What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 252 added, 136 removed, 353 unchanged (52% of the section changed)

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Executive Summary

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 $69.5 billion globally as of March 31, 2021.

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).

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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.

We distribute our products through all major channels in the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force.

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

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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, cryptocurrency and alternative strategies.

In exchange for providing these services, we receive advisory fee revenues based on a percentage of the ETPs’ average daily AUM.

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on September 6, 2005.

Recent Developments

Digital Assets – Developments

We are executing on our digital assets initiative and have made meaningful advancements.

We recently filed for the WisdomTree Bitcoin Trust and the WisdomTree Digital Short-Term Treasury Fund with the SEC.

We filed for the WisdomTree Bitcoin Trust (the approval for stock exchange listing has recently been delayed), the WisdomTree Ethereum Trust and the WisdomTree Digital Short-Term Treasury Fund with the SEC, among other regulatory and product related digital asset advancements which we expect to communicate in the future.

We cross-listed our European-domiciled WisdomTree Bitcoin ETP, or BTCW, in Germany, appointed Coinbase Custody as a custodian and received approval to passport BTCW in the European Union, or EU, allowing for a wider audience to access and invest in the product.

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WisdomTree ETPs

We offer ETPs covering equity, commodity, fixed income, leveraged-and-inverse,

currency, cryptocurrency and alternative strategies.

The chart below sets forth the asset mix of our ETPs at March 31, 2020, December 31, 2020 and March 31, 2021:

We offer ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies.

The chart below sets forth the asset mix of our ETPs at June 30, 2020, March 31, 2021 and June 30, 2021:

Market Environment

During the first quarter of 2021, global equity markets performed favorably upon the rollout of COVID-19

vaccines and further economic stimulus.

These developments contributed to a sharp rise in government bond yields and a decline in gold prices during the quarter.

During the second quarter of 2021, global equity markets advanced upon the acceleration of the rollout of COVID-19

Rebounds in economic activity contributed to inflationary concerns and lower government bond yields.

Gold prices also increased modestly during the quarter.

The S&P 500 rose 8.6%, MSCI EAFE (local currency) rose 5.0%, MSCI Emerging Markets Index (U.S.

dollar) rose 2.3%, while gold prices declined 10.6% during the first quarter of 2021.

dollar) rose 5.1%, and gold prices rose 4.3% during the second quarter of 2021.

In addition, the European and Japanese equities markets both appreciated with the MSCI EMU Index and MSCI Japan Index increasing 6.2% and 0.2%, respectively, in local currency terms for the quarter.

Also, the U.S.

dollar strengthened 7.3% and 1.3% versus the Japanese yen and British pound, while weakening 4.4% versus the euro during the quarter.

dollar weakened 1.4%, 0.7% and 0.2% versus the euro, British pound and Japanese yen, respectively, during the quarter.

listed ETF Industry Flows

listed ETF net flows for the three months ended March 31, 2021 were $248.6 billion.

equity gathered the majority of those flows.

listed ETF industry net flows for the three months ended June 30, 2021 were $220.3 billion.

equity and fixed income gathered the majority of those flows.

European ETP Industry Flows

European ETP net flows were $58.0 billion for the three months ended March 31, 2021.

Equities gathered the majority of those flows.

Operating and Financial Results

European ETP industry net flows were $52.5 billion for the three months ended June 30, 2021.

Equities and fixed income gathered the majority of those flows.

Our Operating and Financial Results

We operate as an ETP sponsor and asset manager providing investment advisory services globally through our subsidiaries in the United States and Europe.

listed ETFs’ AUM increased from $38.5 billion at December 31, 2020 to $42.2 billion at March 31, 2021 due to market appreciation and net inflows.

International Listed ETPs

Our international ETPs’ AUM decreased from $28.9 billion at December 31, 2020 to $27.4 billion at March 31, 2021 due to market depreciation, primarily in our gold products.

listed ETFs’ AUM increased from $42.2 billion at March 31, 2021 to $45.1 billion at June 30, 2021 due to market appreciation and net inflows.

European Listed ETPs

Our European listed ETPs’ AUM increased from $27.4 billion at March 31, 2021 to $28.8 billion at June 30, 2021 due to market appreciation.

Consolidated Operating Results

The following table sets forth our revenues and net income/(loss) for the most recent five quarters:

– We recorded operating revenues of $72.8 million during the three months ended March 31, 2021, up 14.0% from the three months ended March 31, 2020 due to higher average AUM arising from market appreciation and net inflows.

– Total operating expenses increased 12.4% from the three months ended March 31, 2020 to $54.2 million due to higher incentive compensation, fund management and administration costs, professional fees, contractual gold payments and marketing expenses, partly offset by lower sales and business development and other expenses.

