 13 | (13 | ) | — | — | — | |||||||||||||||||
| Shares repurchased |
(5,121 | ) | (51 | ) | (34,455 | ) | — | — | (34,506 | ) | ||||||||||||||
| Exercise of stock options, net |
143 | 2 | 813 | — | — | 815 | ||||||||||||||||||
| Stock-based compensation |
— | — | 5,264 | — | — | 5,264 | ||||||||||||||||||
| Other comprehensive income |
— | — | — | 53 | — | 53 | ||||||||||||||||||
| Dividends |
— | — | — | — | (9,865 | ) | (9,865 | ) | ||||||||||||||||
| Net income |
— | — | — | — | 32,777 | 32,777 | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance—June 30, 2021 |
145,114 | $ | 1,451 | $ | 285,002 | $ | 1,155 | $ | (29,871 | ) | $ | 257,737 | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
8
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net (loss)/income |
$ | (2,256 | ) | $ | 32,777 | |||
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: |
||||||||
| Loss/(gain) on revaluation of deferred consideration—gold payments |
14,707 | (3,329 | ) | |||||
| Advisory and license fees paid in gold, other precious metals and cryptocurrency |
(31,511 | ) | (39,341 | ) | ||||
| Deferred income taxes |
3,378 | 3,367 | ||||||
| Losses on securities owned, at fair value |
9,322 | 696 | ||||||
| Contractual gold payments |
8,896 | 8,584 | ||||||
| Stock-based compensation |
5,368 | 5,264 | ||||||
| Amortization of issuance costs—convertible notes |
1,293 | 899 | ||||||
| Amortization of right of use asset |
332 | 1,340 | ||||||
| Depreciation and amortization |
100 | 508 | ||||||
| Impairments |
— | 303 | ||||||
| Other |
120 | (372 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(3,718 | ) | (2,622 | ) | ||||
| Prepaid expenses |
(3,613 | ) | (2,497 | ) | ||||
| Gold and other precious metals |
23,743 | 27,959 | ||||||
| Other assets |
(241 | ) | (202 | ) | ||||
| Intangibles—software development |
(724 | ) | — | |||||
| Fund management and administration payable |
423 | (896 | ) | |||||
| Compensation and benefits payable |
(13,537 | ) | (7,396 | ) | ||||
| Income taxes payable |
(5,235 | ) | (1,852 | ) | ||||
| Operating lease liabilities |
(348 | ) | (1,658 | ) | ||||
| Accounts payable and other liabilities |
2,043 | 858 | ||||||
| |
|
|
|
|||||
| Net cash provided by operating activities |
8,542 | 22,390 | ||||||
| |
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchase of securities owned, at fair value |
(32,488 | ) | (29,819 | ) | ||||
| Purchase of investments |
(11,863 | ) | (5,750 | ) | ||||
| Purchase of fixed assets |
(205 | ) | (173 | ) | ||||
| Proceeds from the sale of securities owned, at fair value |
21,455 | 5,212 | ||||||
| Proceeds from held-to-maturity |
31 | 77 | ||||||
| |
|
|
|
|||||
| Net cash used in investing activities |
(23,070 | ) | (30,453 | ) | ||||
| |
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Dividends paid |
(9,679 | ) | (9,865 | ) | ||||
| Shares repurchased |
(3,394 | ) | (34,506 | ) | ||||
| Convertible notes issuance costs |
— | (4,297 | ) | |||||
| Proceeds from the issuance of convertible notes |
— | 150,000 | ||||||
| Proceeds from exercise of stock options |
— | 815 | ||||||
| |
|
|
|
|||||
| Net cash (used in)/provided by financing activities |
(13,073 | ) | 102,147 | |||||
| |
|
|
|
|||||
| (Decrease)/increase in cash flow due to changes in foreign exchange rate |
(3,372 | ) | 126 | |||||
| |
|
|
|
|||||
| Net (decrease)/increase in cash and cash equivalents |
(30,973 | ) | 94,210 | |||||
| Cash and cash equivalents—beginning of year |
140,709 | 73,425 | ||||||
| |
|
|
|
|||||
| Cash and cash equivalents—end of period |
$ | 109,736 | $ | 167,635 | ||||
| |
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for income taxes |
$ | 7,724 | $ | 5,846 | ||||
| |
|
|
|
|||||
| Cash paid for interest |
$ | 6,156 | $ | 3,719 | ||||
| |
|
|
|
|||||
NON-CASH
ACTIVITIES On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $616, increasing the carrying value of the convertible notes by $4,088, reducing additional paid in capital by $3,682 and reducing deferred tax liabilities by $1,022, upon the implementation of Accounting Standards Update (“ASU”) (Note
2020-06,
Debt – Debt with Conversion and Other Options
10
). The accompanying notes are an integral part of these consolidated financial statements
(See Note 2 for reclassifications made to certain amounts previously reported)
9
WisdomTree Investments, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
1. Organization and Description of Business
WisdomTree Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange-traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The Company has the following wholly-owned operating subsidiaries:
| • | WisdomTree Asset Management, Inc. non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. |
| • | WisdomTree Management Jersey Limited leveraged-and-inverse |
| • | WisdomTree Multi Asset Management Limited non-consolidated public limited company domiciled in Ireland. |
| • | WisdomTree Management Limited non-consolidated public limited company domiciled in Ireland. |
| • | WisdomTree UK Limited |
| • | WisdomTree Europe Limited |
| • | WisdomTree Ireland Limited |
| • | WisdomTree Digital Commodity Services, LLC |
| • | WisdomTree Digital Management, Inc. SEC-registered investment adviser and will provide investment advisory and other management services to blockchain-enabled mutuals hares are secondarily recorded on a blockchain. |
• |
WisdomTree Digital Movement, Inc |
• |
WisdomTree Securities, Inc. |
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 statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
10
Immaterial Correction of an Error – Consolidated Statements of Operations
The presentation of the amounts collected on behalf of third parties of $1,828 and $3,402 for the three and six months ended June 30, 2021 have been revised due to an immaterial error correction. These amounts were originally recorded as advisory fee revenue and fund management and administration expense while no such amounts should have been recorded in the Consolidated Statements of Operations. The following table summarizes these revisions, which had no effect on previously reported net income:
Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2021 |
|||||||
| Operating Revenues : |
|
|
|
|
|
|
|
|
| Advisory fees (previously reported) |
$ | 75,997 | $ | 147,613 | ||||
| Amounts collected on behalf of third parties |
(1,828 | ) | (3,402 | ) | ||||
| |
|
|
|
|||||
| Advisory fees (as corrected) |
$ | 74,169 | $ | 144,211 | ||||
| |
|
|
|
|||||
| Total revenues (previously reported) |
$ | 77,603 | $ | 150,433 | ||||
| Amounts collected on behalf of third parties |
(1,828 | ) | (3,402 | ) | ||||
| |
|
|
|
|||||
| Total revenues (as corrected) |
$ | 75,775 | $ | 147,031 | ||||
| |
|
|
|
|||||
| Operating Expenses: |
||||||||
| Fund management and administration (previously reported) |
$ | 16,195 | $ | 31,716 | ||||
| Amounts collected on behalf of third parties |
(1,828 | ) | (3,402 | ) | ||||
| |
|
|
|
|||||
| Fund management and administration (as corrected) |
$ | 14,367 | $ | 28,314 | ||||
| |
|
|
|
|||||
| Total operating expenses (previously reported) |
$ | 53,918 | $ | 108,141 | ||||
| Amounts collected on behalf of third parties |
(1,828 | ) | (3,402 | ) | ||||
| |
|
|
|
|||||
| Total operating expenses (as corrected) |
$ | 52,090 | $ | 104,739 | ||||
| |
|
|
|
|||||
Reclassifications—Consolidated Statements of Cash Flows
Cash flows from purchasing securities owned, at fair value of $29,819 and selling securities owned, at fair value of $5,212 during the six months ended June 30, 2021 that were not acquired specifically for resale or associated with the Company’s business activities have been reclassified from operating activities to investing activities to conform to the current year’s presentation in the Consolidated Statements of Cash Flows.
The following table summarizes these reclassifications for the six months ended June 30, 2021:
Six Months Ended June 30, 2021 |
||||
| Consolidated Statements of Cash Flows : |
|
|
|
|
| Cash Flows from Operating Activities |
||||
| Net cash used in operating activities (previously reported) |
$ | (2,217 | ) | |
| Reclassification of net cash flows from securities purchases and sales |
24,607 | |||
| |
|
|||
| Net cash provided by operating activities (currently reported) |
$ | 22,390 | ||
| |
|
|||
| Cash Flows from Investing Activities |
||||
| Net cash used in investing activities (previously reported) |
$ | (5,846 | ) | |
| Reclassification of purchases of securities owned, at fair value |
(29,819 | ) | ||
| Reclassification of proceeds from the sale of securities owned, at fair value |
5,212 | |||
| |
|
|||
| Net cash used in investing activities (currently reported) |
$ | (30,453 | ) | |
| |
|
|||
11
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, 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 chief operating decision maker 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/(Loss) 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 substantially all of its revenue 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.
Contractual Gold Payments
Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 9).
Marketing and Advertising
Marketing and advertising costs, including media advertising and production costs, are expensed when incurred.
Depreciation and Amortization
Depreciation and amortization is provided for using the straight-line method over the estimated useful lives of the related assets as follows:
Equipment |
3 to 5 years |
||||
Internally-developed software |
3 years |
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.
12
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 ETFs and for including WisdomTree ETFs on third-party customer platforms and recognizes these expenses as incurred.
Cash and Cash Equivalents
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.
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.
Securities Owned and Securities Sold, but not yet Purchased (at fair value)
Securities owned and securities sold, but not yet purchased are securities classified as either trading or (“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income and other comprehensive income, respectively, in the period the change occurs. Debt securities 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 security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security 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 security using the specific identification method.
available-for-sale
Securities
Held-to-Maturity
The Company accounts for certain of its securities as on a trade date basis, which are recorded at amortized cost. For securities, the Company has the intent and ability to hold these securities to maturity and it is not securities are placed on securities placed on
held-to-maturity
held-to-maturity
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
non-accrual
status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on held-to-maturity
non-accrual
status is recognized on a cash basis as interest income if and when received. The Company reviews its portfolio of 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.
held-to-maturity
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, (“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 – Equity Securities
Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income.
13
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 30
th
. 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 30
th
. 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. Capitalized 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, (“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 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, 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.
Leases
right-of-use
right-of-use
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 represents the present value of an obligation to pay gold to a third party into perpetuity and is 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 of this obligation are reported as (loss)/gain on revaluation of deferred consideration – gold payments in the Consolidated Statements of Operations.
14
Convertible Notes
Convertible notes are carried at amortized cost, net of issuance costs. In accordance with Accounting Standards Update (“ASU”) , 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.
2020-06
Debt – Debt with Conversion and Other Options
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. The Series A
non-voting
convertible preferred stock (Note 12) and unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are 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 and the convertible notes, if any. Potential common shares associated with the Series A non-voting
convertible preferred stock and the convertible notes are 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 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense. 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. Non-income
based taxes are recorded as part of other liabilities and other expenses.3. Cash and Cash Equivalents
Of the total cash and cash equivalents of $109,736 and $140,709 at June 30, 2022 and December 31, 2021, respectively, $107,666 and $127,328 were held at two financial institutions. At June 30, 2022 and December 31, 2021, cash equivalents were approximately $2,001 and $11,488, respectively.
Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was $25,450 and $12,320 at June 30, 2022 and December 31, 2021, respectively. These requirements are generally satisfied by cash on hand.
15
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, , 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:
Fair Value Measurement
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant drivers are unobservable.
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.
The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three and six months ended June 30, 2022 and 2021 there were no transfers between Levels 2 and 3.
