What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-19 · 308 added, 343 removed, 599 unchanged (52% of the section changed)

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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.

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 are an asset management company in the business of offering transparent financial exposures to our clients and are a leading global ETP sponsor based on assets under management, or AUM, with AUM of $77.5 billion as of December 31, 2021.

More recently, we have been positioning ourselves to expand beyond our existing ETP business by leveraging blockchain technology, digital assets and principles of DeFi to deliver transparency, choice and inclusivity to customers and consumers around the world.

Our family of ETPs includes providing exposure to equities, commodities, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies.

We have launched many first-to-market

products and pioneered alternative weighting we call “Modern Alpha,” which combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective funds that are built to perform.

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.

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

We are at the forefront of innovation and have differentiated ourselves through continued investments in technology-enabled and research-driven solutions such as our Advisor Solutions program, which includes portfolio construction, asset allocation, practice management services and digital tools for financial advisors.

We seek to usher in the next chapter of financial services by introducing new revenue streams and expanding our offerings to include a new financial services mobile application, branded WisdomTree Prime ™

, a digital wallet that is native to the blockchain and being developed for saving, spending and investing in both native crypto assets and tokenized versions of mainstream financial assets (e.g., blockchain enabled investment funds).

We also are planning to launch asset- and fund-tokenization products beginning with a dollar token, gold token and digital short term treasury fund which will be available on multiple public and permissioned blockchains, leveraging federal and state regulated entities.

As we pursue our digital assets strategy, we are embracing a concept we refer to as “responsible DeFi,” which we believe upholds the foundational principles of regulation in this innovative and quickly evolving space.

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.

Our business has generated significant positive momentum while executing against our long-term strategic initiatives.

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.

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

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.

our Advisor Solutions program, investments in technology-enabled and research-driven solutions, the transformation of our distribution reach and investments in our managed models business.

Our AUM as of December 31, 2021 was $77.5 billion, an all-time

The breadth and depth of our flows and products is increasing and we generated $4.7 billion of net inflows in 2021, representing an annualized organic growth rate of 7%.

products have generated positive net inflows for the last six consecutive quarters.

In Europe, our UCITS business has grown at an annualized organic growth rate of 105%, has generated positive net inflows for the last seven consecutive quarters and had AUM of $3.7 billion as of December 31, 2021.

Revenues and operating income have increased 22% and 62%, respectively, as compared to the prior year.

We continue to pursue our digital assets initiative and believe we have made meaningful advancements.

This includes:

expanding our dedicated team focused on developing new investment products, indexes and strategies that provide exposure to digital assets, along with new blockchain-enabled products and services globally;

the development of a new financial services mobile application, branded WisdomTree Prime ™

, a digital wallet that is native to the blockchain;

launching a crypto index offering digital assets exposure to separately managed accounts in collaboration with Ritholtz Wealth Management, OnRamp Invest and Gemini;

our collaboration with OnRamp Invest and Gemini to support a new digital asset variable annuity product by Federal Life through the development of our +Crypto model portfolio;

the WisdomTree Enhanced Commodity Strategy Fund (GCC) becoming the first U.S.

listed ETF to provide exposure to crypto assets through bitcoin futures;

launching five crypto ETPs in Europe;

our investments in Securrency and Onramp Invest;

and various digital asset and blockchain-related regulatory filings and applications pending in the U.S.

We believe our expansion into digital assets will complement our core competencies, diversify our revenue streams and contribute to our growth.

Additional business highlights include the following:

We were named a 2021 Best Places to Work in Money Management by Pension

& Investments

, for the second year in a row and 5 years total.

We were one of the top five within the category for managers with 100-499

We were also named Best WorkPlace for medium-sized

companies in the U.K.

for a second consecutive year.

We won Best Mixed-Allocation ETF Issuer ($100M+) at the ETF Express US Awards 2021 and we collected three wins at the Mutual Fund Industry and ETF Awards 2021, including Newcomer Smart-beta ETF of the Year - WisdomTree Cybersecurity Fund (WCBR), Newcomer Thematic ETF of the Year - WisdomTree Cybersecurity Fund (WCBR) and Asset Manager Website of the Year.

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, allowing for a wider audience to access and invest in the product.

We launched 9 new U.S.

listed ETPs and 14 new European listed ETPs.