– We recorded operating revenues of $77.6 million during the three months ended June 30, 2021, up 33.5% from the three months ended June 30, 2020 due to higher average global AUM arising from market appreciation and net inflows.

Operating Expenses

– Total operating expenses increased 16.4% from the three months ended June 30, 2020 to $53.9 million primarily due to higher incentive compensation and headcount, fund management and administration costs, marketing expenses, third-party distribution fees and professional fees.

Other Income/(Expenses)

– Other income/(expenses) includes interest income and interest expense, gains/(losses) on revaluation of deferred consideration – gold payments, impairments and other net losses.

For the three months ended March 31, 2021 and 2020, the gains/(losses) on revaluation of deferred consideration – gold payments were $2.8 million and ($2.2) million, respectively.

We recognized charges arising from a release of a tax-related

indemnification asset upon the expiration of the statute of limitations of $5.2 million and $6.0 million during the three months ended March 31, 2021 and 2020, respectively.

An equal and offsetting benefit has been recognized in income taxes.

In addition, during the three months ended March 31, 2021, we recorded an unrealized gain on our investment in Securrency of $0.2 million and recognized an impairment charge of $0.3 million arising from exiting our London office.

During the three months ended March 31, 2020, we recognized a non-cash

impairment charge of $19.7 million on our investment in AdvisorEngine, Inc., or AdvisorEngine, and recorded a gain of $2.9 million associated with the sale of our Canadian ETF business.

– Other income/(expenses) includes interest income and interest expense, gains/(losses) on revaluation of deferred consideration – gold payments, impairments and other gains and losses.

For the three months ended June 30, 2021 and 2020, the gains/(losses) on revaluation of deferred consideration – gold payments were $0.5 million and ($23.4) million, respectively.

Net income/(loss)

– We reported net income of $15.1 million during the three months ended March 31, 2021, compared to a net loss of ($8.6) million during the three months ended March 31, 2020.

The change in net income/(loss) was impacted by the change in revenue and expenses described above, a favorable change related to the revaluation of deferred consideration – gold payments of $5.0 million, as well as the previously mentioned $19.7 million impairment charge and $2.9 million gain that were recorded in the prior year period.

– We reported net income of $17.6 million during the three months ended June 30, 2021, compared to a net loss of ($13.3) million during the three months ended June 30, 2020.

The change in net income/(loss) was impacted by the change in revenue and expenses described above and a favorable change related to the revaluation of deferred consideration – gold payments of $23.9 million.

Key Operating Statistics

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Three Months Ended

Six Months Ended

GLOBAL ETPs (in millions)

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Average ETP advisory fee during the period

Number of ETPs – end of the period

Number of ETPs—end of period

LISTED ETFs (in millions)

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Number of ETFs – end of the period

INTERNATIONAL LISTED ETPs ($ in millions)

EUROPEAN LISTED ETPs (in millions)

Beginning of period assets

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Three Months Ended

Six Months Ended

International Developed Market Equity

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Previously issued statistics may be restated due to fund closures and trade adjustments

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Selected Operating and Financial Information

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Average Global AUM

Our average global AUM increased 15.6% from $60.2 billion at March 31, 2020 to $69.6 billion at March 31, 2021 due to market appreciation and net inflows.

Our average global AUM increased 32.1% from $55.7 billion at June 30, 2020 to $73.7 billion at June 30, 2021 due to market appreciation and net inflows.

Operating Revenues

Advisory fees

Advisory fee revenues increased 13.8% from $63.0 million during the three months ended March 31, 2020 to $71.6 million in the comparable period in 2021 due to higher average global AUM.

Our average global advisory fee was 0.42% during the three months ended March 31, 2020 and March 31, 2021.

Other income increased 31.4% from $0.9 million during the three months ended March 31, 2020 to $1.2 million in the comparable period in 2021 primarily due to higher fees associated with our international listed products.

Advisory fee revenues increased 32.8% from $57.2 million during the three months ended June 30, 2020 to $76.0 million in the comparable period in 2021 due to higher average global AUM.

Our average global advisory fee was 0.41% during both the three months ended June 30, 2020 and June 30, 2021, respectively.

Other income increased 74.9% from $0.9 million during the three months ended June 30, 2020 to $1.6 million in the comparable period in 2021 primarily due to higher fees associated with our European listed products.

Operating Expenses

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Occupancy, communications and equipment

Depreciation and amortization

Three Months Ended

As a Percent of Revenues:

Depreciation and amortization

Third-party distribution fees

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Compensation and benefits

Compensation and benefits expense increased 30.8% from $17.3 million during the three months ended March 31, 2020 to $22.6 million in the comparable period in 2021 due to higher incentive compensation accruals.