June 30, 2022 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Assets: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Cash equivalents |
$ | 2,001 | $ | 2,001 | $ | — | $ | — | ||||||||
| Securities owned, at fair value |
||||||||||||||||
| ETFs |
13,091 | 13,091 | — | — | ||||||||||||
| Pass-through GSEs |
114,004 | 24,347 | 89,657 | — | ||||||||||||
| Corporate bonds |
1,757 | — | 1,757 | — | ||||||||||||
| Investments in Convertible Notes |
||||||||||||||||
| Securrency, Inc. – convertible note 7 ) |
5,279 | — | — | 5,279 | ||||||||||||
| Fnality International Limited – convertible note (Note 7 ) |
6,433 | — | — | 6,433 | ||||||||||||
| Total |
|
$ |
142,565 |
|
|
$ |
39,439 |
|
|
$ |
91,414 |
|
|
$ |
11,712 |
|
| Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Onramp Invest, Inc. – preferred stock (Note 7 )(1) |
312 | — | — | 312 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Deferred consideration (Note 9 ) |
$ | 242,767 | $ | — | $ | — | $ | 242,767 | ||||||||
(1) |
Fair value determined on May 10, 2022 (Note 7). |
16
December 31, 2021 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Assets: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Cash equivalents |
$ | 11,488 | $ | 11,488 | $ | — | $ | — | ||||||||
| Securities owned, at fair value |
||||||||||||||||
| ETFs |
18,812 | 18,812 | — | — | ||||||||||||
| Pass-through GSEs |
106,245 | 24,720 | 81,525 | — | ||||||||||||
| Corporate bonds |
2,109 | — | 2,109 | — | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 138,654 | $ | 55,020 | $ | 83,634 | $ | — | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Non-recurring fair value measurements: |
||||||||||||||||
| Securrency, Inc. – Series A convertible preferred stock (1) |
8,488 | — | — | 8,488 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Deferred consideration (Note 9 ) |
$ | 228,062 | $ | — | $ | — | $ | 228,062 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
(1) |
Fair value of $8,488 and $8,349 determined on June 9, 2021 and March 8, 2021, respectively (Note 7 ). |
Recurring Fair Value Measurements—Methodology
Cash Equivalents (Note
3
)
Securities Owned (Note
5
)
Fair Value Measurements classified as Level 3
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Investments in Convertible Notes (Note 7) |
||||||||||||||||
| Beginning balance |
$ |
6,700 |
$ |
— |
$ |
— |
$ |
— |
||||||||
| Purchases |
5,000 |
— |
11,863 |
— |
||||||||||||
| Net unrealized gains/(losses) (1) |
12 |
— |
(151 |
) |
— |
|||||||||||
| |
|
|
|
|
|
|
|
|
||||||||
| Ending balance |
$ |
11,712 |
$ |
— |
$ |
11,712 |
$ |
— |
||||||||
| |
|
|
|
|
|
|
|
|
||||||||
| Deferred Consideration (Note 9) |
||||||||||||||||
| Beginning balance |
$ | 245,177 | $ | 227,146 | $ | 228,062 | $ | 230,137 | ||||||||
| Net realized losses ( 2 ) |
4,446 | 4,314 | 8,896 | 8,584 | ||||||||||||
| Net unrealized (gains)/losses ( 3 ) |
(2,311 | ) | (497 | ) | 14,707 | (3,329 | ) | |||||||||
| Settlements |
(4,545 | ) | (4,257 | ) | (8,898 | ) | (8,686 | ) | ||||||||
| |
|
|
|
|
|
|
|
|
||||||||
| Ending balance |
$ | 242,767 | $ | 226,706 | $ | 242,767 | $ | 226,706 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
(1) |
Recorded in other losses and gains, net in the Consolidated Statements of Operations. |
(2) |
Recorded as contractual gold payments expense in the Consolidated Statements of Operations. |
(3) |
Recorded as gain/(loss) on revaluation of deferred consideration–gold payments in the Consolidated Statements of Operations. |
5. Securities Owned
These securities consist of the following:
Securities Owned |
June 30, 2022 |
December 31, 2021 |
||||||
| Trading securities |
$ | 128,852 | $ | 127,166 | ||||
| |
|
|
|
|||||
17
The Company recognized net trading losses on securities owned that were still held at the reporting dates of $3,596 and $272 during the three months ended June 30, 2022 and 2021, respectively, and $7,912 and $833 during the six months ended June 30, 2022 and 2021, respectively, which were recorded in other losses and gains, net, in the Consolidated Statements of Operations.
6. Securities
Held-to-Maturity
The following table is a summary of the Company’s securities
held-to-maturity:
June 30, 2022 |
December 31, 2021 |
|||||||
| Debt instruments: Pass-through GSEs (amortized cost) |
$ | 277 | $ | 308 | ||||
| |
|
|
|
|||||
During the six months ended June 30, 2022 and 2021, the Company received proceeds of $31 and $77, respectively, from securities maturing or being called prior to maturity.
held-to-maturity
The following table summarizes unrealized gains, losses and fair value (classified as Level 2 within the fair value hierarchy) of securities
held-to-maturity:
June 30, 2022 |
December 31, 2021 |
|||||||
Cost/amortized cost |
$ | 277 | $ | 308 | ||||
Gross unrealized gains |
2 | 13 | ||||||
Gross unrealized losses |
(12 | ) | — | |||||
Fair value |
$ | 267 | $ | 321 | ||||
An allowance for credit losses was not provided on the Company’s 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.
held-to-maturity
The following table sets forth the maturity profile of the securities however, these securities may be called prior to maturity date:
held-to-maturity;
June 30, 2022 |
December 31, 2021 |
|||||||
Due within one year |
$ | — | $ | — | ||||
Due one year through five years |
— | — | ||||||
Due five years through ten years |
30 | — | ||||||
Due over ten years |
247 | 308 | ||||||
Total |
$ | 277 | $ | 308 | ||||
7. Investments
The following table sets forth the Company’s investments:
June 30, 2022 |
December 31, 2021 |
|||||||||||||||
Carrying Value |
Cost |
Carrying Value |
Cost |
|||||||||||||
Securrency, Inc. – Series A convertible preferred stock |
$ | 8,488 | $ | 8,112 | $ | 8,488 | $ | 8,112 | ||||||||
Securrency, Inc. – Series B convertible preferred stock |
5,500 | 5,500 | 5,500 | 5,500 | ||||||||||||
Securrency, Inc. – convertible note |
5,279 | 5,000 | — | — | ||||||||||||
Subtotal – Securrency, Inc. |
$ | 19,267 | $ | 18,612 | $ | 13,988 | $ | 13,612 | ||||||||
Fnality International Limited – convertible note |
6,433 | 6,863 | — | — | ||||||||||||
Onramp Invest, Inc. – Series A-4 preferred stock |
312 | 250 | 250 | 250 | ||||||||||||
| $ | 26,012 | $ | 25,725 | $ | 14,238 | $ | 13,862 | |||||||||
Securrency, Inc. – Preferred Stock
The Company owns approximately 22% (or 18% on a fully-diluted basis) of the capital stock of Securrency, Inc. (“Securrency”), a developer of institutional-grade blockchain-based financial and regulatory technology, issued as a result of strategic investments totaling $13,612. In consideration of such investments, the Company received 5,178,488 shares of Series A convertible preferred stock (“Series A Shares”) in December of 2019 and 2,004,665 shares of Series B convertible preferred stock (“Series B Shares”) in March of 2021. The Series B Shares contain a liquidation preference that is pari passu with shares of Series
B-1
convertible preferred stock (which are substantially the same as the Series B Shares except that they have limited voting rights) and senior to that of the holders of the Series A Shares, which are senior to the holders of common stock. Otherwise, the Series A Shares and Series B Shares have substantially the same terms, are convertible into common stock at the option of the Company and contain various rights and protections including a non-cumulative
6.0% dividend, payable if and when declared by the board of directors ofSecurrency. In addition, the Series A
18
Shares and Series B Shares (together with the Series
B-1
convertible preferred stock) are separately redeemable, with respect to all of the shares outstanding of the applicable series of preferred stock (subject to certain regulatory restrictions of certain investors), for the original issue price thereof, plus all declared and unpaid dividends, upon approval by holders of at least 60% of the Series A Shares (at any time on or after December 31, 2029) and 90% of the Series B Shares (at any time on or after March 31, 2031). The investment is accounted for under the measurement alternative prescribed in ASC 321, as it does not have a readily determinable fair value and is not considered to be
in-substance
common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three and six months ended June 30, 2022 based upon a qualitative assessment. During the three and six months ended June 30, 2021, the Company recognized a gain of $139 and $376, respectively, on its Series A Shares, which were re-measured
to fair value upon the issuance of Securrency’s Series B Shares. 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 is allocated across the capital structure using the Black-Scholes option pricing model. The table below presents the inputs used in backsolve valuation approach (classified as Level 3 in the fair value hierarchy):
Inputs |
||||||||
June 9, 2021 |
March 8, 2021 |
|||||||
| Expected volatility |
50% | 55% | ||||||
Time to exit (in years) |
4.75 | 5 | ||||||
Securrency – Convertible Note
In April 2022, the Company participated in a convertible note financing, making a $5,000 investment in Securrency. In consideration for its investment, the Company was issued a 7% Convertible Promissory Note maturing on April 21, 2023.
The note is convertible into either Securrency’s common stock or the class of securities convertible into, exchangeable for, or conferring the right to purchase Securrency’s common stock that is issued in the event of a future equity financing at a conversion price equal to a discount
% (or, if applicable, a greater discount offered to other holders of convertible securities in such future equity financing round) to the lowest price paid per equity share issued in the future equity financing round.
The note is redeemable upon the occurrence of a corporate transaction for an amount which is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to common stock immediately prior to the occurrence of the corporate transaction. At maturity, redemption or conversion may occur upon the election by the holders of a majority-in-interest of the aggregate principal amount of outstanding notes. If no such election is made, Securrency may elect to pay or convert the notes in its sole discretion.
The note is accounted for at fair value. Fair value is determined by the Company using the probability-weighted expected return method (“PWERM”), a valuation approach that estimates the value of the note assuming various outcomes. During the three and six months ended June 30, 2022, the Company recognized a gain of
re-measuring
the notes to fair value. The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy):
June 30, 2022 |
||||
Conversion of note upon a future equity financing |
85 | % | ||
Redemption of note upon a corporate transaction |
10 | % | ||
Default |
5 | % | ||
Fnality International Limited – Convertible Note
In February 2022, the Company participated in a convertible note financing, making a £5,000 ($6,863) investment in Fnality International Limited (“Fnality”), a company incorporated in England and Wales and focused on creating a digital wholesale settlement ecosystem comprised of a consortium of financial institutions, offering real time cross-border payments from a single pool of liquidity. In consideration for its investment, the Company was issued a 5% Convertible Unsecured Loan Note maturing on December 31, 2023.
peer-to-peer
The note is convertible into equity shares in the event of a future financing round at a conversion price equal to the lower of (i) a discount
% to lowest price paid per equity share issued pursuant to such future financing round and (ii) an amount paid per share subject to a pre-money valuation cap. Mandatory conversion may occur on or after the maturity date or, if earlier, in the event a future financing round has not been completed within a specified time from an initial closing of such financing round (“Long Stop Date”), upon the approval of holders of at least 75% of the outstanding notes. The note is also convertible, at the option of the Company, following the earlier of the maturity date or such Long Stop Date.
19
The note is redeemable upon the occurrence of a change of control for an amount which is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to equity shares immediately prior to the occurrence of the change of control. Redemption may also occur on or after maturity or prior to maturity upon approval by holders of at
lea
st 50% and 75
%, respectively, of the outstanding notes, or in connection with bankruptcy or other liquidation events.
The note is accounted for at fair value. Fair value is determined by the Company using the PWERM and is also remeasured for changes in the British pound and U.S. dollar exchange rate. During the three and six months ended June 30, 2022, the Company recognized a loss of $163 and $430, respectively, when
re-measuring
the notes to fair value. The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy):
June 30, 2022 |
||||
Conversion of note upon a future financing roun d |
85 | % | ||
Redemption of note upon a change of control |
10 | % | ||
Default |
5 | % | ||
Onramp Invest, Inc. – Preferred Stock
In June 2021, the Company invested $250 in Onramp Invest, Inc. (“Onramp”), a technology company that provides access to crypto assets for registered investment advisers. In consideration for its investment, the Company was issued a Simple Agreement for Future Equity (“SAFE”), which provided the Company with the right to be issued certain shares of Onramp’s preferred stock in connection with Onramp’s future equity financing for preferred stock, at a 20
%
discount to the price per share issued in connection with such equity financing, subject to a
pre-determined
valuation cap. In May 2022, in connection with a Series A financing by Onramp, the Company’s SAFE was converted into shares of Series A-4
Preferred Stock, representing a small ownership interest in Onramp. The investment is accounted for under the measurement alternative prescribed in ASU connection with the conversion of the SAFE into Series . There was no impairment recognized during the three and six months ended June 30, 2021 based upon a qualitative assessment.
2016-01,
as it does not have a readily determinable fair value and is not considered to be in-substance
common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. During the three and six months ended June 30, 2022, the Company recognized a gain of $62 i
n8. Fixed Assets, net
The following table summarizes fixed assets:
June 30, 2022 |
December 31, 2021 |
|||||||
| Equipment |
$ | 947 | $ | 784 | ||||
| Less: accumulated depreciation |
(306 | ) | (227 | ) | ||||
| |
|
|
|
|||||
| Total |
$ | 641 | $ | 557 | ||||
| |
|
|
|
|||||
9. Deferred Consideration
Deferred consideration represents 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 (“ETFS Acquisition”). The obligation is for fixed payments to ETFS Capital of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”).
The Contractual Gold Payments are paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold and are subject to adjustment and reduction for declines in advisory fee income generated by such products, with any reduction remaining due and payable until paid in full. ETFS Capital’s recourse is limited to such advisory fee income and it has no recourse back to the Company for any unpaid amounts that exceed advisory fees earned. ETFS Capital ultimately has the right to claw back Gold Bullion Securities Ltd. (a physically backed gold ETP issuer) if the Company fails to remit any amounts due.
20
The Company determined the present value of the deferred consideration of $242,767 and $228,062 at June 30, 2022 and December 31, 2021 using the following assumptions:
| June 30, 2022 |
December 31, 2021 |
|||||||
| Forward-looking gold price (low) – per ounce |
$ | 1,812 | $ | 1,833 | ||||
| Forward-looking gold price (high) – per ounce |
$ | 3,148 | $ | 2,705 | ||||
| Forward-looking gold price (weighted average) – per ounce |
$ | 2,265 | $ | 2,106 | ||||
| Discount rate |
9.0 | % | 9.0 | % | ||||
| Perpetual growth rate |
1.43 | % | 1.0 | % | ||||
The forward-looking gold prices at June 30, 2022 were extrapolated from the last observable CMX exchange price (beyond 2027) and the weighted-average price per ounce was derived from the relative present values of the annual payment obligations. The perpetual growth rate was determined based upon the increase in observable forward-looking gold prices through 2027. This obligation is classified as Level 3 as the discount rate, the extrapolated forward-looking gold prices and perpetual growth rate are significant unobservable inputs. An increase in spot gold prices, forward-looking gold prices and the perpetual growth rate would result in an increase in deferred consideration, whereas an increase in the discount rate would reduce the fair value.
Current amounts payable were $16,626 and $16,739 and long-term amounts payable were $226,141 and $211,323, respectively, at June 30, 2022 and December 31, 2021, respectively.
During the three and six months ended June 30, 2022 and 2021, the Company recognized the following in respect of deferred consideration:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Contractual gold payments |
$ | 4,446 | $ | 4,314 | $ | 8,896 | $ | 8,584 | ||||||||
| Contractual gold payments – gold ounces paid |
2,375 | 2,375 | 4,750 | 4,750 | ||||||||||||
| Gain/(loss) on revaluation of deferred consideration – gold payments (1) |
$ | 2,311 | $ | 497 | $ | (14,707 | ) | $ | 3,329 | |||||||
| (1) | Gains on revaluation of deferred consideration—gold payments result from a decrease in spot gold prices, a decrease in the forward-looking price of gold, a decrease in the perpetual growth rate and an increase in the discount rate used to compute the present value of the annual payment obligations. Losses on revaluation of deferred consideration—gold payments result from an increase in spot gold prices, an increase in the forward-looking price of gold, an increase in the perpetual growth rate and a decrease in the discount rate used to compute the present value of the annual payment obligations. |
10. Convertible Notes
On June 14, 2021, the Company issued and sold $150,000 in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”), in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”).