We issued $150 million of convertible senior notes due 2026 and returned approximately $54.0 million to our stockholders through stock repurchases and our ongoing quarterly cash dividend.

Reduction in Office Footprint

On September 9, 2021, we terminated the lease for our principal executive office at 245 Park Avenue, New York, New York.

In consideration for the landlord’s agreement to accelerate the expiration date of the term of the lease from August 31, 2029, we paid a termination fee of $12.7 million.

As a result, we recognized a loss on the termination of a lease of $15.9 million which is included in impairments and was inclusive of the right-of-use

asset, leasehold improvements and fixed assets broker fees and a reduction in operating lease liabilities.

Cost savings for the year ending December 31, 2022 resulting from the reduction in the New York and London office footprints are estimated to be approximately $3.5 million when compared to actual occupancy and depreciation expense recognized during the year ended December 31, 2020.

Anticipated rent for new office space in New York and London with a smaller footprint is included in these estimates.

Market Environment

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listed ETF net flows for the year ended December 31, 2021 were $908 billion.

Fixed income and U.S.

equity gathered the majority of those flows.

European ETP Industry Flows

European ETP net flows were $121 billion for the year ended December 31, 2020.

equity and fixed income and gathered the majority of those flows.

International listed ETP Industry Flows

International listed ETP net flows were $190 billion for the year ended December 31, 2021.

Equities and fixed income gathered the majority of those flows.

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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.

In the recent past, a number of acquisitions in the asset management industry have either been announced or completed, such as OppenheimerFunds, Wells Fargo Asset Management and Voya Financial Advisors, among others.

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.

Our growth strategies, including the expansion and diversification of our product line-up,

our Advisor Solutions program, investments in technology-enabled and research-driven solutions, the transformation of our distribution reach and investments in our managed models business, have been effective in creating momentum in our core business.

In addition, our advancements in digital assets and our efforts to expand beyond our existing ETP business by leveraging blockchain technology, digital assets and principles of DeFi to deliver transparency, choice and inclusivity to customers and consumers around the world positions us well for success to grow in this competitive landscape.

Components of Operating Revenue

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Leveraged & Inverse:

International Equity:

International Developed Market Equity:

Fixed Income:

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Emerging Market Equity:

Cryptocurrency:

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.

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dollar, increased competition and level of inflows or outflows from our ETPs.

Other income includes creation/redemption fees earned on our European non-UCITS

Other income includes rebates from swap providers to our European ETPs, creation/redemption fees earned on our European non-UCITS

products and fees from licensing our indexes to third parties.

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We would expect changes in employee compensation and benefits expense to be correlated with changes in our revenues and net inflows.

Our compensation costs are also affected by inflationary pressures.

Also included in compensation and benefits are costs related to equity awards granted to our employees.

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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

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other administrative services.

We are not responsible for extraordinary expenses, taxes and certain other expenses.

We are not responsible for extraordinary expenses, taxes and certain other expenses related to the funds.

We depend on a number of parties to provide critical portfolio management services to our ETPs.

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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

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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.

Depreciation and amortization expense results 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.

Third-party distribution fees, which are expensed as incurred, include payments made to enable our products and models 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.

Acquisition and disposition-related costs are principally associated with the sale of our Canadian ETF business, which was completed in February 2020.

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.

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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.

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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.

Other losses and gains, net

Included herein are gains and losses arising from our securities owned, the sale of gold earned from advisory fees paid by physically-backed gold ETPs, foreign exchange and other miscellaneous items.

Also included are losses arising from the release of tax-related

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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.

Expense Guidance for the Year Ending December 31, 2022

Compensation Expense

Our compensation expense for the year ending December 31, 2022 is currently estimated to range from $92.0 million to $102.0 million and takes into consideration the competitive landscape, inflationary pressures and hiring both in our core business and digital assets.

Discretionary Spending

Discretionary spending includes marketing, sales, professional fees, occupancy and equipment, depreciation and amortization and other expenses.

We currently estimate our discretionary spending for the year ending December 31, 2022 to range from $49.0 million to $57.0 million, which presumes the pandemic dissipates and spending migrates toward pre-pandemic

This range also includes spending on our digital assets initiative and is dependent on the rollout of WisdomTree Prime ™

and the launch of additional products and services.

Not included in the guidance above are any potential non-recurring expenses we may incur in response to the Schedule 13D filed with the SEC on January 24, 2022 by ETFS Capital Limited.

