☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
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 |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
WISDOMTREE INVESTMENTS, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
PART I: |
FINANCIAL INFORMATION | 4 | ||||
ITEM 1. |
Financial Statements | 4 | ||||
ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 | ||||
ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk | 51 | ||||
ITEM 4. |
Controls and Procedures | 52 | ||||
PART II: |
OTHER INFORMATION | 52 | ||||
ITEM 1. |
Legal Proceedings | 52 | ||||
ITEM 1A. |
Risk Factors | 52 | ||||
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 52 | ||||
ITEM 3. |
Default Upon Senior Securities | 53 | ||||
ITEM 4. |
Mine Safety Disclosures | 53 | ||||
ITEM 5. |
Other Information | 53 | ||||
ITEM 6. |
Exhibits | 54 |
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.
WisdomTree®, WisdomTree Prime™ 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
• | 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 strategy relating to digital assets and blockchain-enabled financial services, including WisdomTree Prime ™ , and achieve its objectives; |
• | our ability to successfully operate and expand our business in non-U.S. markets; and |
• | the effect of laws and regulations that apply to our business. |
ITEM 1. |
FINANCIAL STATEMENTS |
September 30, 2022 |
December 31, 2021 |
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(unaudited) |
||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 132,700 | $ | 140,709 | ||||
Securities owned, at fair value (including $12,387 and $18,526 invested in WisdomTree ETFs at September 30, 2022 and December 31, 2021, respectively) |
125,110 | 127,166 | ||||||
Accounts receivable (including $21,222 and $25,628 due from related parties at September 30, 2022 and December 31, 2021, respectively) |
25,306 | 31,864 | ||||||
Prepaid expenses |
6,035 | 3,952 | ||||||
Other current assets |
332 | 276 | ||||||
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|
|
|
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Total current assets |
289,483 | 303,967 | ||||||
Fixed assets, net |
575 | 557 | ||||||
Indemnification receivable (Note 19) |
1,220 | 21,925 | ||||||
Securities held-to-maturity |
267 | 308 | ||||||
Deferred tax assets, net |
6,947 | 8,881 | ||||||
Investments (Note 7) |
26,339 | 14,238 | ||||||
Right of use assets—operating leases (Note 12) |
1,720 | 520 | ||||||
Goodwill (Note 21) |
85,856 | 85,856 | ||||||
Intangible assets (Note 21) |
603,204 | 601,247 | ||||||
Other noncurrent assets |
766 | 361 | ||||||
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|
|
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Total assets |
$ | 1,016,377 | $ | 1,037,860 | ||||
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Liabilities and stockholders’ equity |
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Liabilities |
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Current liabilities: |
||||||||
Convertible notes—current (Note 10) |
$ | 173,760 | $ | — | ||||
Fund management and administration payable |
21,466 | 20,661 | ||||||
Compensation and benefits payable |
26,455 | 32,782 | ||||||
Deferred consideration—gold payments (Note 9) |
15,162 | 16,739 | ||||||
Operating lease liabilities (Note 12) |
1,186 | 209 | ||||||
Income taxes payable |
2,094 | 3,979 | ||||||
Accounts payable and other liabilities |
13,122 | 9,297 | ||||||
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|
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Total current liabilities |
253,245 | 83,667 | ||||||
Convertible notes—long term (Note 10) |
146,805 | 318,624 | ||||||
Deferred consideration—gold payments (Note 9) |
149,595 | 211,323 | ||||||
Operating lease liabilities (Note 12) |
554 | 328 | ||||||
Other noncurrent liabilities (Note 19) |
1,220 | 21,925 | ||||||
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|
|
|||||
Total liabilities |
551,419 | 635,867 | ||||||
Preferred stock—Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $73,594 and $90,741 at September 30, 2022 and December 31, 2021, respectively) (Note 11) |
132,569 | 132,569 | ||||||
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|
Contingencies (Note 13) |
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Stockholders’ equity |
||||||||
Preferred stock, par value $0.01; 2,000 shares authorized: |
— | — | ||||||
Common stock, par value $0.01; 400,000 shares authorized; issued and outstanding: 146,520 and 145,107 at September 30, 2022 and December 31, 2021, respectively |
1,465 | 1,451 | ||||||
Additional paid-in capital |
289,284 | 289,736 | ||||||
Accumulated other comprehensive (loss) income |
(5,209) | 682 | ||||||
Retained earnings/(accumulated deficit) |
46,849 | (22,445) | ||||||
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|
|
|
|
Total stockholders’ equity |
332,389 | 269,424 | ||||||
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|
|
Total liabilities and stockholders’ equity |
$ | 1,016,377 | $ | 1,037,860 | ||||
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|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
2022 |
2021 |
2022 |
2021 | |||||||||||||
Operating Revenues: |
||||||||||||||||
Advisory fees |
$ | 70,616 | $ | 76,400 | $ | 222,719 | $ | 220,611 | ||||||||
Other income |
1,798 | 1,712 | 5,316 | 4,532 | ||||||||||||
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Total revenues |
72,414 | 78,112 | 228,035 | 225,143 | ||||||||||||
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Operating Expenses: |
||||||||||||||||
Compensation and benefits |
23,714 | 22,027 | 73,066 | 64,985 | ||||||||||||
Fund management and administration |
16,285 | 15,181 | 47,855 | 43,495 | ||||||||||||
Marketing and advertising |
3,145 | 2,925 | 11,062 | 9,525 | ||||||||||||
Sales and business development |
2,724 | 2,935 | 8,464 | 7,239 | ||||||||||||
Contractual gold payments (Note 9) |
4,105 | 4,250 | 13,001 | 12,834 | ||||||||||||
Professional fees |
2,367 | 1,583 | 11,134 | 5,517 | ||||||||||||
Occupancy, communications and equipment |
986 | 1,163 | 2,788 | 3,904 | ||||||||||||
Depreciation and amortization |
58 | 185 | 158 | 693 | ||||||||||||
Third-party distribution fees |
1,833 | 1,873 | 5,863 | 5,346 | ||||||||||||
Other |
2,324 | 1,787 | 6,278 | 5,110 | ||||||||||||
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|
|
|
|
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Total operating expenses |
57,541 | 53,909 | 179,669 | 158,648 | ||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
14,873 | 24,203 | 48,366 | 66,495 | ||||||||||||
Other Income/(Expenses): |
||||||||||||||||
Interest expense |
(3,734 | ) | (3,729 | ) | (11,199 | ) | (8,592 | ) | ||||||||
Gain on revaluation of deferred consideration—gold payments (Note 9) |
77,895 | 1,737 | 63,188 | 5,066 | ||||||||||||
Interest income |
811 | 689 | 2,375 | 1,145 | ||||||||||||
Impairments (Notes 8, 12 and 23) |
— | (15,853 | ) | — | (16,156 | ) | ||||||||||
Other losses, net |
(5,289 | ) |
(714 | ) |
(34,470 | ) |
(6,558 | ) | ||||||||
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|
Income before income taxes |
84,556 | 6,333 | 68,260 | 41,400 | ||||||||||||
Income tax expense/(benefit) |
3,327 | 500 | (10,713 | ) | 2,790 | |||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ | 81,229 | $ | 5,833 | $ | 78,973 | $ | 38,610 | ||||||||
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Earnings per share—basic |
$ | 0.50 | $ | 0.04 | $ | 0.49 | $ | 0.24 | ||||||||
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Earnings per share—diluted |
$ | 0.50 | $ | 0.04 | $ | 0.49 | $ | 0.24 | ||||||||
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|
Weighted-average common shares—basic |
143,120 | 142,070 | 142,984 | 144,445 | ||||||||||||
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Weighted-average common shares—diluted |
158,953 | 159,213 | 158,741 | 161,706 | ||||||||||||
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Cash dividends declared per common share |
$ | 0.03 | $ | 0.03 | $ | 0.09 | $ | 0.09 | ||||||||
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Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Net income |
$ | 81,229 | $ | 5,833 | $ | 78,973 | $ | 38,610 | ||||||||
Other comprehensive loss |
||||||||||||||||
Foreign currency translation adjustment, net of income taxes |
(3,684) | (302) | (5,891) | (249) | ||||||||||||
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Other comprehensive loss |
(3,684) | (302) | (5,891) | (249) | ||||||||||||
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Comprehensive income |
$ | 77,545 | $ | 5,531 | $ | 73,082 | $ | 38,361 | ||||||||
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For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
(Accumulated Deficit)/Retained Earnings |
Total | ||||||||||||||||||||
Shares Issued |
Par Value | |||||||||||||||||||||||
Balance—July 1, 2022 |
146,511 | $ | 1,465 | $ | 286,854 | $ | (1,525 | ) | $ | (29,538 | ) | $ | 257,256 | |||||||||||
Restricted stock issued and vesting of restricted stock units, net |
|
13 | — | — | — | — | — | |||||||||||||||||
Shares repurchased |
(4 | ) |
— | (24 | ) |
— | — | (24 | ) | |||||||||||||||
Stock-based compensation |
— | — | 2,454 | — | — | 2,454 | ||||||||||||||||||
Other comprehensive loss |
— | — | — | (3,684 | ) | — | (3,684 | ) | ||||||||||||||||
Dividends |
— | — | — | — | (4,842 | ) |
(4,842 | ) | ||||||||||||||||
Net income |
— | — | — | — | 81,229 | 81,229 | ||||||||||||||||||
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Balance—September 30, 2022 |
146,520 | $ | 1,465 | $ | 289,284 | $ | (5,209 | ) | $ | 46,849 | $ | 332,389 | ||||||||||||
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For the Three Months Ended September 30, 2021 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
|||||||||||||||||||||||
Balance—July 1, 2021 |
145,114 | $ | 1,451 | $ | 285,002 | $ | 1,155 | $ | (29,871 | ) | $ | 257,737 | ||||||||||||
Restricted stock issued and vesting of restricted stock units, net |
36 | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation |
— | — | 2,397 | — | — | 2,397 | ||||||||||||||||||
Other comprehensive loss |
— | — | — | (302 | ) |
— | (302 | ) | ||||||||||||||||
Dividends |
— | — | — | — | (4,797 | ) |
(4,797 | ) | ||||||||||||||||
Net income |
— | — | — | — | 5,833 | 5,833 | ||||||||||||||||||
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Balance—September 30, 2021 |
145,150 | $ | 1,451 | $ | 287,399 | $ | 853 | $ | (28,835 | ) | $ | 260,868 | ||||||||||||
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For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
(Accumulated Deficit)/Retained Earnings |
Total | ||||||||||||||||||||
Shares Issued |
Par Value | |||||||||||||||||||||||
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 |
|
2,006 | 20 | (20 | ) | — | — | — | ||||||||||||||||
Shares repurchased |
(593 | ) |
(6 | ) |
(3,412 | ) | — | — | (3,418 | ) | ||||||||||||||
Stock-based compensation |
— | — | 7,822 | — | — | 7,822 | ||||||||||||||||||
Other comprehensive loss |
— | — | — | (5,891 | ) |
— | (5,891 | ) | ||||||||||||||||
