UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 001-10932
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
th Streetrd Floor |
||
(Address of principal executive offices) |
(Zip Code) | |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☐ No
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act. ☒ |
Accelerated filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Exchange Act). Yes ☐ No As of August 2, 2023, there were 150,324,501 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
WISDOMTREE, INC.
Form
10-Q
For the Quarterly Period Ended June 30, 2023
TABLE OF CONTENTS
| PART I: FINANCIAL INFORMATION | 4 | |||||
ITEM 1. |
4 | |||||
ITEM 2. |
37 | |||||
ITEM 3. |
57 | |||||
ITEM 4. |
58 | |||||
| PART II: OTHER INFORMATION | 59 | |||||
ITEM 1. |
59 | |||||
ITEM 1A. |
59 | |||||
ITEM 2. |
59 | |||||
ITEM 3. |
59 | |||||
ITEM 4. |
59 | |||||
ITEM 5. |
60 | |||||
ITEM 6. |
61 | |||||
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree, Inc. and its subsidiaries.
WisdomTree
®
, WisdomTree Prime™
and Modern Alpha®
are trademarks of WisdomTree, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners. 2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q,
or Report, contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2022. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. In particular, forward-looking statements in this Report may include statements about:
| • | anticipated trends, conditions and investor sentiment in the global markets and exchange-traded products, or ETPs; |
| • | anticipated levels of inflows into and outflows out of our ETPs; |
| • | our ability to deliver favorable rates of return to investors; |
| • | competition in our business; |
| • | whether we will experience future growth; |
| • | our ability to develop new products and services and their potential for success; |
| • | our ability to maintain current vendors or find new vendors to provide services to us at favorable costs; |
| • | our ability to successfully implement our strategy relating to digital assets and blockchain-enabled financial services, including WisdomTree Prime ™ , and achieve its objectives; |
| • | our ability to successfully operate and expand our business in non-U.S. markets; |
| • | the effect of laws and regulations that apply to our business; and |
| • | actions of activist stockholders. |
The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.
3
PART I: FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL STATEMENTS |
WisdomTree, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
June 30, 2023 |
December 31, 2022 |
|||||||
Assets |
(unaudited) |
|||||||
| Current assets: |
||||||||
| Cash and cash equivalents (Note 3) |
$ | $ | ||||||
| Financial instruments owned, at fair value (including $ December 31, 2022, respectively) (Note 5) |
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| Accounts receivable (including $ |
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| Prepaid expenses |
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| Income taxes receivable |
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| Other current assets |
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| |
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| Total current assets |
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| Fixed assets, net |
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| Indemnification receivable (Note 20) |
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| Securities held-to-maturity |
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| Deferred tax assets, net (Note 20) |
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| Investments (Note 7) |
| |||||||
| Right of use assets—operating leases (Note 12) |
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| Goodwill (Note 22) |
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| Intangible assets, net (Note 22) |
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| Other noncurrent assets |
|
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| |
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| Total assets |
$ | $ | ||||||
| |
|
|
|
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| Liabilities and stockholders’ equity |
||||||||
| Liabilities |
||||||||
| Current liabilities: |
||||||||
| Fund management and administration payable |
$ | $ | ||||||
| Compensation and benefits payable |
||||||||
| Operating lease liabilities (Note 12) |
||||||||
| Convertible notes—current (Note 10) |
||||||||
| Deferred consideration—gold payments (Note 9) |
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| Income taxes payable |
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| Accounts payable and other liabilities |
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| |
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| Total current liabilities |
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| Convertible notes (Note 10) |
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| Deferred consideration—gold payments (Note 9) |
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| Operating lease liabilities (Note 12) |
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| Other noncurrent liabilities (Note 20) |
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| |
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| Total liabilities |
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| Preferred stock—Series A Non-Voting Convertible, par value $$ |
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| |
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| Contingencies (Note 13) |
||||||||
| Stockholders’ equity |
||||||||
| Preferred stock, par value $ |
||||||||
| Preferred stock—Series C Non-Voting Convertible, par value $ |
||||||||
| Common stock, par value $ 2022, respectively |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive loss |
( |
( |
||||||
| Retained earnings |
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| |
|
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|
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| Total stockholders’ equity |
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| |
|
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|
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| Total liabilities and stockholders’ equity |
$ | $ | ||||||
| |
|
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|
|||||
The accompanying notes are an integral part of these consolidated financial statements
4
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Operating Revenues: |
||||||||||||||||
| Advisory fees |
$ |
$ |
$ |
$ |
||||||||||||
| Other income |
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| |
|
|
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|
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|
|||||||||
| Total revenues |
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| |
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| Operating Expenses: |
||||||||||||||||
| Compensation and benefits |
||||||||||||||||
| Fund management and administration |
||||||||||||||||
| Marketing and advertising |
||||||||||||||||
| Sales and business development |
||||||||||||||||
| Contractual gold payments (Note 9) |
||||||||||||||||
| Professional fees |
||||||||||||||||
| Occupancy, communications and equipment |
||||||||||||||||
| Depreciation and amortization |
||||||||||||||||
| Third-party distribution fees |
||||||||||||||||
| Other |
||||||||||||||||
| |
|
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|
|
|
|
|
|||||||||
| Total operating expenses |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating income |
||||||||||||||||
| Other Income/(Expenses): |
||||||||||||||||
| Interest expense |
( |
( |
( |
( |
||||||||||||
| Gain/(loss) on revaluation/termination of deferred consideration—gold payments (Note 9) |
( |
|||||||||||||||
| Interest income |
||||||||||||||||
| Impairments (Note 7) |
( |
|||||||||||||||
| Loss on extinguishment of convertible notes (Note 10) |
( |
|||||||||||||||
| Other gains and losses, net |
( |
( |
( |
|||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Income/(loss) before income taxes |
( |
|||||||||||||||
| Income tax expense/(benefit) |
( |
|||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) |
$ |
$ |
$ |
$ |
( |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings/(loss) per share—basic |
$ |
$ |
$ |
$ |
( |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Earnings/(loss) per share—diluted |
$ |
$ |
$ |
$ |
( |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average common shares—basic |
||||||||||||||||
| |
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|||||||||
| Weighted-average common shares—diluted |
||||||||||||||||
| |
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|
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|
|||||||||
| Cash dividends declared per common share |
$ |
$ |
$ |
$ |
||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements
5
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income/(Loss)
(In Thousands)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Net income/(loss) |
$ |
$ |
$ |
$ |
( |
|||||||||||
Other comprehensive income/(loss) |
||||||||||||||||
Foreign currency translation adjustment, net of income taxes |
( |
( |
||||||||||||||
Other comprehensive income/(loss) |
( |
( |
||||||||||||||
Comprehensive income/(loss) |
$ |
$ |
$ |
$ |
( |
|||||||||||
The accompanying notes are an integral part of these consolidated financial statements
6
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
For the Three Months Ended June 30, 2023 |
||||||||||||||||||||||||||||||||
Series C Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total |
|||||||||||||||||||||||||||
Shares Issued |
Par Value |
Shares Issued |
Par Value |
|||||||||||||||||||||||||||||
| Balance—April 1, 2023 |
$ |
$ |
$ |
$ |
( |
$ |
$ |
|||||||||||||||||||||||||
| Shares issued in connection with termination of the deferred consideration—gold payments obligation, net of issuance costs (Note 9) |
||||||||||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
||||||||||||||||||||||||||||||||
| Shares issued in connection with convertible notes that matured on June 15, 2023 (Note 10) |
||||||||||||||||||||||||||||||||
| Shares repurchased |
( |
( |
( |
|||||||||||||||||||||||||||||
| Stock-based compensation |
— |
— |
||||||||||||||||||||||||||||||
| Other comprehensive income |
— |
— |
||||||||||||||||||||||||||||||
| Dividends |
— |
— |
( |
( |
||||||||||||||||||||||||||||
| Net income |
— |
— |
||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance—June 30, 2023 |
$ |
$ |
$ |
$ |
( |
$ |
$ |
|||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
For the Three Months Ended June 30, 2022 |
||||||||||||||||||||||||||||||||
Series C Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income/(Loss) |
Accumulated Deficit |
Total |
|||||||||||||||||||||||||||
Shares Issued |
Par Value |
Shares Issued |
Par Value |
|||||||||||||||||||||||||||||
| Balance—April 1, 2022 |
$ |
$ |
$ |
$ |
$ |
( |
$ |
|||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
( |
||||||||||||||||||||||||||||||
| Stock-based compensation |
— |
— |
||||||||||||||||||||||||||||||
| Other comprehensive loss |
— |
— |
( |
( |
||||||||||||||||||||||||||||
| Dividends |
— |
— |
( |
( |
||||||||||||||||||||||||||||
| Net income |
— |
— |
||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance—June 30, 2022 |
$ |
$ |
$ |
$ |
( |
$ |
( |
$ |
||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
7
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
(In Thousands)
(Unaudited)
For the Six Months Ended June 30, 2023 |
||||||||||||||||||||||||||||||||
Series C Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total |
|||||||||||||||||||||||||||
Shares Issued |
Par Value |
Shares Issued |
Par Value |
|||||||||||||||||||||||||||||
| Balance—January 1, 2023 |
$ |
$ |
$ |
$ |
( |
$ |
$ |
|||||||||||||||||||||||||
| Shares issued in connection with termination of the deferred consideration—gold payments obligation, net of issuance costs (Note 9) |
||||||||||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
|||||||||||||||||||||||||||||||
| Shares issued in connection with convertible notes that matured on June 15, 2023 (Note 10) |
||||||||||||||||||||||||||||||||
| Shares repurchased |
( |
( |
( |
( |
||||||||||||||||||||||||||||
| Stock-based compensation |
— |
— |
— |
|||||||||||||||||||||||||||||
| Other comprehensive income |
— |
— |
— |
|||||||||||||||||||||||||||||
| Dividends |
— |
— |
— |
( |
( |
|||||||||||||||||||||||||||
| Net income |
— |
— |
— |
|||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance—June 30, 2023 |
$ |
$ |
$ |
$ |
( |
$ |
$ |
|||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
For the Six Months Ended June 30, 2022 |
||||||||||||||||||||||||||||||||
Series C Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income/(Loss) |
Accumulated Deficit |
Total |
|||||||||||||||||||||||||||
Shares Issued |
Par Value |
Shares Issued |
Par Value |
|||||||||||||||||||||||||||||
| Balance—January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
( |
$ |
|||||||||||||||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
( |
|||||||||||||||||||||||||||||||
| Shares repurchased |
( |
( |
( |
( |
||||||||||||||||||||||||||||
| Stock-based compensation |
— |
— |
— |
|||||||||||||||||||||||||||||
| Other comprehensive loss |
— |
— |
— |
( |
( |
|||||||||||||||||||||||||||
| Dividends |
— |
— |
— |
( |
( |
|||||||||||||||||||||||||||
| Net income |
— |
— |
— |
( |
( |
|||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance—June 30, 2022 |
$ |
$ |
$ |
$ |
( |
$ |
( |
$ |
||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
8
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
Cash flows from operating activities: |
||||||||
Net income/(loss) |
$ | $ | ( |
|||||
Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |
||||||||
(Gain)/loss on revaluation/termination of deferred consideration—gold payments |
( |
|||||||
Advisory and license fees paid in gold, other precious metals and cryptocurrency |
( |
( |
||||||
Loss on extinguishment of convertible notes |
||||||||
Stock-based compensation |
||||||||
Contractual gold payments |
||||||||
Impairments |
||||||||
Deferred income taxes |
||||||||
Amortization of issuance costs—convertible notes |
||||||||
(Gains)/losses on financial instruments owned, at fair value |
( |
|||||||
Losses on investments |
||||||||
Amortization of right of use asset |
||||||||
Depreciation and amortization |
||||||||
Other |
||||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
( |
||||||
Prepaid expenses |
( |
( |
||||||
Gold and other precious metals |
||||||||
Other assets |
( |
|||||||
Intangibles—software development |
( |
( |
||||||
Fund management and administration payable |
||||||||
Compensation and benefits payable |
( |
( |
||||||
Income taxes payable |
( |
( |
||||||
Operating lease liabilities |
( |
( |
||||||
Accounts payable and other liabilities |
||||||||
Net cash provided by operating activities |
||||||||
Cash flows from investing activities: |
||||||||
Purchase of financial instruments owned, at fair value |
( |
( |
||||||
Purchase of investments |
( |
( |
||||||
Acquisition of Securrency Transfers, Inc. (net of cash acquired) |
( |
|||||||
Purchase of fixed assets |
( |
( |
||||||
Proceeds from the sale of financial instruments owned, at fair value |
||||||||
Receipt of contingent consideration – Sale of Canadian ETF business |
||||||||
Proceeds from held-to-maturity |
||||||||
Net cash provided by/(used in) investing activities |
( |
|||||||
Cash flows from financing activities: |
||||||||
Repurchase and maturity of convertible notes (Note 10) |
( |
|||||||
Termination of deferred consideration—gold payments |
( |
|||||||
Dividends paid |
( |
( |
||||||
Issuance costs—Convertible notes |
( |
|||||||
Shares repurchased |
( |
( |
||||||
Issuance costs—Series C Preferred Stock |
( |
|||||||
Proceeds from the issuance of convertible notes (Note 10) |
||||||||
Net cash used in financing activities |
( |
( |
||||||
Increase/(decrease) in cash flow due to changes in foreign exchange rate |
( |
|||||||
Net decrease in cash and cash equivalents |
( |
( |
||||||
Cash and cash equivalents—beginning of year |
||||||||
Cash and cash equivalents—end of period |
$ |
$ |
||||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for income taxes |
$ | $ | ||||||
Cash paid for interest |
$ | $ | ||||||
9
WisdomTree, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(In Thousands)
(Unaudited)
On May 10, 2023, the Company issued
shares of Series C Non-Voting Convertible Preferred Stock (valued at $
On June
The accompanying notes are an integral part of these consolidated financial statements
10
WisdomTree, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
1. Organization and Description of Business
WisdomTree, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is a global financial innovator, offering a well-diversified suite of exchange-traded products (“ETPs”), models and solutions. Building on its heritage of innovation, the Company is also developing and has recently launched next-generation digital products and structures, including digital or blockchain-enabled mutual funds (“Digital Funds”) and tokenized assets, as well as its blockchain-native digital wallet, WisdomTree Prime
™
. The Company has the following wholly-owned operating subsidiaries:| • | WisdomTree Asset Management, Inc. non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. |
| • | WisdomTree Management Jersey Limited leveraged-and-inverse |
| • | WisdomTree Multi Asset Management Limited non-consolidated public limited company domiciled in Ireland. |
| • | WisdomTree Management Limited non-consolidated public limited company domiciled in Ireland. |
| • | WisdomTree UK Limited |
| • | WisdomTree Europe Limited |
| • | WisdomTree Ireland Limited |
| • | WisdomTree Digital Commodity Services, LLC |
| • | WisdomTree Digital Management, Inc. non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. Each Digital Fund uses blockchain technology to maintain a secondary record of its shares on one or more blockchains (e.g., Stellar or Ethereum), but does not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies. |
| • | WisdomTree Digital Movement, Inc ™ to facilitate such activity. |
| • | WisdomTree Securities, Inc |
| • | WisdomTree Transfers, Inc. is a New York based transfer agent registered with the SEC, providing transfer agency services for the Digital Funds. The transfer agent maintains the official record of share ownership in book entry form and reconciles the official record with the secondary record of ownership of shares on one or more blockchains. |
11
2. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company reassesses its evaluation of whether an entity is a VOE or VIE when certain reconsideration events occur.