Such expenses could be material to our results of operations for the year ending December 31, 2022.

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.

For the year ending December 31, 2022, we currently estimate that our gross margin percentage will be 81% to 82% at current AUM and revenue levels.

Contractual Gold Payments

We currently estimate our contractual gold payments expense for the year ending December 31, 2022 to be approximately $17.0 million based upon current gold prices.

This expense is measured based upon actual monthly average gold prices.

Third-Party Distribution Expense

We currently estimate third-party distribution expense to be approximately $9.5 million for the year ending December 31, 2022, which assumes continued growth in Latin America and the introduction of new platforms in Europe.

Income Tax Expense

We currently estimate that our consolidated normalized effective tax rate will be approximately 21% to 22% for the year ending December 31, 2022.

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.

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Factors that May Impact our Future Financial Results

Our global AUM is well diversified across the commodity, U.S.

Our AUM is well diversified across the commodity, U.S.

equity, international developed markets and emerging markets sectors.

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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.

Changes in product mix have led to a decline in our average advisory fee, which, for the years ended December 31, 2019, 2020 and 2021 were 0.44%, 0.40% and 0.41%, respectively.

The chart below sets forth the asset mix of our ETPs for the last three years:

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Average assets during the period

Average advisory fee during the period

Number of ETPs—end of period

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Average assets during the period

Average advisory fee during the period

Number of ETPs—end of period

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Beginning of period assets

Assets acquired

Inflows/(outflows)

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Average assets during the period

International Developed Equity

International Developed Market Equity

Beginning of period assets

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Beginning of period assets

Assets acquired

Inflows/(outflows)

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Average assets during the period

Cryptocurrency

Beginning of period assets

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Market appreciation/(depreciation)

End of period assets

Average assets during the period

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Fund closures

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Selected Operating and Financial Information

Global AUM (in millions)

Average global AUM

AUM (in millions)

Operating Revenues (in thousands)

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Total revenues

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.

Advisory fees previously reported have been revised due to an immaterial error correction.

These revisions had no effect on previously reported net income.

See Note 2 to our Consolidated Financial Statements for additional information.

Our average AUM increased 21.9 % from $60.3 billion at December 31, 2020 to $73.4 billion at December 31, 2021 arising from market appreciation and net inflows.

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 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.

Advisory fee revenues increased 21.0% from $246.4 million during the year ended December 31, 2020 to $298.1 million in the comparable period in 2021 due to higher average AUM.

Our average advisory fee increased from 0.40% during the year ended December 31, 2020 to 0.41% during the year ended December 31, 2021 due to AUM mix shift.

Other income increased 78.2% from $3.5 million during the year ended December 31, 2020 to $6.3 million in the comparable period in 2021 primarily due to higher fees associated with our European listed products.

Operating Expenses

(in thousands)

Compensation and benefits

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Sales and business development

As a Percent of Revenues:

Contractual gold payments

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Total operating expenses

Fund management and administration expenses previously reported have been revised due to an immaterial error correction.

These revisions had no effect on previously reported net income.

See Note 2 to our Consolidated Financial Statements for additional information.

Compensation and benefits

Compensation and benefits expense 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.

Compensation and benefits expense increased 18.1% from $74.7 million during the year ended December 31, 2020 to $88.2 million in the comparable period in 2021 due to higher incentive compensation and headcount.

Headcount was 217 and 241 at December 31, 2020 and 2021, 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.

Fund management and administration expense increased 3.8% from $56.7 million during the year ended December 31, 2020 to $58.9 million in the comparable period in 2021 primarily due to higher average AUM.

We had 67 U.S.

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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

Marketing and advertising expense increased 26.6% from $11.1 million during the year ended December 31, 2020 to $14.1 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 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

Sales and business development expense decreased 6.4% from $10.6 million during the year ended December 31, 2020 to $9.9 million in the comparable period in 2021 primarily due to lower travel and discretionary spending resulting from the persistence of the COVID-19

Contractual gold payments

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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.

Professional and consulting fees increased 55.4% from $4.9 million during the year ended December 31, 2020 to $7.6 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 was essentially unchanged from the year ended December 31, 2019.

Occupancy, communications and equipment expense decreased 28.0% from $6.4 million during the year ended December 31, 2020 to $4.6 million in the comparable period in 2021 as we exited our New York office and reduced our office footprint in Europe.