Dividends |
— | — | (4,842 | ) |
— | (9,679 | ) |
(14,521 | ) | |||||||||||||||
Net income |
— | — | — | — | 78,973 | 78,973 | ||||||||||||||||||
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Balance—September 30, 2022 |
146,520 | $ | 1,465 | $ | 289,284 | $ | (5,209 | ) | $ | 46,849 | $ | 332,389 | ||||||||||||
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| |||||||
For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
Accumulated Deficit |
Total | ||||||||||||||||||||
Shares Issued |
Par Value | |||||||||||||||||||||||
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 | ) | ||||||||||||||||
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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 |
1,412 | 13 | (13 | ) | — | — | — | |||||||||||||||||
Shares repurchased |
(5,121 | ) | (51 | ) | (34,455 | ) | — | — | (34,506 | ) | ||||||||||||||
Exercise of stock options, net |
143 | 2 | 813 | — | — | 815 | ||||||||||||||||||
Stock-based compensation |
— | — | 7,661 | — | — | 7,661 | ||||||||||||||||||
Other comprehensive loss |
— | — | — | (249 | ) | — | (249 | ) | ||||||||||||||||
Dividends |
— | — | — | — | (14,662 | ) |
(14,662 | ) | ||||||||||||||||
Net income |
— | — | — | — | 38,610 | 38,610 | ||||||||||||||||||
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Balance—September 30, 2021 |
145,150 | $ | 1,451 | $ | 287,399 | $ | 853 | $ | (28,835 | ) | $ | 260,868 | ||||||||||||
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Nine Months Ended September 30, | ||||||||
2022 |
2021 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 78,973 | $ | 38,610 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Gain on revaluation of deferred consideration—gold payments |
(63,188 | ) |
(5,066 | ) | ||||
Advisory and license fees paid in gold, other precious metals and cryptocurrency |
(44,886 | ) | (57,617 | ) | ||||
Losses on securities owned, at fair value |
15,633 | 2,099 | ||||||
Contractual gold payments |
13,001 | 12,834 | ||||||
Stock-based compensation |
7,822 | 7,661 | ||||||
Deferred income taxes |
2,233 | 1,515 | ||||||
Amortization of issuance costs—convertible notes |
1,941 | 1,542 | ||||||
Amortization of right of use asset |
648 | 1,860 | ||||||
Depreciation and amortization |
158 | 693 | ||||||
Impairments |
— | 16,156 | ||||||
Gain on sale—Canadian ETF business, including remeasurement of contingent consideration |
— | (787 | ) | |||||
Other |
(223 | ) | (369 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
4,076 | (1,273 | ) | |||||
Prepaid expenses |
(2,356 | ) | (1,888 | ) | ||||
Gold and other precious metals |
33,598 | 44,006 | ||||||
Other assets |
(503 | ) | (315 | ) | ||||
Intangibles—software development |
(1,958 | ) | — | |||||
Fund management and administration payable |
1,369 | 2,868 | ||||||
Compensation and benefits payable |
(4,990 | ) | 1,756 | |||||
Income taxes payable |
(1,822 | ) | (1,050 | ) | ||||
Operating lease liabilities |
(644 | ) | (15,462 | ) | ||||
Accounts payable and other liabilities |
4,231 | 2,336 | ||||||
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| |||
Net cash provided by operating activities |
43,113 | 50,109 | ||||||
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Cash flows from investing activities: |
||||||||
Purchase of securities owned, at fair value |
(41,240 | ) | (97,570 | ) | ||||
Purchase of investments |
(11,863 | ) | (5,750 | ) | ||||
Purchase of fixed assets |
(211 | ) | (237 | ) | ||||
Proceeds from the sale of securities owned, at fair value |
27,650 | 10,976 | ||||||
Proceeds from held-to-maturity |
38 | 114 | ||||||
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Net cash used in investing activities |
(25,626 | ) | (92,467 | ) | ||||
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Cash flows from financing activities: |
||||||||
Dividends paid |
(14,521 | ) | (14,662 | ) | ||||
Shares repurchased |
(3,418 | ) | (34,506 | ) | ||||
Convertible notes issuance costs |
— | (4,297 | ) | |||||
Proceeds from the issuance of convertible notes |
— | 150,000 | ||||||
Proceeds from exercise of stock options |
— | 815 | ||||||
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Net cash (used in)/provided by financing activities |
(17,939 | ) | 97,350 | |||||
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Decrease in cash flow due to changes in foreign exchange rate |
(7,557 | ) | (493 | ) | ||||
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Net (decrease)/increase in cash and cash equivalents |
(8,009 | ) | 54,499 | |||||
Cash and cash equivalents—beginning of year |
140,709 | 73,425 | ||||||
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Cash and cash equivalents—end of period |
$ | 132,700 | $ | 127,924 | ||||
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Supplemental disclosure of cash flow information: |
||||||||
Cash paid for income taxes |
$ | 8,769 | $ | 7,332 | ||||
|
|
|
|
|
|
|
|
|
Cash paid for interest |
$ | 6,156 | $ | 3,719 | ||||
|
|
|
|
|
|
|
|
|
• | 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 mutual funds whose shares are secondarily recorded on a blockchain. |
• | WisdomTree Digital Movement, Inc |
• | WisdomTree Securities, Inc. |
Equipment |
3 to 5 years | |||
Internally-developed software |
3 years |
September 30, 2022 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
Assets: |
||||||||||||||||
Recurring fair value measurements: |
||||||||||||||||
Cash equivalents |
$ | 284 | $ | 284 | $ | — | $ | — | ||||||||
Securities owned, at fair value |
||||||||||||||||
ETFs |
12,621 | 12,621 | — | — | ||||||||||||
U.S. treasuries |
8,437 | 8,437 | — | — | ||||||||||||
Pass-through GSEs |
102,248 | 23,694 | 78,554 | — | ||||||||||||
Corporate bonds |
1,804 | — | 1,804 | — | ||||||||||||
Investments in Convertible Notes |
||||||||||||||||
Securrency, Inc.—convertible note |
5,844 | — | — | 5,844 | ||||||||||||
Fnality International Limited—convertible note (Note 7) |
6,195 | — | — | 6,195 | ||||||||||||
Total |
$ | 137,433 | $ | 45,036 | $ | 80,358 | $ | 12,039 | ||||||||
Non-recurring fair value measurements: |
||||||||||||||||
Onramp Invest, Inc.—preferred stock (Note 7) (1) |
$ | 312 | $ | — | $ | — | $ | 312 | ||||||||
Liabilities: |
||||||||||||||||
Recurring fair value measurements: |
||||||||||||||||
Deferred consideration (Note 9) |
$ | 164,757 | $ | — | $ | — | $ | 164,757 | ||||||||
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 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
2022 |
2021 |
2022 |
2021 | |||||||||||||
Investments in Convertible Notes (Note 7) |
||||||||||||||||
Beginning balance |
$ | 11,712 | $ | — | $ | — | $ | — | ||||||||
Purchases |
— | — | 11,863 | — | ||||||||||||
Net unrealized gains (1) |
327 | — | 176 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
$ | 12,039 | $ | — | $ | 12,039 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Consideration (Note 9) |
||||||||||||||||
Beginning balance |
$ | 242,767 | $ | 226,706 | $ | 228,062 | $ | 230,137 | ||||||||
Net realized losses (2) |
4,105 | 4,250 | 13,001 | 12,834 | ||||||||||||
Net unrealized gains (3) |
(77,895 | ) |
(1,737 | ) | (63,188 | ) | (5,066 | ) | ||||||||
Settlements |
(4,220 | ) | (4,266 | ) |
(13,118 | ) |
(12,952 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
$ | 164,757 | $ | 224,953 | $ | 164,757 | $ | 224,953 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Recorded in other losses, net in the Consolidated Statements of Operations. |
(2) |
Recorded as contractual gold payments expense in the Consolidated Statements of Operations. |
(3) |
Recorded as gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations |
Securities Owned | September 30, 2022 |
December 31, 2021 |
||||||||
Trading securities |
$ | 125,110 | $ | 127,166 | ||||||
|
|
|
|
September 30, 2022 |
December 31, 2021 |
|||||||||
Debt instruments: Pass-through GSEs (amortized cost) |
$ | 267 | $ | 308 | ||||||
|
|
|
|
September 30, 2022 |
December 31, 2021 |
|||||||||
Cost/amortized cost |
$ | 267 | $ | 308 | ||||||
Gross unrealized gains |
— | 13 | ||||||||
Gross unrealized losses |
(23) | — | ||||||||
|
|
|
|
|||||||
Fair value |
$ | 244 | $ | 321 | ||||||
|
|
|
|
September 30, 2022 |
December 31, 2021 |
|||||||||
Due within one year |
$ | — | $ | — | ||||||
Due one year through five years |
— | — | ||||||||
Due five years through ten years |
29 | — | ||||||||
Due over ten years |
238 | 308 | ||||||||
|
|
|
|
|||||||
Total |
$ | 267 | $ | 308 | ||||||
|
|
|
|
September 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 |
5,844 | 5,000 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal—Securrency, Inc. |
$ | 19,832 | $ | 18,612 | $ | 13,988 | $ | 13,612 | ||||||||
Fnality International Limited—convertible note |
6,195 | 6,863 | — | — | ||||||||||||
Onramp Invest, Inc.—Series A-4 preferred stock |
312 | 250 | 250 | 250 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 26,339 | $ | 25,725 | $ | 14,238 | $ | 13,862 | |||||||||
|
|
|
|
|
|
|
|
Inputs |
||||||||||
June 9, 2021 |
March 8, 2021 |
|||||||||
Expected volatility |
50% | 55% | ||||||||
Time to exit (in years) |
4.75 | 5.00 |
September 30, 2022 |
||||||
Conversion of note upon a future equity financing |
85% |
|||||
Redemption of note upon a corporate transaction |
10% |
|||||
Default |
5% |
|||||
Time to potential outcome (in years) |
0.25 |
September 30, 2022 | ||||
Conversion of note upon a future financing round |
85% | |||
Redemption of note upon a change of control |
10% | |||
Default |
5% | |||
Time to potential outcome (in years) |
0.25 |
September 30, 2022 |
December 31, 2021 |
|||||||||
Equipment |
$ |
919 |
$ |
784 |
||||||
Less: accumulated depreciation |
(344) |
(227) |
||||||||
Total |
$ |
575 |
$ |
557 |
||||||
September 30, 2022 |
December 31, 2021 |
|||||||
Forward-looking gold price (low)—per ounce |
$ | 1,665 | $ | 1,833 | ||||
Forward-looking gold price (high)—per ounce |
$ | 3,027 | $ | 2,705 | ||||
Forward-looking gold price (weighted average)—per ounce |
$ | 2,037 | $ | 2,106 | ||||
Discount rate |
12.25% | 9.0% | ||||||
Perpetual growth rate |
1.54% | 1.0% |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||||||
Contractual gold payments |
$ | 4,105 | $ | 4,250 | $ | 13,001 | $ | 12,834 | ||||||||||||
Contractual gold payments—gold ounces paid |
2,375 | 2,375 | 7,125 | 7,125 | ||||||||||||||||
Gain on revaluation of deferred consideration—gold payments (1) |
$ | 77,895 | $ | 1,737 | $ | 63,188 | $ | 5,066 |
(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. |
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 |
• | Cash settlement of principal amount |
• | Redemption price: th scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Company’s 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 the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides 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 (Note 12). |
September 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) |
(3,195 | ) |
(1,490 | ) |
(4,685 | ) |
(3,833 | ) |
(2,793 | ) |
(6,626 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Carrying amount |
$ | 146,805 | $ | 173,760 | $ | 320,565 | $ | 146,167 | $ | 172,457 | $ | 318,624 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Effective interest rate (1) |