On June 16, 2020, the Company issued and sold $150,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “June 2020 Notes”) pursuant to an indenture dated June 16, 2020, between the Company and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On August 13, 2020, the Company issued and sold $25,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, and constitute a further issuance of, and form a single series with, the Company’s June 2020 Notes (the “August 2020 Notes” and together with the June 2020 Notes, the “2020 Notes”).
After the issuance of the 2021 Notes (and together with the 2020 Notes, the “Convertible Notes”), the Company had $325,000 aggregate principal amount of Convertible Notes outstanding.
21
Key terms of the Convertible Notes are as follows:
2021 Notes |
2020 Notes |
|||||||
| Maturity date (unless earlier converted, repurchased or redeemed) |
June 15, 2026 | June 15, 2023 | ||||||
| Interest rate |
3.25 | % | 4.25 | % | ||||
| Conversion price |
$ | 11.04 | $ | 5.92 | ||||
| Conversion rate |
90.5797 | 168.9189 | ||||||
| Redemption price |
$ | 14.35 | $ | 7.70 | ||||
| • | Interest rate |
| • | Conversion price |
| • | Conversion of specified corporate events. On or after March 15, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, 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 |
| • | Redemption price: The Company may redeem for cash all or any portion of the notes, at its option, on or after June 20, 2023 and June 20, 2021 in respect of the 2021 Notes and 2020 Notes, respectively, and on or prior to the 55th |
| • | Limited investor put rights |
| • | Conversion rate increase in certain customary circumstances |
| • | Seniority and Security Non-Voting Convertible Preferred Stock (Note 12). |
The indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes outstanding may declare the entire principal amount of all the Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable.
22
The following table provides a summary of the carrying value of the Convertible Notes at June 30, 2022 and December 31, 2021:
June 30, 2022 |
December 31, 2021 |
|||||||||||||||||||||||
2021 Notes |
2020 Notes |
Total |
2021 Notes |
2020 Notes |
Total |
|||||||||||||||||||
Principal amount |
$ | 150,000 | $ | 175,000 | $ | 325,000 | $ | 150,000 | $ | 175,000 | $ | 325,000 | ||||||||||||
Plus: Premium |
— | 250 | 250 | — | 250 | 250 | ||||||||||||||||||
Gross proceeds |
150,000 | 175,250 | 325,250 | $ | 150,000 | $ | 175,250 | $ | 325,250 | |||||||||||||||
Less: Unamortized issuance costs (1) |
(3,408 | ) | (1,925 | ) | (5,333 | ) | (3,833 | ) | (2,793 | ) | (6,626 | ) | ||||||||||||
Carrying amount |
$ | 146,592 | $ | 173,325 | $ | 319,917 | 146,167 | $ | 172,457 | $ | 318,624 | |||||||||||||
Effective interest rate (1) |
3.83 | % | 5.26 | % | 4.60 | % | 3.83 | % | 5.26 | % | 4.60 | % | ||||||||||||
| (1) | Includes amortization of the issuance costs and premium. |
On January 1, 2021, the Company early adopted ASU
2020-06,
which simplified the accounting for convertible instruments by providing for such instruments being reported as a single liability (applicable to the convertible notes) or equity with no separate accounting for the 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. Previously, convertible instruments were required to be separated into their liability and equity components by allocating the issuance proceeds to each of those components. The discount arising from the recognition of the equity component was amortized as interest expense over the life of the 2020 Notes. Interest expense on the Convertible Notes was $3,733 and $7,465, respectively, during the three and six months ended June 30, 2022, and $2,567 and $4,863, respectively, during the comparable periods in 2021. Interest payable of $605 and $590 at June 30, 2022 and December 31, 2021 is included in accounts payable and other liabilities in the Consolidated Balance Sheets.
The fair value of the Convertible Notes (classified as Level 2 in the fair value hierarchy) was $322,311 and $360,571 at June 30, 2022 and December 31, 2021, respectively. The
if-converted
value of the 2020 Notes did not exceed the principal amount at June 30, 2022 and was $180,912 at December 31, 2021. The if-converted
value of the 2021 Notes did not exceed the principal amount at June 30, 2022 and December 31, 2021.
11. Preferred Shares
On April 10, 2018, the Company filed a Certificate of Designations of Series A
Non-Voting
Convertible Preferred Stock with the Secretary of State of the State of Delaware establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Preferred Shares (defined below). The Preferred Shares are intended to provide ETFS Capital with economic rights equivalent to the Company’s common stock on an as-converted
basis. The Preferred Shares have no voting rights, are not transferable and have the same priority with regard to dividends, distributions and payments as the common stock. As described in the Certificate of Designations, the Company will not issue, and ETFS Capital does not have the right to require the Company to issue, any shares of common stock upon conversion of the Preferred Shares, if, as a result of such conversion, ETFS Capital (together with certain attribution parties) would beneficially own more than 9.99% of the Company’s outstanding common stock immediately after giving effect to such conversion.
In connection with the completion of the ETFS Acquisition, the Company issued 14,750 shares of Series A
Non-Voting
Convertible Preferred Stock (the “Preferred Shares”), which are convertible into an aggregate of 14,750,000 shares of common stock. The fair value of this consideration was $132,750, based on the closing price of the Company’s common stock on April 10, 2018 of $9.00 per share, the trading day prior to the closing of the acquisition. The following is a summary of the Preferred Share balance:
June 30, 2022 |
December 31, 2022 |
|||||||
Issuance of Preferred Shares |
$ | 132,750 |
$ | 132,750 |
||||
Less: Issuance costs |
(181 | ) | (181 | ) | ||||
Preferred Shares – carrying value |
$ | 132,569 | $ | 132,569 | ||||
Cash dividends declared per share |
$ | 0.03 | $ | 0.03 | ||||
Temporary equity classification is required for redeemable instruments for which redemption triggers are outside of the issuer’s control. ETFS Capital has the right to redeem all the Preferred Shares specified to be converted during the period of time specified in the Certificate of Designations in the event that: (a) the number of shares of the Company’s common stock authorized by its certificate of incorporation is insufficient to permit the Company to convert all of the Preferred Shares requested by ETFS Capital to be converted; or (b) ETFS Capital does not, upon completion of a change of control of the Company, receive the same amount per Preferred Share as it would have received had each outstanding Preferred Share been converted into common stock immediately prior to the change of control. However, the Company will not be obligated to make any such redemption payments to the extent such payments would be a breach of any covenant or obligation the Company owes to any of its secured creditors or is otherwise prohibited by applicable law.
23
Any such redemption will be at a price per Preferred Share 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 will be made in one payment no later than 10 business days following the last day of the Company’s first fiscal quarter that begins on a date following the date ETFS Capital exercises such redemption right. The redemption value of the Preferred Shares was $81,970 and $90,741 at June 30, 2022 and December 31, 2021, respectively. The carrying amount of the Preferred Shares was not adjusted as it was not probable that the Preferred Shares would become redeemable.
12. Leases
The Company has entered into operating leases for its corporate headquarters and office facilities, financial data terminals and equipment. The Company has no finance leases.
The following table provides additional information regarding the Company’s leases:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Lease cost: |
||||||||||||||||
Operating lease cost |
$ |
243 |
$ |
643 |
$ |
332 |
$ |
1,340 |
||||||||
Short-term lease cost |
251 |
259 |
527 |
554 |
||||||||||||
Total lease cost |
$ |
494 |
$ |
902 |
$ |
859 |
$ |
1,894 |
||||||||
Other information: |
||||||||||||||||
Cash paid for amounts included in the measurement of operating liabilities (operating leases) |
$ |
251 |
$ |
740 |
$ |
348 |
$ |
1,658 |
||||||||
Right-of-use |
n/a |
n/a |
n/a |
n/a |
||||||||||||
Weighted-average remaining lease term (in years) – operating leases |
1.8 |
8.4 |
1.8 |
8.4 |
||||||||||||
Weighted-average discount rate – operating leases |
6.3 |
% |
6.3 |
% |
6.3 |
% |
6.3 |
% | ||||||||
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.
During the three and six months ended June 30, 2021, the Company recognized an impairment charge of $303 resulting from the derecognition of a asset upon exiting its London office in February 2021, as well as costs incurred to restore the office space to its original condition. This loss is included in impairments in the Consolidated Statements of Operations.
right-of-use
The following table discloses future minimum lease payments at June 30, 2022 with respect to the Company’s operating lease liabilities:
| Remainder of 2022 |
$ | 958 | ||
| 2023 |
1,128 | |||
| 2024 |
317 | |||
| 2025 |
— | |||
| 2026 |
— | |||
| 2027 and thereafter |
— | |||
| |
|
|||
| Total future minimum lease payments (undiscounted) |
$ | 2,403 | ||
| |
|
The following table reconciles the future minimum lease payments (disclosed above) at June 30, 2022 to the operating lease liabilities recognized in the Consolidated Balance Sheets:
| Amounts recognized in the Consolidated Balance Sheets |
||||
| Lease liability – short term |
$ | 1,093 | ||
| Lease liability – long term |
941 | |||
| |
|
|||
| Subtotal |
2,034 | |||
| Difference between undiscounted and discounted cash flows |
369 | |||
| |
|
|||
| Total future minimum lease payments (undiscounted) |
$ | 2,403 | ||
| |
|
24
13. 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.
Closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP
In December 2020, WMAI, WTMAML, WTUK and WisdomTree Ireland Limited (“WT Ireland”) were served with a writ of summons to appear before the Court of Milan, Italy. In January 2021, WTUK was served with a writ of summons to appear before the Court of Udine, Italy. Investors had filed actions 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.
In February 2022, the Court of Udine ruled in the Company’s favor. Also in February 2022, WMAI, WTMAML, WTUK and WT Ireland were served with another writ of summons to appear before the Court of Milan by additional investors seeking damages resulting from the closure of 3OIL.
In March 2022, WMAI and WTUK were served with writs of summons to appear before the Court of Turin and the Court of Milan by additional investors seeking damages. These writs also were served on the intermediary brokers for the respective claimants, with the claimants alleging joint and several liability of WMAI, WTUK and such intermediary brokers.
Total damages sought by all investors are approximately €15,800 ($16,600) at June 30, 2022.
The Company is currently assessing these claims with its external counsel. An accrual has not been made with respect to these matters at June 30, 2022 and December 31, 2021.
14. 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.
The following table presents information about the Company’s variable interests in
non-consolidated
VIEs: June 30, 2022 |
December 31, 2021 |
|||||||
| Carrying Amount – Assets (Securrency) |
|
|
||||||
| Preferred stock – Series A Shares |
$ | 8,488 | $ | 8,488 | ||||
| Preferred stock – Series B Shares |
5,500 | 5,500 | ||||||
| Convertible note |
5,279 | — | ||||||
| |
|
|
|
|||||
| Subtotal – Securrency |
$ | 19,267 | $ | 13,988 | ||||
| Carrying Amount – Assets (Fnality) |
||||||||
| Convertible note |
6,433 | — | ||||||
| Carrying Amount – Assets (Onramp) |
||||||||
| Preferred stock |
312 | 250 | ||||||
| |
|
|
|
|||||
| Total (Note 7) |
$ | 26,012 | $ | 14,238 | ||||
| |
|
|
|
|||||
| Maximum exposure to loss |
$ | 26,012 | $ | 14,238 | ||||
| |
|
|
|
|||||
25
15. Revenues from Contracts with Customers
The following table presents the Company’s total revenues from contracts with
customers:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Revenues from contracts with customers: |
|
|
|
|
||||||||||||
| Advisory fees (1) |
$ | 75,586 | $ | 74,169 | $ | 152,103 | $ | 144,211 | ||||||||
| Other |
1,667 | 1,606 | 3,518 | 2,820 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating revenues |
$ | 77,253 | $ | 75,775 | $ | 155,621 | $ | 147,031 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Advisory fees previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. See Note 2 for additional information. |
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.
Substantially all the Company’s revenues from contracts with customers are derived primarily from investment advisory agreements with related parties (Note 16). 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.
Geographic Distribution of Revenue
The following table presents the Company’s total revenues geographically as determined by where the respective management companies
reside:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Revenues from contracts with customers: |
|
|
|
|
||||||||||||
| United States |
$ | 45,807 | $ | 44,522 | $ | 92,036 | $ | 85,221 | ||||||||
| Jersey (1) |
27,811 | 28,812 | 56,409 | 57,228 | ||||||||||||
| Ireland |
3,635 | 2,441 | 7,176 | 4,582 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating revenues |
$ | 77,253 | $ | 75,775 | $ | 155,621 | $ | 147,031 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Advisory fees previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. See Note 2 for additional information. |
16. Related Party Transactions
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 and WisdomTree UCITS ETFs. The Board of Trustees and Board of Directors (including certain officers of the Company) of the related parties are primarily responsible for overseeing the management and affairs of the entities for the benefit of their 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’ average daily net assets. A majority of the independent members of the Board of Trustees are required to annually approve the advisory agreements of the U.S. WisdomTree ETFs and these agreements may be terminated by the Board of Trustees upon notice. 26
The following table summarizes accounts receivable from related parties which are included as a component of accounts receivable in the Consolidated Balance Sheets:
June 30, 2022 |
December 31, 2021 |
|||||||
| Receivable from WTT |
$ | 14,719 | $ | 15,987 | ||||
| Receivable from ManJer Issuers |
5,871 | 6,460 | ||||||
| Receivable from WMAI and WTI |
3,315 | 3,181 | ||||||
| |
|
|
|
|||||
| Total |
$ | 23,905 | $ | 25,628 | ||||
| |
|
|
|
|||||
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.