Depreciation and amortization

Depreciation and amortization expense was essentially unchanged from the year ended December 31, 2019.

Depreciation and amortization expense decreased 27.7% from $1.0 million during the year ended December 31, 2020 to $0.7 million in the comparable period in 2021 due to the write-off

of fixed assets related to the exit of our New York office.

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.

Third-party distribution fees increased 37.5% from $5.2 million during the year ended December 31, 2020 to $7.2 million in the comparable period in 2021 primarily due to higher AUM in Latin America resulting in higher fees paid to our third-party marketing agent, as well as additional platform relationships.

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 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.

Acquisition and disposition-related costs of $0.4 million during the year ended December 31, 2020 arose in connection with the sale of our Canadian ETF business which was completed in February 2020.

Other expenses were essentially unchanged from the year ended December 31, 2021.

Other Income/(Expenses)

Year Ended December 31,

(in thousands)

Interest expense

Loss on revaluation of deferred consideration

Gain/(loss) on revaluation of deferred consideration

Interest income

Loss on extinguishment of debt

Other gains and losses, net

Other losses and gains, net

Total other expenses, net

Year Ended December 31,

As a Percent of Revenues:

Interest expense

Loss on revaluation of deferred consideration

Gain/(loss) on revaluation of deferred consideration

Interest income

Loss on extinguishment of debt

Other gains and losses, net

Other losses and gains, net

Total other expenses, net

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.

Interest expense increased 27.6% from $9.7 million during the year ended December 31, 2020 to $12.3 million in the comparable period in 2021 due to a higher level of debt outstanding in the current period.

Our effective interest rate during the years ended December 31, 2020 and 2021 was 5.5% and 4.9%, respectively.

Gain/(loss) on revaluation of deferred consideration

We recognized a gain on revaluation of deferred consideration of $2.0 million during the year ended December 31, 2021 as compared to a loss of $56.8 million during the year ended December 31, 2020.

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

The magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold.

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.

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).

Interest income increased 170.0% from $0.7 million during the year ended December 31, 2020 to $2.0 million in the comparable period in 2021 due to an increase in securities owned.

During the year ended December 31, 2021, we recognized impairment charges totaling $16.2 million, including a loss of $9.3 million upon the termination of the lease of our former principal executive office at 245 Park Avenue, New York, New York, $6.6 million related to the write-off

of leasehold improvements and fixed assets associated with our former New York office and $0.3 million upon exiting our London office (See Notes 9, 14 and 26 to our Consolidated Financial Statements).

During the year ended December 31, 2020, 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.

impairment charges totaling $22.8 million, including $19.7 million related to our former investment in AdvisorEngine Inc., or AdvisorEngine, and $3.1 million related to our investment in Thesys Group, Inc., or Thesys.

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

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 losses and gains, net

Other losses and gains, net were $0.6 million and ($7.9) million during the year ended December 31, 2020 and 2021, respectively.

This includes a charge of $6.0 million and $5.2 million during the years ended December 31, 2020 and 2021, 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.

During the year ended December 31, 2021, we also recognized losses on our securities owned of $3.8 million, a gain of $0.8 million related to the remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business and an unrealized gain of $0.4 million on our investment in Securrency.

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 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.

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 and other miscellaneous items.

Our effective income tax rate for the year ended December 31, 2021 of 12.1% resulted in income tax expense of $6.9 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 and a lower tax rate on foreign earnings.

These items were partly offset by tax shortfalls associated with the vesting and exercise of stock-based compensation and non-deductible

executive compensation.

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

Our effective income 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.

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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.

and a lower tax rate on foreign earnings.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Selected Operating and Financial Information

Global AUM (in millions)

Average global AUM

AUM (in millions)

Operating Revenues (in thousands)

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Total revenues

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.

Advisory fees previously reported have been revised due to an immaterial error correction.

These revisions had no effect on previously reported net income.

See Note 2 to our Consolidated Financial Statements for additional information.

Our average AUM increased 1.0% from $59.7 billion at December 31, 2019 to $60.3 billion at December 31, 2020 arising from market appreciation.

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 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.

Advisory fee revenues decreased 6.6% from $263.8 million during the year ended December 31, 2019 to $246.4 million in the comparable period in 2020 due to increase in our average AUM, notwithstanding a 4 basis point decline in our average advisory fee arising from AUM mix shift.