Segment and Geographic Information
The Company, through its subsidiaries in the U.S. and Europe, conducts business as a single operating segment as an ETP sponsor and asset manager which is based upon the Company’s current organizational and management structure, as well as information used by the chief operating decision maker to allocate resources and other factors.
Foreign Currency Translation
Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income/(Loss) as a component of other comprehensive (loss)/income.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.
Revenue Recognition
The Company earns substantially all of its revenue in the form of advisory fees from its ETPs and recognizes this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Contractual Gold Payments
Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 9). The Company’s obligation to continue making these payments terminated on May 10, 2023.
Marketing and Advertising
Marketing and advertising costs, including media advertising and production costs, are expensed when incurred.
Depreciation and Amortization
Depreciation and amortization is provided for using the straight-line method over the estimated useful lives of the related assets as follows:
| Equipment |
||||
| Internally-developed software |
The assets listed above are recorded at cost less accumulated depreciation and amortization.
Stock-Based Awards
Accounting
Third-Party Distribution Fees
The
Company pays a percentage of its advisory fee revenues based on incremental growth in assets under management (“AUM”), subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third-party customer platforms and recognizes these expenses as incurred. Cash and Cash Equivalents
The
Accounts Receivable
Accounts
receivable are customer and other obligations due under normal trade terms. The Company measures credit losses, if any, by applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts to amounts outstanding using the aging method. Impairment of Long-Lived Assets
The
Financial Instruments Owned and Financial Instruments Sold, but Not yet Purchased (at Fair Value)
Financial
available-for-sale
Securities
Held-to-Maturity
The
held-to-maturity
held-to-maturity
more-likely-than-not
that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity. Held-to-maturity
non-accrual
status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on held-to-maturity
non-accrual
status is recognized on a cash basis as interest income if and when received. The
held-to-maturity
Investments
in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee. Investments
The
Investments – Equity Securities
Investments
Goodwill
Goodwill
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
Goodwill
is assessed for impairment annually on November 30th
. When performing its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and a quantitative assessment using the market approach and its market capitalization when determining the fair value of the reporting unit. Intangible Assets
Indefinit
e-lived intangible assets are tested for impairment at least annually and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying values.
Finit
The
Company may rely on a qualitative assessment when performing its intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for all of the Company’s intangible assets is November 30
th
.
Software Development Costs
Software
Leases
The
Leases
right-of-use
right-of-use
ASC
non-lease
components. The Company has elected to apply this practical expedient to all lease contracts, where applicable. Deferred Consideration—Gold Payments
Deferred
Convertible Notes
Convertible
Contingencies
The
Contingent Payments
The
Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. The Series A
non-voting
convertible preferred stock and Series C non-voting
convertible preferred stock (Note 11) and unvested stock-based equity awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the two-class
method. Stock-based equity awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive). Diluted
EPS is calculated under the treasury stock method and the two-class
method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A non-voting
convertible preferred stock, the Series C non-voting
convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A non-voting
convertible preferred stock, the Series C non-voting
convertible preferred stock and the convertible notes are computed under the if-converted
method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price. Income Taxes
The
more-likely-than-not
that some portion or all the deferred tax assets will not be realized. Tax
two-step
process. The Company first determines whether any of its tax positions are more-likely-than-not
to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense. The
Low-Taxed
Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax. Non-income
based taxes are recorded as part of other liabilities and other expenses. 15
3. Cash and Cash Equivalents
Of
the total cash and cash equivalents of $Certain
of the Company’s subsidiaries are required to maintain a minimum level of regulatory capital, which was $4. Fair Value Measurements
The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820, , establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:
Fair Value Measurement
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant drivers are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three and six months ended June 30, 2023 and 2022, there were no transfers between Levels 2 and 3.
June 30, 2023 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Assets: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Cash equivalents |
$ |
$ |
$ |
$ |
||||||||||||
| Financial instruments owned, at fair value: |
||||||||||||||||
| ETFs |
||||||||||||||||
| Pass-through GSEs |
||||||||||||||||
| Other assets—seed capital (WisdomTree Digital Funds): |
||||||||||||||||
| U.S. treasuries |
||||||||||||||||
| Equities |
||||||||||||||||
| Fixed income |
||||||||||||||||
| Other |
||||||||||||||||
| Investments in Convertible Notes (Note 7): |
||||||||||||||||
| Securrency, Inc.—convertible note |
||||||||||||||||
| Securrency, Inc.—secured convertible note |
||||||||||||||||
| Fnality International Limited—convertible note |
||||||||||||||||
| |
|
|
|
|
|
|
|
|
||||||||
| Total |
$ |
$ |
$ |
$ |
||||||||||||
| |
|
|
|
|
|
|
|
|
||||||||
June 30, 2023 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Non-recurring fair value measurements: |
||||||||||||||||
| Securrency, Inc.—Series A convertible preferred stock (1) |
$ |
$ |
$ |
$ |
||||||||||||
| |
|
|
|
|
|
|
|
|
||||||||
(1) |
Fair value determined on March 31, 2023. |
December 31, 2022 |
||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
| Assets: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Cash equivalents |
$ | $ | $ | $ | ||||||||||||
| Financial instruments owned, at fair value |
||||||||||||||||
| ETFs |
||||||||||||||||
| U.S. treasuries |
||||||||||||||||
| Pass-through GSEs |
||||||||||||||||
| Corporate bonds |
||||||||||||||||
| Other assets—seed capital (WisdomTree Digital Funds) |
||||||||||||||||
| Investments in Convertible Notes (Note 7) |
||||||||||||||||
| Securrency, Inc.—convertible note |
||||||||||||||||
| Fnality International Limited—convertible note |
||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
||||||
| Total |
$ | |
$ | |
$ | |
$ | |||||||||
| |
|
|
|
|
|
|
|
|
|
|
||||||
| Non-recurring fair value measurements: |
||||||||||||||||
| Other investments (1) |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
||||||
| Liabilities: |
||||||||||||||||
| Recurring fair value measurements: |
||||||||||||||||
| Deferred consideration—gold payments (Note 9) |
$ | $ | $ | $ |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
||||||
(1) |
Fair value determined on May 10, 2022. |
Recurring Fair Value Measurements – Methodology
Cash Equivalents (Note 3)
Financial instruments owned (Note 5)
Fair Value Measurements classified as Level
3
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Investments in Convertible Notes (Note 7) |
||||||||||||||||
Beginning balance |
$ | $ | $ | $ | ||||||||||||
Purchases |
||||||||||||||||
Net unrealized gains/(losses) ( 1) |
( |
( |
||||||||||||||
Ending balance |
$ | $ | $ | $ | ||||||||||||
Deferred Consideration (Note 9) |
||||||||||||||||
Beginning balance |
$ | |
$ | |
$ | |
$ | |
||||||||
Net realized losses (2) |
||||||||||||||||
Net unrealized (gains)/losses (3) |
( |
( |
( |
|||||||||||||
Settlements |
( |
( |
( |
( |
||||||||||||
Ending balance |
$ | $ | |
$ | $ | |
||||||||||
(1) |
Recorded in other gains and 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/(loss) on revaluation/termination of deferred consideration—gold payments in the Consolidated Statements of Operation
s. 5. Financial instruments owned
These instruments consist of the following:
June 30, 2023 |
December 31, 2022 |
|||||||
Financial instruments owned |
||||||||
Trading securities |
$ |
$ |
||||||
Other assets—seed capital (WisdomTree Digital Funds) |
||||||||
$ |
$ |
|||||||
The Company
6. Securities
Held-to-Maturity
The following table is a summary of the Company’s securities
held-to-maturity:
June 30, 2023 |
December 31, 2022 |
|||||||
Debt instruments: Pass-through GSEs (amortized cost) |
$ | |
$ | |
||||
During
held-to-maturity
The following table summarizes unrealized losses, gains and fair value (classified as Level 2 within the fair value hierarchy) of securities
held-to-maturity:
June 30, 2023 |
December 31, 2022 |
|||||||
Cost/amortized cost |
$ | $ | ||||||
Gross unrealized losses |
( |
( |
||||||
Fair value |
$ | |
$ | |||||
An allowance for credit losses was not provided on the Company’s securities as all securities are investments in pass-through GSEs which are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
held-to-maturity
The following table sets forth the maturity profile of the securities however, these securities may be called prior to the maturity date:
held-to-maturity;
June 30, 2023 |
December 31, 2022 |
|||||||
Due within one year |
$ | $ | ||||||
Due one year through five years |
||||||||
Due five years through ten years |
||||||||
Due over ten years |
||||||||
Total |
$ | |
$ | |||||
7. Investments
The following table sets forth the Company’s investments:
June 30, 2023 |
December 31, 2022 |
|||||||||||||||
Carrying Value |
Cost |
Carrying Value |
Cost |
|||||||||||||
Securrency, Inc.—Series A convertible preferred stock |
$ |
$ |
$ |
$ |
||||||||||||
Securrency, Inc.—Series B convertible preferred stock |
||||||||||||||||
Securrency, Inc.—secured convertible note |
||||||||||||||||
Securrency, Inc.—convertible note |
||||||||||||||||
Subtotal—Securrency, Inc. |
$ |
$ |
$ |
$ |
||||||||||||
Fnality International Limited—convertible note |
||||||||||||||||
Other investments |
||||||||||||||||
$ |
$ |
$ |
$ |
|||||||||||||
Securrency, Inc. – Preferred Stock
The
B-1
convertible preferred stock (which are substantially the same as the Securrency Series B Shares except that they have limited voting rights) and senior to that of the holders of the Securrency Series A Shares, which are senior to the holders of common stock. Otherwise, the Securrency Series A Shares and Securrency Series B Shares have substantially the same terms, are convertible into common stock at the option of the Company and contain various rights and protections including a non-cumulative
B-1
convertible preferred stock) are separately redeemable, with respect to all of the shares outstanding of the applicable series of preferred stock (subject to certain regulatory restrictions of certain investors), for the original issue price thereof, plus all declared and unpaid dividends, upon approval by holders of at least The
in-substance
common stock. The investments are assessed for impairment and similar observable transactions on a quarterly basis. There was on its Securrency Series A Shares to reduce the carrying value of its investment to fair value. Fair value was determined using the probability-weighted expected return method (“PWERM”), a valuation approach that estimates fair value assuming various outcomes.
The table below presents the probability ascribed to potential outcomes used in the PWERM, which resulted in the mark-down of the Securrency Series A Shares (classified as Level 3 in the fair value hierarchy). There was no mark-down applied to the Securrency Series B Shares, as they are a senior instrument.
March 31, 2023 |
||||
Conversion upon a future equity financing |
% | |||
Redemption upon a corporate transaction |
% | |||
Default |
% | |||
Ther
Securrency – Secured Convertible Note
In June 2023, the Company provided funding in the amount of $10,000 , 9 % Secured Convertible Promissory Note maturing on December 31, 2023 . The note is guaranteed by a U.S.-based wholly-owned subsidiary of Securrency and is secured by a valid and perfected first priority security interest in all existing and after acquired assets and personal property of the borrower, including all intellectual property and a pledge of
and in consideration therefor, the Company was issued a
non-regulated
subsidiary equity. The
The
The
note is accounted for at fair value. Fair value is determined by the Company using the PWERM. During the three months ended June 30, 2023, the Company recognized an unrealized loss of $re-measuring
the note to fair value. The
table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy).