The following table summarizes revenues from advisory services provided to related parties:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Advisory services provided to WTT |
$ | 45,670 | $ | 44,442 | $ | 91,740 | $ | 84,978 | ||||||||
| Advisory services provided to ManJer Issuers (1) |
26,282 | 25,065 | 53,187 | 50,536 | ||||||||||||
| Advisory services provided to WMAI and WTI |
3,634 | 4,662 | 7,176 | 8,697 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 75,586 | $ | 74,169 | $ | 152,103 | $ | 144,211 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
(1) |
Advisory fees previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. See Note 2 for additional information. |
The Company also has investments in certain WisdomTree ETFs of approximately $12,841 and $18,526 at June 30, 2022 and December 31, 2021, respectively. Net gains and losses related to trading WisdomTree ETFs were ($313) and ($1,119), respectively, during the three and six months ended June 30, 2022, and $167 and ($217), respectively, during the comparable periods in 2021. Such gains and losses are recorded in other losses and gains, net in the Consolidated Statements of Operations.
17. Stock-Based Awards
On June 20, 2016, the Company’s stockholders approved an equity award plan under which the Company can issue up to 10,000,000
shares of common stock (less one share for every share granted under prior plans since March 31, 2016 and inclusive of shares available under the prior plans as of March 31, 2016) in the form of stock options and other stock-based awards.
The Company grants equity awards to employees and directors which include restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and stock options. Certain awards described below are subject to acceleration under certain conditions.
• |
If the relative TSR is below the 25 th percentile, then 0% of the target number of PRSUs granted will vest; |
• |
If the relative TSR is at the 25 th percentile, then 50% of the target number of PRSUs granted will vest; and |
• |
If the relative TSR is above the 25 th 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 (or 100th percentile for grants made during 2019 and 2020). |
• |
If the Company’s TSR is negative, the target number of PRSUs vesting is capped at 100% regardless of the relative TSR percentile. |
27
Stock-based compensation expense was $2,432 and $5,368, respectively, during the three and six months ended June 30, 2022, and $2,121 and $5,264, respectively, during the comparable periods in 2021.
A summary of unrecognized stock-based compensation expense and average remaining vesting period is as follows:
June 30, 2022 |
||||||||
Unrecognized Stock- Based Compensation |
Average Remaining Vesting Period (Years) |
|||||||
| Employees and directors |
$ | 17,044 | 1.90 | |||||
A summary of stock-based compensation award activity (shares) during the three months ended June 30, 2022 is as follows:
RSAs |
RSUs |
PRSUs |
||||||||||
| Balance at April 1, 2022 |
3,526,697 | 47,656 | 668,188 | |||||||||
| Granted |
2,146 | — | — | |||||||||
| Exercised/vested |
(78,125 | ) | — | — | ||||||||
| Forfeitures |
(51,444 | ) | — | — | ||||||||
| |
|
|
|
|
|
|||||||
| Balance at June 30, 2022 |
3,399,274 | 47,656 | 668,188 | |||||||||
| |
|
|
|
|
|
|||||||
18. Stockholder Rights Plan
On March 13, 2022, the Board of Directors of the Company adopted a stockholder rights plan, as set forth in the Stockholder Rights Agreement, dated March 14, 2022, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (the “Rights Agreement”). Pursuant to the terms of the Rights Agreement, the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (a “Right”) for each outstanding share of the Company’s common stock and 1,000 Rights for each outstanding share of the Company’s Series A
Non-Voting
Convertible Preferred Stock to stockholders of record as of the close of business on March 25, 2022 (the “Record Date”). In addition, one Right would automatically attach to each share of common stock andRights would automatically attach to each share of Series A Non-Voting Convertible Preferred Stock, in each case, issued between the Record Date and the earlier of the Distribution Date (as defined in the Rights Agreement) and the expiration date of the Rights. Each Right entitled the registered holder
ten-thousandth
of a share (a “Unit”) of Series B Junior Participating Cumulative $
0.01per share, of the Company at a cash exercise price
of $
27.00per Unit, subject to adjustment, under certain conditions specified in the Rights Agreement.
On May 25, 2022, the Company entered into a cooperation agreement (the “Cooperation Agreement”) with ETFS Capital, Graham Tuckwell, Lion Point Capital, LP, Lion Point Capital Holdings GP, LLC and Didric Cederholm. Also, on May 25, 2022, in connection with the Cooperation Agreement, the Company and the Rights Agent entered into Amendment No. 1 (the “Amendment”) to the Rights Agreement. Pursuant to the Amendment, effective as of the Close of Business (as defined in the Rights Agreement) on June 2, 2022, the Rights expired and no longer remain outstanding, and the Rights Agreement, as amended by the Amendment, terminated.
19. Earnings Per Share
The following tables set forth reconciliations of the basic and diluted earnings/(loss) per share computations for the periods presented:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Basic Earnings/(Loss) per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) |
$ | 8,005 | $ | 17,630 | $ | (2,256 | ) | $ | 32,777 | |||||||
| Less: Income distributed to participating securities |
(548 | ) | (538 | ) | (1,097 | ) | (1,096 | ) | ||||||||
| Less: Undistributed income allocable to participating securities |
(358 | ) | (1,394 | ) | — | (2,550 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) available to common stockholders – Basic EPS |
$ | 7,099 | $ | 15,698 | $ | (3,353 | ) | $ | 29,131 | |||||||
| Weighted average common shares (in thousands) |
143,046 | 145,542 | 142,915 | 145,652 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic earnings/(loss) per share |
$ | 0.05 | $ | 0.11 | $ | (0.02 | ) | $ | 0.20 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
28
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Diluted Earnings/(Loss) per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) available to common stockholders |
$ | 7,099 | $ | 15,698 | $ | (3,353 | ) | $ | 29,131 | |||||||
| Add back: Undistributed income allocable to participating securities |
358 | 1,394 | — | 2,550 | ||||||||||||
| Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive |
(357 | ) | (1,367 | ) | — | (2,529 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) available to common stockholders – Diluted EPS |
$ | 7,100 | $ | 15,725 | $ | (3,353 | ) | $ | 29,152 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted Average Diluted Shares (in thousands): |
||||||||||||||||
| Weighted average common shares |
143,046 | 145,542 | 142,915 | 145,652 | ||||||||||||
| Dilutive effect of common stock equivalents, excluding participating securities |
379 | 3,272 | — | 1,352 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted average diluted shares, excluding participating securities (in thousands) |
143,425 | 148,814 | 142,915 | 147,004 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted earnings/(loss) per share |
$ | 0.05 | $ | 0.11 | $ | (0.02 | ) | $ | 0.20 | |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings/(loss) 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. During the six months ended June 30, 2022, there were no dilutive common stock equivalents as the Company reported a net loss for the period. Total antidilutive non-participating
common stock equivalents were 303 and 300, respectively, during the three and six months ended June 30, 2022, and 55 and 130, respectively, during the comparable periods in 2021 (shares herein are reported in thousands). Potential common shares associated with the conversion option embedded in the Convertible Notes were excluded from the computation for the three and six months ended June 30, 2022 as the Company’s average stock price during those respective periods was lower than the conversion price. Potential common shares associated with the conversion option embedded in the Convertible Notes for the three and six months ended June 30, 2021 were 3,019 and 1,191, respectively (shares herein are reported in thousands).
The following table reconciles weighted average diluted shares as reported in the Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021, which are determined pursuant to the treasury stock method, to the weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Reconciliation of Weighted Average Diluted Shares (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average diluted shares as disclosed on the consolidated statements of operations |
158,976 | 164,855 | 142,915 | (1) |
163,062 | |||||||||||
| Less: Participating securities |
||||||||||||||||
| Weighted average shares of common stock issuable upon conversion of the Preferred Shares (Note 11) |
(14,750 | ) | (14,750 | ) | — | (14,750 | ) | |||||||||
| Potentially dilutive restricted stock awards |
(801 | ) | (1,291 | ) | — | (1,308 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above |
143,425 | 148,814 | 142,915 | 147,004 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Excludes 15,486 participating securities and 356 potentially dilutive non-participating common stock equivalents for the six months ended June 30, 2022 as the Company reported a net loss for the period (shares herein are reported in thousands). |
20. Income Taxes
Effective Income Tax Rate – Three and Six Months Ended June 30, 2022
The Company’s effective income tax rate during the three months ended June 30, 2022 of 25.0% resulted in income tax expense of $2,673. The effective income tax rate differs from the federal statutory tax rate of 21% primarily due a valuation allowance on losses recognized on securities owned and
non-deductible
executive compensation. These items were partly offset by a non-taxable
gain on revaluation of deferred consideration and a lower tax rate on foreign earnings. The Company’s effective income tax rate
benefit
during the six months ended June 30, 2022 of 86.2% resulted in an income tax benefit of $14,040. The Company’s effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a $19,897 reduction in unrecognized tax benefits (including interest and penalties) and a lower tax rate on foreign earnings. These items were partly offset by a non-taxable
loss on revaluation of deferred consideration and an increase in the deferred tax asset valuation allowance on losses recognized on securities owned. 29
Effective Income Tax Rate – Three and Six Months Ended June 30, 2021
The Company’s effective income tax rate during the three months ended June 30, 2021 of 19.5% resulted in income tax expense of $4,259. The effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a lower tax rate on foreign earnings.
The Company’s effective income tax rate for the six months ended June 30, 2021 of 6.5% resulted in income tax expense of $2,290. The effective income tax rate differs from the federal statutory rate of 21% primarily due to a $5,171 reduction in unrecognized tax benefits, a lower tax rate on foreign earnings and a
non-taxable
gain on revaluation of deferred consideration. These items were partly offset by tax shortfalls associated with the vesting and exercise of stock-based compensation and state and local taxes. Deferred Tax Assets
A summary of the components of the Company’s deferred tax assets at June 30, 2022 and December 31, 2021 are as follows:
June 30, 2022 |
December 31, 2021 |
|||||||
| Deferred tax assets: |
||||||||
| Capital losses |
$ | 16,953 | $ | 16,601 | ||||
| Accrued expenses |
2,833 | 4,993 | ||||||
| Unrealized losses |
2,559 | 614 | ||||||
| NOLs – Foreign |
1,677 | 1,934 | ||||||
| Goodwill and intangible assets |
1,181 | 1,276 | ||||||
| Interest carryforwards |
1,066 | 437 | ||||||
| Stock-based compensation |
741 | 1,359 | ||||||
| Foreign currency translation adjustment |
405 | — | ||||||
| NOLs – U.S. |
255 | 382 | ||||||
| Outside basis differences |
122 | 122 | ||||||
| Other |
357 | 376 | ||||||
| |
|
|
|
|||||
| Deferred tax assets |
28,149 | 28,094 | ||||||
| |
|
|
|
|||||
June 30, 2022 |
December 31, 2021 |
|||||||
| Deferred tax liabilities: |
||||||||
| Fixed assets and prepaid assets |
597 | 257 | ||||||
| Unremitted earnings – International subsidiaries |
174 | 118 | ||||||
| Foreign currency translation adjustment |
— | 181 | ||||||
| |
|
|
|
|||||
| Deferred tax liabilities |
771 | 556 | ||||||
| |
|
|
|
|||||
| Total deferred tax assets less deferred tax liabilities |
27,378 | 27,538 | ||||||
| Less: Valuation allowance |
(21,311 | ) | (18,657 | ) | ||||
| |
|
|
|
|||||
| Deferred tax assets, net |
$ | 6,067 | $ | 8,881 | ||||
| |
|
|
|
|||||
Net Operating and Capital Losses – U.S.
The Company’s tax effected net operating losses (“NOLs”) at June 30, 2022 were $255, which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change.
The Company’s tax effected capital losses at June 30, 2022 were $16,953. These capital losses expire between the years 2023 and 2027.
Net Operating Losses – International
One of the Company’s European subsidiaries generated NOLs outside the U.S. These tax effected NOLs, all of which are carried forward indefinitely, were $1,677 at June 30, 2022.
Valuation Allowance
The Company’s valuation allowance has been established on its net capital losses, international net operating losses, unrealized losses and outside basis differences, as it is
more-likely-than-not
that these deferred tax assets will not be realized. 30
Uncertain Tax Positions
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 50% likely of being realized upon ultimate settlement. In connection with the ETFS Acquisition, the Company accrued a liability for uncertain tax positions and interest and penalties at the acquisition date. The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims. The table below sets forth the aggregate changes in the balance of these gross unrecognized tax benefits:
Total |
Unrecognized Tax Benefits |
Interest and Penalties |
||||||||||
| Balance on January 1, 2022 |
$ | 21,925 | $ | 18,218 | $ | 3,707 | ||||||
| Decrease—Settlements (1) |
(13,052 | ) | (11,865 | ) | (1,187 | ) | ||||||
| Decrease—Lapse of statute of limitations (1) |
(6,845 | ) | (4,825 | ) | (2,020 | ) | ||||||
| Increases |
7 | — | 7 | |||||||||
| Foreign currency translation (2) |
(583 | ) | (485 | ) | (98 | ) | ||||||
| |
|
|
|
|
|
|
||||||
| Balance at March 31, 2022 |
$ | 1,452 | $ | 1,043 | $ | 409 | ||||||
| Increases |
7 | — | 7 | |||||||||
| Foreign currency translation (2) |
(108 | ) | (78 | ) | (30 | ) | ||||||
| |
|
|
|
|
|
|
||||||
| Balance at June 30, 2022 |
$ | 1,351 | $ | 965 | $ | 386 | ||||||
| |
|
|
|
|
|
|||||||
(1) |
In January 2022, an audit of ManJer’s tax returns (a Jersey-based subsidiary) for the years ended December 31, 2014, 2016, 2017 and 2018 were resolved in favor of ManJer. The settlement, as well as the reduction in unrecognized tax benefits from the lapse of the statute of limitations totaling $19,897 during the three months ended March 31, 2022, was recorded as an income tax benefit with an equal and offsetting amount recorded in other losses and gains, net, to recognize a reduction in the indemnification asset. During the three months ended March 31, 2021, an income tax benefit of $5,171 was recorded along with an equal and offsetting amount in other losses and gains, net. |
(2) |
The gross unrecognized tax benefits were accrued in British pounds. |
The gross unrecognized tax benefits and interest and penalties totaling $1,351 at June 30, 2022 are included in other
non-current
liabilities in the Consolidated Balance Sheets. It is reasonably possible that these unrecognized tax benefits will reduce to zero in the next 12 months upon lapsing of the statute of limitations. If recognized, these unrecognized tax benefits would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims. 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 and is currently under review by the State of Michigan for the years ended 2017 through 2020. As of June 30, 2022, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for the years before 2017.