3.83% | 5.26% | 4.60% | 3.83% | 5.26% | 4.60% | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
December 31, 2021 | |||||||
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 | ||||
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Lease cost: |
||||||||||||||||
Operating lease cost |
$ | 316 | $ | 520 | $ | 648 | $ | 1,860 | ||||||||
Short-term lease cost |
296 | 242 | 856 | 797 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total lease cost |
$ | 612 | $ | 762 | $ | 1,504 | $ | 2,657 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other information: |
||||||||||||||||
Cash paid for amounts included in the measurement of operating liabilities (operating leases) |
$ | 296 | $ | 13,804 | $ | 644 | $ | 15,462 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Right-of-use |
n/a | n/a | n/a | n/a | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average remaining lease term (in years)—operating leases |
1.5 | 1.8 | 1.5 | 1.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average discount rate—operating leases |
6.3% | 4.4% | 6.3% | 4.4% | ||||||||||||
|
|
|
|
|
|
|
|
Remainder of 2022 |
$ | 317 | ||||
2023 |
1,110 | |||||
2024 |
397 | |||||
2025 |
— | |||||
2026 |
— | |||||
2027 and thereafter |
— | |||||
|
|
|||||
Total future minimum lease payments (undiscounted) |
$ | 1,824 | ||||
|
|
Amounts recognized in the Consolidated Balance Sheets |
||||||
Lease liability—short term |
$ | 1,186 | ||||
Lease liability—long term |
554 | |||||
Subtotal |
1,740 | |||||
Difference between undiscounted and discounted cash flows |
84 | |||||
Total future minimum lease payments (undiscounted) |
$ | 1,824 | ||||
September 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 |
5,844 | — | ||||||||
Subtotal—Securrency |
$ | 19,832 | $ | 13,988 | ||||||
Carrying Amount Assets (Fnality) |
||||||||||
Convertible note |
6,195 | — | ||||||||
Carrying Amount Assets (Onramp) |
||||||||||
Preferred stock |
312 | 250 | ||||||||
Total (Note 7) |
$ | 26,339 | $ | 14,238 | ||||||
Maximum exposure to loss |
$ |
26,339 |
$ | 14,238 | ||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Revenues from contracts with customers: |
||||||||||||||||
Advisory fees |
$ | 70,616 | $ | 76,400 | $ | 222,719 | $ | 220,611 | ||||||||
Other |
1,798 | 1,712 | 5,316 | 4,532 | ||||||||||||
Total operating revenues |
$ | 72,414 | $ | 78,112 | $ | 228,035 | $ | 225,143 | ||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Revenues from contracts with customers: |
||||||||||||||||
United States |
$ | 45,263 | $ | 46,523 | $ | 137,299 | $ | 131,744 | ||||||||
Jersey |
23,702 | 28,724 | 80,111 | 85,953 | ||||||||||||
Ireland |
3,449 | 2,865 | 10,625 | 7,446 | ||||||||||||
Total operating revenues |
$ | 72,414 | $ | 78,112 | $ | 228,035 | $ | 225,143 | ||||||||
September 30, 2022 |
December 31, 2021 |
| ||||||||
Receivable from WTT |
$ | 14,618 | $ | 15,987 | ||||||
Receivable from ManJer Issuers |
4,624 | 6,460 | ||||||||
Receivable from WMAI and WTI |
1,980 | 3,181 | ||||||||
|
|
|
|
|||||||
Total |
$ | 21,222 | $ | 25,628 | ||||||
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
| ||||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||||
Advisory services provided to WTT |
$ | 45,112 | $ | 46,386 | $ | 136,852 | $ | 131,364 | ||||||||||
Advisory services provided to ManJer Issuers |
22,055 | 24,759 | 75,242 | 75,296 | ||||||||||||||
Advisory services provided to WMAI and WTI |
3,449 | 5,255 | 10,625 | 13,951 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 70,616 | $ | 76,400 | $ | 222,719 | $ | 220,611 | ||||||||||
|
|
|
|
|
|
|
|
Stock options: |
Generally issued for terms of ten years and may vest after at least one year of service and have an exercise price equal to the Company’s stock price on the grant date. The Company estimates the fair value of stock options (when granted) using the Black-Scholes option pricing model. | |
RSAs/RSUs: |
Awards are valued based on the Company’s stock price on grant date and generally vest ratably over three years. |
PRSUs: | These awards cliff vest three years from the grant date and contain a market condition whereby the number of PRSUs ultimately vesting is tied to how the Company’s total shareholder return (“TSR”) compares to a peer group of other publicly traded asset managers over the three-year period. A Monte Carlo simulation is used to value these awards. | |
The number of PRSUs vesting ranges from 0% to 200% of the target number of PRSUs granted, as follows: • If the relative TSR is below the 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. |
September 30, 2022 | ||||||||
Unrecognized Stock- Based Compensation |
Average Remaining Vesting Period (Years) | |||||||
Employees and directors |
$ | 15,109 | 1.63 |
RSAs |
RSUs |
PRSUs | ||||||||||
Balance at July 1, 2022 |
3,399,274 | 47,656 | 668,188 | | ||||||||
Granted |
82,458 | 95,687 | — | |||||||||
Exercised/vested |
(19,210 | ) | — | — | ||||||||
Forfeitures |
(69,272 | ) |
(1,380 | ) |
— | |||||||
|
|
|
|
|
|
|
|
| ||||
Balance at September 30, 2022 |
3,393,250 | 141,963 | 668,188 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
Basic Earnings per Share |
2022 |
2021 |
2022 |
2021 | ||||||||||||
Net income |
$ | 81,229 | $ | 5,833 | $ | 78,973 | $ | 38,610 | ||||||||
Less: Income distributed to participating securities |
(546 | ) |
(538 | ) |
(1,644 | ) |
(1,634 | ) | ||||||||
Less: Undistributed income allocable to participating securities |
(8,583 | ) | (115 | ) | (7,268 | ) | (2,666 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income available to common stockholders—Basic EPS |
$ | 72,100 | $ | 5,180 | $ | 70,061 | $ | 34,310 | ||||||||
Weighted average common shares (in thousands) |
143,120 | 142,070 | 142,984 | 144,445 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic earnings per share |
$ | 0.50 | $ | 0.04 | $ | 0.49 | $ | 0.24 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
Diluted Earnings per Share |
2022 |
2021 |
2022 |
2021 | ||||||||||||
Net income available to common stockholders |
$ | 72,100 | $ | 5,180 | $ | 70,061 | $ | 34,310 | ||||||||
Add back: Undistributed income allocable to participating securities |
8,583 | 115 | 7,268 | 2,666 | ||||||||||||
Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive |
(8,568 | ) |
(115 | ) |
(7,257 | ) |
(2,647 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders—Diluted EPS |
$ | 72,115 | $ | 5,180 | $ | 70,072 | $ | 34,329 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Diluted Shares (in thousands): |
||||||||||||||||
Weighted average common shares |
143,120 | 142,070 | 142,984 | 144,445 | ||||||||||||
Dilutive effect of common stock equivalents, excluding participating securities |
287 | 1,072 | 261 | 1,159 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average diluted shares, excluding participating securities (in thousands) |
143,407 | 143,142 | 143,245 | 145,604 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diluted earnings per share |
$ | 0.50 | $ | 0.04 | $ | 0.49 | $ | 0.24 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
Reconciliation of Weighted Average Diluted Shares (in thousands) |
2022 |
2021 |
2022 |
2021 | ||||||||||||
Weighted average diluted shares as disclosed on the consolidated statements of operations |
158,953 | 159,213 | 158,741 | 161,706 | ||||||||||||
Less: Participating securities |
||||||||||||||||
Weighted average shares of common stock issuable upon conversion of the Preferred Shares (Note 11) |
(14,750 | ) | (14,750 | ) | (14,750 | ) | (14,750 | ) | ||||||||
Potentially dilutive restricted stock awards |
(796 | ) |
(1,321 | ) |
(746 | ) |
(1,352 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above |
143,407 | 143,142 | 143,245 | 145,604 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
December 31, 2021 |
|||||||||
Deferred tax assets: |
||||||||||
Capital losses |
$ | 17,033 | $ | 16,601 | ||||||
Accrued expenses |
4,228 | 4,993 | ||||||||
Unrealized losses |
3,938 | 614 | ||||||||
NOLs—Foreign |
1,607 | 1,934 | ||||||||
Goodwill and intangible assets |
1,133 | 1,276 | ||||||||
Stock-based compensation |
1,107 | 1,359 | ||||||||
Interest carryforwards |
321 | 437 | ||||||||
NOLs—U.S. |
255 | 382 | ||||||||
Foreign currency translation adjustment |
169 | — | ||||||||
Outside basis differences |
122 | 122 | ||||||||
Other |
354 | 376 | ||||||||
|
|
|
|
|||||||
Deferred tax assets |
30,267 | 28,094 | ||||||||
|
|
|
|
|||||||
Deferred tax liabilities: |
||||||||||
Fixed assets and prepaid assets |
422 | 257 | ||||||||
Unremitted earnings—International subsidiaries |
198 | 118 | ||||||||
Foreign currency translation adjustment |
— | 181 | ||||||||
|
|
|
|
|||||||
Deferred tax liabilities |
620 | 556 | ||||||||
|
|
|
|
|||||||
Total deferred tax assets less deferred tax liabilities |
29,647 | 27,538 | ||||||||
Less: Valuation allowance |
(22,700) | (18,657) | ||||||||
|
|
|
|
|||||||
Deferred tax assets, net |
$ | 6,947 | $ | 8,881 | ||||||
|
|
|
|
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 | ||||||||
Increases |
6 | — | 6 | |||||||||||
Foreign currency translation (2) |
(137 | ) | (98 | ) | (39 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at September 30, 2022 |
$ | 1,220 | $ | 867 | $ | 353 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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, net. |
(2) |
The gross unrecognized tax benefits were accrued in British pounds. |
Total |
||||
Balance at January 1, 2022 |
$ | 85,856 | ||
Changes |
— | |||
|
|
|||
Balance at September 30, 2022 |
$ | 85,856 | ||
|
|
Item |
Gross Asset |
Accumulated Amortization |
Net Asset |
|||||||||
ETFS acquisition |
$ | 601,247 | $ | — | $ | 601,247 | ||||||
Software development |
1,958 | (1) | 1,957 | |||||||||
|
|
|
|
|
|
|||||||
Balance at September 30, 2022 |
$ | 603,205 | $ | (1) | $ | 603,204 | ||||||
|
|
|
|
|
|
Remainder of 2022 |
$ | 57 | ||
2023 |
653 | |||
2024 |
653 | |||
2025 |
594 | |||
2026 |
— | |||
2027 and thereafter |
— | |||
Total expected amortization expense |
$ | 1,957 | ||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||||
Lease termination—New York office (Note 12) |
$ | — | $ | 9,277 | $ | — | $ | 9,277 | ||||||||||
Fixed assets—New York office (Note 8) |
— | 6,576 | — | 6,576 | ||||||||||||||
Lease termination—London office (Note 12) |
— | — | — | 303 | ||||||||||||||
Total |
$ | — | $ | 15,853 | $ | — | $ | 16,156 | ||||||||||
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, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. 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 $70.9 billion as of September 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 first-to-market products and pioneered alternative weighting we call “Modern Alpha,” which combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform. Most of our equity-based funds employ a fundamentally weighted investment methodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other industry indexes use a capitalization weighted methodology. These products are distributed through all major channels in the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force.