June 30, 2023 | ||
Conversion of note upon a future equity financing |
||
Redemption of note upon a corporate transaction |
||
Default |
||
Time to potential outcome (in years) |
Securrency – Convertible Notes
In
% Convertible Promissory Notes maturing on
The
The
majority-in-interest
The
re-measuring
the notes to fair value, the Company recognized an unrealized gain of $The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy) and the time to exit:
June 30, 2023 |
December 31, 2022 |
|||||||
Conversion of notes upon a future equity financing |
||||||||
Redemption of notes upon a corporate transaction |
||||||||
Default |
||||||||
Time to potential outcome (in years) |
||||||||
Fnality International Limited – Convertible Note
In
peer-to-peer
The
% to the lowest price paid per equity share issued pursuant to such future financing round and (ii) an amount paid per share subject to a
pre-money
valuation cap. Mandatory conversion may occur on or after the maturity date or, if earlier, in the event a future financing round has not been completed within a specified time from an initial closing of such financing round (“Long Stop Date”), upon the approval of holders of at least The
The
re-measuring
the notes to fair value. The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy) and the time to exit:
June 30, 2023 |
December 31, 2022 |
|||||||
Conversion of note upon a future financing |
||||||||
Redemption of note upon a change of control |
||||||||
Default |
||||||||
Time to potential outcome (in years) |
||||||||
8. Fixed Assets, net
The following table summarizes fixed assets:
June 30, 2023 |
December 31, 2022 |
|||||||
Equipment |
$ | $ | ||||||
Less: accumulated depreciation |
( |
( |
||||||
Total |
$ | $ | ||||||
9. Deferred Consideration—Gold Payments
Deferred
consideration—gold payments represented an obligation the Company assumed in connection with its acquisition of the European exchange-traded commodity, currency and leveraged-and-inverse
ounces of gold per year continuing into perpetuity (“contractual gold payments”). ETFS Capital continued to pass through the payments to other parties to meet its payment obligations under prior royalty agreements, including to Gold Bullion Holdings
(Jersey) Limited (“GBH”), a subsidiary of the World Gold Council (“WGC”), Graham Tuckwell (“GT”), and Rodber Investments Limited (“RIL”), an entity controlled by GT, who is also the Chairman of ETFS Capital.
On
Non-Voting
Convertible Preferred Stock of the Company, $par value per share, convertible into
Th
June 30, 2023 |
December 31, 2022 |
|||||||
Forward-looking gold price (low)—per ounce |
n/a | $ | ||||||
Forward-looking gold price (high)—per ounce |
n/a | $ | ||||||
Forward-looking gold price (weighted average)—per |
n/a | $ | ||||||
Discount rate |
n/a | |||||||
Perpetual growth rate |
n/a |
During the three and six months ended June 30, 2023 and 2022, the Company recognized the following in respect of deferred consideration—gold payments:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Contractual gold payments |
$ | $ | $ | $ | ||||||||||||
Contractual gold payments—gold ounces paid |
||||||||||||||||
Gain/(loss) on revaluation/termination of deferred payments |
$ | |
$ | |
$ | |
$ | ( |
) | |||||||
10. Convertible Notes
On
February 14, 2023, the Company issued and sold $On
On
In
After
the repurchase and maturity of the 2020 Notes and the issuance of the 2023 Notes (and together with the 2021 Notes, the “Convertible Notes”), the Company had $Key terms of the Convertible Notes are as follows:
2023 Notes |
2021 Notes |
|||||||
Principal outstanding |
$ |
$ |
||||||
Maturity date (unless earlier converted, repurchased or redeemed) |
|
|
||||||
Interest rate |
||||||||
Conversion price |
$ |
$ |
||||||
Conversion rate |
||||||||
Redemption price |
$ |
$ |
||||||
| ● |
Interest rate: |
● |
Conversion price: |
● |
Conversion: |
● |
Cash settlement of principal amount: |
● |
Redemption price: 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 |
● |
Limited investor put rights: |
● |
Conversion rate increase in certain customary circumstances: |
● |
Seniority and Security: Non-Voting Convertible Preferred Stock (Note 11). |
The
indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the respective holders of not less than % in aggregate principal amount of the respective series
of
Convertible Notes outstanding may declare the entire principal amount of all such respective Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable.The
following table provides a summary of the Convertible Notes at June 30, 2023 and December 31, 2022: June 30, 2023 |
December 31, 2022 |
|||||||||||||||||||||||
2023 Notes |
2021 Notes |
Total |
2021 Notes |
2020 Notes |
Total |
|||||||||||||||||||
Principal amount |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Plus: Premium |
||||||||||||||||||||||||
Gross proceeds |
||||||||||||||||||||||||
Less: Unamortized issuance costs |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
Carrying amount |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||
Effective interest rate (1) |
% |
% |
% |
% |
% |
% | ||||||||||||||||||
(1)
Includes amortization of the issuance costs and premium. Interest
The
if-converted
value of the Convertible Notes did not exceed the principal amount at June 30, 2023 and December 31, 2022. 11. Preferred Stock
Series A
Non-Voting
Convertible Preferred Stock On
April 10, 2018, the Company filed a Certificate of Designations of Series A
Non-Voting
Convertible Preferred Stock (the “Series A Certificate of Designations”) with the Delaware Secretary of State establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series A Preferred Stock (defined below). The Series A Preferred Stock is intended to provide ETFS Capital with economic rights equivalent to the Company’s common stock on an as-converted
basis. The Series A Preferred Stock has no voting rights, is not transferable and has the same priority with regard to dividends, distributions and payments as the common stock. As
In
leveraged-and-inverse
Non-Voting
Convertible Preferred Stock (the “Series A Preferred Stock”), which are convertible into an aggregate of The following is a summary of the Series A Preferred Stock balance:
June 30, 2023 |
December 31, 2022 |
|||||||
Issuance of Series A Preferred Stock |
$ | |
$ | |
||||
Less: Issuance costs |
( |
( |
||||||
Series A Preferred Stock—carrying value |
$ | $ | ||||||
Cash dividends declared per share (quarterly) |
$ | $ | ||||||
Temporary equity classification is required for redeemable instruments for which redemption triggers are outside of the issuer’s control. ETFS Capital has the right to redeem all the Series A Preferred Stock specified to be converted during the period of time specified in the Series A Certificate of Designations in the event that: (a) the number of shares of the Company’s common stock authorized by its certificate of incorporation is insufficient to permit the Company to convert all of the Series A Preferred Stock requested by ETFS Capital to be converted; or (b) ETFS Capital does not, upon completion of a change of control of the Company, receive the same amount per Series A Preferred Stock as it would have received had each outstanding Series A Preferred Stock been converted into common stock immediately prior to the change of control. However, the Company will not be obligated to make any such redemption payments to the extent such payments would be a breach of any covenant or obligation the Company
owes to any of its secured creditors or is otherwise prohibited by applicable law.
Any
30-trading
day period ending on the date of such attempted conversion or change of control, as applicable, multiplied by 1,000
. Such redemption payment will be made in one payment no later than 10
business days following the last day of the Company’s first fiscal quarter that begins on a date following the date ETFS Capital exercises such redemption right. The redemption value of the Series A Preferred Stock was $The
Series C
Non-Voting
Convertible Preferred Stock On
Non-Voting
Convertible Preferred Stock (the “Series C Certificate of Designations”) with the Delaware Secretary of State establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Series C Preferred Stock (defined below). The Series C Preferred Stock is intended to provide GBH with economic rights equivalent to the Company’s common stock on an as-converted
basis. The Series C Preferred Stock has no voting rights, is not transferable, contains registration rights and has the same priority with regard to dividends, distributions and payments as the common stock. As
Eac
Pursuant
to the Investor Rights Agreement, GBH is subject to restrictions on the manner in which the Conversion Shares (defined below) can be sold and has agreed not to distribute or sell any Conversion Shares to any person that would knowingly result in that person, together with such person’s affiliates and associates, owning, controlling or otherwise having any beneficial ownership interest representing in the aggregate 5% or more of the then outstanding shares of the Company’s common stock. GBH has also agreed not to distribute or sell any Conversion Shares to ETFS Capital, GT or any of their affiliates, associates or any Group (as that term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as defined in Rule 13d-5
thereunder) formed by the foregoing persons. In
Non-Voting
Convertible Preferred Stock (the “Series C Preferred Stock”), which are convertible into an aggregate of GBH
12. Leases
The
The following table provides additional information regarding the Company’s leases:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Lease cost: |
||||||||||||||||
| Operating lease cost |
$ | $ | $ | $ | ||||||||||||
| Short-term lease cost |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total lease cost |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other information: |
||||||||||||||||
| Cash paid for amounts included in the measurement of operating liabilities (operating leases) |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Right-of-use |
n/a | n/a | n/a | n/a | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average remaining lease term (in years)—operating leases |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average discount rate—operating leases |
% |
% |
% |
% | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
None of the Comp
a
ny’s leases include variable payments, residual value guarantees or any restrictions or covenants relating to the Company’s ability to pay dividends or incur additional financing obligations. The following table discloses future minimum lease payments at June 30, 2023 with respect to the Company’s operating lease liabilities:
| | ||||||
| Remainder of 2023 |
$ |
|||||
| 2024 |
||||||
| 2025 and thereafter |
||||||
| |
|
|||||
| Total future minimum lease payments (undiscounted) |
$ |
|||||
| |
|
|||||
The following table reconciles the future minimum lease payments (disclosed above) at June 30, 2023 to the operating lease liabilities recognized in the Company’s Consolidated Balance Sheets:
| |
|
|
|
|
|
|
| Amounts recognized in the Company’s Consolidated Balance Sheets |
|
|
| |||
| Lease liability—short term |
$ | |
|
| ||
| Difference between undiscounted and discounted cash flows |
|
| ||||
| |
|
|
|
|
| |
| Total future minimum lease payments (undiscounted) |
$ | |
| |||
| |
|
|
|
|
|
13. Contingencies
The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business.
Closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP
In December 2020, WMAI, WTMAML, WTUK and WisdomTree Ireland Limited (“WT Ireland”) were served with a writ of summons to appear before the Court of Milan, Italy. In January 2021, WTUK was served with a writ of summons to appear before the Court of Udine, Italy. Investors had filed actions seeking damages resulting from the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP (“3OIL”) in March 2020. The product was dependent on the receipt of payments from a swap provider to satisfy payment obligations to the investors. Due to an extreme adverse move in oil futures relative to the oil futures’ closing price, the swap contract underlying 3OIL was terminated by the swap provider, which resulted in the compulsory redemption of 3OIL, all in accordance with the prospectus.
In February 2022, the Court of Udine ruled in the Company’s favor. Also in February 2022, WMAI, WTMAML, WTUK and WT Ireland were served with another writ of summons to appear before the Court of Milan by additional investors seeking damages resulting from the closure of 3OIL.
In March 2022, WMAI and WTUK were served with writs of summons to appear before the Court of Turin and the Court of Milan by additional investors seeking damages. These writs also were served on the intermediary brokers for the respective claimants, with the claimants alleging joint and several liability of WMAI, WTUK and such intermediary brokers. In July 2023, the Court of Milan ruled in favor of WMAI and WTUK in respect of one of these claims.
Total damages sought by all investors related to these claims are approximately €15,200 ($16,560 ) at June 30, 2023.
Additionally, in July 2023, WT Ireland received a letter from counsel on behalf of additional investors seeking damages of up to approximately €
resulting from the closure of 3OIL. The claim is in its preliminary stages and a writ of summons has not been served.
The Company is currently assessing these claims with its external counsel. The Company expects that losses, if any, arising from these claims will be covered under its insurance policies, less a $500 deductible. An accrual has not been made with respect to these matters at June 30, 2023 and December 31, 2022.
14. Variable Interest Entities
VIEs are entities with any of the following characteristics: (i) the entity does not have enough equity to finance its activities without additional financial support; (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with
non-substantive
voting rights. Consolidation of a VIE is required for the party deemed to be the primary beneficiary, if any. The primary beneficiary is the party who has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. The Company is not the primary beneficiary of any entities in which it has a variable interest as it does not have the power to direct the activities that most significantly impact the entities’ economic performance. Such power is conveyed through the entities’ boards of directors and the Company does not have control over the boards.
The following table presents information about the Company’s variable interests in
non-consolidated
VIEs: June 30, 2023 |
December 31, 2022 |
|||||||
| Carrying Amount—Assets (Securrency): |
||||||||
| Preferred stock—Securrency Series A Shares |
$ | $ | ||||||
| Preferred stock—Securrency Series B Shares |
||||||||
| Secured convertible note |
||||||||
| Convertible note |
||||||||
| |
|
|
|
|
| |||
| Subtotal—Securrency |
$ | $ | ||||||
| Carrying Amount—Assets (Fnality): |
||||||||
| Convertible note |
||||||||
| Carrying Amount—Assets (Other investments): |
||||||||
| |
|
|
|
|
| |||
| Total (Note 7) |
$ | |
$ | |||||
| |
|
|
|
|
| |||
| Maximum exposure to loss |
$ | $ | ||||||
| |
|
|
|
|
| |||
15. Revenues from Contracts with Customers
The following table presents the Company’s total revenues from contracts with customers:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Revenues from contracts with customers: |
||||||||||||||||
| Advisory fees |
$ |
$ |
$ |
$ |
||||||||||||
| Other |
||||||||||||||||
| |
|
|
|
|
|
|
|
|
| |||||||
Total operating revenues |
$ |
$ |
$ |
$ |
||||||||||||
| |
|
|
|
|
|
|
|
|
| |||||||
The Company recognizes revenues from contracts with customers when the performance obligation is satisfied, which is when the promised services are transferred to the customer. A service is considered to be transferred when the customer obtains control, which is represented by the transfer of rights with regard to the service. Transfer of control happens either over time or at a point in time. When a performance obligation is satisfied over time, an entity is required to select a single method of measuring progress for each performance obligation that depicts the entity’s performance in transferring control of services to the customer.