ManJer’s tax returns (a Jersey-based subsidiary) were previously under review for the years ended December 31, 2014, 2016, 2017 and 2018. In January 2022, the audit was resolved in favor of ManJer.
Undistributed Earnings of Foreign Subsidiaries
ASC
740-30,
Income Taxes
, provides guidance that US 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 $
174 and $
118 at June
30,
2022 and December
31,
2021, respectively.
31
21. Shares Repurchased
On February 22, 2022, the Company’s board of directors approved an increase of $85,709 to the Company’s share repurchase program to $100,000 and extended the term for three years through April 27, 2025. Included under the Company’s share repurchase program are purchases to offset future equity grants made under the Company’s equity plans and purchases made in open market or privately negotiated transactions. This authority may be exercised from time to time, subject to regulatory considerations. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The repurchase program may be suspended or terminated at any time without prior notice. Shares repurchased under this program are returned to the status of authorized and unissued on the Company’s books and records.
The Company repurchased 588,694 shares of its common stock under this program during the three and six months ended June 30, 2022, and 4,630,733 and 5,120,496
shares, respectively, during the comparable periods in 2021. The aggregate cost of the shares repurchased during the three and six months ended June
30, 2022 was $
3,394 and the aggregate cost of the shares repurchased during the comparable periods in 2021 was $
31,876 and $
34,506, respectively. Shares repurchased under this program were returned to the status of authorized and unissued on the Company’s books and records.
As of June 30, 2022, $100,000 remained under this program for future purchases.
22. Goodwill and Intangible Assets
Goodwill
The table below sets forth goodwill which is tested annually for impairment on November 30
th
: Total |
||||
| Balance at January 1, 2022 |
$ | 85,856 | ||
| Changes |
— | |||
| |
|
|||
| Balance at June 30, 2022 |
$ | 85,856 | ||
| |
|
|||
Goodwill arising from the ETFS Acquisition of $84,057 is not deductible for tax purposes as the acquisition was structured as a stock acquisition occurring in the United Kingdom. The remainder of the goodwill is deductible for U.S. tax purposes.
Intangible Assets
| Item |
Gross Asset |
Accumulated Amortization |
Net Asset |
|||||||||
| ETFS acquisition |
$ | 601,247 | $ | — | $ | 601,247 | ||||||
| Software development |
724 | — | 724 | |||||||||
| |
|
|
|
|
|
|||||||
| Balance at June 30, 2022 |
$ | 601,971 | $ | — | $ | 601,971 | ||||||
| |
|
|
|
|
|
|||||||
ETFS Acquisition (Indefinite-Lived)
In connection with the ETFS Acquisition, which was completed on April 11, 2018, the Company identified intangible assets valued at $601,247 related to the right to manage AUM through customary advisory agreements. These intangible assets were determined to have indefinite useful lives and are not deductible for tax purposes. The Company’s tests these indefinite-lived intangible assets annually for impairment on November 30
th
. Software Development (Finite-Lived)
Internally-developed software is amortized over a useful life of three years. As of June 30, 2022, the assets were not subject to amortization, as none of the related projects have completed the software development stage.
As of June 30, 2022, expected amortization expense for the unamortized finite-lived intangible assets for the next five years and thereafter is as follows:
| Remainder of 2022 |
$ | 105 | ||
| 2023 |
241 | |||
| 2024 |
241 | |||
| 2025 |
137 | |||
| 2026 |
— | |||
| 2027 and thereafter |
— | |||
| |
|
|||
| Total expected amortization expense |
$ | 724 | ||
| |
|
The weighted-average remaining useful life of the finite-lived intangible assets is 3.0 years.
32
23. Contingent Payments
AdvisorEngine – Sale of Financial Interests
On May 4, 2020, the Company closed a transaction to exit its investment in AdvisorEngine Inc. The fair value of upfront consideration paid to the Company
was $9,592. Consideration also included contingent payments totaling up to $10,408 which will be payable only upon AdvisorEngine achieving certain revenue milestones during the first through fourth anniversaries of such exit. No value has been ascribed to these contingent payments at June 30, 2022 and December 31, 2021 and no contingent payments were received during the three and six months ended June 30, 2022 and 2021.
Sale of Canadian ETF Business
On February 19, 2020, the Company completed the sale of all the outstanding shares of WisdomTree Asset Management Canada, Inc., the operating entity of the Company’s prior Canadian ETF business, to CI Financial Corp. The Company received
18-month
anniversary of the closing date. The Company may receive additional cash consideration of CDN $0 to $4,000
depending on the achievement of certain AUM growth targets as determined on the
36-month
anniversary of the closing date. No value has been ascribed to these contingent payments at June 30, 2022 and December 31, 2021 and no contingent payments were received during the three and six months ended June 30, 2022 and 2021. 24. Subsequent Events
The Company evaluated subsequent events through the date of issuance of the accompanying consolidated financial statements.
Increase in Authorized Shares of Common Stock
On July 15, 2022, stockholders of the Company approved an amendment to Article IV of the Company’s Amended and Restated Certificate of Incorporation to increase the Company’s authorized common stock from 250,000,000 shares to 400,000,000 shares and the corresponding increase in the total number of authorized shares of capital stock the Company may issue from 252,000,000 shares to 402,000,000 shares.
The increase in the Company’s authorized common stock has no impact on shares currently outstanding.
Approval of 2022 Equity Plan
On July 15, 2022, the Company’s stockholders approved the 2022 Equity Plan under which the Company may issue up
to 16,000,000 s
hares of common stock (less one share for every share granted under the 2016 Equity Plan since March 31, 2022 and inclusive of shares available under the 2016 Equity Plan as of March 31, 2022) in the form of stock options and other stock-based awards.
33
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, 2021, as amended. 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
Introduction
We are an asset management company in the business of offering transparent financial exposures to our clients and are a leading global ETP sponsor based on assets under management, or AUM, with AUM of $74.3 billion as of June 30, 2022. More recently, we have been positioning ourselves to expand beyond our existing ETP business by leveraging blockchain technology, digital assets and principles of decentralized finance, or DeFi, to deliver transparency, choice and inclusivity to customers and consumers around the world.
Our family of ETPs includes providing exposure to equities, commodities, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. We have launched many 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.
first-to-market
We are at the forefront of innovation and have differentiated ourselves through continued investments in technology-enabled and research-driven solutions such as our Advisor Solutions program, which includes portfolio construction, asset allocation, practice management services and digital tools for financial advisors. We seek to usher in the next chapter of financial services by introducing new revenue streams and expanding our offerings to include a new financial services mobile application, branded WisdomTree Prime
™
, a digital wallet that is native to the blockchain and being developed for saving, spending and investing in both native crypto assets and tokenized versions of mainstream financial assets (e.g., blockchain enabled investment funds). We also are planning to launch asset- and fund-tokenization products beginning with a dollar token, gold token and digital short term treasury fund which will be available on multiple public and permissioned blockchains, leveraging federal and state regulated entities. As we pursue our digital assets strategy, we are embracing a concept we refer to as “responsible DeFi,” which we believe upholds the foundational principles of regulation in this innovative and quickly evolving space. We were incorporated under the laws of the state of Delaware on September 19, 1985 as Financial Data Systems, Inc. and ultimately renamed WisdomTree Investments, Inc. on September 6, 2005.
34
Assets Under Management
WisdomTree ETPs
We offer ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The chart below sets forth the asset mix of our ETPs at June 30, 2021, March 31, 2022 and June 30, 2022:
Market Environment
During the second quarter of 2022, the U.S. and Eurozone markets were under pressure as investors reacted to further interest rate rises and an increased risk of recession. U.S. and European equities fell as focus was on inflation and the continued war in Ukraine. Gold’s steady performance stood in contrast to equities as it gained support due to the high-risk environment brought on by multi-decade highs for inflation.
The S&P 500, MSCI EAFE (local currency), MSCI Emerging Markets Index (U.S. dollar) and gold prices decreased by 16.1%, 7.6%, 11.3%, and 6.4%, respectively, during the quarter. In addition, the European and Japanese equities markets both depreciated with the MSCI EMU Index and MSCI Japan Index decreasing 10.0% and 4.4%, respectively, in local currency terms for the quarter. Also, the U.S. dollar rose 5.8%, 7.4% and 10.6% versus the euro, British pound and the Japanese yen, respectively, the during the quarter.
U.S. Listed ETF Industry Flows
U.S. listed ETF industry net flows for the three months ended June 30, 2022 were $93.5 billion. Fixed income gathered the majority of those flows.
Source: Morningstar
35
European Listed ETP Industry Flows
European listed ETP industry net flows were $16.7 billion for the three months ended June 30, 2022. Equities gathered the majority of those flows.
Source: Morningstar
Our Operating and Financial Results
We operate as an ETP sponsor and asset manager providing investment advisory services globally through our subsidiaries in the United States and Europe.
U.S. Listed ETFs
Our U.S. listed ETFs’ AUM decreased from $48.6 billion at March 31, 2022 to $47.3 billion at June 30, 2022 due to market depreciation, partly offset by net inflows.
36
European Listed ETPs
Our European listed ETPs’ AUM decreased from $30.8 billion at March 31, 2022 to $27.0 billion at June 30, 2022 due to market depreciation and net outflows.
37
Consolidated Operating Results
The following table sets forth our revenues and net income/(loss) for the most recent five quarters. Prior period amounts previously disclosed for the three months ended June 30, 2021 have been revised due to an immaterial error correction to conform with our current presentation. These revisions had no effect on previously reported net income. See Note 2 to our Consolidated Financial Statements for additional information.
| • | Revenues |
| • | Operating Expenses |
| • | Other Income/(Expenses) |
| • | Net income |
Expense Guidance Update for the Year Ending December 31, 2022
Compensation Expense
Our compensation expense for the year ending December 31, 2022 is currently estimated to range from $96.0 million to $99.0 million (previously $92.0 million to $102.0 million). The
high-end
of our guidance range has been reduced as we temper our hiring plans in the wake of uncertain market conditions. Discretionary Spending
Discretionary spending includes marketing, sales, professional fees, occupancy and equipment, depreciation and amortization and other expenses. We currently estimate our discretionary spending for the year ending December 31, 2022 to range from $51.0 million to $53.0 million (previously $49.0 million to $57.0 million).
Not included in the guidance above are
non-recurring
expenses of $4.5 million incurred during the six months ended June 30, 2022, in response to an activist campaign. We do not anticipate any significant activist campaign expenses during the remainder of this year. 38
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. At current AUM and flow levels, we estimate our gross margin percentage will be 79% (previously 80% to 81%) for the year ending December 31, 2022.
Contractual Gold Payments
We currently estimate our contractual gold payments expense for the year ending December 31, 2022 to be approximately $17.0 million (previously $18.0 million to $19.0 million) taking into consideration current lower gold prices.
Third-Party Distribution Expense
We currently estimate third-party distribution expense to be approximately $8.5 million (previously $9.5 million) as recent market volatility has suppressed AUM growth on our third-party platforms.
Income Tax Expense
We currently estimate that our consolidated normalized effective tax rate will range from 21% to 22% for the year ending December 31, 2022 (unchanged from prior guidance). 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 that may arise that are not currently forecasted. Such items may include, but are not limited to, any revaluation on deferred consideration – gold payments, reductions in unrecognized tax benefits and any stock-based compensation windfalls or shortfalls.