We 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.
33
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 September 30, 2021, June 30, 2022 and September 30, 2022:
Market Environment
The third quarter of 2022 saw a continuation of the significant market volatility that has dominated much of 2022. Investors remained worried about high inflation, slowing growth and the rising probability of recession and as a result, broad-based equity markets dropped into bear market territory. Gold prices decreased as the dollar and Treasury yields increased amid expectations for aggressive monetary policy tightening by major central banks.
The S&P 500, MSCI EAFE (local currency), MSCI Emerging Markets Index (U.S. dollar) and gold prices decreased by 4.9%, 3.5%, 11.4% and 8.0%, respectively, during the quarter. In addition, the European and Japanese equities markets both depreciated with the MSCI EMU Index and MSCI Japan Index decreasing 4.5% and 1.5%, respectively, in local currency terms for the quarter. Also, the U.S. dollar rose 7.2%, 10.1% and 5.6% 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 September 30, 2022 were $110.1 billion. Fixed income and U.S. Equity gathered the majority of those flows.
Source: Morningstar
34
European Listed ETP Industry Flows
European listed ETP industry net flows were ($8.0) billion for the three months ended September 30, 2022. Equities and commodities contributed to most of the outflows, partially offset by inflows into fixed income.
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 increased from $47.3 billion at June 30, 2022 to $48.0 billion at September 30, 2022 due to net inflows, partly offset by market depreciation.
35
European Listed ETPs
Our European listed ETPs’ AUM decreased from $27.0 billion at June 30, 2022 to $22.8 billion at September 30, 2022 due to market depreciation and net outflows.
Consolidated Operating Results
The following table sets forth our revenues and net income/(loss) for the most recent five quarters.
36
• | Revenues – We recorded operating revenues of $72.4 million during the three months ended September 30, 2022, down 7.3% from the three months ended September 30, 2021 due to a lower average advisory fee. |
• | Operating Expenses – Total operating expenses increased 6.7% from the three months ended September 30, 2021 to $57.5 million primarily due to higher incentive compensation and headcount, fund management and administration costs, professional fees incurred in connection with our digital assets initiative and other expenses, partly offset by lower sales and business development expenses, occupancy expenses, contractual gold payments and depreciation and amortization expenses. |
• | Other Income/(Expenses) – Other income/(expenses) includes interest income and interest expense, gains on revaluation of deferred consideration—gold payments, impairments and other net losses. For the three months ended September 30, 2022 and 2021, the gains on revaluation of deferred consideration—gold payments were $77.9 million and $1.7 million, respectively. In addition, during the three months ended September 30, 2022 we recognized losses on our securities owned and investments of $6.3 million. |
• | Net income – We reported net income of $81.2 million during the three months ended September 30, 2022, compared to net income of $5.8 million during the three months ended September 30, 2021. The change in net income was primarily due to the gain on revaluation of deferred consideration—gold payments. |
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 (unchanged from the three months ended June 30, 2022).
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 $50.0 million to $51.0 million (previously $51.0 million to $53.0 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 2022.
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 78% to 79% for the year ending December 31, 2022 (previously 79%).
Contractual Gold Payments
We currently estimate our contractual gold payments expense for the year ending December 31, 2022 to be approximately $17.0 million (unchanged from the three months ended June 30, 2022) taking into consideration current gold prices.
Third-Party Distribution Expense
We currently estimate third-party distribution expense to be approximately $8.0 million (previously $8.5 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 be 22% for the year ending December 31, 2022 (previously 21% to 22%). 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.
37
Key Operating Statistics
The following table presents key operating statistics that serve as indicators for the performance of our business:
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, 2022 |
June 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 | ||||||||||||||||
GLOBAL ETPs (in millions) |
||||||||||||||||||||
Beginning of period assets |
$ | 74,292 | $ | 79,384 | $ | 73,918 | $ | 77,450 | $ | 67,365 | ||||||||||
Inflows/(outflows) |
1,747 | 3,852 | 548 | 6,918 | 2,758 | |||||||||||||||
Market (depreciation)/appreciation |
(5,162 | ) | (8,940 | ) | (1,711 | ) | (13,487 | ) | 2,636 | |||||||||||
Fund closures |
— | (4 | ) | — | (4 | ) | (4 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 70,877 | $ | 74,292 | $ | 72,755 | $ | 70,877 | $ | 72,755 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 74,681 | $ | 77,735 | $ | 74,527 | $ | 76,735 | $ | 72,559 | ||||||||||
Average ETP advisory fee during the period |
0.38% | 0.39% | 0.41% | 0.39% | 0.41% | |||||||||||||||
Revenue days |
92 | 91 | 92 | 273 | 273 | |||||||||||||||
Number of ETPs—end of period |
347 | 344 | 322 | 347 | 322 | |||||||||||||||
U.S. LISTED ETFs (in millions) |
||||||||||||||||||||
Beginning of period assets |
$ | 47,255 | $ | 48,622 | $ | 45,129 | $ | 48,210 | $ | 38,517 | ||||||||||
Inflows/(outflows) |
3,812 | 4,278 | 612 | 10,340 | 3,085 | |||||||||||||||
Market (depreciation)/appreciation |
(3,024 | ) | (5,645 | ) | (999 | ) | (10,507 | ) | 3,140 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 48,043 | $ | 47,255 | $ | 44,742 | $ | 48,043 | $ | 44,742 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 49,473 | $ | 48,278 | $ | 45,507 | $ | 48,418 | $ | 43,465 | ||||||||||
Number of ETFs—end of the period |
78 | 77 | 73 | 78 | 73 | |||||||||||||||
EUROPEAN LISTED ETPs (in millions) |
||||||||||||||||||||
Beginning of period assets |
$ | 27,037 | $ | 30,762 | $ | 28,789 | $ | 29,240 | $ | 28,848 | ||||||||||
(Outflows)/inflows |
(2,065 | ) | (426 | ) | (64 | ) | (3,422 | ) | (327 | ) | ||||||||||
Market (depreciation)/appreciation |
(2,138 | ) | (3,295 | ) | (712 | ) | (2,980 | ) | (504 | ) | ||||||||||
Fund closures |
— | (4 | ) | — | (4 | ) | (4 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 22,834 | $ | 27,037 | $ | 28,013 | $ | 22,834 | $ | 28,013 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 25,208 | $ | 29,457 | $ | 29,020 | $ | 28,317 | $ | 29,094 | ||||||||||
Number of ETPs—end of period |
269 | 267 | 249 | 269 | 249 | |||||||||||||||
PRODUCT CATEGORIES (in millions) |
||||||||||||||||||||
U.S. Equity |
||||||||||||||||||||
Beginning of period assets |
$ | 21,058 | $ | 23,738 | $ | 21,285 | $ | 23,860 | $ | 18,367 | ||||||||||
Inflows/(outflows) |
1,239 | 306 | 351 | 2,324 | 760 | |||||||||||||||
Market (depreciation)/appreciation |
(1,344 | ) | (2,986 | ) | (253 | ) | (5,231 | ) | 2,256 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 20,953 | $ | 21,058 | $ | 21,383 | $ | 20,953 | $ | 21,383 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 22,540 | $ | 22,370 | $ | 21,792 | $ | 22,683 | $ | 20,698 | ||||||||||
Commodity & Currency |
||||||||||||||||||||
Beginning of period assets |
$ | 23,625 | $ | 26,302 | $ | 24,772 | $ | 24,598 | $ | 25,878 | ||||||||||
(Outflows)/inflows |
(2,179 | ) | (475 | ) | (249 | ) | (3,707 | ) | (1,228 | ) | ||||||||||
Market (depreciation)/appreciation |
(1,885 | ) | (2,202 | ) | (698 | ) | (1,330 | ) | (825 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 19,561 | $ | 23,625 | $ | 23,825 | $ | 19,561 | $ | 23,825 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 21,628 | $ | 25,771 | $ | 24,850 | $ | 24,429 | $ | 25,230 | ||||||||||
Fixed Income |
||||||||||||||||||||
Beginning of period assets |
$ | 9,191 | $ | 5,416 | $ | 3,435 | $ | 4,351 | $ | 3,305 | ||||||||||
Inflows/(outflows) |
2,627 | 4,038 | 115 | 7,907 | 293 | |||||||||||||||
Market (depreciation)/appreciation |
(124 | ) | (263 | ) | (26 | ) | (564 | ) | (74 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 11,694 | $ | 9,191 | $ | 3,524 | $ | 11,694 | $ | 3,524 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 10,077 | $ | 7,424 | $ | 3,496 | $ | 7,396 | $ | 3,352 |
38
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, 2022 |
June 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 | ||||||||||||||||
International Developed Market Equity |
||||||||||||||||||||
Beginning of period assets |
$ | 9,958 | $ | 11,401 | $ | 10,772 | $ | 11,870 | $ | 9,392 | ||||||||||
(Outflows)/inflows |
(115 | ) | 79 | 404 | 61 | 820 | ||||||||||||||
Market (depreciation)/appreciation |
(661 | ) | (1,522 | ) | (17 | ) | (2,749 | ) | 947 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 9,182 | $ | 9,958 | $ | 11,159 | $ | 9,182 | $ | 11,159 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 10,027 | $ | 10,682 | $ | 11,126 | $ | 10,744 | $ | 10,469 | ||||||||||
Emerging Market Equity |
||||||||||||||||||||
Beginning of period assets |
$ | 8,386 | $ | 9,991 | $ | 11,519 | $ | 10,375 | $ | 8,539 | ||||||||||
Inflows/(outflows) |
114 | (223 | ) | (149 | ) | 80 | 2,044 | |||||||||||||
Market (depreciation)/appreciation |
(1,005 | ) | (1,382 | ) | (704 | ) | (2,960 | ) | 83 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 7,495 | $ | 8,386 | $ | 10,666 | $ | 7,495 | $ | 10,666 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 8,329 | $ | 9,155 | $ | 11,038 | $ | 9,200 | $ | 10,642 | ||||||||||
Leveraged & Inverse |
||||||||||||||||||||
Beginning of period assets |
$ | 1,618 | $ | 1,856 | $ | 1,691 | $ | 1,775 | $ | 1,475 | ||||||||||
Inflows/(outflows) |
45 | 90 | 41 | 133 | 34 | |||||||||||||||
Market (depreciation)/appreciation |
(140 | ) | (328 | ) | (69 | ) | (385 | ) | 154 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 1,523 | $ | 1,618 | $ | 1,663 | $ | 1,523 | $ | 1,663 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 1,589 | $ | 1,765 | $ | 1,715 | $ | 1,728 | $ | 1,644 | ||||||||||
Alternatives |
||||||||||||||||||||
Beginning of period assets |
$ | 305 | $ | 293 | $ | 198 | $ | 261 | $ | 215 | ||||||||||
Inflows/(outflows) |
16 | 34 | 22 | 79 | (17 | ) | ||||||||||||||
Market (depreciation)/appreciation |
(15 | ) | (22 | ) | 2 | (34 | ) | 24 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 306 | $ | 305 | $ | 222 | $ | 306 | $ | 222 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 313 | $ | 299 | $ | 214 | $ | 296 | $ | 223 | ||||||||||
Cryptocurrency |
||||||||||||||||||||
Beginning of period assets |
$ | 151 | $ | 383 | $ | 229 | $ | 357 | $ | 168 | ||||||||||
Inflows/(outflows) |
— | 3 | 12 | 40 | 56 | |||||||||||||||
Market appreciation/(depreciation) |
12 | (235 | ) | 54 | (234 | ) | 71 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | 163 | $ | 151 | $ | 295 | $ | 163 | $ | 295 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | 178 | $ | 265 | $ | 277 | $ | 256 | $ | 280 | ||||||||||
Closed ETPs |
||||||||||||||||||||
Beginning of period assets |
$ | — | $ | 4 | $ | 17 | $ | 3 | $ | 26 | ||||||||||
Inflows/(outflows) |
— | — | 1 | 1 | (4 | ) | ||||||||||||||
Fund closures |
— | (4 | ) | — | (4 | ) | (4 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
End of period assets |
$ | — | $ | — | $ | 18 | $ | — | $ | 18 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Average assets during the period |
$ | — | $ | 4 | $ | 19 | $ | 3 | $ | 21 | ||||||||||
Headcount: |
274 | 264 | 235 | 274 | 235 |
Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTree
39
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Selected Operating and Financial Information
Three Months Ended September 30, |
Change | Percent Change |
||||||||||||||
AUM (in millions) | 2022 | 2021 | ||||||||||||||
Average AUM |
$ | 74,681 | $ | 74,527 | $ | 154 | 0.2% | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Revenues (in thousands) |
||||||||||||||||
Advisory fees |
$ | 70,616 | $ | 76,400 | $ | (5,784) | (7.6%) | |||||||||
Other income |
1,798 | 1,712 | 86 | 5.0% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 72,414 | $ | 78,112 | $ | (5,698) | (7.3%) | |||||||||
|
|
|
|
|
|
|
|
Average AUM
Our average AUM was essentially unchanged from the three months ended September 30, 2021.
