WisdomTree, Inc. 10-K

ITEM 7. 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” of this Report. 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. Introduction We are the only publicly-traded asset management company that focuses exclusively on exchange-traded products, or ETPs, and are a leading global ETP sponsor based on assets under management, or AUM, with AUM of $67.4 billion globally as of December 31, 2020. An ETP is a pooled investment vehicle that holds a basket of securities, financial instruments or other assets and generally seeks to track (index-based) or outperform (actively managed) the performance of a broad or specific equity, fixed income or alternatives market segment, commodity or currency (or an inverse or multiple thereof). ETPs are listed on an exchange with their shares traded in the secondary market at market prices, generally at approximately the same price as the net asset value of their underlying components. ETP is an umbrella term that includes exchange-traded funds, or ETFs, exchange-traded notes and exchange-traded commodities. Our family of ETPs includes products that track our own indexes, third-party indexes and market prices of commodities. We also offer actively managed products. 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. We distribute our products through all major channels within the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force. Our sales efforts are not primarily directed towards the retail segment but rather are directed towards financial advisers that act as intermediaries between the end-client and us or institutional investors. We focus on creating products for investors that offer thoughtful innovation, smart engineering and redefined investing. We have launched many first-to-market products and pioneered alternative weighting we call “Modern Alpha,” which combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform. Through our operating subsidiaries, we provide investment advisory and other management services to our ETPs collectively offering products covering equity, commodity, fixed income, leveraged-and-inverse, currency and alternative strategies. In exchange for providing these services, we receive advisory fee revenues based on a percentage of the ETPs’ average daily AUM. Our expenses are predominantly related to selling, operating and marketing our products. We have contracted with third parties to provide certain operational services for the ETPs. We strive to deliver a better investing experience through innovative solutions. Continued investments in technology-enabled and research-driven solutions and our Advisor Solutions program, which includes portfolio construction, asset allocation, practice management services and digital tools for financial advisors, are meant to differentiate us in the market, expand our distribution and further enhance our relationships with financial advisors. Executive Summary Our mission is to be a profitable, growing and enduring financial services company with diversified revenue streams and global coverage as well as to deliver a smarter investment and financial experience through the quality of our exposures, products, solutions and the way we engage with our clients. We have prioritized several important strategic initiatives, resulting in diversification of our AUM and compelling organic growth. We have benefited from the expansion and diversification of our product line-up, investments in technology-enabled and research-driven solutions and our award-winning Advisor Solutions program, the transformation of our distribution reach and approach through an industry leading data intelligence function, prioritization of the development and distribution of our fully open architecture model portfolios and the full integration of our European business. We are also aggressively pursuing our digital assets initiatives and have been designing workflows and engaging productively with regulators with a goal of launching products later this year. The ETFS Acquisition, which we completed in April 2018, provided us with immediate scale in Europe, an industry leading position in European listed gold and commodity products and greater AUM diversification globally. Our European business has contributed $2.9 billion of net inflows and has experienced AUM growth of 49% since the completion of the acquisition. 37 Table of Contents Our diverse product lineup has us well positioned globally for growth and our focus and execution of our strategic priorities have us better situated to capitalize on significant opportunities in the growing global ETP market. Business highlights include the following: • With the integration of ESG criteria in our ex-state-owned family of products, we are now the third largest ESG U.S. listed ETF issuer. • In December 2020, we announced the reorganization of the WisdomTree Enhanced Commodity Strategy Fund – previously the WisdomTree Continuing Commodity Index Fund (GCC) – with an updated approach to broad-based commodity investing. • In October 2020, we were named “Best International Equity ETF Issuer ($1BN+)” by the ETF Express U.S. Awards 2020, which recognizes excellence among ETF issuers and service providers across a wide range of categories. • In October 2020, we announced a collaboration with 55ip, a financial technology company, to deliver WisdomTree model portfolios utilizing 55ip’s automated tax-smart technology. • In September 2020, we won two awards at the AJ Bell Fund & Investment Trust Awards 2020 for WisdomTree Physical Gold (PHAU) and WisdomTree Cloud Computing UCITS ETF (WCLD). • In July 2020, we secured additional third-party relationships for our model portfolios, including Carson Group, Riskalzye, Kwanti, ETF Logic and Orion. • In June 2020, we entered into a new distribution agreement in Italy for our model portfolios with The Intermonte Eye, a digital service providing products to its network of private banks. • In March 2020, we were awarded “Best European Commodity ETF Provider” at the ETF Express 2020 European Awards. • In February 2020, we completed sale of our Canadian ETF business to CI Financial Corp. • In February 2020, in collaboration with Professor Jeremy Siegel, we launched two Siegel-WisdomTree model portfolios – The Siegel-WisdomTree Global Equity Model and the Siegel-WisdomTree Longevity Model. • We launched 4 new International listed ETPs. • In connection with our capital management strategy, we issued $175.0 million of convertible senior notes due 2023, repaid our debt previously outstanding and returned approximately $51.3 million to our stockholders through stock repurchases and our ongoing quarterly cash dividend. Planned Reduction in Office Footprint Throughout the COVID-19 pandemic, we have been operating our business remotely without disruption. The virtual work environment has led to new operating and cost efficiencies throughout our business. We have therefore decided to adopt a “remote first” philosophy with plans to significantly reduce our office footprints in New York and London. We are marketing our New York office space for sublease and have allowed our London office lease to expire. In connection with these actions, we anticipate recording an impairment charge of $9.0 million to $12.0 million when our New York office space is sub-leased. We anticipate that our reduced office footprint will achieve $3.0 million to $4.0 million of annual cost savings. The timing of the impairment charge and realization of cost savings is highly dependent on our ability to secure a subtenant, which we are estimating may occur by late 2021 or early 2022. The ultimate magnitude of these estimates is subject to market rent received and the duration of the sublease, market rents paid for new space, the actual amount of direct costs incurred and the discount rate used remeasure the carrying value of assets associated with our current office space, among other factors. 38 Table of Contents Market Environment The following chart reflects the annual returns of the broad-based equity indexes and gold prices over the last three years. Source: FactSet U.S. listed ETF Industry Flows U.S. listed ETF net flows for the year ended December 31, 2020 were $506 billion. Fixed income and U.S. equity gathered the majority of those flows. Sources: Morningstar European ETP Industry Flows European ETP net flows were $121 billion for the year ended December 31, 2020. Equities and fixed income gathered the majority of those flows. Source: Morningstar 39 Table of Contents Industry Developments Asset Management – Consolidation Over the last several months, a number of acquisitions in the asset management industry have either been announced or completed, including the acquisitions of Legg Mason, Eaton Vance and Waddell & Reed, among others. It has also become public that a well-known activist investor has taken stakes in Invesco and Janus Henderson with an eye toward creating a large-scale firm to compete with the largest asset management players. These trends have accelerated, as fee compression, cost pressures and increased regulations have weighed on the industry, highlighting the importance of scale and operating efficiency to compete in today’s market. Our growth strategies, which include launching innovative new products, investments in technology-enabled and research-driven solutions and our Advisor Solutions program, increasing penetration in existing distribution channels, leveraging data intelligence and our Modern Alpha investment approach, have been effective in creating momentum in our core business. We believe these strategies, differentiated and innovative product set and performance track records position us well for success to grow in this competitive landscape. Competition and Fee Pressures The asset management industry is highly competitive and we face substantial competition in virtually all aspects of our business. Factors affecting our business include fees for our products, investment performance, brand recognition, business reputation, quality of service and the continuity of our financial advisor and platform relationships. We compete directly with other ETP sponsors and mutual fund companies and indirectly against other investment management firms, insurance companies, banks, brokerage firms and other financial institutions. Many of the firms we compete with are subsidiaries of large diversified financial companies and many others are much larger in terms of AUM, years in operations and