Key Operating Statistics
The following table presents key operating statistics that serve as indicators for the performance of our business:
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30, |
March 31, |
June 30, |
June 30, |
June 30, |
||||||||||||||||
2022 |
2022 |
2021 |
2022 |
2021 |
||||||||||||||||
| GLOBAL ETPs (in millions ) |
||||||||||||||||||||
| Beginning of period assets |
$ |
79,390 |
$ |
77,456 |
$ |
69,515 |
$ |
77,456 |
$ |
67,383 |
||||||||||
| Inflows/(outflows) |
3,852 |
1,319 |
931 |
5,171 |
2,210 |
|||||||||||||||
| Market appreciation/(depreciation) |
(8,941 |
) |
615 |
3,481 |
(8,326 |
) |
4,334 |
|||||||||||||
| Fund closures |
(4 |
) |
— |
(4 |
) |
(4 |
) |
(4 |
) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
74,297 |
$ |
79,390 |
$ |
73,923 |
$ |
74,297 |
$ |
73,923 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
77,731 |
$ |
77,794 |
$ |
73,603 |
$ |
77,763 |
$ |
71,581 |
||||||||||
| Average ETP advisory fee during the period |
0.39 |
% |
0.40 |
% |
0.40 |
% |
0.39 |
% |
0.42 |
% | ||||||||||
| Revenue days |
91 |
90 |
91 |
181 |
181 |
|||||||||||||||
| Number of ETPs—end of period |
346 |
341 |
318 |
346 |
318 |
|||||||||||||||
| U.S. LISTED ETFs (in millions ) |
||||||||||||||||||||
| Beginning of period assets |
$ |
48,622 |
$ |
48,210 |
$ |
42,163 |
$ |
48,210 |
$ |
38,517 |
||||||||||
| Inflows/(outflows) |
4,278 |
2,250 |
1,130 |
6,528 |
2,473 |
|||||||||||||||
| Market appreciation/(depreciation) |
(5,645 |
) |
(1,838 |
) |
1,836 |
(7,483 |
) |
4,139 |
||||||||||||
| Fund closures |
— |
— |
— |
— |
— |
|||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
47,255 |
$ |
48,622 |
$ |
45,129 |
$ |
47,255 |
$ |
45,129 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
48,273 |
$ |
47,503 |
$ |
44,183 |
$ |
47,888 |
$ |
42,445 |
||||||||||
| Number of ETFs – end of the period |
77 |
77 |
73 |
77 |
73 |
|||||||||||||||
| EUROPEAN LISTED ETPs (in millions ) |
||||||||||||||||||||
| Beginning of period assets |
$ |
30,768 |
$ |
29,246 |
$ |
27,352 |
$ |
29,246 |
$ |
28,866 |
||||||||||
| Inflows/(outflows) |
(426 |
) |
(931 |
) |
(199 |
) |
(1,357 |
) |
(263 |
) | ||||||||||
| Market appreciation/(depreciation) |
(3,296 |
) |
2,453 |
1,645 |
(843 |
) |
195 |
|||||||||||||
| Fund closures |
(4 |
) |
— |
(4 |
) |
(4 |
) |
(4 |
) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
27,042 |
$ |
30,768 |
$ |
28,794 |
$ |
27,042 |
$ |
28,794 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
29,458 |
$ |
30,291 |
$ |
29,420 |
$ |
29,875 |
$ |
29,137 |
||||||||||
| Number of ETPs—end of period |
269 |
264 |
245 |
269 |
245 |
|||||||||||||||
39
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30, |
March 31, |
June 30, |
June 30, |
June 30, |
||||||||||||||||
2022 |
2022 |
2021 |
2022 |
2021 |
||||||||||||||||
| PRODUCT CATEGORIES (in millions ) |
||||||||||||||||||||
| Commodity & Currency |
||||||||||||||||||||
| Beginning of period assets |
$ |
26,301 |
$ |
24,597 |
$ |
23,656 |
$ |
24,597 |
$ |
25,880 |
||||||||||
| Inflows/(outflows) |
(475 |
) |
(1,053 |
) |
(318 |
) |
(1,528 |
) |
(979 |
) | ||||||||||
| Market appreciation/(depreciation) |
(2,201 |
) |
2,757 |
1,434 |
556 |
(129 |
) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
23,625 |
$ |
26,301 |
$ |
24,772 |
$ |
23,625 |
$ |
24,772 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
25,765 |
$ |
25,890 |
$ |
25,550 |
$ |
25,828 |
$ |
25,420 |
||||||||||
| U.S. Equity |
||||||||||||||||||||
| Beginning of period assets |
$ |
23,738 |
$ |
23,860 |
$ |
20,019 |
$ |
23,860 |
$ |
18,367 |
||||||||||
| Inflows/(outflows) |
306 |
779 |
191 |
1,085 |
409 |
|||||||||||||||
| Market appreciation/(depreciation) |
(2,986 |
) |
(901 |
) |
1,075 |
(3,887 |
) |
2,509 |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
21,058 |
$ |
23,738 |
$ |
21,285 |
$ |
21,058 |
$ |
21,285 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
22,366 |
$ |
23,139 |
$ |
20,982 |
$ |
22,753 |
$ |
20,151 |
||||||||||
| International Developed Market Equity |
||||||||||||||||||||
| Beginning of period assets |
$ |
11,407 |
$ |
11,876 |
$ |
9,975 |
$ |
11,876 |
$ |
9,406 |
||||||||||
| Inflows/(outflows) |
79 |
97 |
398 |
176 |
415 |
|||||||||||||||
| Market appreciation/(depreciation) |
(1,523 |
) |
(566 |
) |
403 |
(2,089 |
) |
955 |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
9,963 |
$ |
11,407 |
$ |
10,776 |
$ |
9,963 |
$ |
10,776 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
10,687 |
$ |
11,527 |
$ |
10,511 |
$ |
11,107 |
$ |
10,145 |
||||||||||
| Emerging Market Equity |
||||||||||||||||||||
| Beginning of period assets |
$ |
9,991 |
$ |
10,375 |
$ |
10,477 |
$ |
10,375 |
$ |
8,539 |
||||||||||
| Inflows/(outflows) |
(223 |
) |
189 |
531 |
(34 |
) |
2,194 |
|||||||||||||
| Market appreciation/(depreciation) |
(1,382 |
) |
(573 |
) |
511 |
(1,955 |
) |
786 |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
8,386 |
$ |
9,991 |
$ |
11,519 |
$ |
8,386 |
$ |
11,519 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
9,155 |
$ |
10,116 |
$ |
11,012 |
$ |
9,636 |
$ |
10,444 |
||||||||||
| Fixed Income |
||||||||||||||||||||
| Beginning of period assets |
$ |
5,417 |
$ |
4,352 |
$ |
3,241 |
$ |
4,352 |
$ |
3,308 |
||||||||||
| Inflows/(outflows) |
4,038 |
1,242 |
168 |
5,280 |
178 |
|||||||||||||||
| Market appreciation/(depreciation) |
(264 |
) |
(177 |
) |
27 |
(441 |
) |
(50 |
) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
9,191 |
$ |
5,417 |
$ |
3,436 |
$ |
9,191 |
$ |
3,436 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
7,425 |
$ |
4,688 |
$ |
3,332 |
$ |
6,057 |
$ |
3,282 |
||||||||||
| Leveraged & Inverse |
||||||||||||||||||||
| Beginning of period assets |
$ |
1,856 |
$ |
1,775 |
$ |
1,519 |
$ |
1,775 |
$ |
1,477 |
||||||||||
| Inflows/(outflows) |
90 |
(2 |
) |
(2 |
) |
88 |
(7 |
) | ||||||||||||
| Market appreciation/(depreciation) |
(328 |
) |
83 |
174 |
(245 |
) |
221 |
|||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
1,618 |
$ |
1,856 |
$ |
1,691 |
$ |
1,618 |
$ |
1,691 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
1,765 |
$ |
1,830 |
$ |
1,664 |
$ |
1,798 |
$ |
1,609 |
||||||||||
| Cryptocurrency |
||||||||||||||||||||
| Beginning of period assets |
$ |
383 |
$ |
357 |
$ |
377 |
$ |
357 |
$ |
167 |
||||||||||
| Inflows/(outflows) |
3 |
37 |
8 |
40 |
44 |
|||||||||||||||
| Market appreciation/(depreciation) |
(235 |
) |
(11 |
) |
(156 |
) |
(246 |
) |
18 |
|||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
151 |
$ |
383 |
$ |
229 |
$ |
151 |
$ |
229 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
265 |
$ |
324 |
$ |
300 |
$ |
295 |
$ |
282 |
||||||||||
| Alternatives |
||||||||||||||||||||
| Beginning of period assets |
$ |
293 |
$ |
261 |
$ |
227 |
$ |
261 |
$ |
215 |
||||||||||
| Inflows/(outflows) |
34 |
29 |
(39 |
) |
63 |
(39 |
) | |||||||||||||
| Market appreciation/(depreciation) |
(22 |
) |
3 |
10 |
(19 |
) |
22 |
|||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
305 |
$ |
293 |
$ |
198 |
$ |
305 |
$ |
198 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
299 |
$ |
275 |
$ |
231 |
$ |
287 |
$ |
227 |
||||||||||
| Closed ETPs |
||||||||||||||||||||
| Beginning of period assets |
$ |
4 |
$ |
3 |
$ |
24 |
$ |
3 |
$ |
24 |
||||||||||
| Inflows/(outflows) |
— |
1 |
(6 |
) |
1 |
(5 |
) | |||||||||||||
| Market appreciation/(depreciation) |
— |
— |
3 |
— |
2 |
|||||||||||||||
| Fund closures |
(4 |
) |
— |
(4 |
) |
(4 |
) |
(4 |
) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| End of period assets |
$ |
— |
$ |
4 |
$ |
17 |
$ |
— |
$ |
17 |
||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Average assets during the period |
$ |
4 |
$ |
5 |
$ |
21 |
$ |
5 |
$ |
23 |
||||||||||
| Headcount: |
264 |
253 |
227 |
264 |
227 |
|||||||||||||||
40
Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTree
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Selected Operating and Financial Information
Three Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
AUM (in millions) |
2022 |
2021 |
||||||||||||||
| Average AUM |
$ | 77,731 | $ | 73,603 | $ | 4,128 | 5.6 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating Revenues (in thousands) |
||||||||||||||||
| Advisory fees (1) |
$ | 75,586 | $ | 74,169 | $ | 1,417 | 1.9 | % | ||||||||
| Other income |
1,667 | 1,606 | 61 | 3.8 | % | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total revenues |
$ | 77,253 | $ | 75,775 | $ | 1,478 | 2.0 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
(1) |
Advisory fees previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. See Note 2 to our Consolidated Financial Statements for additional information. |
Average AUM
Our average AUM increased 5.6% from $73.6 billion at June 30, 2021 to $77.7 billion at June 30, 2022 due to net inflows, partly offset by market depreciation.
Operating Revenues
Advisory fees
Advisory fee revenues increased 1.9% from $74.2 million during the three months ended June 30, 2021 to $75.6 million in the comparable period in 2022 due to higher average AUM, partly offset by a lower average advisory fee. Our average advisory fee was 0.39% during the three months ended June 30, 2022 and 0.40% during the same period in 2021.
Other income
Other income increased 3.8% from $1.6 million during the three months ended June 30, 2021 to $1.7 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.
Operating Expenses
Three Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
(in thousands) |
2022 |
2021 |
||||||||||||||
| Compensation and benefits |
$ | 24,565 | $ | 20,331 | $ | 4,234 | 20.8 | % | ||||||||
| Fund management and administration (1) |
16,076 | 14,367 | 1,709 | 11.9 | % | |||||||||||
| Marketing and advertising |
3,894 | 3,594 | 300 | 8.3 | % | |||||||||||
| Sales and business development |
3,131 | 2,159 | 972 | 45.0 | % | |||||||||||
| Contractual gold payments |
4,446 | 4,314 | 132 | 3.1 | % | |||||||||||
| Professional fees |
4,308 | 1,921 | 2,387 | 124.3 | % | |||||||||||
| Occupancy, communications and equipment |
1,049 | 1,266 | (217 | ) | (17.1 | %) | ||||||||||
| Depreciation and amortization |
53 | 256 | (203 | ) | (79.3 | %) | ||||||||||
| Third-party distribution fees |
1,818 | 2,130 | (312 | ) | (14.6 | %) | ||||||||||
| Other |
2,109 | 1,752 | 357 | 20.4 | % | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
$ | 61,449 | $ | 52,090 | $ | 9,359 | 18.0 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
41
Three Months Ended June 30, |
||||||||
| As a Percent of Revenues: |
2022 |
2021 |
||||||
| Compensation and benefits |
31.7 | % | 26.8 | % | ||||
| Fund management and administration (1) |
20.7 | % | 19.0 | % | ||||
| Marketing and advertising |
5.0 | % | 4.8 | % | ||||
| Sales and business development |
4.1 | % | 2.8 | % | ||||
| Contractual gold payments |
5.8 | % | 5.7 | % | ||||
| Professional fees |
5.6 | % | 2.5 | % | ||||
| Occupancy, communications and equipment |
1.4 | % | 1.7 | % | ||||
| Depreciation and amortization |
0.1 | % | 0.3 | % | ||||
| Third-party distribution fees |
2.4 | % | 2.8 | % | ||||
| Other |
2.7 | % | 2.3 | % | ||||
| |
|
|
|
|||||
| Total operating expenses |
79.5 | % | 68.7 | % | ||||
| |
|
|
|
|||||
(1) |
Fund management and administration expenses previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. See Note 2 to our Consolidated Financial Statements for additional information. |
Compensation and benefits
Compensation and benefits expense increased 20.8% from $20.3 million during the three months ended June 30, 2021 to $24.6 million in the comparable period in 2022 due to higher incentive compensation and headcount. Headcount was 227 and 264 at June 30, 2021 and 2022, respectively.
Fund management and administration
Fund management and administration expense increased 11.9% from $14.4 million during the three months ended June 30, 2021 to $16.1 million in the comparable period in 2022 due to higher average AUM.
Marketing and advertising
Marketing and advertising expense increased 8.3% from $3.6 million during the three months ended June 30, 2021 to $3.9 million in the comparable period in 2022 primarily due to higher spending on online marketing campaigns.
Sales and business development
Sales and business development expense increased 45.0% from $2.2 million during the three months ended June 30, 2021 to $3.1 million in the comparable period in 2022 primarily due to higher spending on conferences and market data.
Contractual gold payments
Contractual gold payments expense increased 3.1% from $4.3 million during the three months ended June 30, 2021 to $4.4 million in the comparable period in 2022. This expense was associated with the payment of 2,375 ounces of gold and was calculated using the average daily spot price of $1,816 and $1,872 per ounce during the three months ended June 30, 2021 and 2022, respectively.
Professional fees
Professional fees increased 124.3% from $1.9 million during the three months ended June 30, 2021 to $4.3 million in the comparable period in 2022 due to expenses incurred in response to an activist campaign.
Occupancy, communications and equipment
Occupancy, communications and equipment expense decreased 17.1% from $1.3 million during the three months ended June 30, 2021 to $1.0 million in the comparable period in 2022 due to the termination of our New York office lease in September 2021.
Depreciation and amortization
Depreciation and amortization expense decreased 79.3% from $0.3 million during the three months ended June 30, 2021 to $0.1 million in the comparable period in 2022 due to the
write-off
of fixed assets related to exiting our New York office in September 2021. 42
Third-party distribution fees
Third-party distribution fees decreased 14.6% from $2.1 million during the three months ended June 30, 2021 to $1.8 million in the comparable period in 2022 primarily due to lower fees paid to our third-party marketing agent in Latin America, partly offset by new platform relationships in Europe.