Our average advisory fee declined from 0.44% during the year ended December 31, 2019 to 0.40% during the year ended December 31, 2020.

Operating Expenses

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Total operating expenses

Fund management and administration expenses previously reported have been revised due to an immaterial error correction.

These revisions had no effect on previously reported net income.

See Note 2 to our Consolidated Financial Statements for additional information.

Compensation and benefits

Compensation and benefits expense increased 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 208 and 217 at December 31, 2019 and 2020, 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.

Fund management and administration expense decreased 4.9% from $59.6 million during the year ended December 31, 2019 to $56.7 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.

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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.

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 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

1 unchanged sentence

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.

Depreciation and amortization expense was essentially unchanged from the year ended December 31, 2019.

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 expenses were essentially unchanged from the year ended December 31, 2018.

Acquisition and disposition-related costs were $0.9 million and $0.4 million during the year ended December 31, 2019 and 2020.

Other Income/(Expenses)

2 unchanged sentences

Interest expense

(Loss)/gain on revaluation of deferred consideration

Loss on revaluation of deferred consideration

Interest income

Other losses, net

Loss on extinguishment of debt

Other gains and losses, net

Total other expenses, net

2 unchanged sentences

Interest expense

(Loss)/gain on revaluation of deferred consideration

Loss on revaluation of deferred consideration

Interest income

Other losses, net

Loss on extinguishment of debt

Other gains and losses, net

Total other expenses, net

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.

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.

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 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.

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 notes receivable.

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 (See Note 26 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.

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

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 years ended December 31, 2019 and 2020, respectively.

This includes a charge of $4.3 million and $6.0 million during the years ended December 31, 2019 and 2020, respectively, 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.

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.

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 effective income 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

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.

2 unchanged sentences

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.

Quarterly Results

25 unchanged sentences

Loss on extinguishment of debt

Other gains and losses, net

(Loss)/income before income taxes

Other losses and gains, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net (loss)/income

(Loss)/earnings per share - basic

(Loss)/earnings per share - diluted

Net income/(loss)

Earnings/(loss) per share - basic

Earnings/(loss) per share - diluted

Dividends per common share

Advisory fees and fund management and administration expenses previously reported have been revised due to an immaterial error correction.

These revisions had no effect on previously reported net income.

See Note 2 to our Consolidated Financial Statements for additional information.

Percent of Revenues

20 unchanged sentences

Loss on extinguishment of debt

Other gains and losses, net

(Loss)/income before income taxes

Other losses and gains, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net (loss)/income

Net income/(loss)

Operating Statistics

15 unchanged sentences

Average assets during the period

Average advisory fee during the period

Number of ETFs – end of the period

7 unchanged sentences

Average assets during the period

Average advisory fee during the period

Number of ETPs – end of the period

34 unchanged sentences

Average assets during the period

Cryptocurrency

Beginning of period assets

6 unchanged sentences

Market appreciation/(depreciation)

End of period assets

Average assets during the period

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Fund closures

13 unchanged sentences

financial measurements contained in this Report include:

net income and adjusted diluted earnings per share.

We disclose adjusted net income and adjusted diluted earnings per share as non-GAAP

net income and diluted earnings per share.

We disclose adjusted net income and diluted earnings per share as non-GAAP

financial measurements in order to report our results exclusive of items that are non-recurring

7 unchanged sentences

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.

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 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.

Gains or losses on securities owned

We account for our securities owned as trading securities, which requires these instruments to be measured at fair value with gains and losses reported in net income.

In the third quarter of 2021, we began excluding these items when calculating our non-GAAP

financial measurements as these securities have become a more meaningful percentage of total assets and the gains and losses introduce volatility in earnings and are not core to our operating business.

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

1 unchanged sentence

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,

We exclude these items when determining adjusted net income and diluted earnings per share as they introduce volatility in earnings and are not core to our operating business.

Unrealized gains 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)

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.

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.

, 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 U.K., 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 (including the remeasurement of contingent consideration), acquisition and disposition-related costs and severance expenses are excluded when calculating our non-GAAP

financial measurements.