Substantially all the Company’s revenues from contracts with customers are derived primarily from investment advisory agreements with related parties (Note 16). These advisory fees are recognized over time, are earned from the Company’s ETPs and are calculated based on a percentage of the ETPs’ average daily net assets. There is no significant judgment in calculating amounts due which are invoiced monthly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
There
are Other income includes revenues the Company earns from swap providers associated with certain of the Company’s European listed ETPs, the nature of which are either based on a percentage of the ETPs’ average daily net assets or flows associated with certain products. There is no significant judgment in calculating amounts due, which are invoiced monthly or quarterly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Geographic Distribution of Revenues
The following table presents the Company’s total revenues geographically as determined by where the respective management companies reside:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Revenues from contracts with customers: |
||||||||||||||||
United States |
$ |
$ |
$ |
$ |
||||||||||||
Jersey |
||||||||||||||||
Ireland |
||||||||||||||||
Total operating revenues |
$ |
$ |
$ |
$ |
||||||||||||
16. Related Party Transactions
Investment Advisory Agreements
The Company’s revenues are derived primarily from investment advisory agreements with related parties. Under these agreements, the Company has licensed to related parties the use of certain of its own indexes for the U.S. WisdomTree ETFs, Digital Funds and WisdomTree UCITS ETFs. The Board of Trustees and Board of Directors (including certain officers of the Company) of the related parties are primarily responsible for overseeing the management and affairs of the entities for the benefit of their stakeholders and have contracted with the Company to provide for general management and administration services. The Company is also responsible for certain expenses of the related parties, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, and other
non-distribution
services, excluding extraordinary expenses, taxes and certain other expenses, which are included in fund management and administration in the Consolidated Statements of Operations. In exchange, the Company receives fees based on a percentage of the ETPs’ and the Digital Funds’ average daily net assets. A majority of the independent members of the Board of Trustees are required to initially and annually (after the first two years) approve the advisory agreements of the U.S. WisdomTree ETFs and the Digital Funds and these agreements may be terminated by the Board of Trustees upon notice. The following table summarizes accounts receivable from related parties which are included as a component of accounts receivable in the Consolidated Balance Sheets:
June 30, 2023 |
December 31, 2022 |
|||||||
Receivable from WTT |
$ |
$ |
||||||
Receivable from ManJer Issuers |
||||||||
Receivable from WMAI and WTICAV |
||||||||
Total |
$ |
$ |
||||||
The allowance for credit losses on accounts receivable from related parties is insignificant when applying historical loss rates, adjusted for current conditions and supportable forecasts, to the amounts outstanding in the table above. Amounts outstanding are all invoiced in arrears, are less than 30 days aged and are collected shortly after the applicable reporting period.
The following table summarizes revenues from advisory services provided to related parties:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Advisory services provided to WTT |
$ |
$ |
$ |
$ |
||||||||||||
Advisory services provided to ManJer Issuers |
||||||||||||||||
Advisory services provided to WMAI and WTICAV |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Investments in WisdomTree Products
The
Deferred Consideration—Gold Payments – Termination
O
17. Stock-Based Awards
On
The Company grants equity awards to employees and directors, which include restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and stock options. Certain awards described below are subject to acceleration under certain conditions.
Stock options: |
Generally issued for terms of | |||||
RSAs/RSUs: |
Awards are valued based on the Company’s stock price on grant date and generally vest ratably, on an annual basis, over three years. | |||||
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 |
● |
If the relative TSR is below the 25 th percentile, then |
● |
If the relative TSR is at the 25 th percentile, then |
● |
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 th percentile and capped at th percentile; and |
● |
If the Company’s TSR is negative, the target number of PRSUs vesting is capped at |
Stock
-
based compensation expense was $
and $
, respectively during the three and six months ended June 30, 2023 and $
and $
, respectively, during the comparable periods in 2022.
A summary of unrecognized stock-based compensation expense and average remaining vesting period is as follows:
June 30, 2023 |
||||||||||
Unrecognized Stock- Based Compensation |
Weighted-Average Remaining Vesting Period (Years) |
|||||||||
Employees and directors |
$ |
|||||||||
A summary of stock-based compensation award activity (shares) during the three months ended June 30, 2023 is as follows:
RSA |
RSU |
PRSU |
||||||||||
Balance at April 1, 2023 |
||||||||||||
Granted |
||||||||||||
Vested |
( |
) |
( |
) |
||||||||
Forfeited |
( |
) |
( |
) |
||||||||
Balance at June 30, 2023 |
||||||||||||
18. Stockholder Rights Plan
On March 17, 2023, the Board of Directors of the Company adopted a stockholder rights plan, as set forth in the Stockholder Rights Agreement, dated March 17, 2023, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent, as amended by Amendment No. 1 thereto, dated May 4, 2023 (“Amendment No. 1”), and by Amendment No. 2 thereto, dated May 10, 2023 (“Amendment No. 2”) (as amended, the “Stockholder Rights Agreement”). At the Company’s 2023 Annual Meeting of Stockholders held on June 16, 2023, the Company’s stockholders ratified the adoption by the Board of Directors of the Stockholder Rights Agreement.
Pursuant to
ten-thousandth
of a share (a “Unit”) of Series B Junior Participating Cumulative Preferred Stock, par value $Initially, t
13d-1(b)
or Rule 13d-1(c)
of the General Rules and Regulations under the Exchange Act as in effect at the time of the first public announcement of the declaration of the Rights dividend with respect to the shares of common stock beneficially owned by such person or group) or more of the outstanding shares of common stock, other than as a result of repurchases of stock by the Company or certain inadvertent actions by a stockholder (the date of such announcement being referred to as the “Stock Acquisition Date”), or (ii) the close of business on the tenth business day (or such later day as the Board of Directors may determine) following the commencement of a tender offer or exchange offer that could result upon its consummation in a person or group becoming an Acquiring Person (the earlier of such dates being herein referred to as the “Distribution Date”). A person or group who beneficially owned For purposes
with respect to voting on the proposal to approve and ratify the
Stockholder Rights Agreement presented to the Company’s stockholders at the Company’s 2023 annual meeting of stockholders. Pursuant to Amendment No. 2, the parties to the SPA Agreement are not deemed to be “Acquiring Persons” solely by virtue of, or as a result of, the parties’ entry into the SPA Agreement, the issuance of the Series C Preferred Stock to GBH, and the performance or consummation of any of the other transactions contemplated by the SPA Agreement, among other conditions, under the terms and conditions set forth in Amendment No. 2.
In the even
The Rig
The Stockholder Rights Agreement may be amended by the Board of Directors in its sole discretion at any time prior to the time at which any person becomes an Acquiring Person. After such time the Board of Directors may, subject to certain limitations set forth in the Stockholder Rights Agreement, amend the Stockholder Rights Agreement only to cure any ambiguity, defect or inconsistency, to shorten or lengthen any time period, or to make changes that do not adversely affect the interests of Rights holders (excluding the interests of an Acquiring Person or its associates or affiliates).
Until a Right is exercised, the holder will have no rights as a stockholder of the Company (beyond those as an existing stockholder), including the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for shares of common stock, other securities of the Company, other consideration or for common stock of an acquiring company.
The Rights are not exercisable until the Distribution Date and will expire at the close of business on March 16, 2024, unless previously redeemed or exchanged by the Company.
The Stockholder Rights Agreement provides the holders of the common stock with the ability to exempt an offer to acquire, or engage in another business combination transaction involving, the Company that is deemed a “Qualifying Offer” (as defined in the Stockholder Rights Agreement) from the terms of the Stockholder Rights Agreement. A Qualifying Offer is, in summary, an offer determined by a majority of the independent members of the Board to have specific characteristics that are generally intended to preclude offers that are coercive, abusive or highly contingent. Among those characteristics are that it be: (i) a fully financed
all-cash
tender offer or an exchange offer offering shares of common stock of the offeror, or a combination thereof, for any and all of the common stock; and (ii) an offer that is otherwise in the best interests of the Company’s stockholders. The Stockholder Rights Agreement provides additional characteristics necessary for an acquisition offer to be deemed a “Qualifying Offer,” including if the consideration offered in a proposed transaction is stock of the acquiror. Pursuant to the Stockholder Rights Agreement, if the Company receives a Qualifying Offer and the Board of Directors has not redeemed the outstanding Rights or exempted such Qualifying Offer from the terms of the Stockholder Rights Agreement or called a special meeting of stockholders (the “Special Meeting”) for the purpose of voting on whether to exempt such Qualifying Offer from the terms of the Stockholder Rights Agreement, in each case by the end of the 90 business day period following the commencement of such Qualifying Offer, provided such offer remains a Qualifying Offer during such period, the holders of 10% of the common stock may request that the Board call a Special Meeting to vote on a resolution authorizing the exemption of the Qualifying Offer from the terms of the Stockholder Rights Agreement. If such a Special Meeting is not held by the 90
th
business day following the receipt of such a request from stockholders to call a Special Meeting, the Qualifying Offer will be deemed exempt from the terms of the Stockholder Rights Agreement on the 10th
business day thereafter. 31
19. Earnings/(Loss) Per Share
The following tables set forth reconciliations of the basic and diluted earnings/(loss) per share computations for the periods presented:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
Basic Earnings per Share |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Net income/(loss) |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
| Less: Income distributed to participating securities |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
| Less: Undistributed income allocable to participating securities |
( |
) |
( |
) |
( |
) |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) available to common stockholders—Basic EPS |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
| Weighted average common shares (in thousands) |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic earnings/(loss) per share |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
Diluted Earnings per Share |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Net income/(loss) available to common stockholders |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
| Add back: Undistributed income allocable to participating securities |
||||||||||||||||
| Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive |
( |
) |
( |
) |
( |
) |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) available to common stockholders—Diluted EPS |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted Average Diluted Shares (in thousands): |
||||||||||||||||
| Weighted average common shares |
||||||||||||||||
| Dilutive effect of common stock equivalents, excluding participating securities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted average diluted shares, excluding participating securities (in thousands) |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted earnings/(loss) per share |
$ |
$ |
$ |
$ |
( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Dilut
ed earnings/(loss) per share presented above is calculated using the
two-class
method as this method results in the lowest diluted earnings per share amount for common stock. During the six months ended June 30, 2022, there were no dilutive common stock equivalents as the Company reported a net loss for the period. Total antidilutive
non-participating
common stock equivalents were
and
, respectively, during the three and six months ended June 30, 2023, and
and
, respectively, during the comparable periods in 2022 (shares herein are reported in thousands).
There
The following table reconciles weighted average diluted shares as reported on the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022, which are determined pursuant to the treasury stock method, to the weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
Reconciliation of Weighted Average Diluted Shares (in thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Weighted average diluted shares as disclosed on the Consolidated Statements of Operations |
(1) | |||||||||||||||
| Less: Participating securities |
||||||||||||||||
| Weighted average shares of common stock issuable upon conversion of the Series A Preferred Stock (Note 11) |
( |
) |
( |
) |
( |
) |
||||||||||
| Weighted average shares of common stock issuable upon conversion of the Series C Preferred Stock (Note 11) |
( |
) |
( |
) |
||||||||||||
| Potentially dilutive restricted stock awards |
( |
) |
( |
) |
( |
) |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
(1)
Excludes non-participating
common stock equivalents for the six months ended June 30, 2022 as the Company reported a net loss for the period (shares herein are reported in thousands). 32
20. Income Taxes
Effective Income Tax Rate – Three and Six Months Ended June 30, 2
023
T
non-taxable
gain on revaluation/termination of deferred consideration—gold payments and a decrease in the deferred tax asset valuation allowance on losses recognized on the Company’s investments. These items were partly offset by non-deductible
executive compensation. The Comp
non-taxable
gain on revaluation/termination of deferred consideration—gold payments, a $non-deductible
loss on extinguishment of our convertible notes, non-deductible
executive compensation and an increase in the deferred tax asset valuation allowance on losses recognized on our investments. Effective Income Tax Rate – Three and Six Months Ended June 30, 2022
Th
non-deductible
executive compensation. These items were partly offset by a non-taxable
gain on revaluation of deferred consideration—gold payments and a lower tax rate on foreign earnings. The Compan
non-taxable
loss on revaluation of deferred consideration—gold payments and an increase in the deferred tax asset valuation allowance on losses recognized on financial instruments owned. Deferred Tax Assets
A summary of the components of the Company’s deferred tax assets at June 30, 2023 and December 31, 2022 is as follows:
June 30, 2023 |
December 31, 2022 | ||||||
| Deferred tax assets: |
|||||||
| Capital losses |
$ | $ | |||||
| Unrealized losses |
|||||||
| Accrued expenses |
|||||||
| NOLs—Foreign |
|||||||
| Stock-based compensation |
|||||||
| Interest carryforwards |
|||||||
| Goodwill and intangible assets |
|||||||
| Operating lease liabilities |
|||||||
| Foreign currency translation adjustment |
|||||||
| NOLs—U.S. |
|||||||
| Outside basis differences |
|||||||
| Other |
|||||||
| |
|
|
| ||||
| Deferred tax assets |
|||||||
| |
|
|
| ||||
June 30, 2023 |
December 31, 2022 |
|||||||
Deferred tax liabilities: |
||||||||
Fixed assets and prepaid assets |
||||||||
Unremitted earnings—European subsidiaries |
||||||||
Right of use assets—operating leases |
||||||||
Deferred tax liabilities |
||||||||
Total deferred tax assets less deferred tax liabilities |
||||||||
Less: Valuation allowance |
( |
( |
||||||
Deferred tax assets, net |
$ |
$ |
||||||
Capital Losses – U.S.