Headcount was 210 and 227 at March 31, 2020 and March 31, 2021, respectively.

Compensation and benefits expense increased 16.5% from $17.5 million during the three months ended June 30, 2020 to $20.3 million in the comparable period in 2021 due to higher incentive compensation and headcount.

Headcount was 214 and 227 at June 30, 2020 and June 30, 2021, respectively.

Fund management and administration

Fund management and administration expense increased 7.2% from $14.5 million during the three months ended March 31, 2020 to $15.5 million in the comparable period in 2021 due to higher average global AUM.

Fund management and administration expense increased 12.0% from $14.5 million during the three months ended June 30, 2020 to $16.2 million in the comparable period in 2021 due to higher average global AUM.

Marketing and advertising

Marketing and advertising expense increased 21.8% from $2.5 million during the three months ended March 31, 2020 to $3.0 million in the comparable period in 2021 as our spending in the prior year period was reduced at the onset of the COVID-19

Marketing and advertising expense increased 84.4% from $1.9 million during the three months ended June 30, 2020 to $3.6 million in the comparable period in 2021 as our spending in the prior year period was reduced at the onset of the COVID-19

Sales and business development

Sales and business development expense decreased 37.2% from $3.4 million during the three months ended March 31, 2020 to $2.1 million in the comparable period in 2021 primarily due to lower discretionary spending resulting from the COVID-19

Sales and business development expense was essentially unchanged from the three months ended June 30, 2020.

Contractual gold payments

Contractual gold payments expense increased 13.6% from $3.8 million during the three months ended March 31, 2020 to $4.3 million in the comparable period in 2021.

This expense was associated with the payment of 2,375 ounces of gold and was calculated using the average daily spot price of $1,583 and $1,798 per ounce during the three months ended March 31, 2020 and 2021, respectively.

Contractual gold payments expense increased 6.2% from $4.1 million during the three months ended June 30, 2020 to $4.3 million in the comparable period in 2021.

This expense was associated with the payment of 2,375 ounces of gold and was calculated using the average daily spot price of $1,711 and $1,816 per ounce during the three months ended June 30, 2020 and 2021, respectively.

Professional fees

Professional fees increased 58.1% from $1.3 million during the three months ended March 31, 2020 to $2.0 million in the comparable period in 2021 due to spending related to our digital assets initiative.

Professional fees increased 41.6% from $1.4 million during the three months ended June 30, 2020 to $1.9 million in the comparable period in 2021 due to spending related to our digital assets initiative.

Occupancy, communications and equipment

Occupancy, communications and equipment expense decreased 4.9% from $1.6 million during the three months ended March 31, 2020 to $1.5 million in the comparable period in 2021 as we exited our London office.

Occupancy, communications and equipment expense decreased 22.9% from $1.6 million during the three months ended June 30, 2020 to $1.3 million in the comparable period in 2021 as we exited our London office.

Depreciation and amortization

Depreciation and amortization expense was essentially unchanged from the three months ended March 31, 2020.

Depreciation and amortization expense was essentially unchanged from the three months ended June 30, 2020.

Third-party distribution fees

Third-party distribution fees were essentially unchanged from the three months ended March 31, 2020.

Acquisition and disposition-related costs

Acquisition and disposition-related costs of $0.4 million during the three months ended March 31, 2020 were recognized in connection with the sale of our Canadian ETF business.

Other expenses decreased 21.3% from $2.0 million during the three months ended March 31, 2020 to $1.6 million in the comparable period in 2021 primarily due to lower office-related and travel expenses as our employees are working remotely.

Third-party distribution fees increased 59.0% from $1.3 million during the three months ended June 30, 2020 to $2.1 million in the comparable period in 2021 primarily due to higher fees paid to our third-party marketing agent in Latin America and higher fees for platform relationships.

Other expenses were essentially unchanged from the three months ended June 30, 2020.

Other Income/(Expenses)

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Interest expense

Gain/(loss) on revaluation of deferred consideration

Gain/(loss) on revaluation of deferred consideration – gold payments

Interest income

Other losses, net

Total other income/(expenses)

Three Months Ended March 31,

Loss on extinguishment of debt

Other gains, net

Total other expenses, net

Three Months Ended

As a Percent of Revenues:

Interest expense

Gain/(loss) on revaluation of deferred consideration – gold payments

Interest income

Loss on extinguishment of debt

Other gains, net

Total other expenses, net

Interest expense

Interest expense increased 25.6% from $2.0 million during the three months ended June 30, 2020 to $2.6 million in the comparable period in 2021 due to a higher level of debt outstanding and a higher effective interest rate.