revenues and, accordingly, have much larger sales organizations and budgets. In addition, these larger competitors may attract business through means that are not available to us, including retail bank offices, investment banking, insurance agencies and broker-dealers. The ETP industry is becoming significantly more competitive. Existing players have broadened their suite of products offering strategies that are, in some cases, similar to ours and large traditional asset managers are also launching ETPs, some with similar strategies as well. Price competition exists in not only commoditized product categories such as traditional, market capitalization weighted index exposures and commodities, but also in non-market capitalization weighted or factor-based exposures and commodities. Fee reductions by certain of our competitors has been a trend over the last few years and continues to persist and many of our competitors are well positioned to benefit from this trend. Certain larger competitors are able to offer products at lower price points or otherwise as loss leaders due to other revenue sources available within such competitors that are currently unavailable to us. Newer players have also been entering the ETP industry and frequently seek to differentiate by offering ETPs at a lower price point. Funds are being offered with fees of 20 basis points or less, which have attracted approximately 84% of the net flows globally during the last three years. However, while these low-cost products have accumulated a significant amount of AUM recently, we estimate that these same funds represent only approximately 30% of global revenues. Being a first mover, or one of the first providers of ETPs in a particular asset class, can be a significant advantage, as the first ETP in a category to attract scale in AUM and trading liquidity is generally viewed as the most attractive product. We believe that our early launch of products in a number of asset classes or strategies, including fundamental weighting and currency hedging along with commodities including gold, certain fixed income, alternative and thematic categories, positions us well to maintain our standing as one of the leaders of the ETP industry. Additionally, we believe our affiliated indexing or “self-indexing” model, as well as our more recent active ETFs, enable us to launch proprietary products that do not have direct competition and are positioned to generate alpha versus benchmarks. As investors increasingly become more comfortable with the product structure, we believe there will be a greater focus on after-fee performance rather than using ETPs primarily as low-cost market access vehicles. While we have selectively lowered fee rates on certain products that have yet to attain scale, and there is no assurance that we will not lower fee rates on certain products in the future, our strategy continues to include launching new funds in the same category with a differentiated exposure at a lower fee rate, rather than reducing fees on existing products with a significant amount of AUM, long performance track records, and secondary market liquidity, which continue to remain competitively priced for the value provided, among other factors. We generally believe we are well positioned from a product pricing perspective. While we are not immune to fee pressure and have selectively lowered prices on a limited number of products and launched recent products at lower fees, we believe our ability to successfully compete will depend largely on our competitive product offerings and our ability to offer exposure to compelling investment strategies with strong after-fee performance, develop distribution relationships, create new investment products, build trading volume, AUM and outperforming track records in existing funds, offer a diverse platform of investment choices, promote thought leadership and a differentiated solutions program, build upon our brand and attract and retain talented sales professionals and other employees. 40 Table of Contents Components of Operating Revenue Advisory fees Substantially all of our revenues are comprised of advisory fees we earn from our ETPs. These advisory fees are calculated based on a percentage of the ETPs’ average daily net assets. Our weighted average fee rates by product category are as follows: Commodity & Currency: 38bps Leveraged & Inverse: 89bps International Equity: 53bps Fixed Income: 19bps U.S. Equity: 33bps Alternatives: 55bps Emerging Market Equity: 49bps We determine the appropriate advisory fee to charge for our ETPs based on the cost of operating each ETP considering the types of securities the ETPs will hold, fees third-party service providers will charge us for operating the ETPs and our competitors’ fees for similar ETPs. From time to time, we implement voluntary waivers of a portion of our advisory fee. In addition, we earn a fee based on daily aggregate AUM of our ETPs in exchange for bearing certain fund expenses. Our advisory fee revenues may fluctuate based on general stock market trends, which include market value appreciation or depreciation, currency fluctuations against the U.S. dollar, increased competition and level of inflows or outflows from our ETPs. Other income Other income includes creation/redemption fees earned on our European non-UCITS products and fees from licensing our indexes to third parties. Components of Operating Expenses Our operating expenses consist primarily of costs related to selling, operating and marketing our ETPs as well as the infrastructure needed to run our business. Compensation and benefits Employee compensation and benefits expenses are expensed when incurred and include salaries, incentive compensation, and related benefit costs. Virtually all of our employees receive incentive compensation that is based on our operating results as well as their individual performance. Therefore, a portion of this expense will fluctuate with our business results. To attract and retain qualified personnel, we must maintain competitive employee compensation and benefit plans. We would expect changes in employee compensation and benefits expense to be correlated with changes in our revenues and net inflows. Also included in compensation and benefits are costs related to equity awards granted to our employees. Our executive management and Board of Directors strongly believe that equity awards are an important part of our employees’ overall compensation package and that incentivizing our employees with equity in the Company aligns the interests of our employees with that of our stockholders. We use the fair value method in recording compensation expense for equity-based awards. Under the fair value method, compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period. For the year ending December 31, 2021, we estimate that our compensation and benefits expense will be $75 million to $85 million. Fund management and administration Fund management and administration expenses are expensed when incurred and are comprised of the following costs we pay third-party service providers to operate our ETPs: • portfolio management of our ETPs (sub-advisory); • fund accounting and administration; • custodial and storage services; • market making; • transfer agency; • accounting and tax services; • printing and mailing of stockholder materials; • index calculation; • indicative values; 41 Table of Contents • distribution fees; • legal and compliance services; • exchange listing fees; • trustee fees and expenses; • preparation of regulatory reports and filings; • insurance; • certain local income taxes; and • other administrative services. We are not responsible for extraordinary expenses, taxes and certain other expenses. We depend on a number of parties to provide critical portfolio management services to our ETPs. The fees we pay our sub-advisers generally are the higher of the fixed minimums per fund, which range from $25,000 to $614,000 per year, or the percentage fee, which ranges between 0.015% and 0.20% per annum of average daily AUM at various breakpoint levels depending on the nature of the ETP. In addition, we pay certain costs based on transactions in our ETPs or based on inflow levels. The fees we pay for accounting, tax, transfer agency, index calculation, indicative values and exchange listing are based on the number of ETFs we have. The remaining fees are based on a combination of both AUM and number of funds, or as incurred. For the year ending December 31, 2021, we estimate that our gross margin percentage will be 77% to 78% at current AUM/revenue levels. 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. Marketing and advertising Marketing and advertising expenses are recorded when incurred and include the following: • advertising and product promotion campaigns that are initiated to promote our existing and new ETPs as well as brand awareness; • development and maintenance of our website; and • creation and preparation of marketing materials. Our discretionary advertising comprises the largest portion of this expense. In addition, we may incur expenditures in certain periods to attract inflows, the benefit of which may or may not be recognized from increases to our AUM in future periods. However, due to the discretionary nature of some of these costs, they can generally be reduced if there were a decline in the markets. Sales and business development Sales and business development expenses are recorded when incurred and include the following: • travel and entertainment or conference related expenses for our sales force; • market data services for our research team; • sales related software tools; • voluntary payment of certain costs associated with the creation or redemption of ETF shares, as we may elect from time to time; and • legal and other advisory fees associated with the development of new funds or business initiatives. Contractual gold payments Contractual gold payments expense represents an ongoing obligation requiring us to pay 9,500 ounces of gold annually from the advisory fee income we earn for managing physically backed gold ETPs. See Note 12 to our Consolidated Financial Statements for additional information. Professional and consulting fees Professional fees are expensed when incurred and consist of fees we pay to corporate advisers including accountants, tax advisers, legal counsel, investment bankers, human resources or other consultants. These expenses fluctuate based on our needs or requirements at the