Operating Revenues
Advisory fees
Advisory fee revenues decreased 7.6% from $76.4 million during the three months ended September 30, 2021 to $70.6 million in the comparable period in 2022 due to a lower average advisory fee. Our average advisory fee was 0.38% during the three months ended September 30, 2022 and 0.41% during the same period in 2021.
Other income
Other income increased 5.0% from $1.7 million during the three months ended September 30, 2021 to $1.8 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.
Operating Expenses
Three Months Ended September 30, |
Change | Percent Change | ||||||||||||||||
(in thousands) |
2022 | 2021 | ||||||||||||||||
Compensation and benefits |
$ | 23,714 | $ | 22,027 | $ | 1,687 | 7.7% | |||||||||||
Fund management and administration |
16,285 | 15,181 | 1,104 | 7.3% | ||||||||||||||
Marketing and advertising |
3,145 | 2,925 | 220 | 7.5% | ||||||||||||||
Sales and business development |
2,724 | 2,935 | (211 | ) | (7.2%) | |||||||||||||
Contractual gold payments |
4,105 | 4,250 | (145 | ) | (3.4%) | |||||||||||||
Professional fees |
2,367 | 1,583 | 784 | 49.5% | ||||||||||||||
Occupancy, communications and equipment |
986 | 1,163 | (177 | ) | (15.2%) | |||||||||||||
Depreciation and amortization |
58 | 185 | (127 | ) | (68.6%) | |||||||||||||
Third-party distribution fees |
1,833 | 1,873 | (40 | ) | (2.1%) | |||||||||||||
Other |
2,324 | 1,787 | 537 | 30.1% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total operating expenses |
$ | 57,541 | $ | 53,909 | $ | 3,632 | 6.7% | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
40
Three Months Ended September 30, |
||||||||
As a Percent of Revenues: |
2022 | 2021 | ||||||
Compensation and benefits |
32.7% | 28.3% | ||||||
Fund management and administration |
22.5% | 19.4% | ||||||
Marketing and advertising |
4.3% | 3.7% | ||||||
Sales and business development |
3.8% | 3.8% | ||||||
Contractual gold payments |
5.7% | 5.4% | ||||||
Professional fees |
3.3% | 2.0% | ||||||
Occupancy, communications and equipment |
1.4% | 1.5% | ||||||
Depreciation and amortization |
0.1% | 0.2% | ||||||
Third-party distribution fees |
2.5% | 2.4% | ||||||
Other |
3.2% | 2.3% | ||||||
|
|
|
|
|||||
Total operating expenses |
79.5% | 69.0% | ||||||
|
|
|
|
Compensation and benefits
Compensation and benefits expense increased 7.7% from $22.0 million during the three months ended September 30, 2021 to $23.7 million in the comparable period in 2022 due to higher incentive compensation and headcount. Headcount was 235 and 274 at September 30, 2021 and 2022, respectively.
Fund management and administration
Fund management and administration expense increased 7.3% from $15.2 million during the three months ended September 30, 2021 to $16.3 million in the comparable period in 2022 due to higher AUM and transaction fees associated with our U.S. listed products, partly offset by lower European-listed AUM.
Marketing and advertising
Marketing and advertising expense increased 7.5% from $2.9 million during the three months ended September 30, 2021 to $3.1 million in the comparable period in 2022 primarily due to higher spending on online and television marketing campaigns.
Sales and business development
Sales and business development expense decreased 7.2% from $2.9 million during the three months ended September 30, 2021 to $2.7 million in the comparable period in 2022 primarily due to lower spending on sales tools.
Contractual gold payments
Contractual gold payments expense decreased 3.4% from $4.3 million during the three months ended September 30, 2021 to $4.1 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 $1,789 and $1,728 per ounce during the three months ended September 30, 2021 and 2022, respectively.
Professional fees
Professional fees increased 49.5% from $1.6 million during the three months ended September 30, 2021 to $2.4 million in the comparable period in 2022 due to spending related to our digital assets initiative.
Occupancy, communications and equipment
Occupancy, communications and equipment expense decreased 15.2% from $1.2 million during the three months ended September 30, 2021 to $1.0 million in the comparable period in 2022 due to our reduced office footprint.
Depreciation and amortization
Depreciation and amortization expense decreased 68.6% from $0.2 million during the three months ended September 30, 2021 to $0.1 million in the comparable period in 2022 due to lower spending on fixed assets.
41
Third-party distribution fees
Third-party distribution fees decreased 2.1% from $1.9 million during the three months ended September 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 30.1% from $1.8 million during the three months ended September 30, 2021 to $2.3 million in the comparable period in 2022 due to higher insurance costs and other miscellaneous items.
Other Income/(Expenses)
Three Months Ended September 30, |
Change | Percent Change |
||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||
Interest expense |
$ | (3,734) | $ | (3,729) | $ | (5) | 0.1% | |||||||||
Gain on revaluation of deferred consideration—gold payments |
77,895 | 1,737 | 76,158 | 4,384.5% | ||||||||||||
Interest income |
811 | 689 | 122 | 17.7% | ||||||||||||
Impairments |
— | (15,853) | 15,853 | (100%) | ||||||||||||
Other losses, net |
(5,289) | (714) | (4,575) | 640.8% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income/(expenses), net |
$ | 69,683 | $ | (17,870) | $ | 87,553 | (489.9%) | |||||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
||||||||
As a Percent of Revenues: |
2022 | 2021 | ||||||
Interest expense |
(5.2%) | (4.8%) | ||||||
Gain on revaluation of deferred consideration—gold payments |
107.6% | 2.2% | ||||||
Interest income |
1.1% | 0.9% | ||||||
Impairments |
— | (20.3%) | ||||||
Other losses, net |
(7.3%) | (0.9%) | ||||||
|
|
|
|
|||||
Total other income/(expenses), net |
96.2% | (22.9%) | ||||||
|
|
|
|
Interest expense
Interest expense was essentially unchanged from the three months ended September 30, 2021. Our effective interest rate was 4.6% during the three months ended September 30, 2021 and 2022.
Gain on revaluation of deferred consideration
We recognized a non-cash gain on revaluation of deferred consideration of $1.7 million and $77.9 million during the three months ended September 30, 2021 and 2022, respectively. The gain in the current quarter arose primarily from an increase in the discount rate (from 9.0% to 12.3%) used to compute the present value of the annual payment obligations as well as lower spot gold prices. The magnitude of any gain or loss is highly correlated to changes in the discount rate and the magnitude of the change in the forward-looking price of gold.
Interest income
Interest income increased 17.7% from $0.7 million during the three months ended September 30, 2021 to $0.8 million in the comparable period in 2022 due to an increase in securities owned.
Impairments
During the three months ended September 30, 2021, we recognized a loss of approximately $15.8 million upon exiting our New York office, which is included in impairments in our Consolidated Statements of Operations. There were no impairment charges during the three months ended September 30, 2022.
Other losses, net
Other losses, net were ($0.7) million and ($5.3) million during the three months ended September 30, 2021 and 2022, respectively. During the three months ended September 30, 2022, we recognized losses on our securities owned and investments of $6.3 million.
42
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 September 30, 2022 of 3.9% resulted in an income tax expense of $3.3 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a non-taxable gain on revaluation of deferred consideration. This was partly offset by an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.
Our effective income tax rate for the three months ended September 30, 2021 of 7.9% resulted in income tax expense of $0.5 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 and a non-taxable gain on revaluation of deferred consideration, partly offset by higher non-deductible compensation.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Selected Operating and Financial Information
Nine Months Ended September 30, |
Change | Percent Change |
||||||||||||||
2022 | 2021 | |||||||||||||||
Global AUM (in millions) |
||||||||||||||||
Average global AUM |
$ | 76,735 | $ | 72,559 | $ | 4,176 | 5.8% | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenues (in thousands) |
||||||||||||||||
Advisory fees |
$ | 222,719 | $ | 220,611 | $ | 2,108 | 1.0% | |||||||||
Other income |
5,316 | 4,532 | 784 | 17.3% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 228,035 | $ | 225,143 | $ | 2,892 | 1.3% | |||||||||
|
|
|
|
|
|
|
|
Average Global AUM
Our average global AUM increased 5.8% from $72.6 billion at September 30, 2021 to $76.7 billion at September 30, 2022 due to net inflows, partly offset by market depreciation.