The Company’s tax effected capital losses at June 30, 2023 were $
. These capital losses expire between the years 2023 and 2028.
Net Operating Losses – Europe
One of the Company’s European subsidiaries generated NOLs outside the U.S. These tax effected NOLs, all of which are carried forward indefinitely, were $
at June 30, 2023.
Valuation Allowance
The Company’s valuation allowance has been established on its net capital losses, unrealized losses and outside basis differences, as it is
more-likely-than-not
that these deferred tax assets will not be realized. Income Tax Examinations
The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. As of June 30, 2023, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for the years before 2018.
Undistributed Earnings of Foreign Subsidiaries
ASC
7
40-30
Income Taxes provides guidance that U.S. companies do not need to recognize tax effects on foreign earnings that are indefinitely reinvested. The Company repatriates earnings of its foreign subsidiaries and therefore has recognized a deferred tax liability of $21. Shares Repurchased
On Febru
The C
As of
34
22. Goodwill and Intangible Assets
Goodwill
The table below sets forth goodwill which is tested annually for impairment on November 30
th
: Total |
||||
Balance at January 1, 2023 |
$ |
|||
Changes |
(1) |
|||
Balance at June 30, 2023 |
$ |
|||
(1)
On April 11, 2023, the Company acquired The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, and resulted in all consideration being allocated to goodwill.
Of
Intangible Assets
The table below sets forth the Company’s intangible assets which are tested annually for impairment on November 30
th
:Balance at June 30, 2023 |
||||||||||||
Item |
Gross Asset |
Accumulated Amortization |
Net Asset |
|||||||||
ETFS acquisition |
$ |
$ |
$ |
|||||||||
Software development |
( |
|||||||||||
Balance at June 30, 2023 |
$ |
$ ( |
$ |
|||||||||
Balance at December 31, 2022 |
||||||||||||
Item |
Gross Asset |
Accumulated Amortization |
Net Asset |
|||||||||
ETFS acquisition |
$ |
$ |
$ |
|||||||||
Software development |
( |
|||||||||||
Balance at December 31, 2022 |
$ |
$ ( |
$ |
|||||||||
ETFS Acquisition (Indefinite-Lived)
In connection with the ETFS Acquisition, which was completed on
, the Company identified intangible assets valued at $
related to the right to manage AUM through customary advisory agreements. These intangible assets were determined to have indefinite useful lives and are not deductible for tax purposes.
Software Development (Finite-Lived)
Internally-developed software is amortized over a useful life of
. During the three and six months ended June 30, 2023, the Company recognized amortization expense on internally-developed software of $
and $
, respectively.
As of June 30, 2023, expected amortization expense for the unamortized finite-lived intangible assets for the next five years and thereafter is as follows:
Remainder of 2023 |
$ |
|||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
2028 and thereafter |
||||
Total expected amortization expense |
$ |
|||
Th
35
23. Contingent Payments
Sale of Canadian ETF Business
O
18-month
and the 36-month
anniversaries of the closing date, respectively. A g
24. Subsequent Events
The Company evaluated subsequent events through the date of issuance of the accompanying consolidated financial statements. There were no events requiring disclosure.
36
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, 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
We are a global financial innovator, offering a well-diversified suite of ETPs, models, solutions and products leveraging blockchain-enabled technology. We empower investors to shape their future and support financial professionals to better serve their clients and grow their businesses. We leverage the latest financial infrastructure to create products that provide access, transparency and an enhanced user experience. Building on our heritage of innovation, we are also developing and recently launched next-generation digital products and structures, including WisdomTree Digital Funds, or “Digital Funds” and tokenized assets, as well as our blockchain-native digital wallet, WisdomTree Prime
™
. We have approximately $93.7 billion in AUM as of June 30, 2023. Our family of ETPs includes products that provide exposure to equities, commodities, fixed income, currency, cryptocurrency and alternative strategies. We have launched many products and pioneered alternative weighting we call “Modern Alpha,” which combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform. Most of our equity-based funds employ a fundamentally weighted investment methodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other industry indexes use a capitalization weighted methodology. These products are distributed through all major channels in the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force. We believe technology is altering the way financial advisors conduct business and through our Advisor Solutions program we offer technology-enabled and research-driven solutions including portfolio construction, asset allocation, practice management services and digital tools to help financial advisors address technology challenges and grow and scale their businesses.
leveraged-and-inverse,
first-to-market
We are at the forefront of innovation and believe that tokenization and leveraging the utility of blockchain technology is the next evolution in financial services. We are building the foundation that will allow us to lead in this coming evolution. WisdomTree Prime channel where spending, saving and investing are united. As we continue to 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 believe that our expansion into digital assets and blockchain-enabled finance will complement our existing core competencies in a holistic manner, diversify our revenue streams and contribute to our growth.
™
, our blockchain-native digital wallet, positions us to expand our blockchain-enabled financial services product offerings with a new direct-to-consumer
We were incorporated under the laws of the state of Delaware on September 19, 1985 as Financial Data Systems, Inc., were renamed WisdomTree Investments, Inc. on September 6, 2005, and ultimately renamed WisdomTree, Inc. on November 7, 2022.
37
Assets Under Management
WisdomTree ETPs
We offer ETPs covering equity, commodity, fixed income, currency, alternatives and cryptocurrency. The chart below sets forth the asset mix of our ETPs at June 30, 2023, March 31, 2023 and June 30, 2022:
leveraged-and-inverse,
Market Environment
During the second quarter of 2023, developed markets continued to stave off a recession, as interest rates were relatively stable as compared to the prior quarter. The faster-than-expected
re-opening
of the Chinese economy has also improved the outlook for global growth. The S&P 500, MSCI EAFE (local currency) and MSCI Emerging Markets Index (U.S. dollar) increased by 8.7%, 4.6% and 1.0%, respectively, during the quarter. In addition, the European and Japanese equities markets both appreciated with the MSCI EMU Index and MSCI Japan Index increasing 3.3% and 15.6%, respectively, in local currency terms for the quarter. Gold prices decreased by 3.4%. The U.S. dollar weakened 0.1% and 2.2% versus the euro and British pound, respectively, and strengthened 8.3% versus the Japanese yen, during the quarter.
38
U.S. Listed ETF Industry Flows
U.S. listed ETF industry net flows were $135 billion for the three months ended June 30, 2023. U.S. equity and fixed income gathered the majority of those flows.
39
European Listed ETP Industry Flows
European listed ETP industry net flows were $28.9 billion for the three months ended June 30, 2023. Fixed income and equities gathered the majority of those flows.
Our Operating and Financial Results
We operate as an ETP sponsor and asset manager, providing investment advisory services globally through our subsidiaries in the U.S. and Europe.
40
U.S. Listed ETFs
The AUM of our U.S. listed exchange traded funds, or U.S. listed ETFs, increased from $61.3 billion at March 31, 2023 to $65.9 billion at June 30, 2023 due to net inflows and market appreciation.
41
European Listed ETPs
The AUM of our European listed (including internationally cross-listed) ETPs, or European listed ETPs, decreased from $29.5 billion at March 31, 2023 to $27.8 billion at June 30, 2023, due to net outflows and market depreciation.
42
Consolidated Operating Results
The following table sets forth our revenues and net income/(loss) for the most recent five quarters.
| • | Revenues |
| • | Expenses |
| • | Other Income/(Expenses) |
| • | Net income/(loss) |
Guidance Update for the Year Ending December 31, 2023
Compensation Expense
Our compensation expense for the year ending December 31, 2023 is currently estimated to range from $104.0 million to $110.0 million (previously $100.0 million to $106.0 million). This range considers variability in incentive compensation, with drivers including the magnitude of our flows, our share price performance in relation to our peers as well as revenue, operating income and operating margin performance. Given the potential volatility in our performance-based metrics, we consider the midpoint of this range to be a reasonable estimate.
Discretionary Spending
Discretionary spending includes, marketing, sales, professional fees, occupancy and equipment, depreciation and amortization and other expenses. During the six months ended June 30, 2023, our discretionary spending was $28.3 million. We currently estimate our discretionary spending for the year ending December 31, 2023 to range from $56.0 million to $59.0 million (unchanged from our guidance provided last quarter).
Not included in the guidance above are potential
non-recurring
expenses in response to an activist campaign, including $5.9 million incurred during the six months ended June 30, 2023. Gross Margin
We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. Our gross margin was 79.2% during the six months ended June 30, 2023. Our gross margin guidance for the year ending December 31, 2023 is estimated to be 79% (previously 78%) which we believe should be sustainable at current AUM levels.
43
Contractual Gold Payments
Our contractual gold payments expense of $6.1 million during the six months ended June 30, 2023 will be zero going forward as our obligation to make continuing gold payments was terminated in May 2023.
Third-Party Distribution Fees
We currently estimate third-party distribution fees to range from $8.0 million to $9.0 million (unchanged from our guidance provided last quarter) for the year ending December 31, 2023.
Interest Expense
Our interest expense for the year ending December 31, 2023 is currently estimated to be $15.0 million (unchanged from our guidance provided last quarter).
Interest Income
Our interest income for the year ending December 31, 2023 is currently estimated to be approximately $3.0 million taking into consideration the magnitude of our investments which has been reduced from the prior quarter after having paid approximately $110 million to settle our convertible notes maturing in June and to terminate our deferred consideration—gold payments obligation.
Income Tax Expense
We currently estimate that our consolidated normalized effective tax rate will be 24% (previously 23%) taking into consideration the current distribution of profits amongst our U.S. and European businesses.
This normalized effective tax rate excludes items that are
non-recurring
and not core to our operating business including but not limited to the impact of any revaluation on deferred consideration—gold payments, the loss on extinguishment of convertible notes, remeasurement of contingent consideration from the sale of our former Canadian ETF business, gains and losses on financial instruments owned and investments, valuation allowances on capital losses, reductions in unrecognized tax benefits and any stock-based compensation windfalls or shortfalls. Diluted Shares Outstanding
Our weighted average diluted shares outstanding were 170.7 million during the three months ended June 30, 2023 after having issued approximately 14 million shares of common stock or instruments convertible into common stock in connection with the termination of our deferred consideration—gold payments obligation and the maturity of our convertible notes during the second quarter. The impact of the share issuance on our second quarter diluted shares was affected by the timing of when the shares were issued. Going forward, we anticipate our diluted shares outstanding to be approximately 177 million per quarter.