Other
Other expenses increased 20.4% from $1.8 million during the three months ended June 30, 2021 to $2.1 million in the comparable period in 2022 due to higher insurance costs and other miscellaneous items.
Other Income/(Expenses)
Three Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
(in thousands) |
2022 |
2021 |
||||||||||||||
| Interest expense |
$ | (3,733 | ) | $ | (2,567 | ) | $ | (1,166 | ) | 45.4 | % | |||||
| Gain on revaluation of deferred consideration – gold payments |
2,311 | 497 | 1,814 | 365.0 | % | |||||||||||
| Interest income |
770 | 225 | 545 | 242.2 | % | |||||||||||
| Other losses and gains, net |
(4,474 | ) | 49 | (4,523 | ) | n/a | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other expenses, net |
$ | (5,126 | ) | $ | (1,796 | ) | $ | (3,330 | ) | 185.4 | % | |||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended June 30, |
||||||||
| As a Percent of Revenues: |
2022 |
2021 |
||||||
| Interest expense |
(4.8 | %) | (3.5 | %) | ||||
| Gain on revaluation of deferred consideration – gold payments |
3.0 | % | 0.7 | % | ||||
| Interest income |
1.0 | % | 0.3 | % | ||||
| Other losses and gains, net |
(5.8 | %) | 0.1 | % | ||||
| |
|
|
|
|||||
| Total other expenses, net |
(6.6 | %) | (2.4 | %) | ||||
| |
|
|
|
|||||
Interest expense
Interest expense increased 45.4% from $2.6 million during the three months ended June 30, 2021 to $3.7 million in the comparable period in 2022 due to a higher level of debt outstanding, partly offset by a lower effective interest rate. Our effective interest rate during the three months ended June 30, 2021 and 2022 was 5.2% and 4.6%, respectively.
Gain on revaluation of deferred consideration
We recognized a gain on revaluation of deferred consideration of $0.5 million and $2.3 million during the three months ended June 30, 2021 and 2022, respectively. The gain in the current quarter was due to lower spot gold prices, partly offset by a steepening of the forward-looking gold curve. The magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold.
Interest income
Interest income increased 242.2% from $0.2 million during the three months ended June 30, 2021 to $0.8 million in the comparable period in 2022 due to an increase in securities owned.
Other losses and gains, net
Other losses and gains, net were $0.0 million and ($4.5) million during the three months ended June 30, 2021 and 2022, respectively. During the three months ended June 30, 2022, we recognized losses on our securities owned of $4.2 million. 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.
Income taxes
Our effective income tax rate for the three months ended June 30, 2022 of 25.0% resulted in an income tax expense of $2.7 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on losses recognized on securities owned and
non-deductible
compensation. These items were partly offset by a non-taxable
gain on revaluation of deferred consideration and a lower tax rate on foreign earnings. 43
Our effective income tax rate for the three months ended June 30, 2021 of 19.5% resulted in income tax expense of $4.3 million. Our effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a lower tax rate on foreign earnings.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Selected Operating and Financial Information
Six Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
| Global AUM (in millions) |
||||||||||||||||
| Average global AUM |
$ | 77,763 | $ | 71,581 | $ | 6,182 | 8.6 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Revenues (in thousands) |
||||||||||||||||
| Advisory fees (1) |
$ | 152,103 | $ | 144,211 | $ | 7,892 | 5.5 | % | ||||||||
| Other income |
3,518 | 2,820 | 698 | 24.8 | % | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total revenues |
$ | 155,621 | $ | 147,031 | $ | 8,590 | 5.8 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Advisory fees previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. See Note 2 to our Consolidated Financial Statements for additional information. |
Average Global AUM
Our average global AUM increased 8.6% from $71.6 billion at June 30, 2021 to $77.8 billion at June 30, 2022 due to net inflows, partly offset by market depreciation.
Operating Revenues
Advisory fees
Advisory fee revenues increased 5.5% from $144.2 million during the six months ended June 30, 2021 to $152.1 million in the comparable period in 2022 due to higher average global AUM, partly offset by a lower average advisory fee. Our average global advisory fee was 0.42% and 0.39% during the six months ended June 30, 2021 and June 30, 2022, respectively.
Other income
Other income increased 24.8% from $2.8 million during the six months ended June 30, 2021 to $3.5 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.
Operating Expenses
Six Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
(in thousands) |
2022 |
2021 |
||||||||||||||
| Compensation and benefits |
$ | 49,352 | $ | 42,958 | $ | 6,394 | 14.9 | % | ||||||||
| Fund management and administration |
31,570 | 28,314 | 3,256 | 11.5 | % | |||||||||||
| Marketing and advertising |
7,917 | 6,600 | 1,317 | 20.0 | % | |||||||||||
| Sales and business development |
5,740 | 4,304 | 1,436 | 33.4 | % | |||||||||||
| Contractual gold payments |
8,896 | 8,584 | 312 | 3.6 | % | |||||||||||
| Professional fees |
8,767 | 3,934 | 4,833 | 122.9 | % | |||||||||||
| Occupancy, communications and equipment |
1,802 | 2,741 | (939 | ) | (34.3 | %) | ||||||||||
| Depreciation and amortization |
100 | 508 | (408 | ) | (80.3 | %) | ||||||||||
| Third-party distribution fees |
4,030 | 3,473 | 557 | 16.0 | % | |||||||||||
| Other |
3,954 | 3,323 | 631 | 19.0 | % | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
$ | 122,128 | $ | 104,739 | $ | 17,389 | 16.6 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
44
Six Months Ended June 30, |
||||||||
| As a Percent of Revenues: |
2022 |
2021 |
||||||
| Compensation and benefits |
31.7 | % | 29.2 | % | ||||
| Fund management and administration |
20.3 | % | 19.3 | % | ||||
| Marketing and advertising |
5.1 | % | 4.4 | % | ||||
| Sales and business development |
3.7 | % | 2.9 | % | ||||
| Contractual gold payments |
5.7 | % | 5.8 | % | ||||
| Professional fees |
5.6 | % | 2.7 | % | ||||
| Occupancy, communications and equipment |
1.2 | % | 1.9 | % | ||||
| Depreciation and amortization |
0.1 | % | 0.3 | % | ||||
| Third-party distribution fees |
2.6 | % | 2.4 | % | ||||
| Other |
2.5 | % | 2.3 | % | ||||
| |
|
|
|
|||||
| Total operating expenses |
78.5 | % | 71.2 | % | ||||
| |
|
|
|
|||||
Compensation and benefits
Compensation and benefits expense increased 14.9% from $43.0 million during the six months ended June 30, 2021 to $49.4 million in the comparable period in 2022 due to higher incentive compensation and headcount.
Fund management and administration
Fund management and administration expense increased 11.5% from $28.3 million during the six months ended June 30, 2021 to $31.6 million in the comparable period in 2022 primarily due to higher average global AUM.
Marketing and advertising
Marketing and advertising expense increased 20.0% from $6.6 million during the six months ended June 30, 2021 to $7.9 million in the comparable period in 2022 due to higher spending on online marketing campaigns.
Sales and business development
Sales and business development expense increased 33.4% from $4.3 million during the six months ended June 30, 2021 to $5.7 million in the comparable period in 2022 primarily due to higher spending on conferences and market data.
Contractual gold payments
Contractual gold payments expense increased 3.6% from $8.6 million during the six months ended June 30, 2021 to $8.9 million in the comparable period in 2022. This expense was associated with the payment of 4,750 ounces of gold and was calculated using the average daily spot price of $1,807 and $1,873 per ounce during the six months ended June 30, 2021 and 2022, respectively.
Professional fees
Professional fees increased 122.9% from $3.9 million during the six months ended June 30, 2021 to $8.8 million in the comparable period in 2022 due to expenses incurred in response to an activist campaign.
Occupancy, communications and equipment
Occupancy, communications and equipment expense decreased 34.3% from $2.7 million during the six months ended June 30, 2021 to $1.8 million in the comparable period in 2022 due to the termination of our New York office lease in September 2021.
Depreciation and amortization
Occupancy, communications and equipment expense decreased 80.3% from $0.5 million during the six months ended June 30, 2021 to $0.1 million in the comparable period in 2022 due to the
write-off
of fixed assets related to exiting our New York office in September 2021. Third-party distribution fees
Third-party distribution fees increased 16.0% from $3.5 million during the six months ended June 30, 2021 to $4.0 million in the comparable period in 2022 due to new platform relationships in Europe.
45
Other
Other expenses increased 19.0% from $3.3 million during the six months ended June 30, 2021 to $4.0 million in the comparable period in 2022 due to miscellaneous expenses incurred in response to an activist campaign, higher insurance costs and other miscellaneous matters.
Other Income/(Expenses)
Six Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
(in thousands) |
2022 |
2021 |
||||||||||||||
| Interest expense |
$ | (7,465 | ) | $ | (4,863 | ) | $ | (2,602 | ) | 53.5 | % | |||||
| (Loss)/gain on revaluation of deferred consideration – gold payments |
(14,707 | ) | 3,329 | (18,036 | ) | n/a | ||||||||||
| Interest income |
1,564 | 456 | 1,108 | 243.0 | % | |||||||||||
| Impairments |
— | (303 | ) | 303 | (100.0 | %) | ||||||||||
| Other losses, net |
(29,181 | ) | (5,844 | ) | (23,337 | ) | 399.3 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other expenses, net |
$ | (49,789 | ) | $ | (7,225 | ) | $ | (42,564 | ) | 589.1 | % | |||||
| |
|
|
|
|
|
|
|
|||||||||
Six Months Ended June 30, |
||||||||
| As a Percent of Revenues: |
2022 |
2021 |
||||||
| Interest expense |
(4.8 | %) | (3.3 | %) | ||||
| (Loss)/gain on revaluation of deferred consideration – gold payments |
(9.5 | %) | 2.3 | % | ||||
| Interest income |
1.0 | % | 0.3 | % | ||||
| Impairments |
n/a | (0.2 | %) | |||||
| Other losses, net |
(18.7 | %) | (4.0 | %) | ||||
| |
|
|
|
|||||
| Total other expenses, net |
(32.0 | %) | (4.9 | %) | ||||
| |
|
|
|
|||||
Interest expense
Interest expense increased 53.5% from $4.9 million during the six months ended June 30, 2021 to $7.5 million in the comparable period in 2022 due to a higher level of debt outstanding, partly offset by a lower effective interest rate. Our effective interest rate during the six months ended June 30, 2021 and 2022 was 5.2% and 4.6%, respectively.
(Loss)/gain on revaluation of deferred consideration
We recognized a gain on revaluation of deferred consideration of $3.3 million during the six months ended June 30, 2021 as compared to a loss of ($14.7) million during the six months ended June 30, 2022. The loss in the current period was due to an increase in forward-looking gold prices. The gain in the prior period was due to a decline in spot gold prices, partly offset by a steepening of the forward-looking gold curve. The magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold.
Interest income
Interest income increased 243.0% from $0.5 million during the six months ended June 30, 2021 to $1.6 million in the comparable period in 2022 due to an increase in our securities owned.
Impairments
During the six months ended June 30, 2021, we recognized an impairment charge of $0.3 million upon exiting our London office. There were no impairment charges during the six months ended June 20, 2022.
Other losses, net
Other losses, net were $5.9 million and $29.2 million during the six months ended June 30, 2021 and 2022, respectively. The six months ended June 30, 2022 includes a
non-cash
charge of $19.9 million arising from the release of a tax-related
indemnification asset due to the favorable resolution of certain tax audits as well as the expiration of the statute of limitations (an equal and offsetting benefit has been recognized in income tax expense). We also recognized $9.3 million of losses on our securities owned. 46
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, securities owned and other miscellaneous items.