Operating Revenues
Advisory fees
Advisory fee revenues were essentially unchanged from the nine months ended September 30, 2021. Our average global advisory fee was 0.41% and 0.39% during the nine months ended September 30, 2021 and September 30, 2022, respectively.
Other income
Other income increased 17.3% from $4.5 million during the nine months ended September 30, 2021 to $5.3 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.
Operating Expenses
Nine Months Ended September 30, |
Change | Percent Change |
||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||
Compensation and benefits |
$ | 73,066 | $ | 64,985 | $ | 8,081 | 12.4% | |||||||||
Fund management and administration |
47,855 | 43,495 | 4,360 | 10.0% | ||||||||||||
Marketing and advertising |
11,062 | 9,525 | 1,537 | 16.1% | ||||||||||||
Sales and business development |
8,464 | 7,239 | 1,225 | 16.9% | ||||||||||||
Contractual gold payments |
13,001 | 12,834 | 167 | 1.3% | ||||||||||||
Professional fees |
11,134 | 5,517 | 5,617 | 101.8% | ||||||||||||
Occupancy, communications and equipment |
2,788 | 3,904 | (1,116) | (28.6%) | ||||||||||||
Depreciation and amortization |
158 | 693 | (535) | (77.2%) | ||||||||||||
Third-party distribution fees |
5,863 | 5,346 | 517 | 9.7% | ||||||||||||
Other |
6,278 | 5,110 | 1,168 | 22.9% | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||
Total operating expenses |
$ | 179,669 | $ | 158,648 | $ | 21,021 | 13.3% | |||||||||
|
|
|
|
|
|
|
|
|
|
43
Nine Months Ended September 30, | ||||||||
As a Percent of Revenues: |
2022 | 2021 | ||||||
Compensation and benefits |
31.9% | 28.9% | ||||||
Fund management and administration |
21.0% | 19.3% | ||||||
Marketing and advertising |
4.9% | 4.2% | ||||||
Sales and business development |
3.7% | 3.2% | ||||||
Contractual gold payments |
5.7% | 5.7% | ||||||
Professional fees |
4.9% | 2.5% | ||||||
Occupancy, communications and equipment |
1.2% | 1.7% | ||||||
Depreciation and amortization |
0.1% | 0.3% | ||||||
Third-party distribution fees |
2.6% | 2.4% | ||||||
Other |
2.8% | 2.3% | ||||||
|
|
|
|
|
||||
Total operating expenses |
78.8% | 70.5% | ||||||
|
|
|
|
|
Compensation and benefits
Compensation and benefits expense increased 12.4% from $65.0 million during the nine months ended September 30, 2021 to $73.1 million in the comparable period in 2022 due to higher incentive compensation and headcount.
Fund management and administration
Fund management and administration expense increased 10.0% from $43.5 million during the nine months ended September 30, 2021 to $47.9 million in the comparable period in 2022 primarily due to higher average global AUM.
Marketing and advertising
Marketing and advertising expense increased 16.1% from $9.5 million during the nine months ended September 30, 2021 to $11.1 million in the comparable period in 2022 due to higher spending on online and television marketing campaigns.
Sales and business development
Sales and business development expense increased 16.9% from $7.2 million during the nine months ended September 30, 2021 to $8.5 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 1.3% from $12.8 million during the nine months ended September 30, 2021 to $13.0 million in the comparable period in 2022. This expense was associated with the payment of 7,125 ounces of gold and was calculated using the average daily spot price of $1,801 and $1,825 per ounce during the nine months ended September 30, 2021 and 2022, respectively.
Professional fees
Professional fees increased 101.8% from $5.5 million during the nine months ended September 30, 2021 to $11.1 million in the comparable period in 2022 due to $4.5 million of expenses incurred in response to an activist campaign and spending related to our digital assets initiative.
Occupancy, communications and equipment
Occupancy, communications and equipment expense decreased 28.6% from $3.9 million during the nine months ended September 30, 2021 to $2.8 million in the comparable period in 2022 due to our reduced office footprint.
Depreciation and amortization
Occupancy, communications and equipment expense decreased 77.2% from $0.7 million during the nine months ended September 30, 2021 to $0.2 million in the comparable period in 2022 due to lower spending on fixed assets.
44
Third-party distribution fees
Third-party distribution fees increased 9.7% from $5.3 million during the nine months ended September 30, 2021 to $5.9 million in the comparable period in 2022 due to new platform relationships in Europe, higher U.S. listed AUM on third-party platforms, partly offset by lower fees paid to our third-party marketing agent in Latin America.
Other
Other expenses increased 22.9% from $5.1 million during the nine months ended September 30, 2021 to $6.3 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)
Nine Months Ended September 30, |
Change | Percent Change |
||||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||||
Interest expense |
$ | (11,199) | $ | (8,592) | $ | (2,607) | 30.3% | |||||||||
Gain on revaluation of deferred consideration—gold payments |
63,188 | 5,066 | 58,122 | 1,147.3% | ||||||||||||
Interest income |
2,375 | 1,145 | 1,230 | 107.4% | ||||||||||||
Impairments |
— | (16,156) | 16,156 | (100.0%) | ||||||||||||
Other losses, net |
(34,470) | (6,558) | (27,912) | 425.6% | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Total other income/(expenses), net |
$ | 19,894 | $ | (25,095) | $ | 44,989 | (179.3%) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | ||||||||
As a Percent of Revenues: |
2022 | 2021 | ||||||
Interest expense |
(4.9%) | (3.8%) | ||||||
Gain on revaluation of deferred consideration—gold payments |
27.7% | 2.3% | ||||||
Interest income |
1.0% | 0.5% | ||||||
Impairments |
— | (7.2%) | ||||||
Other losses, net |
(15.1%) | (2.9%) | ||||||
|
|
|
|
|
| |||
Total other income/(expenses), net |
8.7% | (11.1%) | ||||||
|
|
|
|
|
|
Interest expense
Interest expense increased 30.3% from $8.6 million during the nine months ended September 30, 2021 to $11.2 million in the comparable period in 2022 due to a higher level of debt outstanding and a higher effective interest rate. Our effective interest rate during the nine months ended September 30, 2021 and 2022 was 5.0% and 4.6%, respectively.
Gain on revaluation of deferred consideration
We recognized a gain on revaluation of deferred consideration of $5.1 million and $63.2 million, respectively, during the nine months ended September 30, 2021 and 2022. The gain in the current period arose primarily from an increase in the discount rate (from 9.0% to 12.3%) used to compute the present value of the annual payment obligations as well as lower spot gold prices. The magnitude of any gain or loss is highly correlated to changes in the discount rate and the magnitude of the change in the forward-looking price of gold.
Interest income
Interest income increased 107.4% from $1.1 million during the nine months ended September 30, 2021 to $2.4 million in the comparable period in 2022 due to an increase in our securities owned.
Impairments
During the nine months ended September 30, 2021, we recognized a loss of approximately $16.2 million upon exiting our London and New York offices, which is included in impairments in our Consolidated Statements of Operations. There were no impairment charges during the nine months ended September 30, 2022.
45
Other losses, net
Other losses, net were ($6.6) million and ($34.5) million during the nine months ended September 30, 2021 and 2022, respectively. The nine months ended September 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 $15.6 million of losses on our securities owned.
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 nine months ended September 30, 2022 was negative 15.7%, resulting in an income tax benefit of $10.7 million. Our tax rate differs from the federal statutory rate of 21% primarily due to the reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above, a non-taxable gain on revaluation of deferred consideration and a lower tax rate on foreign earnings. These items were partly offset by an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.
Our effective income tax rate for the nine months ended September 30, 2021 of 6.7% resulted in income tax expense of $2.8 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 non-deductible executive compensation.
Non-GAAP Financial Measurements
In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews these non-GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measurements should be considered in the context with our GAAP results. The non-GAAP financial measurements contained in this Report include:
Adjusted Net Income and Diluted Earnings per Share
We disclose adjusted net income and 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 on the revaluation of deferred consideration: Deferred consideration is an obligation we assumed in connection with the ETFS Acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations may have a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when calculating our non-GAAP financial measurements as it 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: We account for securities owned as trading securities which requires these instruments to be measured at fair value with gains and losses reported in net income. In the third quarter of 2021, we began excluding these items when calculating our 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: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.
Other items: Unrealized gains and losses recognized on our investments, changes in the deferred tax asset valuation allowance on securities owned, expenses incurred in response to an activist campaign and impairment charges.
46
Three Months Ended | Nine Months Ended | |||||||||||||||||||
Adjusted Net Income and Diluted Earnings per Share: |
September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 | ||||||||||||||||
Net income, as reported |
$ | 81,229 | $ | 5,833 | $ | 78,973 | $ | 38,610 | ||||||||||||
Deduct: Gain on revaluation of deferred consideration |
(77,895 | ) | (1,737 | ) | (63,188 | ) | (5,066 | ) | ||||||||||||
Add back: Losses on securities owned, net of income taxes |
4,778 | 1,006 | 11,836 | 1,006 | ||||||||||||||||
Add back: Increase in deferred tax asset valuation allowance on securities owned |
1,454 | — | 4,365 | |||||||||||||||||
Deduct/add back: Unrealized gain recognized on our investments, net of income taxes |
(248 | ) | — | (179 | ) | (284 | ) | |||||||||||||
Add back/deduct: Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards |
4 | — | (541 | ) | (110 | ) | ||||||||||||||
Add back: Expenses incurred in response to an activist campaign, net of income taxes |
— | — | 3,376 | |||||||||||||||||
Add back: Impairments, net of income taxes (where applicable) |
— | 12,002 | — | 12,247 | ||||||||||||||||
Deduct: Gain recognized upon sale of Canadian ETF business |
(787 | ) | (787 | ) | ||||||||||||||||
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Adjusted net income |
$ | 9,322 | $ | 16,317 | $ | 34,642 | $ | 45,616 | ||||||||||||
Deduct: Income distributed to participating securities |
(546 | ) | (538 | ) | (1,644 | ) | (1,634 | ) | ||||||||||||
Deduct: Undistributed income allocable to participating securities |
(503 | ) | (1,275 | ) | (2,266 | ) | (3,422 | ) | ||||||||||||
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Adjusted net income available to common stockholders |
$ | 8,273 | $ | 14,504 | $ | 30,732 | $ | 40,560 | ||||||||||||
Weighted average diluted shares, excluding participating securities (in thousands) (See Note 18 to our Consolidated Financial Statements) | 143,407 | 143,142 | 143,245 | 145,604 | ||||||||||||||||
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Adjusted earnings per share—diluted |
$ | 0.06 | $ | 0.10 | $ | 0.21 | $ | 0.28 | ||||||||||||
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Liquidity and Capital Resources
The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:
September 30, 2022 |
December 31, 2021 | |||||||||
Balance Sheet Data (in thousands): |
||||||||||
Cash and cash equivalents |
$ | 132,700 | $ | 140,709 | ||||||
Securities owned, at fair value |
125,110 | 127,166 | ||||||||
Accounts receivable |
25,306 | 31,864 | ||||||||
Securities held-to-maturity |
267 | 308 | ||||||||
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Total: Liquid assets |
283,383 | 300,047 | ||||||||
Less: Total current liabilities(1) |
(79,485 | ) | (83,667 | ) | ||||||
Less: Regulatory capital requirement—certain international subsidiaries |
(23,144 | ) | (12,320 | ) | ||||||
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Total: Available liquidity |
$ | 180,754 | $ | 204,060 | ||||||
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(1) | Excludes convertible notes in the amount of $173,760 at September 30, 2022, net of premiums and unamortized issuance costs, scheduled to mature on June 15, 2023, as we are actively exploring refinancing and extension alternatives. |
Nine Months Ended September 30, | ||||||||||
2022 | 2021 | |||||||||
Cash Flow Data (in thousands): |
||||||||||
Operating cash flows |
$ | 43,113 | $ | 50,109 | ||||||
Investing cash flows |
(25,626 | ) | (92,467 | ) | ||||||
Financing cash flows |
(17,939 | ) | 97,350 | |||||||
Foreign exchange rate effect |
(7,557 | ) | (493 | ) | ||||||
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Net (decrease)/increase in cash and cash equivalents |
$ | (8,009 | ) | $ | 54,499 | |||||
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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 held-to-maturity. 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, excluding convertible notes in the amount of $173,760 scheduled to mature on June 15, 2023, consist primarily of payments owed to vendors and third parties in the normal course of business, deferred consideration and accrued incentive compensation for employees.