time. Certain of these costs are at our discretion and can fluctuate year to year. 42 Table of Contents Occupancy, communications and equipment Occupancy, communications and equipment expense includes costs for our corporate headquarters in New York City as well as office related costs in our other locations. Depreciation and amortization Depreciation and amortization expense results primarily from amortization of leasehold improvements to our office space as well as depreciation on fixed assets we purchase, which is depreciated over five to fifteen years. Third-party distribution fees Third-party distribution fees, which are expensed as incurred, include payments made to enable our products to be included on certain third-party platforms in exchange for commission-free trading or other preferential access. These expenses also include payments to our third-party marketing agents in Latin America and Israel. For the year ending December 31, 2021, we estimate that third-party distribution fees will be approximately $6.0 million. Acquisition and disposition-related costs Acquisition and disposition-related costs are principally associated with costs incurred in connection with the ETFS Acquisition, which was completed in April 2018. Also included are costs associated with the sale of our Canadian ETF business, which was completed in February 2020. Other Other expenses consist primarily of insurance premiums, general office related expenses, securities license fees for our sales force, public company related expenses, corporate related travel and entertainment and board of director fees, including stock-based compensation related to equity awards we granted to our directors. Components of Other Income/(Expenses) of a Recurring Nature Interest expense Interest expense is associated with our convertible notes and former credit facility. We recognize interest expense using the effective interest method which includes the amortization of discounts, premiums and issuance costs. Revaluation of deferred consideration – gold payments Deferred consideration arose in connection with the ETFS Acquisition and is remeasured each reporting period using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate. See Note 12 to our Consolidated Financial Statements for additional information. Interest income Interest income, which is recognized on an accrual basis, arises from investing our corporate cash and on notes receivable previously outstanding. Other gains and losses, net Included herein are gains and losses arising from foreign exchange, the sale of gold earned from advisory fees paid by physically-backed gold ETPs, and other miscellaneous items. Also included are losses arising from the release of tax-related indemnification assets upon the expiration of the statute of limitations, for which an equal and offsetting benefit is recognized in income tax expense. Income Taxes Our income tax expense consists of taxes due to federal, various state and local and certain foreign authorities. We currently anticipate that our consolidated normalized effective tax rate will be approximately 19% to 20% for the year ending December 31, 2021. This estimated rate may change and is dependent upon our actual taxable income earned in relation to our forecasts as well as any other items which may arise that are not currently forecasted. Such items may include, but are not limited to, any revaluation on deferred consideration – gold payments, reductions in unrecognized tax benefits and any stock-based compensation windfalls or shortfalls. Corporate tax legislation could also impact our normalized effective tax rate. 43 Table of Contents Factors that May Impact our Future Financial Results Our global AUM is well diversified across the commodity, U.S. equity, international developed markets and emerging markets sectors. As a result, our operating results are particularly exposed to investor sentiment toward investing in these products’ strategies and our ability to maintain AUM of these products, as well as the performance of these products. Our revenues are also highly correlated to the level and relative mix of our AUM, as well as the fee rate associated with our ETPs. Changes in product mix have led to a decline in our average global advisory fee, which, for the years ended December 31, 2018, 2019 and 2020 were 0.48%, 0.45% and 0.41%, respectively. The chart below sets forth the asset mix of our ETPs for the last three years: 44 Table of Contents Key Operating Statistics The following table presents key operating statistics that serve as indicators for the performance of our business: Years Ended December 31, 2020 2019 2018 GLOBAL ETPs (in millions) Beginning of period assets $ 63,615 $ 54,094 $ 48,936 Assets acquired/(sold) (778 ) — 17,641 Inflows/(outflows) (6 ) 596 (4,432 ) Market appreciation/(depreciation) 5,020 9,196 (8,006 ) Fund closures (459 ) (271 ) (45 ) End of period assets $ 67,392 $ 63,615 $ 54,094 Average assets during the period $ 61,158 $ 59,712 $ 56,397 Average advisory fee during the period 0.41 % 0.45 % 0.48 % Number of ETPs – end of the period 309 367 537 U.S. LISTED ETFs (in millions) Beginning of period assets $ 40,600 $ 35,486 $ 46,827 Inflows/(outflows) (1,253 ) (654 ) (5,169 ) Market appreciation/(depreciation) (609 ) 5,858 (6,127 ) Fund closures (221 ) (90 ) (45 ) End of period assets $ 38,517 $ 40,600 $ 35,486 Average assets during the period $ 34,304 $ 38,577 $ 42,241 Average advisory fee during the period 0.41 % 0.44 % 0.48 % Number of ETPs—end of period 67 80 85 INTERNATIONAL LISTED ETPs (in millions) Beginning of period assets $ 23,015 $ 18,608 $ 2,109 Assets acquired/(sold) (778 ) — 17,641 Inflows/(outflows) 1,247 1,250 737 Market appreciation/(depreciation) 5,629 3,338 (1,879 ) Fund closures (238 ) (181 ) — End of period assets $ 28,875 $ 23,015 $ 18,608 Average assets during the period $ 26,854 $ 21,135 $ 14,156 Average advisory fee during the period 0.40 % 0.45 % 0.48 % Number of ETPs—end of period 242 287 452 PRODUCT CATEGORIES (in millions) Commodity & Currency Beginning of period assets $ 19,947 $ 15,830 $ 278 Assets acquired — — 16,778 Inflows/(outflows) 587 1,147 484 Market appreciation/(depreciation) 5,513 2,970 (1,710 ) End of period assets $ 26,047 $ 19,947 $ 15,830 Average assets during the period $ 23,807 $ 18,085 $ 11,334 U.S. Equity Beginning of period assets $ 17,732 $ 13,211 $ 14,135 Inflows/(outflows) 766 1,445 859 Market appreciation/(depreciation) (131 ) 3,076 (1,783 ) End of period assets $ 18,367 $ 17,732 $ 13,211 Average assets during the period $ 15,380 $ 15,846 $ 14,223 International Developed Equity Beginning of period assets $ 13,011 $ 14,232 $ 25,495 Inflows/(outflows) (2,840 ) (3,452 ) (7,903 ) Market appreciation/(depreciation) (757 ) 2,231 (3,360 ) End of period assets $ 9,414 $ 13,011 $ 14,232 Average assets during the period $ 9,499 $ 13,187 $ 20,352 45 Table of Contents Years Ended December 31, 2020 2019 2018 Emerging Market Equity Beginning of period assets $ 6,400 $ 5,202 $ 5,798 Inflows/(outflows) 1,700 618 311 Market appreciation/(depreciation) 439 580 (907 ) End of period assets $ 8,539 $ 6,400 $ 5,202 Average assets during the period $ 6,056 $ 5,703 $ 5,673 Fixed Income Beginning of period assets $ 3,585 $ 2,245 $ 703 Inflows/(outflows) (286 ) 1,280 1,607 Market appreciation/(depreciation) 25 60 (65 ) End of period assets $ 3,324 $ 3,585 $ 2,245 Average assets during the period $ 3,563 $ 3,572 $ 1,267 Leveraged & Inverse Beginning of period assets $ 1,138 $ 1,059 $ 897 Assets acquired — — 863 Inflows/(outflows) 197 55 (214 ) Market appreciation/(depreciation) 152 24 (487 ) End of period assets $ 1,487 $ 1,138 $ 1,059 Average assets during the period $ 1,361 $ 1,174 $ 1,164 Alternatives Beginning of period assets $ 358 $ 508 $ 473 Inflows/(outflows) (125 ) (162 ) 76 Market appreciation/(depreciation) (19 ) 12 (41 ) End of period assets $ 214 $ 358 $ 508 Average assets during the period $ 251 $ 440 $ 408 Closed ETPs Beginning of period assets $ 1,444 $ 1,807 $ 1,157 Assets sold (778 ) — — Inflows/(outflows) (5 ) (335 ) 348 Market appreciation/(depreciation) (202 ) 243 347 Fund closures (459 ) (271 ) (45 ) End of period assets $ — $ 1,444 $ 1,807 Average assets during the period $ 1,241 $ 1,705 $ 1,976 Headcount 217 208 228 Note: Previously issued statistics may be restated due to fund closures and trade adjustments Source: WisdomTree 46 Table of Contents Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Selected Operating and Financial Information Year Ended December 31, Change Percent Change 2020 2019 Global AUM (in millions) Average global AUM $ 61,158 $ 59,712 $ 1,446 2.4 % Operating Revenues (in thousands) Advisory fees $ 250,182 $ 265,652 $ (15,470 ) (5.8 %) Other income 3,517 2,751 766 27.8 % Total revenues $ 253,699 $ 268,403 $ (14,704 ) (5.5 %) Average Global AUM Our average global AUM increased 2.4% from $59.7 billion at December 31, 2019 to $61.2 billion at December 31, 2020 arising from market appreciation. Operating Revenues Advisory fees Advisory fee revenues decreased 5.8% from $265.7 million during the year ended December 31, 2019 to $250.2 million in the comparable period in 2020 due to a 4 basis point decline in our average global advisory fee arising from AUM mix shift, notwithstanding the increase in our average AUM. Our average global advisory fee declined from 0.45% during the year ended December 31, 2019 to 0.41% during the year ended December 31, 2020. Other income Other income increased 27.8% from $2.8 million during the year ended December 31, 2019 to $3.5 million in the comparable period in 2020 primarily due to higher creation/redemption fees associated with our international listed products. Operating Expenses (in thousands) Year Ended December 31, Change Percent Change 2020 2019 Compensation and benefits $ 74,675 $ 80,761 $ (6,086 ) (7.5 %) Fund management and administration 60,515 61,502 (987 ) (1.6 %) Marketing and advertising 11,128 12,163 (1,035 ) (8.5 %) Sales and business development 10,579 18,276 (7,697 ) (42.1 %) Contractual gold payments 16,811 13,226 3,585 27.1 % Professional and consulting fees 4,902 5,641 (739 ) (13.1 %) Occupancy, communications and equipment 6,427 6,302 125 2.0 % Depreciation and amortization 1,021 1,045 (24 ) (2.3 %) Third-party distribution fees 5,219 6,968 (1,749 ) (25.1 %) Acquisition and disposition-related costs 416 902 (486 ) (53.9 %) Other 6,924 8,083 (1,159 ) (14.3 %) Total operating expenses $ 198,617 $ 214,869 $ (16,252 ) (7.6 %) As a Percent of