Our effective interest rate during the three months ended June 30, 2020 and 2021 was 4.5% and 5.2%, respectively.

Gain/(loss) on revaluation of deferred consideration

We recognized a loss on revaluation of deferred consideration of ($23.4) million during the three months ended June 30, 2020 as compared to a gain of $0.5 million during the three months ended June 30, 2021.

The gain in the current quarter arose due to a flattening of the forward-looking gold curve.

The loss in the prior period arose due to an increase in forward-looking gold prices.

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 89.1% from $0.1 million to $0.2 million due to an increase in our securities owned.

Loss on extinguishment of debt

During the three months ended June 30, 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 on June 16, 2020.

Other gains, net

Other gains, net were $1.8 million and $0.0 million during the three months ended June 30, 2020 and 2021, respectively.

Included in other gains, net during the three months ended June 30, 2020 is a gain of $0.9 million arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine.

Gains and losses generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items.

Our effective income tax rate for the three months ended June 30, 2021 of 19.5% resulted in income tax expense of $4.3 million.

Our effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a lower tax rate on foreign earnings.

Our effective income tax rate for the three months ended June 30, 2020 of 5.7% resulted in an income tax benefit of $0.8 million.

Our effective income tax rate differs from the federal statutory tax rate of 21% due to a non-deductible

loss on revaluation of deferred consideration.

This loss was partly offset by a tax benefit of $2.8 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 United Kingdom and a lower tax rate on foreign earnings.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Selected Operating and Financial Information

Six Months Ended

Global AUM (in millions)

Average global AUM

Revenues (in thousands)

Advisory fees

Total revenues

Average Global AUM

Our average global AUM increased 23.6% from $57.9 billion at June 30, 2020 to $71.6 billion at June 30, 2021 arising from market appreciation and net inflows.

Operating Revenues

Advisory fees

Advisory fee revenues increased 22.8% from $120.2 million during the six months ended June 30, 2020 to $147.6 million in the comparable period in 2021 due to higher average global AUM.

Our average global advisory fee was 0.42% during both the six months ended June 30, 2020 and June 30, 2021, respectively.

Other income increased 53.1% from $1.8 million during the six months ended June 30, 2020 to $2.8 million in the comparable period in 2021 primarily due to higher fees associated with our European listed products.

Operating Expenses

Six Months Ended

(in thousands)

Compensation and benefits

Fund management and administration

Marketing and advertising

Sales and business development

Contractual gold payments

Professional fees

Occupancy, communications and equipment

Depreciation and amortization

Third-party distribution fees

Acquisition and disposition-related costs

Total operating expenses

Six Months Ended

As a Percent of Revenues:

Compensation and benefits

Fund management and administration

Marketing and advertising

Sales and business development

Contractual gold payments

Six Months Ended

As a Percent of Revenues:

Professional fees

Occupancy, communications and equipment

Depreciation and amortization

Third-party distribution fees

Acquisition and disposition-related costs

Total operating expenses

Compensation and benefits

Compensation and benefits expense increased 23.6% from $34.8 million during the six months ended June 30, 2020 to $43.0 million in the comparable period in 2021 due to higher incentive compensation and headcount.

Fund management and administration

Fund management and administration expense increased 9.6% from $28.9 million during the six months ended June 30, 2020 to $31.7 million in the comparable period in 2021 primarily due to higher average global AUM.

Marketing and advertising

Marketing and advertising expense increased 49.4% from $4.4 million during the six months ended June 30, 2020 to $6.6 million in the comparable period in 2021 as our spending in the prior year was reduced at the onset of the COVID-19

Sales and business development

Sales and business development expense decreased 23.1% from $5.6 million during the six months ended June 30, 2020 to $4.3 million in the comparable period in 2021 primarily due to lower discretionary spending resulting from the COVID-19

Contractual gold payments

Contractual gold payments expense increased 9.7% from $7.8 million during the six months ended June 30, 2020 to $8.6 million in the comparable period in 2021.

This expense was associated with the payment of 4,750 ounces of gold and was calculated using the average daily spot price of $1,738 and $1,908 per ounce during the six months ended June 30, 2020 and 2021, respectively.

Professional fees

Professional fees increased 49.6% from $2.6 million during the six months ended June 30, 2020 to $3.9 million in the comparable period in 2021 due to spending related to our digital assets initiative.

Occupancy, communications and equipment

Occupancy, communications and equipment expense decreased 14.2% from $3.2 million during the six months ended June 30, 2020 to $2.7 million in the comparable period in 2021 as we exited our London office.