Cash and cash equivalents decreased $8.0 million during the nine months ended September 30, 2022 due to $41.2 million used to purchase securities owned, $11.9 million used to purchase investments, $14.5 million used to pay dividends on our common stock, $3.4 million used to repurchase our common stock, $7.6 million of foreign exchange rate losses and $0.2 million used in other activities. These decreases were partly offset by $27.7 million of proceeds from the sale of securities owned and $43.1 million of net cash provided by operating activities.
Cash and cash equivalents increased $54.5 million during the nine months ended September 30, 2021 due to $150.0 million of proceeds received from the issuance of the 2021 Notes, $50.1 million of net cash provided by operating activities, $11.0 million of proceeds from the sale of securities owned and $0.3 million provided by other activities. These increases were partly offset by $97.6 million used to purchase securities owned, $34.5 million used to repurchase our common stock, $14.7 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: Payable semiannually in arrears on June 15 and December 15 of each year. |
• | Conversion price: Convertible at an initial conversion rate (as disclosed in the table above) of shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price as disclosed in the table above). |
• | Conversion: Holders may convert at their option at any time prior to the close of business on the business day immediately preceding March 15, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, only under the following circumstances: (i) if the last reported sale price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sales price of our common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption delivered by us in accordance with the terms of the indentures but only with respect to the Convertible Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after 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. |
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• | Cash settlement of principal amount: Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At our election, we will also settle our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of our common stock or a combination of cash and shares of our common stock. |
• | Redemption price: We may redeem for cash all or any portion of the notes, at our 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 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: Holders of the Convertible Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events. |
• | Conversion rate increase in certain customary circumstances: In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the indentures) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 144.9275 shares and 270.2702 shares of our common stock per $1,000 principal amount of the 2021 Notes and 2020 Notes, respectively (the equivalent of 69,036,410 shares of our common stock), subject to adjustment. |
• | Seniority and Security: The 2021 Notes and 2020 Notes rank equal in right of payment, and are our senior unsecured obligations, but are subordinated in right of payment to our obligations to make certain redemption payments (if and when due) in respect of our Series A 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 September 30, 2022 was approximately $23.1 million in the aggregate. Notwithstanding these regulatory capital requirements, we expect that our main uses of cash will be to fund the ongoing operations of our business. We also maintain a capital return program which includes a $0.03 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2025, including purchases to offset future equity grants made under our equity plans.
During the three months ended September 30, 2022, we repurchased 4,567 shares of our common stock under the repurchase program for an aggregate cost of $0.02 million. As of September 30, 2022, $100 million remains under this program for future purchases.
Contractual Obligations
Convertible Notes
At September 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.
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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 anticipate refinancing or extending these obligations when due and are currently actively exploring refinancing and extension alternatives with respect to the 2020 Notes.
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 $164.8 million at September 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 $1.8 million at September 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 30th. 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 30th.
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Investments
We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
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 $2,037, 12.3% and 1.5%, respectively, at September 30, 2022. Changes in the fair value of this obligation are reported as gain on revaluation of deferred consideration—gold payments in our Consolidated Statements of Operations.
During the three months ended September 30, 2022, we reported a gain on deferred consideration—gold payments of $77.9 million. A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.1 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $12.9 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $9.3 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, U.S. treasuries, corporate bonds, money market instruments at a commercial bank and other securities which totaled $139.0 million and $125.7 million as of December 31, 2021 and September 30, 2022, respectively. During the nine months ended September 30, 2022, we recognized losses on these securities of $15.6 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.
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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.
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 September 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 September 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 September 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 ($15.4 million).
ITEM 1A. RISK FACTORS
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, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent sales of Unregistered Securities
None.
Use of Proceeds
Not applicable.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” of shares of our common stock.
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||
Period |
(in thousands) | |||||||||||||||
July 1, 2022 to July 31, 2022 |
— | $ | — | — | ||||||||||||
August 1, 2022 to August 31, 2022 |
— | $ | — | — | ||||||||||||
September 1, 2022 to September 30, 2022 |
4,567 | $ | 5.24 | 4,567 | ||||||||||||
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Total |
4,567 | $ | 5.24 | 4,567 | $ | 99,976 | ||||||||||
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On February 22, 2022, our board of directors approved an increase of $85.7 million to our share repurchase program and extended the term for three years through April 27, 2025. During the three months ended September 30, 2022, we repurchased 4,567 shares of our common stock under this program for an aggregate cost of approximately $0.02 million. As of September 30, 2022, $100.0 million remained under this program for future repurchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
54
Exhibit No. |
Description | ||||
10.1(1) | Form of Restricted Stock Agreement for Non-Employee Directors | ||||
10.2(1) | Form of Restricted Stock Unit Award Agreement (Deferred) for Non-Employee Directors | ||||
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 September 30, 2022, formatted in XBRL: (i) Consolidated Balance Sheets at September 30, 2022 (Unaudited) and December 31, 2021; (ii) Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 and September 30, 2021 (Unaudited); (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and September 30, 2021 (Unaudited) (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and September 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.
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SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on this 4th day of November 2022.
WISDOMTREE INVESTMENTS, INC. | ||
By:
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/s/ Jonathan Steinberg | |
Jonathan Steinberg | ||
Chief Executive Officer (Principal Executive Officer) | ||
WISDOMTREE INVESTMENTS, INC. | ||
By:
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/s/ Bryan Edmiston | |
Bryan Edmiston | ||
Chief Financial Officer (Principal Financial Officer) |
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Exhibit 10.1
[General Form of RSA Grant to Non-Employee Directors after July 15, 2022]
RESTRICTED STOCK AGREEMENT
UNDER THE WISDOMTREE INVESTMENTS, INC.
2022 EQUITY PLAN
RESTRICTED STOCK AGREEMENT (the Agreement), effective as of the Grant Date (as defined below), by and between WisdomTree Investments, Inc., a Delaware corporation (the Company), and the non-employee member of the Board of Directors of the Company whose name is set forth on the signature page of this Agreement (the Holder).
WHEREAS, the Board of Directors of the Company (the Board) or the Compensation Committee of the Board (Committee) has authorized the issuance to the Holder of the aggregate number of shares of the authorized but unissued common stock of the Company, $0.01 par value per share, set forth on Schedule A attached to this Agreement (the Shares), pursuant and subject to the terms and conditions of the Companys 2022 Equity Plan (the Plan) and conditioned upon the Holders acceptance thereof upon the terms and conditions set forth in this Agreement; and
WHEREAS, the Holder desires to acquire the Shares on the terms and conditions set forth in this Agreement and subject to the terms of the Plan.
IT IS AGREED:
1. Grant of Shares.
1.1 The Company has issued to the Holder, effective as of the grant date set forth on Schedule A (the Grant Date), the Shares on the terms and conditions set forth herein and in the Plan. The Shares shall be subject to forfeiture in the event the Holder ceases to serve as a member of the Board for any reason prior to the first anniversary of the Grant Date. The period prior to the first anniversary of the Grant Date is hereinafter referred to as the Restriction Period.
1.2 The Shares shall constitute issued and outstanding shares of common stock for all corporate purposes, and the Holder shall have the right to vote such Shares and to exercise all of the rights, powers and privileges of a holder of common stock with respect to such Shares, except that (a) the Holder shall not be entitled to delivery of evidence of book-entry or a share certificate until the Shares vest in accordance with Section 1.3; and (b) the Company will retain custody of all distributions and dividends made, paid or declared with respect to the Shares during the Restriction Period (Retained Distributions) and such Retained Distributions shall accrue and shall not be paid to the Holder until and only to the extent the Shares vest.
1.3 If the Holder is still a member of the Board at the end of the Restriction Period, the Shares shall fully vest and no longer be subject to forfeiture by the Holder. After the date that the Shares become vested, the Company, in its discretion, shall either instruct its transfer agent to issue and deliver to the Holder evidence of book-entry or a certificate for the Shares or otherwise permit the Shares to be transferred by the Holder. In addition, after the Shares become vested, the Company shall pay the Retained Distributions with respect thereto to the Holder. Subject to the provisions of Section 1.4, if, at any time prior to the vesting of the Shares in accordance with the first sentence of this Section 1.3, the Holder ceases to be a member of the Board for any reason, then the Shares that have not then vested (and the Retained Distributions with respect thereto) shall be automatically forfeited to the Company and the Holder shall not thereafter have any rights with respect to such Shares (or the Retained Distributions with respect thereto). In such event, the Company is authorized by the Holder to instruct the Companys transfer agent to cancel and return the Shares (and, if applicable, the Retained Distributions with respect thereto, to the extent such Retained Distributions were in the form of shares) to the status of authorized
but unissued shares of Common Stock and to return to the Company any Retained Distributions in the form of cash.
1.4 Acceleration of Vesting Upon a Change of Control. Notwithstanding the provisions of Section 1.3, in the event of a Sale Event (as defined in the Plan) while the Holder is a member of the Board, the vesting of the Shares shall accelerate and all Shares shall be vested simultaneously with such Sale Event.
2. Nonassignability of Shares. The Shares shall not be assignable or transferable until they have vested.
3. Holder Representations. The Holder hereby represents and warrants to the Company that:
(i) he or she has received a copy of the Plan and the prospectus filed pursuant to Rule 424 under the Securities Act of 1933, as amended, as in effect as of the date of this Agreement;
(ii) he or she has received a copy of all reports and documents required to be filed by the Company with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, within the last twenty-four (24) months and all reports issued by the Company to its stockholders;
(iii) he or she understands that he or she must bear the economic risk of the investment in the Shares;
(iv) he or she has had such an opportunity as he or she has deemed adequate to obtain from the Company such information as is necessary to permit the Holder to evaluate the merits and risks of the Holders investment in the Company and has had the opportunity to consult with his or her own advisers with respect to the investment in the Company; and
(v) he or she understands and agrees that if a stock certificate evidencing the Shares is issued prior to the expiration of the Restriction Period, it shall also bear the following legend:
The shares represented by this certificate have been acquired pursuant to a Restricted Stock Agreement, a copy of which is on file with the Company, and may not be transferred, pledged or disposed of except in accordance with the terms and conditions thereof and the terms and conditions of the WisdomTree Investments, Inc. 2022 Equity Plan.