Revenues: Year Ended December 31, 2020 2019 Compensation and benefits 29.4 % 30.1 % Fund management and administration 23.9 % 22.9 % Marketing and advertising 4.4 % 4.6 % Sales and business development 4.2 % 6.8 % 47 Table of Contents As a Percent of Revenues: Year Ended December 31, 2020 2019 Contractual gold payments 6.6 % 4.9 % Professional and consulting fees 1.9 % 2.1 % Occupancy, communications and equipment 2.5 % 2.4 % Depreciation and amortization 0.4 % 0.4 % Third-party distribution fees 2.1 % 2.6 % Acquisition and disposition-related costs 0.2 % 0.3 % Other 2.7 % 3.0 % Total operating expenses 78.3 % 80.1 % Compensation and benefits Compensation and benefits expense decreased 7.5% from $80.8 million during the year ended December 31, 2019 to $74.7 million in the comparable period in 2020 due to lower incentive compensation accruals as well as $3.5 million of severance expense included in the prior year period. Headcount was 208 and 217 at December 31, 2019 and 2020, respectively. Fund management and administration Fund management and administration expense decreased 1.6% from $61.5 million during the year ended December 31, 2019 to $60.5 million in the comparable period in 2020 due to the sale of our Canadian ETF business in February 2020, partly offset by higher average AUM. We had 80 U.S. listed ETFs and 287 International listed ETPs at December 31, 2019 compared to 67 U.S. listed ETFs and 242 International listed ETPs at December 31, 2020. Marketing and advertising Marketing and advertising expense decreased 8.5% from $12.2 million during the year ended December 31, 2019 to $11.1 million in the comparable period in 2020 primarily due to lower discretionary spending resulting from the COVID-19 pandemic. Sales and business development Sales and business development expense decreased 42.1% from $18.3 million during the year ended December 31, 2019 to $10.6 million in the comparable period in 2020 primarily due to lower discretionary spending resulting from the COVID-19 pandemic. Contractual gold payments Contractual gold payments expense increased 27.1% from $13.2 million during the year ended December 31, 2019 to $16.8 million in the comparable period in 2020. This expense was associated with the payment of 9,500 ounces of gold and was calculated using the average daily spot price of $1,393 and $1,770 per ounce during the years ended December 31, 2019 and 2020, respectively. Professional and consulting fees Professional and consulting fees decreased 13.1% from $5.6 million during the year ended December 31, 2019 to $4.9 million in the comparable period in 2020 due to lower corporate consulting-related expenses. Occupancy, communications and equipment Occupancy, communications and equipment expense was essentially unchanged from the year ended December 31, 2019. Depreciation and amortization Depreciation and amortization expense was essentially unchanged from the year ended December 31, 2019. Third-party distribution fees Third-party distribution fees decreased 25.1% from $7.0 million during the year ended December 31, 2019 to $5.2 million in the comparable period in 2020 primarily due to lower fees for platform relationships. 48 Table of Contents Acquisition and disposition-related costs Acquisition and disposition-related costs were $0.9 million and $0.4 million during the year ended December 31, 2019 and 2020. These were incurred in connection with the integration of ETFS during the year ended December 31, 2019 and costs associated with the sale of our Canadian ETF business, which was completed in February 2020. Other Other expenses decreased 14.3% from $8.1 million during the year ended December 31, 2019 to $6.9 million in the comparable period in 2020 primarily due to lower office-related and travel expenses as a result of our employees working remotely. Other Income/(Expenses) Year Ended December 31, Change Percent Change (in thousands) 2020 2019 Interest expense $ (9,668 ) $ (11,240 ) $ 1,572 (14.0 %) Loss on revaluation of deferred consideration (56,821 ) (11,293 ) (45,528 ) 403.2 % Interest income 744 3,332 (2,588 ) (77.7 %) Impairments (22,752 ) (30,710 ) 7,958 (25.9 %) Loss on extinguishment of debt (2,387 ) — (2,387 ) n/a Other gains and losses, net 580 (3,502 ) 4,082 n/a Total other expenses, net $ (90,304 ) $ (53,413 ) $ (36,891 ) 69.1 % Year Ended December 31, As a Percent of Revenues: 2020 2019 Interest expense (3.8 %) (4.2 %) Loss on revaluation of deferred consideration (22.4 %) (4.2 %) Interest income 0.3 % 1.2 % Impairments (9.0 %) (11.4 %) Loss on extinguishment of debt (0.9 %) — Other gains and losses, net 0.2 % (1.3 %) Total other expenses, net (35.6 %) (19.9 %) Interest expense Interest expense decreased 14.0% from $11.2 million during the year ended December 31, 2019 to $9.7 million in the comparable period in 2020 due to a lower level of debt outstanding. Our effective interest rate during the years ended December 31, 2019 and 2020 were 5.3% and 5.5%, respectively, and includes our cost of borrowing and amortization of discounts, premiums and issuance costs. Loss on revaluation of deferred consideration We recognized a loss on revaluation of deferred consideration of $11.3 million and $56.8 million during the years ended December 31, 2019 and 2020, respectively. The loss in each period was due to an increase in the forward-looking price of gold when compared to the forward-looking gold curve at the beginning of each respective year. The magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold. In addition, the loss in the current year also resulted from a reduction in the discount rate used to compute the present value of the annual payment obligations. Interest income Interest income decreased 77.7% from $3.3 million during the year ended December 31, 2019 to $0.7 million in the comparable period in 2020 as paid-in-kind interest income was accrued in the prior period on our former AdvisorEngine Inc., or AdvisorEngine, notes receivable. Impairments During the year ended December 31, 2020, we recognized non-cash impairment charges totaling $22.8 million, including $19.7 million related to our former investment in AdvisorEngine, and $3.1 million related to our investment in Thesys Group, Inc., or Thesys (See Notes 8 and 10 to our Consolidated Financial Statements). During the year ended December 31, 2019, we recognized non-cash impairment charges totaling $30.7 million, including $30.1 million to our former investment in AdvisorEngine and $0.6 million in connection with the termination of our Japan office lease. 49 Table of Contents Loss on extinguishment of debt During the year ended December 31, 2020, we recognized a non-cash loss on extinguishment of debt of $2.4 million arising from the acceleration of debt issuance cost amortization in connection with the termination of our former credit facility. Other gains and losses, net Other gains and losses, net were ($3.5) million and $0.6 million during the year ended December 31, 2019 and 2020, respectively. This includes a charge recorded during the years ended December 31, 2019 and 2020 of $4.3 million and $6.0 million, respectively, arising from the release of a tax-related indemnification asset upon the expiration of the statute of limitations. An equal and offsetting benefit has been recognized in income tax expense. In addition, during the year ended December 31, 2020, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business (See Note 3 to our Consolidated Financial Statements) and a gain of $1.1 million arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine. The year ended December 31, 2019 also includes a gain of $0.4 million from the recognition of the foreign currency translation adjustment upon the liquidation of our Japan business. Gains and losses also generally arise from the sale of gold earned from advisory fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items. Income Taxes Our effective income tax rate for the year ended December 31, 2020 of negative 1.2% resulted in income tax expense of $0.4 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a non-deductible loss on revaluation of deferred consideration, a valuation allowance on capital losses and tax shortfalls associated with the vesting and exercise of stock-based compensation awards. These items were partly offset by a tax benefit of $6.0 million recognized in connection with the release of the tax-related indemnification asset described above, a $2.9 million non-taxable gain recognized upon sale of our Canadian ETF business in the first quarter, a tax benefit of $2.6 million recognized in connection with the release of a deferred tax asset valuation allowance on interest carryforwards arising from our debt previously held in the UK and a lower tax rate on foreign earnings. Our effective income tax rate during the year ended December 31, 2019 was not meaningful as our income before income taxes was $0.1 million. Our effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on capital losses and foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, non-deductible executive compensation, state and local income taxes and tax shortfalls associated with the vesting and exercise of stock-based compensation awards, partly offset by a $4.3 million reduction in unrecognized tax benefits and a lower tax rate on foreign earnings. Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 Selected Operating and Financial Information Year Ended December 31, Change Percent Change 2019 2018 Global AUM (in millions) Average global AUM $ 59,712 $ 56,397 $ 3,315 5.9 % Operating Revenues (in thousands) Advisory fees $ 265,652 $ 271,104 $ (5,452 ) (2.0 %) Other income 2,751 3,012 (261 ) (8.7 %) Total revenues $ 268,403 $ 274,116 $ (5,713 ) (2.1 %) Acquisition of ETFS In April 2018, we completed the ETFS Acquisition and therefore our results for the year ended December 2018 may not be directly comparable to our results from the year ended December 31, 2019. Average Global AUM Our average global AUM increased 5.9% from $56.4 billion during the year ended December 31, 2018 to $59.7 billion in the comparable period in 2019 primarily due to the inclusion of AUM from the ETFS acquired business for the entire year of 2019, market appreciation and net inflows into our U.S. equity, fixed income, commodity and emerging market ETPs, largely offset by outflows from HEDJ and DXJ. 50 Table of Contents Operating Revenues Advisory fees Advisory fee revenues decreased 2.0% from $271.1 million during the year ended December 31, 2018 to $265.7 million in the comparable period in 2019 due to a 3 basis point decline in our average global advisory fee and lower average AUM of our U.S. listed products, partly offset by higher revenues earned from the ETFS acquired business, which were recognized for the entire year of 2019. Our average global advisory fee declined from 0.48% to 0.45% during the years ended December 31, 2018 and 2019, respectively, due to the ETFS Acquisition and AUM mix shift. Other income Other income decreased 8.7% from $3.0 million during the year ended December 31, 2018 to $2.8 million in the comparable period in 2019 primarily due to lower licensing fee revenues. Operating Expenses (in thousands) Year Ended December 31, Change Percent Change 2019 2018 Compensation and benefits $ 80,761 $ 74,515 $ 6,246 8.4 % Fund management and administration 61,502 56,686 4,816 8.5 % Marketing and advertising 12,163 13,884 (1,721 ) (12.4 %) Sales and business development 18,276 17,153 1,123 6.5 % Contractual gold payments 13,226 8,512 4,714 55.4 % Professional and consulting fees 5,641 7,984 (2,343 ) (29.3 %) Occupancy, communications and equipment 6,302 6,203 99 1.6 % Depreciation and amortization 1,045 1,301 (256 ) (19.7 %) Third-party distribution fees 6,968 6,611 357 5.4 % Acquisition and disposition-related costs 902 11,454 (10,552 ) (92.1 %) Other 8,083 8,534 (451 ) (5.3 %) Total operating expenses $ 214,869 $ 212,837 $ 2,032 1.0 % As a Percent of Revenues: Year Ended December 31, 2019 2018 Compensation and benefits 30.1 % 27.2 % Fund management and administration 22.9 % 20.7 % Marketing and advertising 4.6 % 5.1 % Sales and business development 6.8 % 6.2 % Contractual gold payments 4.9 % 3.1 % Professional and consulting fees 2.1 % 2.9 % Occupancy, communications and equipment 2.4 % 2.3 % Depreciation and amortization 0.4 % 0.4 % Third-party distribution fees 2.6 % 2.4 % Acquisition and disposition-related costs 0.3 % 4.2 % Other 3.0 % 3.1 % Total operating expenses 80.1 % 77.6 % Compensation and benefits Compensation and benefits expense increased 8.4% from $74.5 million during the year ended December 31, 2018 to $80.8 million in the comparable period in 2019 primarily due to higher incentive compensation, partly offset by lower headcount related expenses. Headcount was 228 and 208 at December 31, 2018 and 2019, respectively. Fund management and administration Fund management and administration expense increased 8.5% from $56.7 million during the year ended December 31, 2018 to $61.5 million in the comparable period in 2019 due to expenses associated with the ETFS acquired business, which were recognized for the entire year of 2019, partly offset by lower average AUM of our U.S. listed products. We had 85 U.S. listed ETFs and 452 International listed ETPs at December 31, 2018 compared to 80 U.S. listed ETFs and 287 International listed ETPs at December 31, 2019. 51 Table of Contents Marketing and advertising Marketing and advertising expense decreased 12.4% from $13.9 million during the year ended December 31, 2018 to $12.2 million in the comparable period in 2019 primarily due to lower domestic spending. Sales and business development Sales and business development expense increased 6.5% from $17.2 million during the year ended December 31, 2018 to $18.3 million in the comparable period in 2019 due to expenses associated with the ETFS acquired business, which were recognized for the entire year of 2019, as well as costs associated with the launch of our Bitcoin ETP. Contractual gold payments Contractual gold payments expense increased 55.4% from $8.5 million during the period April 11, 2018 through December 31, 2018 to $13.2 million during the year ended December 31, 2019. This expense was associated with the payment of 9,500 ounces of gold (6,835 ounces for the period from April 11, 2018 through December 31, 2018) and was calculated using the average daily spot price of $1,246 and $1,393 per ounce during the year to date periods of 2018 and 2019, respectively. Professional and consulting fees Professional and consulting fees decreased 29.3% from $8.0 million during the year ended December 31, 2018 to $5.6 million in the comparable period in 2019 due to lower spending on corporate consulting-related expenses. Occupancy, communications and equipment Occupancy, communications and equipment expense was essentially unchanged from the year ended December 31, 2018. Depreciation and amortization Depreciation and amortization expense decreased 19.7% from $1.3 million during the year ended December 31, 2018 to $1.0 million in the comparable period in 2019 primarily due to the closure of our office in Japan. Third-party distribution fees Third-party distribution fees were essentially unchanged from the year ended December 31, 2018. Acquisition and disposition-related costs Acquisition and disposition-related costs decreased 92.1% from $11.5 million during the year ended December 31, 2018 to $0.9 million in the comparable period in 2019 reflecting the substantial completion of the integration of ETFS. Expenses incurred during the year ended December 31, 2019 also include costs associated with the sale of our Canadian ETF business, which was completed in February 2020. Other Other expenses were essentially unchanged from the year ended December 31, 2018. Other Income/(Expenses) Year Ended December 31, Change Percent Change (in thousands) 2019 2018 Interest expense $ (11,240 ) $ (7,962 ) $ (3,278 ) 41.2 % (Loss)/gain on revaluation of deferred consideration (11,293 ) 12,220 (23,513 ) n/a Interest income 3,332 3,093 239 7.7 % Impairments (30,710 ) (17,386 ) (13,324 ) 76.6 % Other losses, net (3,502 ) (205 ) (3,297 ) 1,608.3 % Total other expenses, net $ (53,413 ) $ (10,240 ) $ (43,173 ) 421.6 % 52 Table of Contents Year Ended December 31, As a Percent of Revenues: 2019 2018 Interest expense (4.2 %) (2.9 %) (Loss)/gain on revaluation of deferred consideration (4.2 %) 4.5 % Interest income 1.2 % 1.1 % Impairments (11.4 %) (6.3 %) Other losses, net (1.3 %) (0.1 %) Total other expenses, net (19.9 %) (3.7 %) Interest expense Interest expense increased 41.2% from $8.0 million during the year ended December 31, 2018 to $11.2 million in the comparable period in 2019 as borrowing under our former credit facility commenced on April 11, 2018. In addition, the increase was attributable to higher interest rates, partly offset by a reduced borrowing as we partially repaid $21.0 million of our outstanding debt during the year ended December 31, 2019. Our effective interest rate during April 11, 2018 through December 31, 2018 and during the year ended December 31, 2019 was 5.1% and 5.3%, respectively, and includes our cost of borrowing and amortization of issuance costs. (Loss)/gain on revaluation of deferred consideration We recognized a gain on revaluation of deferred consideration of $12.2 million during the year ended December 31, 2018 as the price of gold had declined when compared to April 11, 2018, the date in which the deferred consideration was originally measured. During the year ended December 31, 2019 we recognized a loss of ($11.3) million due to an increase in the price of gold, partly offset by the flattening of the forward-looking curve when compared to the forward-looking curve on December 31, 2018. The magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold. Interest income Interest income increased 7.7% from $3.1 million during the year ended December 31, 2018 to $3.3 million in the comparable period in 2019 due to paid-in-kind interest accrued on our former AdvisorEngine notes receivable, partly offset by the maturity of our short-term investment grade portfolio which occurred in the prior year. Impairments During the year ended December 31, 2019, we recognized non-cash impairment charges totaling $30.7 million, including $30.1 million to our former investment in AdvisorEngine and $0.6 million in connection with the termination of our Japan office lease. During the year ended December 31, 2018, impairment charges of $17.4 million were recognized on the following items: (i) $10.0 million on the intangible asset associated with the WisdomTree Continuous Commodity Index Fund, or GCC; (ii) $3.8 million related to our ownership stake in Thesys; (iii) $3.3 million upon the expiration of our option to acquire the remaining equity interests in AdvisorEngine; and (iv) $0.3 million associated with the disposal of the fixed assets of our Japan office. Other losses, net Other losses, net were $0.2 million and $3.5 million during the year ended December 31, 2018 and 2019, respectively. Included in the loss recognized in the current year is a charge of $4.3 million arising from the release of a tax-related indemnification asset upon the expiration of the statute of limitations. The indemnification asset arose from the ETFS Acquisition. An equal and offsetting benefit has been recognized in income tax expense. Also included in the year ended December 31, 2019 is a gain of $0.4 million from the recognition of the foreign currency translation adjustment upon the liquidation of our Japan business. Gains and losses also generally arise from the sale of gold earned from advisory fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items. Income Taxes Our effective income tax rate during the year ended December 31, 2019 was not meaningful as our income before income taxes was $0.1 million. Our effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on capital losses and foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, non-deductible executive compensation, state and local income taxes and tax shortfalls associated with the vesting and exercise of stock-based compensation awards, partly offset by a $4.3 million reduction in unrecognized tax benefits and a lower tax rate on foreign earnings. 53 Table of Contents Our effective income tax rate for the year ended December 31, 2018 of 28.2% resulted in income tax expense of $14.4 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses, non-deductible acquisition and disposition-related costs, state and local income taxes and a valuation allowance on capital losses, partly offset by a non-taxable gain on revaluation of deferred consideration, a lower tax rate on foreign earnings and stock-based compensation windfall tax benefits. 