Depreciation and amortization

Depreciation and amortization expense was essentially unchanged from the six months ended June 30, 2020.

Third-party distribution fees

Third-party distribution fees increased 28.9% from $2.7 million during the six months ended June 30, 2020 to $3.5 million in the comparable period in 2021 due to higher fees paid to our third-party marketing agent in Latin America and higher fees for platform relationships.

Acquisition and disposition-related costs

Acquisition and disposition-related costs of $0.4 million during the six months ended June 30, 2020 arose due to the sale of our Canadian ETF business which was completed in February 2020.

Other expenses were essentially unchanged from the six months ended June 30, 2020.

Other Income/(Expenses)

Six Months Ended

(in thousands)

Interest expense

Gain/(loss) on revaluation of deferred consideration – gold payments

Interest income

Loss on extinguishment of debt

Other losses, net

Total other income/(expenses)

Total other expenses, net

Six Months Ended

As a Percent of Revenues:

Interest expense

Interest expense decreased 5.1% from $2.4 million during the three months ended March 31, 2020 to $2.3 million in the comparable period in 2020 due to a lower level of debt outstanding.

In addition, we early adopted Accounting Standards Update 2020-06,

Debt – Debt with Conversion and Other Options, Cash Conversion

on January 1, 2021 that eliminated the requirement to bifurcate certain conversion options embedded in convertible instruments (applicable to our convertible notes).

Previously, the discount arising from bifurcation was amortized as interest expense over the life of the instrument.

Our effective interest rate during the three months ended March 31, 2020 and 2021 was 5.0% and 5.3%, respectively.

Gain/(loss) on revaluation of deferred consideration – gold payments

We recognized a loss on revaluation of deferred consideration of ($2.2) million during the three months ended March 31, 2020 as compared to a gain of $2.8 million during the three months ended March 31, 2021.

The gain in the current quarter arose due to a decline in spot gold prices, partly offset by a steepening of the forward-looking gold curve.

The loss in the prior period arose due to an increase in forward-looking gold prices.

Interest income

Loss on extinguishment of debt

Other losses, net

Total other expenses, net

Interest expense

Interest expense increased 9.0% from $4.5 million during the six months ended June 30, 2020 to $4.9 million in the comparable period in 2020 due to a high level of debt outstanding, partly offset by a lower effective interest rate.

Our effective interest rate during the six months ended June 30, 2020 and 2021 was 5.5% and 5.2%, respectively.

Gain/(loss) on revaluation of deferred consideration

We recognized a loss on revaluation of deferred consideration of ($25.6) million during the six months ended June 30, 2020 as compared to a gain of $3.3 million during the six months ended June 30, 2021.

The gain in the current period was due to a decline in spot gold prices, partly offset by a steepening of the forward-looking gold curve.

The loss in the prior period was due to an increase in forward-looking gold prices.

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 was essentially unchanged from the three months ended March 31, 2020.

During the three months ended March 31, 2021, we recognized an impairment charge of $0.3 million upon exiting our London office.

During the three months ended March 31, 2020, we recognized a non-cash

Interest income increased 61.7% from $0.3 million to $0.5 million due to an increase in our securities owned.

During the six months ended June 30, 2021, we recognized an impairment charge of $0.3 million upon exiting our London office.

During the six months ended June 30, 2020, we recognized a non-cash

impairment charge of $19.7 million on our investment in AdvisorEngine.

Loss on extinguishment of debt

During the six months ended June 30, 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 on June 16, 2020.

Other losses, net

Other losses, net were $2.5 million and $5.9 million during the three months ended March 31, 2020 and 2021, respectively.

Included in the loss recognized during the three months ended March 31, 2020 and 2021 is a charge of $6.0 million and $5.2 million, respectively, arising from the release of a tax-related

Other losses, net were $0.7 million and $5.9 million during the six months ended June 30, 2020 and 2021, respectively.

Included in the losses recognized during the six months ended June 30, 2020 and 2021 is a charge of $6.0 million and $5.2 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.

During the three months ended March 31, 2021, we also recognized an unrealized gain of $0.2 million on our investment in Securrency.

In addition, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business during the three months ended March 31, 2020.

During the six months ended June 30, 2021, we also recognized an unrealized gain of $0.4 million on our investment in Securrency.

In addition, during the six months ended June 30, 2020, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business and a gain of $0.9 million arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine.

Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items.

Our effective income tax rate for the three months ended March 31, 2021 of negative 14.9% resulted in an income tax benefit of $2.0 million.

Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a $5.2 million reduction in unrecognized tax benefits, a non-taxable

gain on revaluation of deferred consideration and a lower tax rate on foreign earnings, partly offset tax shortfalls associated with the vesting and exercise of stock-based compensation awards.