4. Miscellaneous.
4.1 Notices. All notices, requests, deliveries, payments, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be either (a) delivered personally or by private courier (e.g., Federal Express), (b) sent by registered or certified mail, return receipt requested, postage prepaid, or (c) sent by electronic communication (via e-mail or through an electronic platform approved by the Company), with confirmation of transmission thereof, and shall be deemed duly given hereunder when delivered in person or by private courier, on the third business day following deposit in the United States mail as set forth subsection (b) above, or, if sent by electronic communication, on the date sent by such transmission during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient. Such communications shall be sent to the respective parties at the following addresses: (i) if to the Company, at
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its principal executive office, attention: Legal Department at legalnotice@wisdomtree.com; and (ii) if to the Holder, at his or her last known residence address or e-mail address as indicated in the records of the Company. Either party may designate another address in writing (or by such other method approved by the Company) from time to time.
4.2 Plan Paramount; Conflicts with Plan. This Agreement shall, in all respects, be subject to the terms and conditions of the Plan, whether or not stated herein. In the event of a conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of the Plan shall in all respects be controlling. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
4.3 Discretionary Nature of Plan. The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion, in accordance with the terms of the Plan. The grant of the Shares in this Agreement does not create any contractual right or other right to receive any restricted stock or other Awards in the future. Future Awards, if any, will be at the sole discretion of the Company.
4.4 No Obligation to Continue as a Director. Neither the Plan nor this award of Shares confers upon the Holder any rights with respect to continuance as a member of the Board.
4.5 Amendments; Waiver. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by each of the parties. No failure to exercise and no delay in exercising any right, remedy, or power under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, remedy, or power provided herein or by law or in equity. All rights and remedies, whether conferred by this Agreement, by any other instrument or by law, shall be cumulative, and may be exercised singularly or concurrently.
4.6 Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior undertakings and agreements, oral or written, with respect to the subject matter hereof. This Agreement may not be contradicted by evidence of any prior or contemporaneous agreement. To the extent that the policies and procedures of the Company apply to the Holder and are inconsistent with the terms of this Agreement, the provisions of the Agreement shall control.
4.7 Binding Effect; Successors. This Agreement shall inure to the benefit of and be binding upon the parties hereto and, to the extent not prohibited herein, their respective heirs, successors, assigns and representatives.
4.8 Severability; Enforcement. If any provision of this Agreement is held invalid, illegal or unenforceable in any respect (an Impaired Provision), (a) such Impaired Provision shall be interpreted in such a manner as to preserve, to the maximum extent possible, the intent of the parties, (b) the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and (c) such decision shall not affect the validity, legality or enforceability of such Impaired Provision under other circumstances. The parties agree to negotiate in good faith and agree upon a provision to substitute for the Impaired Provision in the circumstances in which the Impaired Provision is invalid, illegal or unenforceable.
4.9 Rights of Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective permitted successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
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4.10 Headings. The Section headings used herein are for convenience only and do not define, limit or construe the content of such sections. All references in this Agreement to Section numbers refer to Sections of this Agreement, unless otherwise indicated.
4.11 Governing Law; Jurisdiction. The Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to that body of law concerning choice of law or conflicts of law, except that the General Corporation Law of the State of Delaware (GCL) shall apply to all matters governed by the GCL, including, without limitation, matters concerning the validity of grants of restricted stock and actions of the Board or the Committee. The Company and the Holder agree that the sole and exclusive judicial venues for any dispute, difference, cause of action or legal action of any kind that any party, or any officer, director, employee, agent or permitted successor or assign of any party may bring against any other party or any subsidiary of a party, or against any officer, director, employee, agent or permitted successor or assign of any of the foregoing, related to this Agreement (a Proceeding), shall be (a) the United States District Court for the Southern District of New York, if such court has statutory jurisdiction over the Proceeding and (b) the Supreme Court of the State of New York in the County of New York (collectively, the New York Courts). Each of the parties hereby expressly (i) consents to the personal jurisdiction of each of the New York Courts with respect to any Proceeding; (ii) agrees that service of process in any Proceeding may be effected upon such party in the manner set forth in Section 4.1 (other than by electronic communication), as well as in any other manner prescribed by law; and (iii) waives any objection, whether on the grounds of venue, residence or domicile or on the ground that the Proceeding has been brought in an inconvenient forum, to any Proceeding brought in either of the New York Courts.
4.12 Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its Subsidiaries and affiliates and certain agents thereof (together, the Relevant Companies) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the Relevant Information). By entering into this Agreement, the Holder (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Holder may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Holder shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
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IN WITNESS WHEREOF, the parties hereto have signed this Restricted Stock Agreement effective as of the Grant Date indicated on Schedule A below.
WISDOMTREE INVESTMENTS, INC. | ||
By: |
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Jonathan L. Steinberg, Chief Executive Officer |
Acceptance
The Holder hereby acknowledges: I have received a copy of this Agreement; I have had the opportunity to consult legal counsel in regard to this Agreement, and have availed myself of that opportunity to the extent I wish to do so (I understand the Companys attorneys represent the Company and not myself, and I have not relied on any advice from the Companys attorneys); I have read and understand this agreement; I AM FULLY AWARE OF LEGAL EFFECT OF THIS AGREEMENT; I acknowledge that there may be adverse tax consequences upon the grant or vesting of the Shares or disposition thereof and that I have been advised to consult a tax advisor prior to such grant, vesting or disposition; and I have entered into this Agreement freely and voluntarily and based on my own judgment and not on any representations and promises other than those contained in this Agreement. The Holder accepts these Shares subject to all the terms and conditions of this Agreement. Electronic acceptance of this Agreement pursuant to the Companys instructions to the Holder (including through an online acceptance process) is acceptable.
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HOLDERS SIGNATURE |
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Schedule A
Name of Holder: |
Grant Date: |
Total Number of Shares Granted: |
Vesting Date: |
Exhibit 10.2
[General Form of RSU Grant (Deferred) to Non-Employee Directors after July 15, 2022]
RESTRICTED STOCK UNIT AWARD AGREEMENT (DEFERRED)
FOR NON-EMPLOYEE DIRECTORS
UNDER THE WISDOMTREE INVESTMENTS, INC.
2022 EQUITY PLAN
Name of Grantee: |
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No. of Restricted Stock Units: |
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Grant Date: |
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Pursuant to WisdomTree Investments, Inc. 2022 Equity Plan, as amended through the date hereof (the Plan), WisdomTree Investments, Inc. (the Company) hereby grants an award of the number of Restricted Stock Units listed above (an Award) to the grantee, a non-employee member of the Board of Directors of the Company (the Board), named above (the Grantee). Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.01 per share (the Stock), of the Company. Reference is also made to the WisdomTree Investments, Inc. Non-Employee Directors Deferred Compensation Program (the Program).
1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan, this Agreement and the Program.
2. Vesting of Restricted Stock Units. All of the Restricted Stock Units shall vest on the first anniversary of the Grant Date (such date, the Vesting Date), provided that the Grantee is serving as a member of the Board on the Vesting Date. Notwithstanding the foregoing, in the event of a Sale Event (as defined in the Plan) while the Grantee is serving as a member of the Board, the vesting of 100% of the Restricted Stock Units shall accelerate and all Restricted Stock Units shall be vested simultaneously with such Sale Event. Subject to the terms of the Plan and the Program, the Committee may at any time accelerate the vesting schedule specified in this Paragraph 2.
3. Issuance of Shares of Stock. As soon as practicable following the Settlement Date (defined below) (but in no event later than the later of the last day of the calendar year in which such event occurs or two and one-half months after the Settlement Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units granted pursuant to this Agreement and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares. For purposes of this Agreement, Settlement Date means the date that is specified in the election form completed by the Grantee pursuant to the Program.
4. Incorporation of Plan and the Program. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan and the Program, whether or not stated herein, including the powers of the Administrator set forth in Section 2(b) of the Plan. In the event of a conflict between the provisions of the Plan, the Program and the provisions of this Agreement, the provisions of the Plan shall in all respects be controlling, followed by the Program and then this Agreement. Capitalized terms in this Agreement shall have the meaning specified in the Plan and the Program, as applicable, unless a different meaning is specified herein.
5. Section 409A of the Code. This Agreement is intended to be a compliant deferred compensation plan under Section 409A and shall be administered in accordance with the requirements of Section 409A. If the Grantee is a specified employee (as defined in Section 409A) at the time of his or her separation from service and the Restricted Stock Units are settled on account of such separation from service, then the settlement shall be delayed for six months or until the Grantees death, if earlier, to the extent required to avoid adverse taxation under Section 409A.
6. No Obligation to Continue as a Director. Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a member of the Board.
7. Discretionary Nature of Plan and Program. Each of the Plan and the Program is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion, in accordance with the terms of the Plan and the Program, respectively. The grant of the Award in this Agreement does not create any contractual right or other right to receive any other awards in the future. Future awards, if any, will be at the sole discretion of the Company.
8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the Relevant Companies) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the Relevant Information). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
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WISDOMTREE INVESTMENTS, INC. | ||
By: |
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Jonathan L. Steinberg | ||
Chief Executive Officer |
The foregoing Agreement is hereby accepted, and the terms and conditions thereof hereby agreed to, by the undersigned. Electronic acceptance of this Agreement pursuant to the Companys instructions to the Grantee (including through an online acceptance process) is acceptable.
Dated: |
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Grantees Signature | ||||||
Grantees name and address: | ||||||
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Exhibit 31.1
CERTIFICATION
I, Jonathan Steinberg, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of WisdomTree Investments, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By: | /s/ Jonathan Steinberg | |
Jonathan Steinberg | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
Date: November 4, 2022
Exhibit 31.2
CERTIFICATION
I, Bryan Edmiston, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of WisdomTree Investments, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By: | /s/ Bryan Edmiston | |
Bryan Edmiston | ||
Chief Financial Officer (Principal Financial Officer) |
Date: November 4, 2022
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WisdomTree Investments, Inc. (the Company) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission (the SEC) on the date hereof (the Report), we, Jonathan Steinberg, Chief Executive Officer of the Company, and Bryan Edmiston, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Exchange Act, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
This certification is being furnished and not filed, and shall not be incorporated into any documents for any purpose, under the Exchange Act, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
By: | /s/ Jonathan Steinberg | |
Jonathan Steinberg | ||
Chief Executive Officer (Principal Executive Officer) | ||
By: | /s/ Bryan Edmiston | |
Bryan Edmiston | ||
Chief Financial Officer (Principal Financial Officer) |
Date: November 4, 2022