44
Key Operating Statistics
The following table presents key operating statistics that serve as indicators for the performance of our business:
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30, 2023 |
March 31, 2023 |
June 30, 2022 |
June 30, 2023 |
June 30, 2022 |
||||||||||||||||
GLOBAL ETPs (in millions) |
||||||||||||||||||||
Beginning of period assets |
$ | 90,740 | $ | 81,993 | $ | 79,407 | $ | 81,993 | $ | 77,479 | ||||||||||
Inflows/(outflows) |
2,327 | 6,341 | 3,852 | 8,668 | 5,171 | |||||||||||||||
Market appreciation/(depreciation) |
599 | 2,406 | (8,953) | 3,005 | (8,344) | |||||||||||||||
Fund closures |
— | — | (4) | — | (4) | |||||||||||||||
End of period assets |
$ | 93,666 | $ | 90,740 | $ | 74,302 | $ | 93,666 | $ | 74,302 | ||||||||||
Average assets during the period |
$ | 91,578 | $ | 87,508 | $ | 77,738 | $ | 89,543 | $ | 77,774 | ||||||||||
Average ETP advisory fee during the period |
0.36% | 0.36% | 0.39% | 0.36% | 0.39% | |||||||||||||||
Revenue days |
91 | 90 | 91 | 181 | 181 | |||||||||||||||
Number of ETPs—end of period |
353 | 350 | 344 | 353 | 344 | |||||||||||||||
U.S. LISTED ETFs (in millions) |
||||||||||||||||||||
Beginning of period assets |
$ | 61,283 | $ | 55,973 | $ | 48,622 | $ | 55,973 | $ | 48,210 | ||||||||||
Inflows/(outflows) |
3,249 | 4,012 | 4,278 | 7,261 | 6,528 | |||||||||||||||
Market appreciation/(depreciation) |
1,371 | 1,298 | (5,645) | 2,669 | (7,483) | |||||||||||||||
End of period assets |
$ | 65,903 | $ | 61,283 | $ | 47,255 | $ | 65,903 | $ | 47,255 | ||||||||||
Average assets during the period |
$ | 62,712 | $ | 59,430 | $ | 48,270 | $ | 61,071 | $ | 47,885 | ||||||||||
Number of ETFs – end of the period |
80 | 80 | 77 | 80 | 77 | |||||||||||||||
EUROPEAN LISTED ETPs (in millions) |
||||||||||||||||||||
Beginning of period assets |
$ | 29,457 | $ | 26,020 | $ | 30,785 | $ | 26,020 | $ | 29,269 | ||||||||||
(Outflows)/inflows |
(922) | 2,329 | (426) | 1,407 | (1,357) | |||||||||||||||
Market (depreciation)/appreciation |
(772) | 1,108 | (3,308) | 336 | (861) | |||||||||||||||
Fund closures |
— | — | (4) | — | (4) | |||||||||||||||
End of period assets |
$ | 27,763 | $ | 29,457 | $ | 27,047 | $ | 27,763 | $ | 27,047 | ||||||||||
Average assets during the period |
$ | 28,866 | $ | 28,078 | $ | 29,468 | $ | 28,472 | $ | 29,889 | ||||||||||
Number of ETPs—end of period |
273 | 270 | 267 | 273 | 267 | |||||||||||||||
PRODUCT CATEGORIES (in millions) |
||||||||||||||||||||
U.S. Equity |
||||||||||||||||||||
Beginning of period assets |
$ | 24,534 | $ | 24,112 | $ | 23,738 | $ | 24,112 | $ | 23,860 | ||||||||||
Inflows/(outflows) |
414 | (149) | 306 | 265 | 1,085 | |||||||||||||||
Market appreciation/(depreciation) |
1,053 | 571 | (2,986) | 1,624 | (3,887) | |||||||||||||||
End of period assets |
$ | 26,001 | $ | 24,534 | $ | 21,058 | $ | 26,001 | $ | 21,058 | ||||||||||
Average assets during the period |
$ | 24,732 | $ | 24,726 | $ | 22,362 | $ | 24,729 | $ | 22,748 | ||||||||||
Commodity & Currency |
||||||||||||||||||||
Beginning of period assets |
$ | 24,924 | $ | 22,097 | $ | 26,302 | $ | 22,097 | $ | 24,598 | ||||||||||
(Outflows)/inflows |
(1,512) | 2,003 | (475) | 491 | (1,528) | |||||||||||||||
Market (depreciation)/appreciation |
(1,028) | 824 | (2,203) | (204) | 554 | |||||||||||||||
End of period assets |
$ | 22,384 | $ | 24,924 | $ | 23,624 | $ | 22,384 | $ | 23,624 | ||||||||||
Average assets during the period |
$ | 24,033 | $ | 23,806 | $ | 25,767 | $ | 23,918 | $ | 25,827 | ||||||||||
Fixed Income |
||||||||||||||||||||
Beginning of period assets |
$ | 18,708 | $ | 15,273 | $ | 5,418 | $ | 15,273 | $ | 4,356 | ||||||||||
Inflows/(outflows) |
1,471 | 3,513 | 4,038 | 4,984 | 5,280 | |||||||||||||||
Market appreciation/(depreciation) |
36 | (78) | (264) | (42) | (444) | |||||||||||||||
End of period assets |
$ | 20,215 | $ | 18,708 | $ | 9,192 | $ | 20,215 | $ | 9,192 | ||||||||||
Average assets during the period |
$ | 19,185 | $ | 17,176 | $ | 7,426 | $ | 18,181 | $ | 6,059 | ||||||||||
International Developed Market Equity |
||||||||||||||||||||
Beginning of period assets |
$ | 11,433 | $ | 10,195 | $ | 11,422 | $ | 10,195 | $ | 11,894 | ||||||||||
Inflows/(outflows) |
1,592 | 450 | 79 | 2,042 | 176 | |||||||||||||||
Market appreciation/(depreciation) |
398 | 788 | (1,533) | 1,186 | (2,102) | |||||||||||||||
End of period assets |
$ | 13,423 | $ | 11,433 | $ | 9,968 | $ | 13,423 | $ | 9,968 | ||||||||||
Average assets during the period |
$ | 12,276 | $ | 10,879 | $ | 10,695 | $ | 11,578 | $ | 11,119 | ||||||||||
45
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30, 2023 |
March 31, 2023 |
June 30, 2022 |
June 30, 2023 |
June 30, 2022 |
||||||||||||||||
Emerging Market Equity |
||||||||||||||||||||
Beginning of period assets |
$ | 8,811 | $ | 8,116 | $ | 9,991 | $ | 8,116 | $ | 10,375 | ||||||||||
Inflows/(outflows) |
329 | 486 | (223) | 815 | (34) | |||||||||||||||
Market appreciation/(depreciation) |
51 | 209 | (1,382) | 260 | (1,955) | |||||||||||||||
End of period assets |
$ | 9,191 | $ | 8,811 | $ | 8,386 | $ | 9,191 | $ | 8,386 | ||||||||||
Average assets during the period |
$ | 8,998 | $ | 8,666 | $ | 9,155 | $ | 8,832 | $ | 9,636 | ||||||||||
Leveraged & Inverse |
||||||||||||||||||||
Beginning of period assets |
$ | 1,785 | $ | 1,754 | $ | 1,856 | $ | 1,754 | $ | 1,775 | ||||||||||
Inflows/(outflows) |
12 | 43 | 90 | 55 | 88 | |||||||||||||||
Market appreciation/(depreciation) |
67 | (12) | (328) | 55 | (245) | |||||||||||||||
End of period assets |
$ | 1,864 | $ | 1,785 | $ | 1,618 | $ | 1,864 | $ | 1,618 | ||||||||||
Average assets during the period |
$ | 1,798 | $ | 1,757 | $ | 1,765 | $ | 1,778 | $ | 1,798 | ||||||||||
Alternatives |
||||||||||||||||||||
Beginning of period assets |
$ | 306 | $ | 310 | $ | 293 | $ | 310 | $ | 261 | ||||||||||
Inflows/(outflows) |
22 | (18) | 34 | 4 | 63 | |||||||||||||||
Market appreciation/(depreciation) |
12 | 14 | (22) | 26 | (19) | |||||||||||||||
End of period assets |
$ | 340 | $ | 306 | $ | 305 | $ | 340 | $ | 305 | ||||||||||
Average assets during the period |
$ | 320 | $ | 308 | $ | 299 | $ | 314 | $ | 287 | ||||||||||
Cryptocurrency |
||||||||||||||||||||
Beginning of period assets |
$ | 239 | $ | 136 | $ | 383 | $ | 136 | $ | 357 | ||||||||||
(Outflows)/inflows |
(1) | 13 | 3 | 12 | 40 | |||||||||||||||
Market appreciation/(depreciation) |
10 | 90 | (235) | 100 | (246) | |||||||||||||||
End of period assets |
$ | 248 | $ | 239 | $ | 151 | $ | 248 | $ | 151 | ||||||||||
Average assets during the period |
$ | 236 | $ | 190 | $ | 265 | $ | 213 | $ | 295 | ||||||||||
Closed ETPs |
||||||||||||||||||||
Beginning of period assets |
$ | — | $ | — | $ | 4 | $ | — | $ | 3 | ||||||||||
Inflows/(outflows) |
— | — | — | — | 1 | |||||||||||||||
Fund closures |
— | — | (4) | — | (4) | |||||||||||||||
End of period assets |
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Average assets during the period |
$ | — | $ | — | $ | 4 | $ | — | $ | 5 | ||||||||||
Headcount: |
291 | 279 | 264 | 291 | 264 | |||||||||||||||
Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTree
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Selected Operating and Financial Information
Three Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
2023 |
2022 |
|||||||||||||||
AUM (in millions) |
||||||||||||||||
Average AUM |
$ | 91,578 | $ | 77,738 | $ | 13,840 | 17.8% | |||||||||
Operating Revenues (in thousands) |
||||||||||||||||
Advisory fees |
$ | 82,004 | $ | 75,586 | $ | 6,418 | 8.5% | |||||||||
Other income |
3,720 | 1,667 | 2,053 | 123.2% | ||||||||||||
Total revenues |
$ | 85,724 | $ | 77,253 | $ | 8,471 | 11.0% | |||||||||
Operating Revenues
Advisory fees
Advisory fee revenues increased 8.5% from $75.6 million during the three months ended June 30, 2022 to $82.0 million in the comparable period in 2023 due to higher average AUM, partially offset by lower average advisory fee. Our average advisory fee was 0.36% during the three months ended June 30, 2023 and 0.39% during the comparable period in 2022.
46
Other income
Other income increased 123.2% from $1.7 million during the three months ended June 30, 2022 to $3.7 million in the comparable period in 2023 primarily due to large flows into some of our European products.
Operating Expenses
(in thousands) |
Three Months Ended June 30, |
Change |
Percent Change |
|||||||||||||
2023 |
2022 |
|||||||||||||||
Compensation and benefits |
$ | 26,319 | $ | 24,565 | $ | 1,754 | 7.1% | |||||||||
Fund management and administration |
17,727 | 16,076 | 1,651 | 10.3% | ||||||||||||
Marketing and advertising |
4,465 | 3,894 | 571 | 14.7% | ||||||||||||
Sales and business development |
3,326 | 3,131 | 195 | 6.2% | ||||||||||||
Contractual gold payments |
1,583 | 4,446 | (2,863) | (64.4%) | ||||||||||||
Professional fees |
8,334 | 4,308 | 4,026 | 93.5% | ||||||||||||
Occupancy, communications and equipment |
1,172 | 1,049 | 123 | 11.7% | ||||||||||||
Depreciation and amortization |
121 | 53 | 68 | 128.3% | ||||||||||||
Third-party distribution fees |
1,881 | 1,818 | 63 | 3.5% | ||||||||||||
Other |
2,615 | 2,109 | 506 | 24.0% | ||||||||||||
Total operating expenses |
$ | 67,543 | $ | 61,449 | $ | 6,094 | 9.9% | |||||||||
As a Percent of Revenues: |
Three Months Ended June 30, |
|||||||
2023 |
2022 |
|||||||
Compensation and benefits |
30.7% | 31.6% | ||||||
Fund management and administration |
20.7% | 20.8% | ||||||
Marketing and advertising |
5.2% | 5.0% | ||||||
Sales and business development |
3.9% | 4.1% | ||||||
Contractual gold payments |
1.8% | 5.8% | ||||||
Professional fees |
9.7% | 5.6% | ||||||
Occupancy, communications and equipment |
1.4% | 1.4% | ||||||
Depreciation and amortization |
0.1% | 0.1% | ||||||
Third-party distribution fees |
2.2% | 2.4% | ||||||
Other |
3.1% | 2.7% | ||||||
Total operating expenses |
78.8% | 79.5% | ||||||
Compensation and benefits
Compensation and benefits expense increased 7.1% from $24.6 million during the three months ended June 30, 2022 to $26.3 million in the comparable period in 2023 due to increased headcount and higher stock-based compensation expense, partly offset by lower incentive compensation. Headcount was 264 and 291 at June 30, 2022 and 2023, respectively.
Fund management and administration
Fund management and administration expense increased 10.3% from $16.1 million during the three months ended June 30, 2022 to $17.7 million in the comparable period in 2023 primarily due to higher average AUM, product launches and inflows. We had 77 U.S. listed ETFs and 267 European listed ETPs at June 30, 2022 compared to 80 U.S. listed ETFs and 273 European listed ETPs at June 30, 2023.
Marketing and advertising
Marketing and advertising expense increased 14.7% from $3.9 million during the three months ended June 30, 2022 to $4.5 million in the comparable period in 2023 primarily due to higher spending related to our U.S. listed products.
Sales and business development
Sales and business development expense was essentially unchanged from the three months ended June 30, 2022.
47
Contractual gold payments
Contractual gold payments expense decreased 64.4% from $4.4 million during the three months ended June 30, 2022 to $1.6 million in the comparable period in 2023 due to the termination of our deferred consideration—gold payments obligation on May 10, 2023. See Note 9 to our Consolidated Financial Statements for additional information.
Professional fees
Professional fees increased 93.5% from $4.3 million during the three months ended June 30, 2022 to $8.3 million in the comparable period in 2023 primarily due to higher expenses incurred in response to an activist campaign as well as expenses incurred to settle our deferred consideration—gold payments obligation and our acquisition of WisdomTree Transfers, Inc.
Occupancy, communications and equipment
Occupancy, communications and equipment expense was essentially unchanged from the three months ended June 30, 2022.
Depreciation and amortization
Depreciation and amortization expense increased 128.3% due to amortization of software development costs.
Third-party distribution fees
Third-party distribution fees were essentially unchanged from the three months ended June 30, 2022.
Other
Other expenses increased 24.0% from $2.1 million during the three months ended June 30, 2022 to $2.6 million in the comparable period in 2023 primarily due to higher travel, public relations and directors expenses.
Other Income/(Expenses)
(in thousands) |
Three Months Ended June 30, |
Change |
Percent Change | |||||||||||||
2023 |
2022 | |||||||||||||||
Interest expense |
$ |
(4,021 |
) |
$ |
(3,733 |
) |
$ |
(288 |
) |
7.7 |
% | |||||
Gain on revaluation/termination of deferred consideration—gold payments |
41,361 |
2,311 |
39,050 |
1,689.7 |
% | |||||||||||
Interest income |
1,000 |
770 |
230 |
29.9 |
% | |||||||||||
Other gains and losses, net |
1,286 |
(4,474 |
) |
5,760 |
n/a |
|||||||||||
Total other income/(expenses), net |
$ |
39,626 |
$ |
(5,126 |
) |
$ |
44,752 |
n/a |
||||||||
Three Months Ended June 30, | ||||||||
As a Percent of Revenues: |
2023 |
2022 | ||||||
Interest expense |
(4.7 |
%) |
(4.8 |
%) | ||||
Gain on revaluation/termination of deferred consideration—gold payments |
48.2 |
% |
3.0 |
% | ||||
Interest income |
1.2 |
% |
1.0 |
% | ||||
Other gains and losses, net |
1.5 |
% |
(5.8 |
%) | ||||
Total other income/(expenses), net |
46.2 |
% |
(6.6 |
%) | ||||
Interest expense
Interest expense increased 7.7% from $3.7 million during the three months ended June 30, 2022 to $4.0 million in the comparable period in 2023 due to a higher level of debt outstanding and a higher effective interest rate. Our effective interest rate during the three months ended June 30, 2022 and 2023 was 4.6% and 5.0%, respectively.