Adjusted Net Income and Diluted Earnings per Share

Net (loss)/income, as reported

Add back/(deduct):

Loss/(gain) on revaluation of deferred consideration

Net income/(loss), as reported

(Deduct)/add back:

(Gain)/loss on revaluation of deferred consideration

Impairments, net of income taxes

Gain recognized upon sale of Canadian ETF business

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

Gain recognized from the sale of Canadian ETF business, including remeasurement of contingent consideration

Unrealized loss on securities owned, at fair value, net of income taxes

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

Add back/(deduct):

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

Release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from debt previously outstanding in the U.K.

Loss on extinguishment of debt, net of income taxes

1 unchanged sentence

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

Add back/(deduct):

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

Acquisition and disposition-related costs, net of income taxes

16 unchanged sentences

Regulatory capital requirement – certain international subsidiaries

Revolving credit facility – available capacity

Available liquidity

Terminated on June 16, 2020.

Year Ended December 31,

4 unchanged sentences

Foreign exchange rate effect

(Decrease)/increase 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.

1 unchanged sentence

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

Cash and cash equivalents increased $67.3 million during the year ended December 31, 2021 due to $150.0 million of proceeds from the issuance of Convertible Notes, $75.3 million of net cash provided by operating activities, $19.4 million of proceeds from the sale of securities owned, at fair value and $2.4 million of proceeds from the receipt of contingent consideration from the sale of our Canadian ETF business.

These increases were partly offset by $115.5 million used to purchase securities owned, at fair value, $34.5 million used to repurchase our common stock, $19.5 million used to pay dividends on our common stock, $5.8 million used to purchase investments, $4.3 million used to pay Convertible Notes issuance costs and $0.2 million from other activities.

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, $36.4 million used to purchase securities owned, at fair value, $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, $47.1 million of net cash provided by operating activities, $18.7 million of proceeds from the sale of securities owned, at fair value, $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

Cash and cash equivalents decreased $2.8 million during the year ended December 31, 2019 due to $22.5 million used to purchase securities owned, at fair value, $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 $57.5 million, $11.9 million of proceeds from the sale of securities owned, at fair value, $3.2 million from held-to-maturity

securities called or maturing during the period and $1.0 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.

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.

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

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

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

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

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

Key terms of the Convertible Notes are as follows:

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:

(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;

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 set forth 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 in 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

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

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.

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

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 our 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.

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.

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

Capital Resources

Our principal source of financing is our operating cash flow.

We believe that 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.

We believe that current cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for the foreseeable future.

Our ability to satisfy our contractual obligations as they arise are discussed in the section titled “Contractual Obligations” below.

Use of Capital

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Contractual Obligations

The following table summarizes our future payments associated with contractual obligations as of December 31, 2020.

Payments Due by Period

(in thousands)

Convertible Notes

At December 31, 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 these obligations when due.

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

Deferred Consideration – Gold Payments

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

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

The present value of the deferred consideration was $228.0 million at December 31, 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.

See Note 10 to our Consolidated Financial Statements for additional information.

Operating Leases

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).

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).

Total future minimum lease payments with respect to our operating lease liabilities were $0.6 million at December 31, 2021.

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

See Note 14 to our Consolidated Financial Statements for additional information.

Sheet Arrangements

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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

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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.

For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics

Goodwill is assessed for impairment annually on November 30 th

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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 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.

See Note 8 to our Consolidated Financial Statements for information regarding a gain of $0.4 million recognized on our investment in Securrency during the year ended December 31, 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 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.

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 $2,106, 9.0% and 1.0%, respectively, at December 31, 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 year ended December 31, 2021, we reported a gain on deferred consideration – gold payments of $2.0 million.

A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.8 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $23.1 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $20.1 million.

See Note 10 to our Consolidated Financial Statements for additional information.

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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,

Recently Adopted Accounting Pronouncements

On January 1, 2021, we early adopted 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

under the modified retrospective approach.

Under the ASU, the accounting for convertible instruments was simplified by removing major separation models required under current GAAP.

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.

The ASU also simplifies 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.

In December 2019, the FASB issued ASU 2019-12,

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.

These updates also reduced interest expense recognized on our Convertible Notes by approximately $0.4 million per quarter.

See Note 12 to our Consolidated Financial Statements for additional information.

On January 1, 2021, we adopted ASU 2019-12,

Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes

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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.

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.

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.

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.

We have determined that the adoption of this standard did not have a material impact on our financial statements.

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-K

Item 7. Management’s Discussion and Analysis