Our effective income tax rate for the three months ended March 31, 2020 of 21.5% resulted in an income tax benefit of $2.4 million.

Our effective income tax rate differs from the federal statutory rate of 21% primarily due a $6.0 million reduction in unrecognized tax benefits, a $2.9 million non-taxable

gain upon the sale of our Canadian ETF business and a lower tax rate on foreign earnings, partly offset by a valuation allowance on capital losses, tax shortfalls associated with the vesting and exercise of stock-based compensation awards and a non-deductible

loss on revaluation of deferred consideration.

Financial Measures

Our effective income tax rate for the six months ended June 30, 2021 of 6.5% resulted in income tax expense of $2.3 million.

Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a $5.2 million reduction in unrecognized tax benefits, a lower tax rate on foreign earnings and a non-taxable

gain on revaluation of deferred consideration.

These items were partly offset by tax shortfalls associated with the vesting and exercise of stock-based compensation and state and local taxes.

Our effective income tax rate for the six months ended June 30, 2020 of 12.7% resulted in an income tax benefit of $3.2 million.

Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on capital losses, a non-deductible

loss on revaluation of deferred consideration and tax shortfalls associated with the vesting and exercise of stock-based compensation awards.

These items were partly offset by a $6.0 million reduction in unrecognized tax benefits, a $2.9 million non-taxable

gain recognized upon sale of our Canadian ETF business in the first quarter of 2020, a tax benefit of $2.8 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 United Kingdom and a lower tax rate on foreign earnings.

Financial Measurements

In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP

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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.

Impairment charges, an unrealized gain recognized on our investment in Securrency, a gain recognized upon the sale of our Canadian ETF business and acquisition and disposition-related costs are excluded when determining adjusted net income and adjusted earnings per share.

Three Months Ended March 31,

An unrealized gain recognized on our investment in Securrency, impairment charges, interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the Convertible Notes (prior to January 1, 2021, the effective date of Accounting Standards Update 2020-06,

Debt – Debt with Conversion and Other Options, Cash Conversion)

, a 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 United Kingdom, a gain arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine, a gain recognized upon the sale of our Canadian ETF business and acquisition and disposition-related costs are excluded when calculating our non-GAAP

financial measurements.

Three Months Ended

Six Months Ended

Adjusted Net Income and Diluted Earnings per Share:

3 unchanged sentences

Unrealized gain recognized on our investment in Securrency, net of income taxes

Deduct/Add back:

Tax (windfalls)/shortfalls upon vesting and exercise of stock-based compensation awards

Loss on extinguishment of debt, net of income taxes

Release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from debt previously outstanding in the United Kingdom

Interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the convertible notes, net of income taxes

Gain arising from an adjustment to the estimated fair value of consideration received from the exit of investment in AdvisorEngine

Impairments, net of income taxes (where applicable)

Tax shortfalls upon vesting and exercise of stock-based compensation awards

Gain recognized upon sale of Canadian ETF business

Acquisition and disposition-related costs, net of income taxes

Gain recognized upon the sale of our Canadian ETF business

Adjusted net income

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Adjusted net income available to common stockholders

Weighted average diluted shares, excluding participating securities

(See Note 18 to our Consolidated Financial Statements)

Weighted average diluted shares, excluding participating securities (in thousands) (See Note 19 to our Consolidated Financial Statements)

Adjusted earnings per share - diluted

Liquidity and Capital Resources

The following table summarizes key data regarding our liquidity, capital resources and uses of capital to fund our operations:

The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:

Balance Sheet Data (in thousands)

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Available liquidity

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flow Data (in thousands)

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Foreign exchange rate effect

Decrease in cash and cash equivalents

Increase/(decrease) in cash and cash equivalents

We consider our available liquidity to be our liquid assets, less our current liabilities and regulatory capital requirements of certain international subsidiaries.

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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 $11.1 million during the three months ended March 31, 2021 due to $5.5 million used to purchase investments, $4.9 million used to pay dividends on our common stock and $2.6 million used to repurchase our common stock.

These decreases were partly offset by $1.9 million provided by operating activities.

Cash and cash equivalents decreased $6.5 million during the three months ended March 31, 2020 due to $5.1 million used to pay dividends on our common stock, $5.0 million used to repay our debt, $2.6 million used in operating activities, $1.5 million used to repurchase our common stock and $1.1 million used in other activities.

These decreases were partly offset by $6.0 million of proceeds from held-to-maturity

securities maturing or called prior to maturity and $2.8 million of net proceeds from the sale of our Canadian ETF business.