54 Table of Contents Quarterly Results The following tables set forth our unaudited consolidated quarterly statement of operations data, both in dollar amounts and as a percentage of total revenues, and our unaudited consolidated quarterly operating data for the quarters in 2020 and 2019. In our opinion, this unaudited information has been prepared on substantially the same basis as the consolidated financial statements appearing elsewhere in this Report and includes all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the unaudited consolidated quarterly data. The unaudited consolidated quarterly data should be read together with the consolidated financial statements and related notes included elsewhere in this Report. The results for any quarter are not necessarily indicative of results for any future period, and you should not rely on them as such. (in thousands, except per share amounts) Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 Operating Revenues: Advisory fees $ 66,105 $ 63,919 $ 57,208 $ 62,950 $ 68,179 $ 67,006 $ 65,627 $ 64,840 Other income 954 721 918 924 728 712 666 645 Total revenues 67,059 64,640 58,126 63,874 68,907 67,718 66,293 65,485 Operating Expenses: Compensation and benefits 20,827 19,098 17,455 17,295 19,280 18,880 21,300 21,301 Fund management and administration 16,350 15,219 14,461 14,485 15,650 15,110 15,576 15,166 Marketing and advertising 3,715 2,996 1,949 2,468 3,551 3,022 2,910 2,680 Sales and business development 2,595 2,386 2,181 3,417 5,329 4,354 4,171 4,422 Contractual gold payments 4,449 4,539 4,063 3,760 3,516 3,502 3,110 3,098 Professional and consulting fees 1,322 950 1,357 1,273 1,604 1,259 1,296 1,482 Occupancy, communications and equipment 1,622 1,611 1,643 1,551 1,587 1,549 1,548 1,618 Depreciation and amortization 261 253 251 256 253 259 264 269 Third-party distribution fees 1,291 1,233 1,340 1,355 1,146 1,503 1,919 2,400 Acquisition and disposition-related costs — — 33 383 366 190 33 313 Other 1,720 1,611 1,596 1,997 1,816 1,959 2,255 2,053 Total operating expenses 54,152 49,896 46,329 48,240 54,098 51,587 54,382 54,802 Operating income 12,907 14,744 11,797 15,634 14,809 16,131 11,911 10,683 Other Income/(Expenses): Interest expense (2,694 ) (2,511 ) (2,044 ) (2,419 ) (2,606 ) (2,832 ) (2,910 ) (2,892 ) (Loss)/gain on revaluation of deferred consideration (22,385 ) (8,870 ) (23,358 ) (2,208 ) (5,354 ) (6,306 ) (4,037 ) 4,404 Interest income 351 111 119 163 936 799 818 779 Impairments — (3,080 ) — (19,672 ) (30,138 ) — — (572 ) Loss on extinguishment of debt — — (2,387 ) — — — — — Other gains and losses, net 524 744 1,819 (2,507 ) (2 ) 843 284 (4,627 ) (Loss)/income before income taxes (11,297 ) 1,138 (14,054 ) (11,009 ) (22,355 ) 8,635 6,066 7,775 Income tax expense/(benefit) 2,200 1,408 (804 ) (2,371 ) 3,525 4,483 3,587 (1,049 ) Net (loss)/income ($ 13,497 ) $ (270) ($ 13,250 ) ($ 8,638 ) ($ 25,880 ) $ 4,152 $ 2,479 $ 8,824 (Loss)/earnings per share - basic ($ 0.10 ) ($ 0.01 ) ($ 0.09 ) ($ 0.06 ) ($ 0.17 ) $ 0.02 $ 0.01 $ 0.05 (Loss)/earnings per share - diluted ($ 0.10 ) ($ 0.01 ) ($ 0.09 ) ($ 0.06 ) ($ 0.17 ) $ 0.02 $ 0.01 $ 0.05 Dividends per common share $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 55 Table of Contents Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 Percent of Revenues Operating Revenues Advisory fees 98.6 % 98.9 % 98.4 % 98.6 % 98.9 % 98.9 % 99.0 % 99.0 % Other income 1.4 % 1.1 % 1.6 % 1.4 % 1.1 % 1.1 % 1.0 % 1.0 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Operating Expenses Compensation and benefits 31.1 % 29.6 % 30.0 % 27.1 % 28.0 % 27.9 % 32.1 % 32.5 % Fund management and administration 24.4 % 23.5 % 24.9 % 22.7 % 22.7 % 22.3 % 23.5 % 23.2 % Marketing and advertising 5.5 % 4.6 % 3.3 % 3.9 % 5.2 % 4.5 % 4.4 % 4.1 % Sales and business development 3.9 % 3.7 % 3.8 % 5.3 % 7.7 % 6.5 % 6.3 % 6.8 % Contractual gold payments 6.6 % 7.0 % 7.0 % 5.9 % 5.1 % 5.2 % 4.7 % 4.7 % Professional and consulting fees 2.0 % 1.5 % 2.3 % 2.0 % 2.3 % 1.9 % 1.9 % 2.3 % Occupancy, communications and equipment 2.4 % 2.5 % 2.8 % 2.4 % 2.3 % 2.2 % 2.3 % 2.4 % Depreciation and amortization 0.4 % 0.4 % 0.4 % 0.4 % 0.4 % 0.4 % 0.4 % 0.4 % Third-party distribution fees 1.9 % 1.9 % 2.3 % 2.1 % 1.7 % 2.2 % 2.9 % 3.7 % Acquisition and disposition-related costs n/a n/a 0.1 % 0.6 % 0.5 % 0.2 % 0.1 % 0.5 % Other 2.6 % 2.5 % 2.8 % 3.1 % 2.6 % 2.9 % 3.4 % 3.1 % Total operating expenses 80.8 % 77.2 % 79.7 % 75.5 % 78.5 % 76.2 % 82.0 % 83.7 % Operating income 19.2 % 22.8 % 20.3 % 24.5 % 21.5 % 23.8 % 18.0 % 16.3 % Other Income/(Expenses) Interest expense (4.0 %) (3.9 %) (3.5 %) (3.8 %) (3.8 %) (4.2 %) (4.4 %) (4.4 %) (Loss)/gain on revaluation of deferred consideration (33.3 %) (13.7 %) (40.2 %) (3.5 %) (7.8 %) (9.3 %) (6.1 %) 6.7 % Interest income 0.5 % 0.2 % 0.2 % 0.2 % 1.4 % 1.2 % 1.2 % 1.2 % Impairments n/a (4.8 %) n/a (30.7 %) (43.7 %) n/a n/a (0.9 %) Loss on extinguishment of debt n/a n/a (4.1 %) n/a n/a n/a n/a n/a Other gains and losses, net 0.8 % 1.2 % 3.1 % (3.9 %) 0.0 % 1.2 % 0.4 % (7.0 %) (Loss)/income before income taxes (16.8 %) 1.8 % (24.2 %) (17.2 %) (32.4 %) 12.7 % 9.1 % 11.9 % Income tax expense/(benefit) 3.3 % 2.2 % (1.4 %) (3.7 %) 5.1 % 6.6 % 5.4 % (1.6 %) Net (loss)/income (20.1 %) (0.4 %) (22.8 %) (13.5 %) (37.5 %) 6.1 % 3.7 % 13.5 % 56 Table of Contents Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 Operating Statistics GLOBAL ETPs (in millions) Beginning of period assets $ 60,710 $ 57,666 $ 50,347 $ 63,615 $ 59,981 $ 60,389 $ 59,112 $ 54,094 Assets sold — — — (778 ) — — — — Inflows/(outflows) 881 (477 ) 126 (536 ) 390 (698 ) 343 561 Market appreciation/(depreciation) 5,898 3,567 7,489 (11,934 ) 3,247 471 934 4,544 Fund closures (97 ) (46 ) (296 ) (20 ) (3 ) (181 ) — (87 ) End of period assets $ 67,392 $ 60,710 $ 57,666 $ 50,347 $ 63,615 $ 59,981 $ 60,389 $ 59,112 Average assets during the period $ 64,125 $ 61,216 $ 55,708 $ 60,189 $ 61,858 $ 60,306 $ 58,575 $ 57,683 Average advisory fee during the period 0.41 % 0.42 % 0.41 % 0.42 % 0.44 % 0.44 % 0.45 % 0.46 % Number of ETPs – end of the period 309 305 311 331 349 348 536 534 U.S. LISTED ETFs (in millions) Beginning of period assets $ 33,310 $ 31,362 $ 28,920 $ 40,600 $ 37,592 $ 39,220 $ 39,366 $ 35,486 Inflows/(outflows) 919 575 (1,474 ) (1,273 ) 563 (1,198 ) (166 ) 147 Market appreciation/(depreciation) 4,385 1,373 4,030 (10,397 ) 2,448 (430 ) 20 3,820 Fund closures (97 ) — (114 ) (10 ) (3 ) — — (87 ) End of period assets $ 38,517 $ 33,310 $ 31,362 $ 28,920 $ 40,600 $ 37,592 $ 39,220 $ 39,366 Average assets during the period $ 36,002 $ 32,984 $ 30,626 $ 36,940 39,094 $ 37,857 $ 38,945 $ 38,061 Average advisory fee during the period 0.40 % 0.41 % 0.41 % 0.43 % 0.44 % 0.44 % 0.44 % 0.45 % Number of ETFs – end of the period 67 67 67 77 80 80 79 77 INTERNATIONAL LISTED ETPs (in millions) Beginning of period assets $ 27,400 $ 26,304 $ 21,427 $ 23,015 $ 22,389 $ 21,169 $ 19,746 $ 18,608 Assets sold — — — (778 ) — — — — Inflows/(outflows) (38 ) (1,052 ) 1,600 737 (173 ) 500 509 414 Market appreciation/(depreciation) 1,513 2,194 3,459 (1,537 ) 799 901 914 724 Fund closures — (46 ) (182 ) (10 ) — (181 ) — — End of period assets $ 28,875 $ 27,400 $ 26,304 $ 21,427 $ 23,015 $ 22,389 $ 21,169 $ 19,746 Average assets during the period $ 28,123 $ 28,232 $ 25,082 $ 23,249 $ 22,764 $ 22,449 $ 19,630 $ 19,622 Average advisory fee during the period 0.42 % 0.42 % 0.41 % 0.40 % 0.44 % 0.44 % 0.46 % 0.47 % Number of ETPs – end of the period 242 238 244 254 269 268 457 457 PRODUCT CATEGORIES Commodity & Currency Beginning of period assets $ 25,122 $ 24,191 $ 19,748 $ 19,947 $ 19,599 $ 18,075 $ 16,545 $ 15,830 Inflows/(outflows) (254 ) (1,106 ) 1,325 622 (250 ) 524 624 249 Market appreciation/(depreciation) 1,179 2,037 3,118 (821 ) 598 1,000 906 466 End of period assets $ 26,047 $ 25,122 $ 24,191 $ 19,748 $ 19,947 $ 19,599 $ 18,075 $ 16,545 Average assets during the period $ 25,676 $ 25,878 $ 22,964 $ 20,302 $ 19,770 $ 19,438 $ 16,508 $ 16,568 U.S. Equity Beginning of period assets $ 15,612 $ 13,997 $ 12,151 $ 17,732 $ 16,281 $ 15,889 $ 15,747 $ 13,211 Inflows/(outflows) 395 897 (241 ) (285 ) 460 239 107 639 Market appreciation/(depreciation) 2,360 718 2,087 (5,296 ) 991 153 35 1,897 End of period assets $ 18,367 $ 15,612 $ 13,997 $ 12,151 $ 17,732 $ 16,281 $ 15,889 $ 15,747 Average assets during the period $ 17,050 $ 15,141 $ 13,302 $ 16,011 $ 16,969 $ 15,872 $ 15,677 $ 14,810 International Developed Market Equity Beginning of period assets $ 8,621 $ 8,839 $ 8,659 $ 13,011 $ 12,169 $ 13,313 $ 14,056 $ 14,232 Inflows/(outflows) (191 ) (587 ) (965 ) (1,097 ) (135 ) (1,009 ) (733 ) (1,575 ) Market appreciation/(depreciation) 984 369 1,145 (3,255 ) 977 (135 ) (10 ) 1,399 End of period assets $ 9,414 $ 8,621 $ 8,839 $ 8,659 $ 13,011 $ 12,169 $ 13,313 $ 14,056 Average assets during the period $ 8,930 $ 8,835 $ 8,779 $ 11,453 $ 12,607 $ 12,379 $ 13,593 $ 14,197 Emerging Market Equity Beginning of period assets $ 5,979 $ 5,413 $ 4,600 $ 6,400 $ 5,699 $ 5,966 $ 5,626 $ 5,202 Inflows/(outflows) 1,399 257 (25 ) 69 195 176 346 (99 ) Market appreciation/(depreciation) 1,161 309 838 (1,869 ) 506 (443 ) (6 ) 523 End of period assets $ 8,539 $ 5,979 $ 5,413 $ 4,600 $ 6,400 $ 5,699 $ 5,966 $ 5,626 Average assets during the period $ 7,249 $ 5,917 $ 5,129 $ 5,919 $ 5,991 $ 5,729 $ 5,674 $ 5,411 57 Table of Contents Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 Fixed Income Beginning of period assets $ 3,630 $ 3,530 $ 3,527 $ 3,585 $ 3,337 $ 3,946 $ 3,692 $ 2,245 Inflows/(outflows) (330 ) 76 (53 ) 21 218 (594 ) 235 1,421 Market appreciation/(depreciation) 24 24 56 (79 ) 30 (15 ) 19 26 End of period assets $ 3,324 $ 3,630 $ 3,530 $ 3,527 $ 3,585 $ 3,337 $ 3,946 $ 3,692 Average assets during the period $ 3,472 $ 3,605 $ 3,523 $ 3,653 $ 3,540 $ 3,731 $ 3,796 $ 3,184 Leveraged & Inverse Beginning of period assets $ 1,430 $ 1,350 $ 896 $ 1,138 $ 1,121 $ 1,125 $ 1,204 $ 1,059 Inflows/(outflows) (118 ) (9 ) 312 12 (22 ) 12 (55 ) 120 Market appreciation/(depreciation) 175 89 142 (254 ) 39 (16 ) (24 ) 25 End of period assets $ 1,487 $ 1,430 $ 1,350 $ 896 $ 1,138 $ 1,121 $ 1,125 $ 1,204 Average assets during the period $ 1,436 $ 1,482 $ 1,169 $ 1,147 $ 1,178 $ 1,146 $ 1,179 $ 1,190 Alternatives Beginning of period assets $ 229 $ 225 $ 244 $ 358 $ 418 $ 433 $ 472 $ 508 Inflows/(outflows) (26 ) (4 ) (29 ) (66 ) (61 ) (17 ) (38 ) (46 ) Market appreciation/(depreciation) 11 8 10 (48 ) 1 2 (1 ) 10 End of period assets $ 214 $ 229 $ 225 $ 244 $ 358 $ 418 $ 433 $ 472 Average assets during the period $ 224 $ 226 $ 226 $ 328 $ 398 $ 428 $ 463 $ 472 Closed ETPs Beginning of period assets $ 87 $ 121 $ 522 $ 1,444 $ 1,357 $ 1,642 $ 1,770 $ 1,807 Assets sold — — — (778 ) — — — — Inflows/(outflows) 6 (1 ) (198 ) 188 (15 ) (29 ) (143 ) (148 ) Market appreciation/(depreciation) 4 13 93 (312 ) 105 (75 ) 15 198 Fund closures (97 ) (46 ) (296 ) (20 ) (3 ) (181 ) — (87 ) End of period assets $ — $ 87 $ 121 $ 522 $ 1,444 $ 1,357 $ 1,642 $ 1,770 Average assets during the period $ 88 $ 132 $ 616 $ 1,376 $ 1,405 $ 1,583 $ 1,685 $ 1,851 Headcount 217 211 214 210 208 212 214 216 Note: Previously issued statistics may be restated due to fund closures and trade adjustments Source: WisdomTree 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 adjusted diluted earnings per share. We disclose adjusted net income and adjusted diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance. These non-GAAP financial measures exclude the following: • Unrealized gains or losses on the revaluation of deferred consideration : Deferred consideration is an obligation we assumed in connection with the ETFS acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations may have a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when arriving at adjusted net income and adjusted diluted earnings per share as it is not core to our operating business. The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate. 58 Table of Contents • Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards : GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when determining adjusted net income and adjusted diluted earnings per share as they introduce volatility in earnings and are not core to our operating business. • Interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the convertible notes : GAAP requires convertible instruments to be separated into their liability and equity components by allocating the issuance proceeds to each of these components. The liability component for convertible instruments that qualify for a derivative scope exception (applicable to our convertible notes) is allocated proceeds equal to the estimated fair value of similar debt without the conversion option. The difference between the gross proceeds received from the issuance of the convertible instrument and the proceeds allocated to the liability component represents the residual amount that is classified in equity. The discount arising from the recognition of the residual amount classified in equity is amortized as interest expense over the life of the instrument. We exclude this item when calculating our non-GAAP financial measurements as it is non-cash and distorts our actual cost of borrowing. In addition, in August 2020, the FASB issued Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options, Cash Conversion which includes the elimination of the requirement to bifurcate conversion options qualifying for a derivative scope exception. Once effective, this interest expense will no longer be recognized. • Other items : Loss on extinguishment of debt, the release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from our debt previously outstanding in the UK, a gain arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine, impairment charges, a gain recognized upon sale of our Canadian ETF business, severance expense and acquisition and disposition-related costs are excluded when determining adjusted net income and adjusted earnings per share. Years Ended Adjusted Net Income and Diluted Earnings per Share: Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Net (loss)/income, as reported $ (35,655 ) $ (10,425 ) $ 36,633 Add back/(deduct): Loss/(gain) on revaluation of deferred consideration 56,821 11,293 (12,220 ) Add back: Impairments, net of income taxes 21,998 30,710 14,048 Deduct: Gain recognized upon sale of Canadian ETF business (2,877 ) — — Deduct: Release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from debt previously outstanding in the United Kingdom (2,615 ) — — Add back: Loss on extinguishment of debt, net of income taxes 1,910 Deduct: Gain arising from an adjustment to the estimated fair value of consideration received from the exit of investment in AdvisorEngine (1,093 ) — — Add back: Interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the convertible notes, net of income taxes 642 — — Add back/(deduct): Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards 691 1,219 (534 ) Add back: Acquisition and disposition-related costs, net of income taxes 383 787 10,508 Add back: Severance expense, net of income taxes — 2,715 1,526 Adjusted net income $ 40,205 $ 36,299 $ 49,961 Deduct: Income distributed to participating securities (2,216 ) (2,163 ) (1,595 ) Deduct: Undistributed income allocable to participating securities (2,214 ) (1,679 ) (2,478 ) Adjusted net income available to common stockholders $ 35,775 $ 32,457 $ 45,888 Weighted average diluted shares, excluding participating securities (See Note 23 to our Consolidated Financial Statements) 148,688 151,975 147,290 Adjusted earnings per share - diluted $ 0.24 $ 0.21 $ 0.31 59 Table of Contents Liquidity and Capital Resources The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations: December 31, 2020 December 31, 2019 Balance Sheet Data (in thousands) : Cash and cash equivalents $ 73,425 $ 74,972 Securities owned, at fair value 34,895 17,319 Accounts receivable 29,455 26,838 Securities held-to-maturity 451 16,863 Total: Liquid assets 138,226 135,992 Less: Total current liabilities (73,999 ) (79,041 ) Less: Regulatory capital requirement – certain international subsidiaries (10,745 ) (12,312 ) Subtotal 53,482 44,639 Plus: Revolving credit facility – available capacity — (1) 27,908 Total: Available liquidity $ 53,482 $ 72,547 (1) Terminated on June 16, 2020. Year Ended December 31, 2020 2019 2018 Cash Flow Data (in thousands) : Operating cash flows $ 29,395 $ 46,832 $ 37,468 Investing cash flows 28,382 (7,005 ) (181,779 ) Financing cash flows (60,179 ) (43,566 ) 169,199 Foreign exchange rate effect 855 927 (1,297 ) (Decrease)/increase in cash and cash equivalents $ (1,547 ) $ (2,812 ) $ 23,591 Liquidity We consider our available liquidity to be our liquid assets, less our current liabilities and regulatory capital requirements of certain international subsidiaries. Liquid assets consist of cash and cash equivalents, securities owned at fair value, accounts receivable and securities held-to-maturity. Our securities owned, at fair value are highly liquid investments. Certain securities are accounted for as held-to-maturity securities and we have the intention and ability to hold them to maturity. However, these securities are also readily traded and, if needed, could be sold for liquidity. Accounts receivable are current assets and primarily represent receivables from advisory fees we earn from our ETPs. Our current liabilities consist primarily of payments owed to vendors and third parties in the normal course of business, deferred consideration and accrued incentive compensation for employees. Cash and cash equivalents decreased $1.5 million during the year ended December 31, 2020 due to $179.0 million used to repay our debt, $31.2 million used to repurchase our common stock, $20.1 million used to pay dividends on our common stock and $5.4 million used to pay convertible notes issuance costs. These decreases were partly offset by $175.3 million of proceeds from the issuance of convertible notes, $29.4 million of net cash provided by operating activities, $16.5 million of proceeds from held-to-maturity securities maturing or called prior to maturity, $9.6 million of proceeds from the sale of our financial interests in AdvisorEngine, $2.8 million of net proceeds from the sale of our Canadian ETF business and $0.6 million from other activities. Cash and cash equivalents decreased $2.8 million during the year ended December 31, 2019 due to $21.0 million used to partially repay our debt, $20.4 million used to pay dividends on our common stock, $8.1 million used to purchase investments, $2.3 million used to repurchase our common stock and $2.1 million used to fund notes receivable. These decreases were partly offset by net cash provided by operating activities of $46.8 million, $3.2 million from held-to-maturity securities called or maturing during the period and $1.1 million from other activities. Cash and cash equivalents increased $23.6 million during the year ended December 31, 2018 due to $200.0 million proceeds from the issuance of debt, $64.5 million from sales and maturities of debt securities available-for-sale, $37.5 million of cash generated by our operating activities and $1.1 million from held-to-maturity securities called or maturing during the period. These increases were partly offset by $239.3 million of cash paid upon closing of the ETFS Acquisition, net of cash acquired, $19.2 million used to pay dividends on our common stock, $8.7 million used to pay credit facility issuance costs, $8.0 million used to fund notes receivable, $2.9 million used to repurchase our common stock and $1.4 million used for other activities. 60 Table of Contents Issuance of Convertible Notes On August 13, 2020, we issued and sold $25.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023, or the Additional Notes, pursuant to an indenture, or the Indenture, dated June 16, 2020, between us and U.S. Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Additional Notes were issued at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, and constitute a further issuance of, and form a single series with, our outstanding 4.25% Convertible Senior Notes due 2023 issued on June 16, 2020 in the aggregate principal amount of $150.0 million (the “Existing Notes” and together with the Additional Notes, the “Convertible Notes”). After the issuance of the Additional Notes, we had $175.0 million aggregate principal amount of Convertible Notes outstanding. Key terms of the Convertible Notes are as follows: • Maturity date : June 15, 2023, unless earlier converted, repurchased or redeemed. • Interest rate of 4.25% : Payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. • Conversion price of $5.92 : Convertible at an initial conversion rate of 168.9189 shares of our common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $5.92 per share. • Conversion : Holders may convert at their option at any time prior to the close of business on the business day immediately preceding March 15, 2023 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sales price of our common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption that we deliver in accordance with the terms in the Indenture but only with respect to the Convertible Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after March 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. • Cash settlement of principal amount : Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At our election, we will also settle our conversion obligation in excess of the aggregate principal amount to the Convertible Notes being converted in either cash, shares of our common stock or a combination of cash and shares of its common stock. • Redemption price of $7 . 