Income taxes
Our effective income tax rate benefit for the six months ended June 30, 2022 was 86.2% resulting in an income tax benefit of $14.0 million. Our tax rate differs from the federal statutory rate of 21% primarily due to 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-taxable
loss on revaluation of deferred consideration and an increase in the deferred tax asset valuation allowance on losses recognized on securities owned. Our effective income tax rate for the six months ended June 30, 2021 of 6.5% resulted in income tax expense of $2.3 million. Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a $5.2 million reduction in unrecognized tax benefits, a lower tax rate on foreign earnings and a
non-taxable
gain on revaluation of deferred consideration. These items were partly offset by tax shortfalls associated with the vesting and exercise of stock-based compensation and state and local taxes. 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 adjusted 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 the revaluation of deferred consideration:
non-GAAP
financial measurements as it is not core to our operating business. The item is 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. Gains or losses on securities owned:
non-GAAP
financial measurements as these securities have become a more meaningful percentage of total assets and the gains and losses introduce volatility in earnings and are not core to our operating business. Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards:
non-GAAP
financial measurements as they introduce volatility in earnings and are not core to our operating business. Other items:
47
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
| Adjusted Net Income and Diluted Earnings per Share: |
2022 |
2021 |
2022 |
2021 |
||||||||||||
| Net income/(loss), as reported |
$ | 8,005 | $ | 17,630 | $ | (2,256 | ) | $ | 32,777 | |||||||
| Deduct/add back: (Gain)/loss on revaluation of deferred consideration |
(2,311 | ) | (497 | ) | 14,707 | (3,329 | ) | |||||||||
| Add back: Increase in deferred tax asset valuation allowance on securities owned |
901 | — | 2,911 | — | ||||||||||||
| Add back: Losses on securities owned, net of income taxes |
3,165 | — | 7,058 | — | ||||||||||||
| Add back: Expenses incurred in response to an activist campaign, net of income taxes |
1,532 | — | 3,376 | — | ||||||||||||
| Add back/deduct: Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards |
20 | (233 | ) | (545 | ) | (110 | ) | |||||||||
| Deduct/add back: Unrealized (gain)/loss recognized on our investments, net of income taxes |
(55 | ) | (105 | ) | 69 | (284 | ) | |||||||||
| Add back: Impairments, net of income taxes (where applicable) |
— | — | — | 245 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Adjusted net income |
$ | 11,257 | $ | 16,795 | $ | 25,320 | $ | 29,299 | ||||||||
| Deduct: Income distributed to participating securities |
(548 | ) | (538 | ) | (1,097 | ) | (1,096 | ) | ||||||||
| Deduct: Undistributed income allocable to participating securities |
(724 | ) | (1,277 | ) | (1,763 | ) | (2,145 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Adjusted net income available to common stockholders |
$ | 9,985 | $ | 14,980 | $ | 22,460 | $ | 26,058 | ||||||||
| Weighted average diluted shares, excluding participating securities (in thousands) (See Note 19 to our Consolidated Financial Statements) |
143,425 | 148,814 | 143,271 | 147,004 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Adjusted earnings per share – diluted |
$ | 0.07 | $ | 0.10 | $ | 0.16 | $ | 0.18 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
Liquidity and Capital Resources
The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:
June 30, 2022 |
December 31, 2021 |
|||||||
| Balance Sheet Data (in thousands) : |
||||||||
| Cash and cash equivalents |
$ | 109,736 | $ | 140,709 | ||||
| Securities owned, at fair value |
128,852 | 127,166 | ||||||
| Accounts receivable |
34,061 | 31,864 | ||||||
| Securities held-to-maturity |
277 | 308 | ||||||
| |
|
|
|
|||||
| Total: Liquid assets |
272,926 | 300,047 | ||||||
| Less: Total current liabilities (1) |
(68,298 | ) | (83,667 | ) | ||||
| Less: Regulatory capital requirement – certain international subsidiaries |
(25,450 | ) | (12,320 | ) | ||||
| |
|
|
|
|||||
| Total: Available liquidity |
$ | 179,178 | $ | 204,060 | ||||
| |
|
|
|
|||||
| (1) | Excludes convertible notes in the amount of $173,325 scheduled to mature on June 15, 2023, as we are actively exploring refinancing and extension alternatives. |
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
| Cash Flow Data (in thousands) : |
||||||||
| Operating cash flows (1) |
$ | 8,542 | $ | 22,390 | ||||
| Investing cash flows (1) |
(23,070 | ) | (30,453 | ) | ||||
| Financing cash flows |
(13,073 | ) | 102,147 | |||||
| Foreign exchange rate effect |
(3,372 | ) | 126 | |||||
| |
|
|
|
|||||
| (Decrease)/increase in cash and cash equivalents |
$ | (30,973 | ) | $ | 94,210 | |||
| |
|
|
|
|||||
| (1) | Cash flows from purchasing securities owned, at fair value of $29,819 and selling securities owned, at fair value of $5,212 during the six months ended June 30, 2021 that were not acquired specifically for resale or associated with the Company’s business activities have been reclassified from operating activities to investing activities to conform to the current year’s presentation in the Consolidated Statements of Cash Flows. See Note 2 for additional information. |
48
Liquidity
We consider our available liquidity to be our liquid assets, less our current liabilities and regulatory capital requirements of certain international subsidiaries. Liquid assets consist of cash and cash equivalents, securities owned, at fair value, accounts receivable and securities Our securities 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, deferred consideration and accrued incentive compensation for employees.
held-to-maturity.
Cash and cash equivalents decreased $31.0 million during the six months ended June 30, 2022 due to $32.5 million used to purchase securities owned, $11.9 million used to purchase investments, $9.7 million used to pay dividends on our common stock, $3.4 million used to repurchase our common stock, $3.4 million of foreign exchange rate losses and $0.1 million used in other activities. These decreases were partly offset by $21.5 million of proceeds from the sale of securities owned and $8.5 million of net cash provided by operating activities.
Cash and cash equivalents increased $94.2 million during the six months ended June 30, 2021 due to $150.0 million of proceeds received from the issuance of the 2021 Notes, $22.4 million of net cash provided by operating activities, $5.2 million of proceeds from the sale of securities owned, at fair value and $0.9 million provided by other activities. These increases were partly offset by $34.5 million used to repurchase our common stock, $29.8 million used to purchase securities owned, at fair value, $9.9 million used to pay dividends on our common stock, $5.8 million used to purchase investments and $4.3 million used to pay the 2021 Note issuance costs.
Issuance of Convertible Notes
On June 14, 2021, we issued and sold $150.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, between us and U.S. Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”).
On June 16, 2020, we issued and sold $150.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “June 2020 Notes”) pursuant to an indenture dated June 16, 2020, between us and the trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On August 13, 2020, we issued and sold $25.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, which constitute a further issuance of, and form a single series with, our June 2020 Notes (the “August 2020 Notes” and together with the June 2020 Notes, the “2020 Notes”).
After the issuance of the 2021 Notes (and together with the 2020 Notes, the “Convertible Notes”), we had $325.0 million aggregate principal amount of Convertible Notes outstanding.
Key terms of the Convertible Notes are as follows:
2021 Notes |
2020 Notes |
|||||||
| Maturity date (unless earlier converted, repurchased or redeemed) |
June 15, 2026 | June 15, 2023 | ||||||
| Interest rate |
3.25 | % | 4.25 | % | ||||
| Conversion price |
$ | 11.04 | $ | 5.92 | ||||
| Conversion rate |
90.5797 | 168.9189 | ||||||
| Redemption price |
$ | 14.35 | $ | 7.70 | ||||
| • | Interest rate |
| • | Conversion price |
| • | Conversion |
49
| • | Cash settlement of principal amount |
| • | Redemption price th 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 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 |
| • | Conversion rate increase in certain customary circumstances |
| • | Seniority and Security Non-Voting Convertible Preferred Stock (See Note 10 to our Consolidated Financial Statements). |
The indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes outstanding may declare the entire principal amount of all the 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 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 international subsidiaries are required to maintain a minimum level of regulatory capital, which at June 30, 2022 was approximately $25.5 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.
There were no shares repurchased during the three months ended June 30, 2022. As of June 30, 2022, $100 million remains under this program for future purchases.
Contractual Obligations
Convertible Notes
At June 30, 2022, we had $325.0 million aggregate principal amount of Convertible Notes outstanding, of which $175.0 million are scheduled to mature on June 15, 2023 and $150.0 million are scheduled to mature on June 15, 2026, 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.
50
The Convertible Notes require cash settlement of 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 currently anticipate refinancing these obligations when due.
See the section titled “Issuance of Convertible Notes” above for additional information.
Deferred Consideration – Gold Payments
Deferred consideration represents an obligation we assumed in April 2018 in connection with our acquisition of the European exchange-traded commodity, currency and leveraged and inverse business of ETFS Capital Limited. The obligation is for fixed payments to ETFS Capital Limited of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”). The present value of the deferred consideration was $242.8 million at June 30, 2022.
The Contractual Gold Payments are paid from advisory fee income generated by any of our sponsored financial products backed by physical gold with no recourse back to us for any unpaid amounts that exceed advisory fees earned.
See Note 9 to our Consolidated Financial Statements for additional information.
Operating Leases
In keeping with our hybrid remote-first philosophy, employees primarily work remotely on a permanent basis. However, we maintain office space in New York and London, as well as other regional locations, to align with employees choosing to collaborate in person.
Total future minimum lease payments with respect to our office space was $2.4 million at June 30, 2022. Cash flows generated by our operating activities and existing cash balances should be sufficient to satisfy the future minimum lease payments. See Note 12 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. Critical Accounting Policies
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 30
th
. When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, the market approach and its market capitalization when determining the fair value of the reporting unit. The results of our 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 30
th
. Investments
We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in ASU , 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.
2016-01,
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
51
Deferred Consideration – Gold Payments
Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate. The weighted average forward-looking gold price per ounce, discount rate and perpetual growth rate were $2,265, 9.0% and 1.4%, respectively, at June 30, 2022. Changes in the fair value of this obligation are reported as gain/(loss) on revaluation of deferred consideration–gold payments in our Consolidated Statements of Operations.
During the three months ended June 30, 2022, we reported a gain on deferred consideration–gold payments of $2.3 million. A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.7 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $25.7 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $22.0 million. See Note 9 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.
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 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.
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, corporate bonds, money market instruments at a commercial bank and other securities which totaled $138.3 million and $131.1 million as of December 31, 2021 and June 30, 2022, respectively. During the six months ended June 30, 2022, we recognized losses on these securities of $9.3 million and any 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 3.25% and 4.25% for the 2021 Notes and the 2020 Notes, respectively. 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 international listed ETPs are predominantly in U.S. dollars (and also paid in gold ounces, 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. 52
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. In addition, we pay gold ounces to satisfy our deferred consideration obligation (See Note 9 to our Consolidated Financial Statements). 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 June 30, 2022, 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 June 30, 2022, 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 June 30, 2022, 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.
PART II: OTHER INFORMATION
ITEM 1. |
LEGAL PROCEEDINGS |
We may be subject to reviews, inspections and investigations by the SEC, Commodity Futures Trading Commission (CFTC), National Futures Association (NFA), state and foreign regulators, as well as legal proceedings arising in the ordinary course of business. See Note 13 to our Consolidated Financial Statements for additional information regarding claims brought by investors in our WisdomTree WTI Crude Oil 3x Daily Leveraged ETP totaling approximately €15.8 million ($16.6 million).
ITEM 1A. |
RISK FACTORS |
In addition to the risk factor and other information set forth below and elsewhere in this Report, you should carefully consider the information set forth in Part 1, Item1A. “Risk Factors” in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2021, as amended. Failure to repay, refinance or extend the maturity of our indebtedness may expose us to material risks.
Our 2020 Notes in the aggregate principal amount of $175.0 million are scheduled to mature on June 15, 2023. We are actively exploring refinancing and extension alternatives. Our ability to repay, refinance or extend the maturity of outstanding amounts under our 2020 Notes will depend on our performance, as well as other general economic factors, including prevailing interest rates, many of which are beyond our control. Any such alternatives may not be available to us on satisfactory terms or at all. Failure to repay, refinance or extend the maturity of outstanding amounts under our 2020 Notes could result in an event of default, which would have a material adverse effect on our business.
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent sales of Unregistered Securities
None.
53
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 (1) |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|||||||||||||
| Period |
(in thousands) |
|||||||||||||||
| April 1, 2022 to April 30, 2022 |
— | $ | — | — | ||||||||||||
| May 1, 2022 to May 31, 2022 |
— | $ | — | — | ||||||||||||
| June 1, 2022 to June 30, 2022 |
— | $ | — | — | ||||||||||||
| |
|
|
|
|||||||||||||
| Total |
— | $ | — | — | $ | 100,000 | ||||||||||
| |
|
|
|
|
|
|||||||||||
On February 22, 2022, our board of directors approved an increase of $85.7 million to our share repurchase program to $100 million and extended the term for three years through April 27, 2025.
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. |
OTHER INFORMATION |
This disclosure is intended to satisfy any obligation to provide disclosures pursuant to Item 5.03 of Form
8-K.
Effective August 1, 2022, our Board of Directors approved an amendment and restatement of our Second Amended and Restated
By-Laws
(as amended and restated, the “Third Amended and Restated By-Laws,”
which are referred to in this Report as the “By-laws”).
The By-laws
were amended to: | • | revise the advance notice of nomination provisions to enhance the informational and procedural requirements for the submission by stockholders of proposals of business and director nominees, including changes to address Rule 14a-19 of the Exchange Act, which takes effect on September 1, 2022 (Article II, Section 2); |
| • | implement proxy access to allow a stockholder, or group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years, to nominate and include in our proxy materials for an annual meeting of stockholders, director nominees constituting up to the greater of two nominees or 25% of the Board of Directors (Article II, Section 11); |
| • | provide that the Chair of the Board or the President can call a meeting of the Board of Directors with less than the required time for notice if they determine it is necessary (Article III, Section 3); |
| • | provide that a majority of the members of the Board of Directors then in office constitutes a quorum, provided that a quorum cannot be less than one third (1/3) of the total number of directors (Article III, Section 4); |
| • | provide that the Board of Directors may by resolution decide that some or all classes or series of stock will be uncertificated stock (Article VI, Section 1); |
| • | provide that action by a majority of the Board of Directors is required to amend the By-laws, rather than the majority vote of the directors then in office (Article IX, Section 1); and |
| • | provide that the federal district courts of the United States be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933 and the Exchange Act (Article X). |
54
The
By-laws
also contain conforming, clarifying and updating changes to supplement the foregoing amendments, as well as certain other routine, technical, and non-substantive
updates and revisions. The foregoing description of the amendments contained in the
By-laws
is qualified in its entirety by reference to the By-laws,
which are filed as Exhibit 3.5 to this Report. 55
ITEM 6. |
EXHIBITS |
56
| Exhibit No. |
Description | |
| 31.1 (1) |
Rule 13a-14(a) / 15d-14(a) Certification | |
| 31.2 (1) |
Rule 13a-14(a) / 15d-14(a) Certification | |
| 32 (1) |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101 (1) |
Financial Statements from the Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2022, formatted in XBRL: (i) Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021; (ii) Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three and six months ended June 30, 2022 and June 30, 2021 (Unaudited); (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and June 30, 2021 (Unaudited) (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and June 30, 2021 (Unaudited); and (v) Notes to Consolidated Financial Statements, as blocks of text and in detail. | |
| 101.SCH (1) |
Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL (1) |
Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF (1) |
Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB (1) |
Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE (1) |
Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 (1) |
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) | |
| (1) | Filed herewith. |
57
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 5
th
day of August 2022. | WISDOMTREE INVESTMENTS, INC. | ||
| By: | /s/ Jonathan Steinberg | |
| Jonathan Steinberg | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| WISDOMTREE INVESTMENTS, INC. | ||
| By: | /s/ Bryan Edmiston | |
| Bryan Edmiston | ||
Chief Financial Officer (Principal Financial Officer) | ||
58