Gain on revaluation/termination of deferred consideration—gold payments
We recognized a gain on revaluation/termination of deferred consideration—gold payments of $41.4 million and $2.3 million during the three months ended June 30, 2023 and 2022, respectively. This obligation was settled on May 10, 2023 for approximately $137.0 million. See Note 9 to our Consolidated Financial Statements for additional information.
48
Interest income
Interest income increased 29.9% from $0.8 million during the three months ended June 30, 2022 to $1.0 million in the comparable period in 2023 due to, partially offset by a decrease in our financial instruments owned.
Other gains and losses, net
Other gains and losses, net was $1.3 million for the second quarter of 2023. This quarter includes gains on our investments of $3.1 million, partly offset by losses on our financial instruments owned of $1.0 million. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.
Income Taxes
Our effective income tax rate for the second quarter of 2023 was 6.1%, resulting in income tax expense of $3.6 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to a
non-taxable
gain on revaluation/termination of deferred consideration—gold payments and a decrease in the deferred tax asset valuation allowance on losses recognized on our investments. These items were partly offset by non-deductible
executive compensation. Our effective income tax rate for the second quarter of 2022 of 25.0% resulted in an income tax expense of $2.7 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on losses recognized on securities owned and
non-deductible
compensation. These items were partly offset by a non-taxable
gain on revaluation of deferred consideration—gold payments and a lower tax rate on foreign earnings. Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Selected Operating and Financial Information
Six Months Ended June 30, |
Change |
Percent Change |
||||||||||||||
2023 |
2022 |
|||||||||||||||
AUM (in millions) |
||||||||||||||||
Average AUM |
$ | 89,543 | $ | 77,774 | $ | 11,769 | 15.1% | |||||||||
Operating Revenues (in thousands) |
||||||||||||||||
Advisory fees |
$ | 159,641 | $ | 152,103 | $ | 7,538 | 5.0% | |||||||||
Other income |
8,127 | 3,518 | 4,609 | 131.0% | ||||||||||||
Total revenues |
$ | 167,768 | $ | 155,621 | $ | 12,147 | 7.8% | |||||||||
Operating Revenues
Advisory fees
Advisory fee revenues increased 5.0% from $152.1 million during the six months ended June 30, 2022 to $159.6 million in the comparable period in 2023 due to higher average AUM, partially offset by lower average advisory fee. Our average advisory fee was 0.39% during the six months ended June 30, 2022 and 0.36% during the comparable period in 2023.
Other income
Other income increased 131.0% from $3.5 million during the six months ended June 30, 2022 to $8.1 million in the comparable period in 2023 primarily due to large flows into some of our European products.
49
Operating Expenses
(in thousands) |
Six Months Ended June 30, |
Change |
Percent Change |
|||||||||||||
2023 |
2022 |
|||||||||||||||
Compensation and benefits |
$ | 53,717 | $ | 49,352 | $ | 4,365 | 8.8% | |||||||||
Fund management and administration |
34,880 | 31,570 | 3,310 | 10.5% | ||||||||||||
Marketing and advertising |
8,472 | 7,917 | 555 | 7.0% | ||||||||||||
Sales and business development |
6,320 | 5,740 | 580 | 10.1% | ||||||||||||
Contractual gold payments |
6,069 | 8,896 | (2,827) | (31.8%) | ||||||||||||
Professional fees |
12,049 | 8,767 | 3,282 | 37.4% | ||||||||||||
Occupancy, communications and equipment |
2,273 | 1,802 | 471 | 26.1% | ||||||||||||
Depreciation and amortization |
230 | 100 | 130 | 130.0% | ||||||||||||
Third-party distribution fees |
4,134 | 4,030 | 104 | 2.6% | ||||||||||||
Other |
4,872 | 3,954 | 918 | 23.2% | ||||||||||||
Total operating expenses |
$ | 133,016 | $ | 122,128 | $ | 10,888 | 8.9% | |||||||||
As a Percent of Revenues: |
Six Months Ended June 30, |
|||||||
2023 |
2022 |
|||||||
Compensation and benefits |
32.0% | 31.7% | ||||||
Fund management and administration |
20.8% | 20.3% | ||||||
Marketing and advertising |
5.0% | 5.1% | ||||||
Sales and business development |
3.8% | 3.7% | ||||||
Contractual gold payments |
3.6% | 5.7% | ||||||
Professional fees |
7.2% | 5.6% | ||||||
Occupancy, communications and equipment |
1.4% | 1.2% | ||||||
Depreciation and amortization |
0.1% | 0.1% | ||||||
Third-party distribution fees |
2.5% | 2.6% | ||||||
Other |
2.9% | 2.5% | ||||||
Total operating expenses |
79.3% | 78.5% | ||||||
Compensation and benefits
Compensation and benefits expense increased 8.8% from $49.4 million during the six months ended June 30, 2022 to $53.7 million in the comparable period in 2023 due to increased headcount, stock-based compensation expense, payroll taxes and benefits, partly offset by lower incentive compensation.
Fund management and administration
Fund management and administration expense increased 10.5% from $31.6 million during the six months ended June 30, 2022 to $34.9 million in the comparable period in 2023 primarily due to higher average AUM, product launches and inflows.
Marketing and advertising
Marketing and advertising expense increased 7.0% from $7.9 million during the three months ended June 30, 2022 to $8.5 million in the comparable period in 2023 primarily due to higher spending related to our U.S. listed products.
Sales and business development
Sales and business development expense increased 10.1% from $5.7 million during the six months ended June 30, 2022 to $6.3 million in the comparable period in 2023 primarily resulting from increases in travel, conference and events spending.
Contractual gold payments
Contractual gold payments expense decreased 31.8% from $8.9 million during the six months ended June 30, 2022 to $6.1 million in the comparable period in 2023 due to the termination of our deferred consideration—gold payments obligation on May 10, 2023. See Note 9 to our Consolidated Financial statements for additional information.
50
Professional fees
Professional fees increased 37.4% from $8.8 million during the six months ended June 30, 2022 to $12.0 million in the comparable period in 2023 primarily due to higher expenses incurred in response to an activist campaign, as well as expenses incurred to settle our deferred consideration—gold payments obligation and our acquisition of WisdomTree Transfers, Inc.
Occupancy, communications and equipment
Occupancy, communications and equipment expense increased 26.1% from $1.8 million during the six months ended June 30, 2022 to $2.3 million in the comparable period in 2023 as our New York office lease became effective in May 2022.
Depreciation and amortization
Depreciation and amortization expense increased 130.0% from $0.1 million during the six months ended June 30, 2022 to $0.2 million in the comparable period in 2023 due to amortization of software development costs.
Third-party distribution fees
Third-party distribution fees were essentially unchanged from the six months ended June 30, 2022.
Other
Other expenses increased 23.2% from $4.0 million during the six months ended June 30, 2022 to $4.9 million in the comparable period in 2023 primarily due to higher travel, public relations and directors expenses.
Other Income/(Expenses)
| (in thousands) |
Six Months Ended June 30, |
Change |
Percent Change |
|||||||||||||
2023 |
2022 |
|||||||||||||||
| Interest expense |
$ | (8,023) | $ | (7,465) | $ | (558) | 7.5% | |||||||||
| Gain/(loss) on revaluation/termination of deferred consideration—gold payments |
61,953 | (14,707) | 76,660 | n/a | ||||||||||||
| Interest income |
2,083 | 1,564 | 519 | 33.2% | ||||||||||||
| Impairments |
(4,900) | — | (4,900) | n/a | ||||||||||||
| Loss on extinguishment of convertible notes |
(9,721) | — | (9,721) | n/a | ||||||||||||
| Other losses, net |
(721) | (29,181) | 28,460 | (97.5%) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other income/(expenses), net |
$ | 40,671 | $ | (49,789) | $ | 90,460 | n/a | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
Six Months Ended June 30, |
||||||||
As a Percent of Revenues: |
2023 |
2022 |
||||||
Interest expense |
(4.8%) | (4.8%) | ||||||
Gain/(loss) on revaluation/termination of deferred consideration—gold payments |
36.9% | (9.5%) | ||||||
Interest income |
1.2% | 1.0% | ||||||
Impairments |
(2.9%) | — | ||||||
Loss on extinguishment of convertible notes |
(5.8%) | — | ||||||
Other losses, net |
(0.4%) | (18.7%) | ||||||
Total other income/(expenses), net |
24.2% | (32.0%) | ||||||
Interest expense
Interest expense increased 7.5% from $7.5 million during the six months ended June 30, 2022 to $8.0 million in the comparable period in 2023 due to a higher level of debt outstanding and a higher effective interest rate. Our effective interest rate during the six months ended June 30, 2022 and 2023 was 4.6% and 4.9%, respectively.
Gain/(loss) on revaluation/termination of deferred consideration—gold payments
We recognized a loss on revaluation of deferred consideration—gold payments of ($14.7) million and a gain on revaluation/termination of deferred consideration—gold payments of $62.0 million during the six months ended June 30, 2022 and 2023, respectively. This obligation was settled on May 10, 2023 for approximately $137.0 million. See Note 9 to our Consolidated Financial Statements for additional information.
51
Interest income
Interest income increased 33.2% from $1.6 million during the six months ended June 30, 2022 to $2.1 million in the comparable period in 2023 due to rising interest rates, partially offset by a decrease in our financial instruments owned.
Impairments
During the six months ended June 30, 2023, we recognized a
non-cash
impairment charge of $4.9 million on the Securrency Series A Shares. Loss on Extinguishment of Convertible Notes
During the six months ended June 30, 2023, we recognized a loss on extinguishment of convertible notes of $9.7 million arising from the repurchase of $115.0 million in aggregate principal amount of our 2020 Notes.
Other losses, net
Other net losses were $0.7 million during the six months ended June 30, 2023. This period includes a
non-cash
charge of $1.4 million arising from the release of tax-related
indemnification assets upon the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense); gains on our financial instruments owned of $0.9 million and losses on our investments of $0.8 million. Gains and losses also generally arise from the sale of gold earned on management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items. Income Taxes
Our effective income tax rate for the six months ended June 30, 2023 was 6.5%, resulting in an income tax expense of $4.9 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a
non-taxable
gain on revaluation/termination of deferred consideration—gold payments, a reduction in unrecognized tax benefits associated with the release of the tax-related
indemnification asset described above and a lower tax rate on foreign earnings. These items were partly offset by a non-deductible
loss on extinguishment of our convertible notes during the first quarter of 2023, non-deductible
executive compensation and an increase in the deferred tax asset valuation allowance on losses recognized on our investments. Our effective income tax rate benefit for the six months ended June 30, 2022 was 86.2% resulting in an income tax benefit of $14.0 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a reduction in unrecognized tax benefits associated with the release of the
tax-related
indemnification asset described above and a lower tax rate on foreign earnings. These items were partly offset by a non-taxable
loss on revaluation of deferred consideration—gold payments and an increase in the deferred tax asset valuation allowance on losses recognized on our financial instruments owned. 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. non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measurements provides investors with a consistent way to analyze our performance. These non-GAAP financial measurements exclude the following: |
| • | Unrealized gains or losses on revaluation/termination of deferred consideration—gold payments: |
52
| • | Gains or losses on financial instruments owned: non-GAAP financial measurements as the gains and losses introduce volatility in earnings and are not core to our operating business. |
| • | Tax windfalls and shortfalls upon vesting and exercise of stock-based compensation awards: |
| • | Other items: non-GAAP financial measurements. |
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
Adjusted Net Income and Diluted Earnings per Share: |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Net income/(loss), as reported |
$ | 54,252 | $ | 8,005 | $ | 70,485 | $ | (2,256 | ) | |||||||
Deduct/add back: (Gain)/loss on revaluation/termination of deferred consideration—gold payments |
(41,361 | ) | (2,311 | ) | (61,953 | ) | 14,707 | |||||||||
Add back: Expenses incurred in response to an activist campaign, net of income taxes |
3,720 | 1,532 | 4,452 | 3,376 | ||||||||||||
Deduct/add back: Unrealized (gain)/loss recognized on our investments, net of income taxes |
(2,346 | ) | (55 | ) | 620 | 69 | ||||||||||
Add back/(deduct): Losses/(gains) on financial instruments owned, net of income taxes |
762 | 3,165 | (717 | ) | 7,058 | |||||||||||
(Deduct)/add back: (Decrease)/increase in deferred tax asset valuation allowance on financial instruments owned and investments |
(508 | ) | 901 | (31 | ) | 2,911 | ||||||||||
Add back: Litigation expenses associated with certain provisions of the Stockholder Rights Agreement, net of income taxes |
367 | — | 367 | — | ||||||||||||
Add back/(deduct): Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards |
33 | 20 | (152 | ) | (545 | ) | ||||||||||
Add back: Loss on extinguishment of convertible notes, net of income taxes |
— | — | 9,623 | — | ||||||||||||
Add back: Impairments, net of income taxes (where applicable) |
— | — | 4,900 | — | ||||||||||||
Deduct: Remeasurement of contingent consideration—sale of former Canadian ETF business |
— | — | (1,477 | ) | — | |||||||||||
Adjusted net income |
$ | 14,919 | $ | 11,257 | $ | 26,117 | $ | 25,320 | ||||||||
Deduct: Income distributed to participating securities |
(496 | ) | (548 | ) | (994 | ) | (1,097 | ) | ||||||||
Deduct: Undistributed income allocable to participating securities |
(1,410 | ) | (724 | ) | (2,028 | ) | (1,763 | ) | ||||||||
Adjusted net income available to common stockholders |
$ | 13,013 | $ | 9,985 | $ | 23,095 | $ | 22,460 | ||||||||
Weighted average diluted shares, excluding participating securities (in thousands) (See Note 11 to our Consolidated Financial Statements) |
147,815 | 143,425 | 146,155 | 143,271 | ||||||||||||
Adjusted earnings per share – diluted |
$ | 0.09 | $ | 0.07 | $ | 0.16 | $ | 0.16 | ||||||||
53
Liquidity and Capital Resources
The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:
June 30, 2023 |
December 31, 2022 |
|||||||
Balance Sheet Data (in thousands): |
||||||||
Cash and cash equivalents |
$ | 83,735 | $ | 132,101 | ||||
Financial instruments owned, at fair value |
65,492 | 126,239 | ||||||
Accounts receivable |
34,208 | 30,549 | ||||||
Securities held-to-maturity |
245 | 259 | ||||||
Total: Liquid assets |
183,680 | 289,148 | ||||||
Less: Total current liabilities |
(68,281 | ) | (148,434 | ) | ||||
Less: Other assets—seed capital (WisdomTree Digital Funds) |
(12,876 | ) | (1,765 | ) | ||||
Less: Regulatory capital requirements |
(24,912 | ) | (25,988 | ) | ||||
Total: Available liquidity |
$ | 77,611 | $ | 112,961 | ||||
Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
Cash Flow Data (in thousands): |
||||||||
Operating cash flows |
$ | 20,029 | $ | 8,542 | ||||
Investing cash flows |
51,936 | (23,070) | ||||||
Financing cash flows |
(121,109) | (13,073) | ||||||
Foreign exchange rate effect |
778 | (3,372) | ||||||
Decrease in cash and cash equivalents |
$ | (48,366) | $ | (30,973) | ||||
Liquidity
We consider our available liquidity to be our liquid assets, less our current liabilities, seed capital in WisdomTree Digital Funds and regulatory capital requirements. Liquid assets consist of cash and cash equivalents, financial instruments owned, at fair value, accounts receivable and securities Our financial instruments owned, at fair value are highly liquid investments. Accounts receivable are current assets and primarily represent receivables from advisory fees we earn from our ETPs. Our current liabilities consist primarily of payments owed to vendors and third parties in the normal course of business and accrued incentive compensation for employees.