Cash and cash equivalents increased $94.2 million during the six months ended June 30, 2021 due to $150.0 million of proceeds received from the issuance of the 2021 Notes and $0.9 million provided by other activities.

These increases were partly offset by $34.5 million used to repurchase our common stock, $9.9 million used to pay dividends on our common stock, $5.8 million used to purchase investments, $4.3 million used to pay the 2021 Note issuance costs and $2.2 million of net cash used in operating activities.

Cash and cash equivalents decreased $24.7 million during the six months ended June 30, 2020 due to $179.0 million used to repay our debt, $26.4 million used to repurchase our common stock, $10.3 million used to pay dividends on our common stock, $4.6 million used to pay the June 2020 Notes issuance costs and $1.2 million used in other activities.

These decreases were partly offset by $150.0 million of proceeds from the issuance of the June 2020 Notes, $19.4 million of net cash provided by operating activities, $16.4 million of proceeds from held-to-maturity

securities maturing or called prior to maturity, $8.2 million of proceeds from the sale of our financial interests in AdvisorEngine and $2.8 million of net proceeds from the sale of our Canadian ETF business.

Issuance of Convertible Notes

On June 16, 2020, we issued and sold $150,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “Existing Notes”) pursuant to an Indenture (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.

On August 13, 2020, we issued and sold $25,000 in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “Additional Notes”) 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 Existing Notes (the Additional Notes and together with the Existing Notes, the “Convertible Notes”).

After the issuance of the Additional Notes, we had $175,000 aggregate principal amount of Convertible Notes outstanding.

On June 14, 2021, we issued and sold $150.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, between us and U.S.

Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”).

On June 16, 2020, we issued and sold $150.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “June 2020 Notes”) pursuant to an indenture dated June 16, 2020, between us and the trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A.

On August 13, 2020, we issued and sold $25.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, and constitute a further issuance of, and form a single series with, our June 2020 Notes (the “August 2020 Notes” and together with the June 2020 Notes, the “2020 Notes”).

After the issuance of the 2021 Notes (and together with the 2020 Notes, the “Convertible Notes”), we had $325.0 million aggregate principal amount of Convertible Notes outstanding.

Key terms of the Convertible Notes are as follows:

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.

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:

Maturity date (unless earlier converted, repurchased or redeemed)

June 15, 2026

June 15, 2023

Interest rate

Conversion price

Conversion rate

Redemption price

Interest rate

Payable semiannually in arrears on June 15 and December 15 of each year.

Conversion price

Convertible at an initial conversion rate of our common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price as disclosed in the table above).

Holders may convert at their option at any time prior to the close of business on the business day immediately preceding March 15, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, only under the following circumstances:

(i) if the last reported sale price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sales price of our common stock and the conversion rate on each such trading day;

(iii) upon a notice of redemption that we deliver in accordance with the terms of the Indenture but only with respect to the Convertible Notes called (or deemed called) for redemption;

(iii) upon a notice of redemption delivered by us in accordance with the terms of the indentures but only with respect to the Convertible Notes called (or deemed called) for redemption;

or (iv) upon the occurrence of specified corporate events.

On or after March 15, 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.

On or after March 15, 2026 and March 15, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances.

Cash settlement of principal amount

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At our election, we will also settle our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of our common stock or a combination of cash and shares of its common stock.

Redemption price of $7

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.

Redemption price

We may redeem for cash all or any portion of the notes, at our option, on or after June 20, 2026 and June 20, 2023 in respect of the 2021 Notes and 2020 Notes, respectively, 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 provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date.

No sinking fund is provided for the Convertible Notes.

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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.

In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the indentures) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 144.9275 shares and 270.2702 shares of our common stock per $1,000 principal amount of the 2021 Notes and 2020 Notes, respectively (the equivalent of 69,036,410 shares of our common stock), subject to adjustment.

Seniority and Security

The 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 its Series A Non-Voting

The 2021 Notes and 2020 Notes rank equal in right of payment, and are our senior unsecured obligations, but are subordinated in right of payment to our obligations to make certain redemption payments (if and when due) in respect of its Series A Non-Voting

Convertible Preferred Stock (See Note 12 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.

The indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes outstanding may declare the entire principal amount of all the Convertible Notes to be repurchased, plus any accrued special interest, if any, to be immediately due and payable.

Capital Resources

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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 March 31, 2021 was approximately $12.2 million in the aggregate.

However, certain of our international subsidiaries are required to maintain a minimum level of regulatory capital, which at June 30, 2021 was approximately $12.4 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 three months ended March 31, 2021, we repurchased 489,763 shares of our common stock under the repurchase program for an aggregate cost of $2.6 million.