70 : We may redeem for cash all or any portion of the notes, at our option, on or after June 20, 2021 and on or prior to the 55 th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provides notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. No sinking fund is provided for the Convertible Notes. • Limited investor put rights : Holders of the Convertible Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events. • Conversion rate increase in certain customary circumstances : In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the Indenture) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 270.2702 shares of our common stock per $1,000 principal amount of the Convertible Notes (the equivalent of 47,297,285 shares of our common stock), subject to adjustment. • Seniority and Security : The Convertible Notes are our senior unsecured obligations, but are subordinated in right of payment to our obligations to make certain redemption payments (if and when due) in respect of our Series A Non-Voting Convertible Preferred Stock (See Note 15 to our Consolidated Financial Statements). The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes outstanding may declare the entire principal amount of all the Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable. 61 Table of Contents Termination of Former Credit Facility On June 16, 2020 and in connection with the issuance of the Existing Notes, we repaid our debt previously outstanding and terminated our former credit facility. We are therefore no longer subject to compliance with financial covenants under our former credit facility or limitations on stock repurchases and dividend payments. 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 at least the next 12 months. Use of Capital Our business does not require us to maintain a significant cash position. However, certain of our international subsidiaries are required to maintain a minimum level of regulatory capital, which at December 31, 2020 was approximately $10.7 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, 2022, including purchases to offset future equity grants made under our equity plans. During the year ended December 31, 2020, we repurchased 8,234,324 shares of our common stock under the repurchase program for an aggregate cost of $31.2 million. Currently, $52.2 million remains under this program for future purchases. Contractual Obligations The following table summarizes our future payments associated with contractual obligations as of December 31, 2020. Total Payments Due by Period (in thousands) Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Convertible Notes (1) $ 175,250 $ — $ 175,250 $ — $ — Deferred consideration – gold payments (2) 230,137 17,374 30,878 26,480 155,405 Operating leases 26,693 3,135 5,916 6,185 11,457 Total $ 432,080 $ 20,509 $ 212,044 $ 32,665 $ 166,862 (1) Conditional conversions or a requirement to repurchase the Convertible Notes upon the occurrence of a fundamental change may accelerate payment (See Note 14 to our Consolidated Financial Statements). (2) Paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold with no recourse back to us for any unpaid amounts that exceed advisory fees earned (See Note 12 to our Consolidated Financial Statements). 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 Business Combinations We account for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations, which requires an allocation of the consideration we paid to the identifiable assets, intangible assets and liabilities based on the estimated fair values as of the closing date of the acquisition. The excess of the fair value of purchase price over the fair values of these identifiable assets, intangible assets and liabilities is recorded as goodwill. 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. 62 Table of Contents Goodwill is allocated to our U.S. Business and European Business components. Effective January 1, 2020, 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. Previously, these components were tested separately for impairment when we were operating as more than one operating segment. 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 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 analysis identified no indicators of impairment to be recognized based upon a quantitative assessment (discounted cash flow analysis) which relied upon significant unobservable inputs including projected revenue growth rates ranging from 3% to 11% (3.5% weighted average) and a weighted average cost of capital of 9.0%. Investments We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities , to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment. See Notes 8 and 10 to our Consolidated Financial Statements for information regarding impairments recognized on our financial interests in AdvisorEngine and our investment in Thesys during the year ended December 31, 2020. Deferred Consideration – Gold Payments Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices, a selected discount rate and perpetual growth rate. The weighted average forward-looking gold price per ounce and discount rate was $2,117 and 9.0%, respectively, at December 31, 2020. Changes in the fair value of this obligation are reported as (loss)/gain on revaluation of deferred consideration – gold payments on the Company’s Consolidated Statements of Operations. During the year ended December 31, 2020, we reported a loss on deferred consideration – gold payments of $56.8 million. A 1.0% increase in the weighted average forward-looking gold price per ounce would have increased this reported loss by $1.9 million and a 1.0% increase in the discount rate would have decreased this reported loss by $23.0 million. A 1.0% change in the perpetual growth rate is not meaningful. See Note 12 to our Consolidated Financial Statements for additional information. Revenue Recognition We earn substantially all of our revenue in the form of advisory fees from our ETPs and recognize this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice. Recently Issued Accounting Pronouncements In August 2020, the Financial Accounting Standards Board, or FASB, issued ASU 2020-06, Debt – Debt with Conversion and Other Options (ASU 2020-06). Under the ASU, the accounting for convertible instruments will be simplified by removing major separation models required under current GAAP. Accordingly, more convertible instruments will be reported as a single liability or equity with no separate accounting for embedded conversion features. Certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception will be removed and, as a result, more equity contracts will qualify for the scope exception. The ASU will also simplify the diluted earnings-per-share calculation in certain areas. The ASU will be effective for years beginning after December 31, 2021, including interim periods within those fiscal years. Early adoption is permitted for fiscal periods beginning after December 15, 2020 (including interim periods within the same fiscal year). The adoption of this ASU will result in a reduction of interest expense recognized on our Convertible Notes (See Note 14 to our Consolidated Financial Statements) of approximately $0.4 million per quarter. We expect to early adopt this ASU. 63 Table of Contents In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12). The main objective of the standard is to reduce complexity in the accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income); (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The standard also simplifies the accounting for income taxes by enacting the following: (a) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount as a non-income-based tax; (b) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered as a separate transaction; (c) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (d) requiring that an entity reflect the enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for years beginning after December 15, 2020, including the interim periods within those reporting periods. Early adoption is permitted. We have determined that this standard will not have a material impact on our financial statements and are not early adopting this ASU. Recently Adopted Accounting Pronouncements On January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In issuing this standard, the FASB is responding to criticism that prior guidance delayed recognition of credit losses. The standard replaced the prior guidance’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss, or CECL, model, applies to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity) and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The CECL model does not apply to available-for-sale debt securities. For available-for-sale debt securities with unrealized losses, entities measure credit losses in a manner similar to prior guidance, except that the credit losses are recognized as allowances rather than reductions in the amortized cost of the securities. Accordingly, the new methodology is utilized when assessing our financial instruments for impairment. As a result, entities recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time. The ASU also simplified the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expanded the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. The adoption of this standard, which is applicable to our trade receivables, notes receivable and held-to-maturity securities, did not have a material impact on our consolidated financial statements. On January 1, 2020, we adopted ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modified the disclosure requirements on fair value measurements, including removing the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 also added new disclosures including the requirement to disclose (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard only impacted the disclosures pertaining to fair value measurements and were incorporated into the Notes to our Consolidated Financial Statements.