held-to-maturity.
Cash and cash equivalents decreased by $48.3 million during the six months ended June 30, 2023 due to $184.3 million used to repurchase and settle at maturity our convertible notes, $50.0 million used to settle our deferred consideration—gold payments obligation, $40.5 million used to purchase financial instruments owned, at fair value, $10.0 million used to purchase investments, $9.7 million used to pay dividends, $3.5 million used to repurchase our common stock, $3.5 million used for convertible notes issuance costs and $1.0 million used to acquire Securrency Transfers, Inc (renamed WisdomTree Transfers, Inc.). These decreases were partly offset by $130.0 million of proceeds from the issuance of convertible notes, $102.0 million of proceeds from the sale of financial instruments owned, at fair value, $20.0 million provided by operating activities, $1.5 million from receipt of contingent consideration and $0.7 million from other activities.
Cash and cash equivalents decreased $31.0 million during the six months ended June 30, 2022 due to $32.5 million used to purchase securities owned, $11.9 million used to purchase investments, $9.7 million used to pay dividends on our common stock, $3.4 million used to repurchase our common stock, $3.4 million of foreign exchange rate losses and $0.1 million used in other activities. These decreases were partly offset by $21.5 million of proceeds from the sale of securities owned and $8.5 million of net cash provided by operating activities.
Issuance of Convertible Notes
On February 14, 2023, we issued and sold $130.0 million in aggregate principal amount of 5.75% Convertible Senior Notes due 2028 (the “2023 Notes”) pursuant to an indenture dated February 14, 2023, between us and U.S. Bank Trust Company, 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 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 the trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A.
54
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”).
In connection with the issuance of the 2023 Notes, we repurchased $115.0 million in aggregate principal amount of the 2020 Notes. As a result of this repurchase, we recognized a loss on extinguishment of approximately $9.7 million during the six months ended June 30, 2023. The remainder of the 2020 Notes matured on June 15, 2023 and were settled for approximately $59.9 million of cash and approximately 1.0 million shares of common stock of the Company.
After the repurchase and maturity of the 2020 Notes and the issuance of the 2023 Notes (and together with the 2021 Notes, the “Convertible Notes”), we had $280.0 million in aggregate principal amount of Convertible Notes outstanding.
Key terms of the Convertible Notes are as follows:
2023 Notes |
2021 Notes |
|||||||
Principal outstanding |
$130.0 | $150.0 | ||||||
Maturity date (unless earlier converted, repurchased or redeemed) |
August 15, 2028 | June 15, 2026 | ||||||
Interest rate |
5.75% | 3.25% | ||||||
Conversion price |
$9.54 | $11.04 | ||||||
Conversion rate |
104.8658 | 90.5797 | ||||||
Redemption price |
$12.40 | $14.35 | ||||||
| • | Interest rate: |
| • | Conversion price: |
| • | Conversion: their Convertible Notes at any time, regardless of the foregoing circumstances. |
| • | Cash settlement of principal amount: |
| • | Redemption price: th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price for the respective Convertible Notes then in effect for at least 20 trading days, including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. No sinking fund is provided for the Convertible Notes. |
| • | Limited investor put rights: |
55
| • | Conversion rate increase in certain customary circumstances: |
| • | Seniority and Security: Non-Voting Convertible Preferred Stock (See Note 11 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 respective holders of not less than 25% in aggregate principal amount of the respective series of Convertible Notes outstanding may declare the entire principal amount of all such respective Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable. Capital Resources
Our principal source of financing is our operating cash flow. We believe that current cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for the foreseeable future.
Our ability to satisfy our contractual obligations as they arise are discussed in the section titled “Contractual Obligations” below.
Use of Capital
Our business does not require us to maintain a significant cash position. However, certain of our subsidiaries are required to maintain a minimum level of regulatory capital, which at June 30, 2023 was approximately $24.9 million in the aggregate. Notwithstanding these regulatory capital requirements, we expect that our main uses of cash will be to fund the ongoing operations of our business. We also maintain a capital return program which includes a $0.03 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2025, including purchases to offset future equity grants made under our equity plans and purchases made in open market or privately negotiated transactions.
During the six months ended June 30, 2023, we repurchased 631,087 shares of our common stock under the repurchase program for an aggregate cost of $3.5 million. Currently, approximately $96.4 million remains under this program for future purchases.
In addition, during the three months ended June 30, 2023, we paid approximately $50.0 million in cash to settle our deferred consideration—gold payments obligation (see Note 10 to our Consolidated Financial Statements for additional information) and also paid approximately $59.9 million in cash upon the maturity of our 2020 Notes.
Contractual Obligations
Convertible Notes
We currently have $280.0 million in aggregate principal amount of Convertible Notes outstanding, of which $150.0 million and $130.0 million are scheduled to mature on June 15, 2026 and August 15, 2028 in respect of the 2021 Notes and the 2023 Notes, respectively, unless earlier converted, repurchased or redeemed. Conditional conversions or a requirement to repurchase the Convertible Notes upon the occurrence of a fundamental change may accelerate payment.
The Convertible Notes require cash settlement of up to the principal amount, while settlement of the conversion obligation in excess of the aggregate principal amount may be satisfied in either cash, shares of our common stock or a combination of cash and shares of our common stock. We may settle and/or refinance these obligations when due.
See the section titled “Issuance of Convertible Notes” above for additional information.
Deferred Consideration—Gold Payments
On May 10, 2023, the Company entered into and closed on a Sale, Purchase and Assignment Deed to terminate the Company’s obligations relating to the contractual gold payments. Pursuant to that agreement, the Company paid consideration totaling $136.9 million, including an aggregate of $50.0 million in cash and the issuance of 13,087 shares of Series C Non-Voting Convertible Preferred Stock (valued at $86.9 million), which are convertible into 13,087,000 shares of the Company’s common stock.
See Note 9 to our Consolidated Financial Statements for additional information.
Operating Leases
Total future minimum lease payments with respect to our operating lease liabilities were $0.9 million at June 30, 2023. Cash flows generated by our operating activities and existing cash balances should be sufficient to satisfy the future minimum lease payments.
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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 and Estimates
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. We test goodwill for impairment at least annually and at the time of a triggering event requiring
re-evaluation,
if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Goodwill is allocated to our U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.
Goodwill is assessed for impairment annually on November 30
th
. When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, and the market approach and its market capitalization when determining the fair value of the reporting unit. The results of our most recent analysis indicated no impairment based upon a quantitative assessment. Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair value is less than their carrying value. We may rely on a qualitative assessment when performing our intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for our intangible assets is November 30
th
. The results of our most recent analysis indicated no impairment based upon a quantitative assessment (discounted cash flow analysis) which relied upon significant unobservable inputs including projected revenue growth rates ranging from 3% to 8% (5% weighted average) and a weighted average cost of capital of 11.0%. Investments
We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within ASU , to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
2016-01,
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses).
See Note 7 to our Consolidated Financial Statements for 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.
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Market Risk
Market risk to us generally represents the risk of changes in the value of our ETPs and Digital Funds that results from fluctuations in securities or commodity prices, foreign currency exchange rates against the U.S. dollar, and interest rates. Nearly all our revenues are derived from advisory agreements for the WisdomTree ETPs. Under these agreements, the advisory fee we receive is based on the average market value of the assets in the WisdomTree ETP portfolios we manage.
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 $131.1 million and $65.9 million as of June 30, 2022 and 2023, respectively. During the six months ended June 30, 2023, we recognized gains on these financial instruments of $0.9 million and any gains/losses recognized in the future may be material to our operating results. We do not anticipate that changes in interest rates will have a material impact on our financial condition or cash flows.
In addition, our Convertible Notes bear interest at fixed rates of 5.75% and 3.25% for the 2023 Notes and the 2021 Notes, respectively. Therefore, we have no direct financial statement risk associated with changes in interest rates. However, the fair value of the Convertible Notes changes primarily when the market price of our common stock fluctuates or interest rates change.
Exchange Rate Risk
We are subject to currency translation exposure on the results of our
non-U.S.
operations, primarily in the United Kingdom and Europe. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. dollar) for consolidation purposes. The advisory fees earned on our European 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. While we readily sell the gold, precious metals and cryptocurrencies that we earn under these advisory contracts, we still may maintain a position. We currently do not enter into arrangements to hedge against fluctuations in the price of these commodities and cryptocurrencies and any hedging we may undertake in the future may not be cost-effective or sufficient to hedge against this exposure.
ITEM 4. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of June 30, 2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule
13a-15(b)
promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, 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. 58
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2023, 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 €15.2 million ($16.6 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, 2022. ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent sales of Unregistered Securities
None.
Use of Proceeds
Not applicable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” of shares of our common stock.
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|||||||||||||
Period |
(in thousands) |
|||||||||||||||
April 1, 2023 to April 30, 2023 |
26,582 | $ | 5.86 | 26,582 | ||||||||||||
May 1, 2023 to May 31, 2023 |
— | $ | — | — | ||||||||||||
June 1, 2023 to June 30, 2023 |
— | $ | — | — | ||||||||||||
Total |
26,582 | $ | — | 26,582 | $ 96,436 | |||||||||||
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 six months ended June 30, 2023, we repurchased 631,087 shares of our common stock under this program for an aggregate cost of approximately $3.5 million. As of June 30, 2023, $96.4 million remained under this program for future repurchases.
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
59
ITEM 5. |
OTHER INFORMATION |
10b5-1
Trading Arrangements During
Rule 16a-1(f) of
the Exchange Act) adopted, terminated or modified a Rule 10b5-1
trading arrangement or non-Rule
10b5-1
trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
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ITEM 6. |
EXHIBITS |
EXHIBIT INDEX
Exhibit Number |
Description | |
3.1 |
||
3.2 |
||
3.3 |
||
3.4 |
||
3.5 |
||
3.6 |
||
3.7 |
||
3.8 |
||
4.1 |
||
4.2 |
||
4.3 |
||
4.4 |
||
4.5 |
||
4.6 |
||
4.7 |
||
4.8 |
||
4.9 |
||
4.10 |
||
4.11 |
||
4.12 |
||
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(1)
Filed herewith. (2)
Furnished herewith. 62
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 4
th
day of August 2023. | WISDOMTREE, INC. | ||
| By: | /s/ Jonathan Steinberg | |
| Jonathan Steinberg | ||
Chief Executive Officer (Principal Executive Officer) | ||
| WISDOMTREE, INC. | ||
| By: | /s/ Bryan Edmiston | |
| Bryan Edmiston | ||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
63