At March 31, 2021, $49.6 million remained under this program for future purchases.

During the three months ended June 30, 2021, we repurchased 4,630,733 shares of our common stock under the repurchase program for an aggregate cost of $31.9 million.

At June 30, 2021, $17.7 million remained under this program for future purchases.

Contractual Obligations

Convertible Notes

At March 31, 2021, we had $175.0 million aggregate principal amount of Convertible Notes outstanding that are scheduled to mature on June 15, 2023, unless earlier converted, repurchased or redeemed.

At June 30, 2021, we had $325.0 million aggregate principal amount of Convertible Notes outstanding, of which $175.0 million are scheduled to mature on June 15, 2023 and $150.0 million are scheduled to mature on June 15, 2026, unless earlier converted, repurchased or redeemed.

Conditional conversions or a requirement to repurchase the Convertible Notes upon the occurrence of a fundamental change may accelerate payment.

The Convertible Notes require cash settlement of the principal amount, while settlement of the conversion obligation in excess of the aggregate principal amount may be satisfied in either cash, shares of our common stock or a combination of cash and shares of its common stock.

We currently anticipate refinancing this obligation when due.

We currently anticipate refinancing these obligations when due.

See “Issuance of Convertible Notes” above for additional information.

Deferred Consideration – Gold Payments

Deferred consideration represents an obligation we assumed in April 2018 in connection with our acquisition of the European exchange-traded commodity, currency and leveraged-and-inverse

business of ETFS Capital Limited.

Deferred consideration represents an obligation we assumed in April 2018 in connection with our acquisition of the European exchange-traded commodity, currency and leveraged and inverse business of ETFS Capital Limited.

The obligation is for fixed payments to ETFS Capital Limited of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”).

The present value of the deferred consideration was $227.1 million at March 31, 2021.

The present value of the deferred consideration was $226.7 million at June 30, 2021.

The Contractual Gold Payments are paid from advisory fee income generated by any of our sponsored financial products backed by physical gold with no recourse back to us for any unpaid amounts that exceed advisory fees earned.

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We lease approximately 38,000 square feet of office space under a lease that expires in August 2029, which includes a cancellation option that is effective on August 21, 2024.

Total future minimum lease payments with respect to this office space was $25.8 million at March 31, 2021.

Total future minimum lease payments with respect to our office space was $25.8 million at June 30, 2021.

Cash flows generated by our operating activities and existing cash balances should be sufficient to satisfy the future minimum lease payments.

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sheet entities for the purpose of raising capital, incurring debt or operating our business.

Critical Accounting Policies and Estimates

Critical Accounting Policies

Goodwill and Intangible Assets

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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 our market capitalization when determining the fair value of the reporting unit.

When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, and a quantitative assessment using the market approach and our market capitalization when determining the fair value of the reporting unit.

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.

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The annual impairment testing date for our intangible assets is November 30 th

We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within ASU 2016-01,

We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in ASU 2016-01,

Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities

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Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.

See Note 7 to our Consolidated Financial Statements for information regarding a gain of $0.2 million recognized on our investment in Securrency.

See Note 7 to our Consolidated Financial Statements for information regarding a gain of $0.1 million and $0.4 million recognized on our investment in Securrency during the three and six months ended June 30, 2021.

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, discount rate and perpetual growth rate were $2,136, 9.0% and 1.7%, respectively, at March 31, 2021.

Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate.

The weighted average forward-looking gold price per ounce, discount rate and perpetual growth rate were $2,109, 9.0% and 1.4%, respectively, at June 30, 2021.

Changes in the fair value of this obligation are reported as gain/(loss) on revaluation of deferred consideration – gold payments on our Consolidated Statements of Operations.

During the three months ended March 31, 2021, we reported a gain on deferred consideration – gold payments of $2.8 million.

During the three months ended June 30, 2021, we reported a gain on deferred consideration – gold payments of $0.5 million.

A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.6 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $23.8 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $20.4 million.

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Accordingly, more convertible instruments are 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 are removed and, as a result, more equity contracts will qualify for the scope exception.

Certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception are removed and, as a result, more equity contracts will qualify for the scope

The ASU also simplifies the diluted earnings-per-share

calculation in certain areas.

Upon the adoption of this ASU, we reclassified the equity component related to the convertible notes, net of deferred taxes, increasing retained earnings by $0.6 million, increasing the carrying value of the convertible notes by $4.1 million, reducing additional paid-in

Upon the adoption of this ASU, we reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $0.6 million, increasing the carrying value of the convertible notes by $4.1 million, reducing additional paid-in

capital by $3.7 million and reducing deferred tax liabilities by $1.0 million.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis