What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-05 · 223 added, 101 removed, 348 unchanged (48% of the section changed)

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Factors that could cause or contribute to these differences include those discussed below.

For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in Amendment No.

1 on Form 10-K/A

to our Annual Report on Form 10-K

for the fiscal year ended December 31, 2021.

for the fiscal year ended December 31, 2021, as amended.

We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Executive Summary

We are 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 $79.4 billion as of March 31, 2022.

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

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

The chart below sets forth the asset mix of our ETPs at March 31, 2021, December 31, 2021 and March 31, 2022:

The chart below sets forth the asset mix of our ETPs at June 30, 2021, March 31, 2022 and June 30, 2022:

Market Environment

During the first quarter of 2022, the U.S.

and Eurozone markets declined and inflationary pressures rose.

Commodity prices surged following the Russian invasion of the sovereign territory of Ukraine and this contributed to a further increase in inflation as well as supply chain disruption.

Emerging markets were negatively affected by renewed COVID-19

Gold prices increased during the quarter.

The S&P 500, MSCI EAFE (local currency) and MSCI Emerging Markets Index (U.S.

dollar) decreased by 4.6%, 3.6% and 6.9%, respectively, while gold prices increased 6.7% during the quarter.

During the second quarter of 2022, the U.S.

and Eurozone markets were under pressure as investors reacted to further interest rate rises and an increased risk of recession.

and European equities fell as focus was on inflation and the continued war in Ukraine.

Gold’s steady performance stood in contrast to equities as it gained support due to the high-risk environment brought on by multi-decade highs for inflation.

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

dollar) and gold prices decreased by 16.1%, 7.6%, 11.3%, and 6.4%, respectively, during the quarter.

In addition, the European and Japanese equities markets both depreciated with the MSCI EMU Index and MSCI Japan Index decreasing 10.0% and 4.4%, respectively, in local currency terms for the quarter.

Also, the U.S.

dollar rose 1.7% and 2.7% versus the euro and British pound, respectively, and weakened 5.9% versus the Japanese yen during the quarter.

dollar rose 5.8%, 7.4% and 10.6% versus the euro, British pound and the Japanese yen, respectively, the during the quarter.

Listed ETF Industry Flows

listed ETF industry net flows for the three months ended March 31, 2022 were $199.0 billion.

equity gathered the majority of those flows.

International ETP Industry Flows

International ETP industry net flows were $47.8 billion for the three months ended March 31, 2022.

listed ETF industry net flows for the three months ended June 30, 2022 were $93.5 billion.

Fixed income gathered the majority of those flows.

European Listed ETP Industry Flows

European listed ETP industry net flows were $16.7 billion for the three months ended June 30, 2022.

Equities gathered the majority of those flows.

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

listed ETFs’ AUM increased from $48.2 billion at December 31, 2021 to $48.6 billion at March 31, 2022 due to net inflows, partly offset by market depreciation.

listed ETFs’ AUM decreased from $48.6 billion at March 31, 2022 to $47.3 billion at June 30, 2022 due to market depreciation, partly offset by net inflows.

European Listed ETPs

Our European listed ETPs’ AUM increased from $29.3 billion at December 31, 2021 to $30.8 billion at March 31, 2022 primarily due to market appreciation, partly offset by net outflows.

Our European listed ETPs’ AUM decreased from $30.8 billion at March 31, 2022 to $27.0 billion at June 30, 2022 due to market depreciation and net outflows.

Consolidated Operating Results

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

Prior period amounts previously disclosed have been revised to conform with our current presentation.

Prior period amounts previously disclosed for the three months ended June 30, 2021 have been revised due to an immaterial error correction to conform with our current presentation.

These revisions had no effect on previously reported net income.

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

– We recorded operating revenues of $78.4 million during the three months ended March 31, 2022, up 10% from the three months ended March 31, 2021 due to higher average AUM, partly offset by a lower average advisory fee.

– We recorded operating revenues of $77.3 million during the three months ended June 30, 2022, up 2.0% from the three months ended June 30, 2021 due to higher average AUM, partly offset by a lower average advisory fee.

Operating Expenses

– Total operating expenses increased 15.3% from the three months ended March 31, 2021 to $60.7 million primarily due to expenses incurred in responding to the activist campaign by ETFS Capital Limited and Lion Point Capital, LP (collectively, the “Investor Group”), as evidenced by their Schedule 13D initially filed on January 24, 2022, and thereafter amended (the “activist campaign”), higher compensation arising from increased headcount, higher fund management and administration costs, as well as higher marketing expenses, third-party distribution fees and sales and business development expenses.

These increases were partly offset by lower occupancy expenses.

– Total operating expenses increased 18.0% from the three months ended June 30, 2021 to $61.4 million primarily due to higher incentive compensation and headcount, higher professional fees including $2.0 million incurred in responding to an activist campaign, higher fund management and administration costs and higher sales and business development expenses.

These increases were partly offset by lower occupancy expenses, lower depreciation and amortization expenses and lower third-party distribution fees.

Other Income/(Expenses)

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

For the three months ended March 31, 2022 and 2021, the (losses)/gains on revaluation of deferred consideration – gold payments were ($17.0) million and $2.8 million, respectively.

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

indemnification asset of $19.9 million and $5.2 million during the three months ended March 31, 2022 and 2021, respectively.

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

In addition, during the three months ended March 31, 2022 we recognized losses on our securities owned of $5.1 million.

Net (loss)/income

– We reported net loss of ($10.3) million during the three months ended March 31, 2022, compared to net income of $15.1 million during the three months ended March 31, 2021.

The change was impacted by an unfavorable change related to the revaluation of deferred consideration – gold payments of $19.8 million, losses on our securities owned and the change in revenues and expenses described above.

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

For the three months ended June 30, 2022 and 2021, the gains on revaluation of deferred consideration–gold payments were $2.3 million and $0.5 million, respectively.

In addition, during the three months ended June 30, 2022 we recognized losses on our securities owned of $4.2 million.

– We reported net income of $8.0 million during the three months ended June 30, 2022, compared to net income of $17.6 million during the three months ended June 30, 2021.

Expense Guidance Update for the Year Ending December 31, 2022

Compensation Expense

Our compensation expense for the year ending December 31, 2022 is currently estimated to range from $96.0 million to $99.0 million (previously $92.0 million to $102.0 million).

of our guidance range has been reduced as we temper our hiring plans in the wake of uncertain market conditions.

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 $51.0 million to $53.0 million (previously $49.0 million to $57.0 million).

Not included in the guidance above are non-recurring

expenses of $4.5 million incurred during the six months ended June 30, 2022, in response to an activist campaign.

We do not anticipate any significant activist campaign expenses during the remainder of this year.

We define gross margin as total operating revenues less fund management and administration expenses.

Gross margin percentage is calculated as gross margin divided by total operating revenues.

At current AUM and flow levels, we estimate our gross margin percentage will be 79% (previously 80% to 81%) for the year ending December 31, 2022.

Contractual Gold Payments

We currently estimate our contractual gold payments expense for the year ending December 31, 2022 to be approximately $17.0 million (previously $18.0 million to $19.0 million) taking into consideration current lower gold prices.

Third-Party Distribution Expense

We currently estimate third-party distribution expense to be approximately $8.5 million (previously $9.5 million) as recent market volatility has suppressed AUM growth on our third-party platforms.

Income Tax Expense

We currently estimate that our consolidated normalized effective tax rate will range from 21% to 22% for the year ending December 31, 2022 (unchanged from prior guidance).

This estimated rate may change and is dependent upon our actual taxable income earned in relation to our forecasts as well as any other items that may arise that are not currently forecasted.

Such items may include, but are not limited to, any revaluation on deferred consideration – gold payments, reductions in unrecognized tax benefits and any stock-based compensation windfalls or shortfalls.

Key Operating Statistics

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Three Months Ended

Six Months Ended

GLOBAL ETPs (in millions

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Number of ETPs—end of period

Three Months Ended

Six Months Ended

PRODUCT CATEGORIES (in millions

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Average assets during the period

Three Months Ended

Beginning of period assets

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

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Selected Operating and Financial Information

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

Our average AUM increased 11.8% from $69.6 billion at March 31, 2021 to $77.8 billion at March 31, 2022 due to market appreciation and net inflows.

Our average AUM increased 5.6% from $73.6 billion at June 30, 2021 to $77.7 billion at June 30, 2022 due to net inflows, partly offset by market depreciation.

Operating Revenues

Advisory fees

Advisory fee revenues increased 9.2% from $70.0 million during the three months ended March 31, 2021 to $76.5 million in the comparable period in 2022 due to higher average AUM, partly offset by a lower average advisory fee.

Our average advisory fee was 0.40% during the three months ended March 31, 2022 and 0.41% during the same period in 2021.

Other income increased 52.5% from $1.2 million during the three months ended March 31, 2021 to $1.9 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.

Advisory fee revenues increased 1.9% from $74.2 million during the three months ended June 30, 2021 to $75.6 million in the comparable period in 2022 due to higher average AUM, partly offset by a lower average advisory fee.

Our average advisory fee was 0.39% during the three months ended June 30, 2022 and 0.40% during the same period in 2021.

Other income increased 3.8% from $1.6 million during the three months ended June 30, 2021 to $1.7 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.

Operating Expenses

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Compensation and benefits

Compensation and benefits expense increased 9.5% from $22.6 million during the three months ended March 31, 2021 to $24.8 million in the comparable period in 2022 due to increased headcount.

Headcount was 227 and 253 at March 31, 2021 and 2022, respectively.

Compensation and benefits expense increased 20.8% from $20.3 million during the three months ended June 30, 2021 to $24.6 million in the comparable period in 2022 due to higher incentive compensation and headcount.

Headcount was 227 and 264 at June 30, 2021 and 2022, respectively.

Fund management and administration

Fund management and administration expense increased 11.1% from $13.9 million during the three months ended March 31, 2021 to $15.5 million in the comparable period in 2022 due to higher average AUM.

Fund management and administration expense increased 11.9% from $14.4 million during the three months ended June 30, 2021 to $16.1 million in the comparable period in 2022 due to higher average AUM.

Marketing and advertising

Marketing and advertising expense increased 33.8% from $3.0 million during the three months ended March 31, 2021 to $4.0 million in the comparable period in 2022 primarily due to higher spending on online marketing campaigns.

Marketing and advertising expense increased 8.3% from $3.6 million during the three months ended June 30, 2021 to $3.9 million in the comparable period in 2022 primarily due to higher spending on online marketing campaigns.

Sales and business development

Sales and business development expense increased 21.6% from $2.1 million during the three months ended March 31, 2021 to $2.6 million in the comparable period in 2022 primarily due to higher spending on conferences and market data.

Sales and business development expense increased 45.0% from $2.2 million during the three months ended June 30, 2021 to $3.1 million in the comparable period in 2022 primarily due to higher spending on conferences and market data.

Contractual gold payments

Contractual gold payments expense increased 4.2% from $4.3 million during the three months ended March 31, 2021 to $4.5 million in the comparable period in 2022.

This expense was associated with the payment of 2,375 ounces of gold and was calculated using the average daily spot price of $1,798 and $1,874 per ounce during the three months ended March 31, 2021 and 2022, respectively.

Contractual gold payments expense increased 3.1% from $4.3 million during the three months ended June 30, 2021 to $4.4 million in the comparable period in 2022.

This expense was associated with the payment of 2,375 ounces of gold and was calculated using the average daily spot price of $1,816 and $1,872 per ounce during the three months ended June 30, 2021 and 2022, respectively.

Professional fees

Professional fees increased 121.5% from $2.0 million during the three months ended March 31, 2021 to $4.5 million in the comparable period in 2022 due to expenses incurred in response to the activist campaign by the Investor Group.

Professional fees increased 124.3% from $1.9 million during the three months ended June 30, 2021 to $4.3 million in the comparable period in 2022 due to expenses incurred in response to an activist campaign.

Occupancy, communications and equipment

Occupancy, communications and equipment expense decreased 48.9% from $1.5 million during the three months ended March 31, 2021 to $0.8 million in the comparable period in 2022 due to the termination of our New York office lease in September 2021.

Occupancy, communications and equipment expense decreased 17.1% from $1.3 million during the three months ended June 30, 2021 to $1.0 million in the comparable period in 2022 due to the termination of our New York office lease in September 2021.

Depreciation and amortization

Depreciation and amortization expense decreased 81.3% from $0.3 million during the three months ended March 31, 2021 to $0.05 million in the comparable period in 2022 due to write-off

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

Depreciation and amortization expense decreased 79.3% from $0.3 million during the three months ended June 30, 2021 to $0.1 million in the comparable period in 2022 due to the write-off

of fixed assets related to exiting our New York office in September 2021.

Third-party distribution fees

Third-party distribution fees increased 64.7% from $1.3 million during the three months ended March 31, 2021 to $2.2 million in the comparable period in 2022 primarily due to higher AUM in Latin America resulting in higher fees paid to our third-party marketing agent, as well as new platform relationships in Europe.

Other expenses were essentially unchanged from the three months ended March 31, 2021.

Third-party distribution fees decreased 14.6% from $2.1 million during the three months ended June 30, 2021 to $1.8 million in the comparable period in 2022 primarily due to lower fees paid to our third-party marketing agent in Latin America, partly offset by new platform relationships in Europe.

Other expenses increased 20.4% from $1.8 million during the three months ended June 30, 2021 to $2.1 million in the comparable period in 2022 due to higher insurance costs and other miscellaneous items.

Other Income/(Expenses)

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Interest expense

Gain on revaluation of deferred consideration – gold payments

Interest income

Other losses and gains, net

Total other expenses, net

Three Months Ended

As a Percent of Revenues:

Interest expense

Gain on revaluation of deferred consideration – gold payments

Interest income

Other losses and gains, net

Total other expenses, net

Interest expense

Interest expense increased 45.4% from $2.6 million during the three months ended June 30, 2021 to $3.7 million in the comparable period in 2022 due to a higher level of debt outstanding, partly offset by a lower effective interest rate.

Our effective interest rate during the three months ended June 30, 2021 and 2022 was 5.2% and 4.6%, respectively.

Gain on revaluation of deferred consideration

We recognized a gain on revaluation of deferred consideration of $0.5 million and $2.3 million during the three months ended June 30, 2021 and 2022, respectively.

The gain in the current quarter was due to lower spot gold 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.

Interest income

Interest income increased 242.2% from $0.2 million during the three months ended June 30, 2021 to $0.8 million in the comparable period in 2022 due to an increase in securities owned.

Other losses and gains, net

Other losses and gains, net were $0.0 million and ($4.5) million during the three months ended June 30, 2021 and 2022, respectively.

During the three months ended June 30, 2022, we recognized losses on our securities owned of $4.2 million.

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

Our effective income tax rate for the three months ended June 30, 2022 of 25.0% resulted in an income tax expense of $2.7 million.

Our tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on losses recognized on securities owned and non-deductible

compensation.

These items were partly offset by a non-taxable

gain on revaluation of deferred consideration and a lower tax rate on foreign earnings.

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

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Selected Operating and Financial Information

Six Months Ended

Global AUM (in millions)

Average global AUM

Revenues (in thousands)

Advisory fees (1)

Total revenues

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.

Average Global AUM

Our average global AUM increased 8.6% from $71.6 billion at June 30, 2021 to $77.8 billion at June 30, 2022 due to net inflows, partly offset by market depreciation.

Operating Revenues

Advisory fees

Advisory fee revenues increased 5.5% from $144.2 million during the six months ended June 30, 2021 to $152.1 million in the comparable period in 2022 due to higher average global AUM, partly offset by a lower average advisory fee.

Our average global advisory fee was 0.42% and 0.39% during the six months ended June 30, 2021 and June 30, 2022, respectively.

Other income increased 24.8% from $2.8 million during the six months ended June 30, 2021 to $3.5 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.

Operating Expenses

Six Months Ended

(in thousands)

Compensation and benefits

Fund management and administration

Marketing and advertising

Sales and business development

Contractual gold payments

Professional fees

Occupancy, communications and equipment

Depreciation and amortization

Third-party distribution fees

Total operating expenses

Six Months Ended

As a Percent of Revenues:

Compensation and benefits

Fund management and administration

Marketing and advertising

Sales and business development

Contractual gold payments

Professional fees

Occupancy, communications and equipment

Depreciation and amortization

Third-party distribution fees

Total operating expenses

Compensation and benefits

Compensation and benefits expense increased 14.9% from $43.0 million during the six months ended June 30, 2021 to $49.4 million in the comparable period in 2022 due to higher incentive compensation and headcount.

Fund management and administration

Fund management and administration expense increased 11.5% from $28.3 million during the six months ended June 30, 2021 to $31.6 million in the comparable period in 2022 primarily due to higher average global AUM.

Marketing and advertising

Marketing and advertising expense increased 20.0% from $6.6 million during the six months ended June 30, 2021 to $7.9 million in the comparable period in 2022 due to higher spending on online marketing campaigns.

Sales and business development

Sales and business development expense increased 33.4% from $4.3 million during the six months ended June 30, 2021 to $5.7 million in the comparable period in 2022 primarily due to higher spending on conferences and market data.

Contractual gold payments

Contractual gold payments expense increased 3.6% from $8.6 million during the six months ended June 30, 2021 to $8.9 million in the comparable period in 2022.

This expense was associated with the payment of 4,750 ounces of gold and was calculated using the average daily spot price of $1,807 and $1,873 per ounce during the six months ended June 30, 2021 and 2022, respectively.

Professional fees

Professional fees increased 122.9% from $3.9 million during the six months ended June 30, 2021 to $8.8 million in the comparable period in 2022 due to expenses incurred in response to an activist campaign.

Occupancy, communications and equipment

Occupancy, communications and equipment expense decreased 34.3% from $2.7 million during the six months ended June 30, 2021 to $1.8 million in the comparable period in 2022 due to the termination of our New York office lease in September 2021.

Depreciation and amortization

Occupancy, communications and equipment expense decreased 80.3% from $0.5 million during the six months ended June 30, 2021 to $0.1 million in the comparable period in 2022 due to the write-off

of fixed assets related to exiting our New York office in September 2021.

Third-party distribution fees

Third-party distribution fees increased 16.0% from $3.5 million during the six months ended June 30, 2021 to $4.0 million in the comparable period in 2022 due to new platform relationships in Europe.

Other expenses increased 19.0% from $3.3 million during the six months ended June 30, 2021 to $4.0 million in the comparable period in 2022 due to miscellaneous expenses incurred in response to an activist campaign, higher insurance costs and other miscellaneous matters.

Other Income/(Expenses)

Six Months Ended

(in thousands)

Interest expense

(Loss)/gain on revaluation of deferred consideration – gold payments

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Total other expenses, net

Three Months Ended

Six Months Ended

As a Percent of Revenues:

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Interest expense

Interest expense increased 62.5% from $2.3 million during the three months ended March 31, 2021 to $3.7 million in the comparable period in 2022 due to a higher level of debt outstanding, partly offset by a lower effective interest rate.

Our effective interest rate during the three months ended March 31, 2021 and 2022 was 5.3% and 4.6%, respectively.

Interest expense increased 53.5% from $4.9 million during the six months ended June 30, 2021 to $7.5 million in the comparable period in 2022 due to a higher level of debt outstanding, partly offset by a lower effective interest rate.

Our effective interest rate during the six months ended June 30, 2021 and 2022 was 5.2% and 4.6%, respectively.

(Loss)/gain on revaluation of deferred consideration

We recognized a gain on revaluation of deferred consideration of $2.8 million during the three months ended March 31, 2021 as compared to a loss of ($17.0) million during the three months ended March 31, 2022.

The loss in the current quarter was due to higher forward-looking gold prices.

We recognized a gain on revaluation of deferred consideration of $3.3 million during the six months ended June 30, 2021 as compared to a loss of ($14.7) million during the six months ended June 30, 2022.

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

The gain in the prior period was due to a decline in spot gold 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.

Interest income

Interest income increased 243.7% from $0.2 million during the three months ended March 31, 2021 to $0.8 million in the comparable period in 2022 due to an increase in securities owned.

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

There were no impairment charges recognized in the comparable period in 2022.

Interest income increased 243.0% from $0.5 million during the six months ended June 30, 2021 to $1.6 million in the comparable period in 2022 due to an increase in our securities owned.

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

There were no impairment charges during the six months ended June 20, 2022.

Other losses, net

Other losses, net were $5.9 million and $24.7 million during the three months ended March 31, 2021 and 2022, respectively.

The three months ended March 31, 2022 includes a non-cash

Other losses, net were $5.9 million and $29.2 million during the six months ended June 30, 2021 and 2022, respectively.

The six months ended June 30, 2022 includes a non-cash

charge of $19.9 million arising from the release of a tax-related

indemnification asset due to a favorable resolution to certain tax audits as well as the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense) and losses on securities owned of $5.1 million.

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

indemnification asset upon the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense).

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

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

Our effective income tax rate for the three months ended March 31, 2022 of 62.0% resulted in an income tax benefit of $16.7 million.

Our tax rate differs from the federal statutory rate of 21% primarily due to a $19.9 million reduction in unrecognized tax benefits (including interest and penalties), a lower tax rate on foreign earnings and tax windfalls associated with the vesting of stock-based compensation awards.

indemnification asset due to the favorable resolution of certain tax audits as well as the expiration of the statute of limitations (an equal and offsetting benefit has been recognized in income tax expense).

We also recognized $9.3 million of losses on our securities owned.

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

Our effective income tax rate benefit for the six months ended June 30, 2022 was 86.2% resulting in an income tax benefit of $14.0 million.

Our tax rate differs from the federal statutory rate of 21% primarily due to a reduction in unrecognized tax benefits associated with the release of the tax-related

indemnification asset described above and a lower tax rate on foreign earnings.

These items were partly offset by a non-taxable

loss on revaluation of deferred consideration and an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.

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

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

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

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

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

gain on revaluation of deferred consideration.

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

Financial Measurements

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financial measurements contained in this Report include:

Adjusted Operating Income, Operating Expenses, Income Before Income Taxes, Income Tax Expense, Net Income and Diluted Earnings per Share

We disclose adjusted operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share as non-GAAP

Adjusted Net Income and Diluted Earnings per Share

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

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

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financial measurements as they introduce volatility in earnings and are not core to our operating business.

Unrealized gains and losses recognized on our investments, changes in the deferred tax asset valuation allowance on securities owned, expenses incurred in response to the activist campaign by the Investor Group, impairment charges and the remeasurement of contingent consideration payable to us from the sale of our Canadian ETF business.

Unrealized gains and losses recognized on our investments, changes in the deferred tax asset valuation allowance on securities owned, expenses incurred in response to an activist campaign and impairment charges.

Three Months Ended

Six Months Ended

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

Increase in deferred tax asset valuation allowance on securities owned

Losses on securities owned, net of income taxes

Expenses incurred in response to the activist campaign by the Investor Group, net of income taxes

Deduct/Add back:

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

Expenses incurred in response to an activist campaign, net of income taxes

Add back/deduct:

Unrealized loss/(gain) recognized on our investments, net of income taxes

Impairments, net of income taxes

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

Deduct/add back:

Unrealized (gain)/loss recognized on our investments, net of income taxes

Impairments, net of income taxes (where applicable)

Adjusted net income

Weighted average common shares - diluted

Income distributed to participating securities

Undistributed income allocable to participating securities

Adjusted net income available to common stockholders

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

Adjusted earnings per share – diluted

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Available liquidity

Three Months Ended

Excludes convertible notes in the amount of $173,325 scheduled to mature on June 15, 2023, as we are actively exploring refinancing and extension alternatives.

Six Months Ended June 30,

Cash Flow Data (in thousands)

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Foreign exchange rate effect

Decrease in cash and cash equivalents

Cash flows from purchasing securities owned, at fair value of ($1,657) and selling securities owned, at fair value of $1,232 during the three months ended March 31, 2021 that were not acquired specifically for resale or associated with the Company’s business activities have been reclassified from operating activities to investing activities to conform to the current year’s presentation in the Consolidated Statements of Cash Flows.

(Decrease)/increase in cash and cash equivalents

Cash flows from purchasing securities owned, at fair value of $29,819 and selling securities owned, at fair value of $5,212 during the six months ended June 30, 2021 that were not acquired specifically for resale or associated with the Company’s business activities have been reclassified from operating activities to investing activities to conform to the current year’s presentation in the Consolidated Statements of Cash Flows.

See Note 2 for additional information.

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Our current liabilities consist primarily of payments owed to vendors and third parties in the normal course of business, deferred consideration and accrued incentive compensation for employees.

Cash and cash equivalents decreased $30.3 million during the three months ended March 31, 2022 due to $25.5 million used to purchase securities owned, $6.9 million used to purchase investments, $4.8 million used to pay dividends on our common stock, $3.4 million used to repurchase our common stock, $2.7 million of net cash used in operating activities and $0.6 million used in other activities.

These decreases were partly offset by $13.6 million of proceeds from the sale of securities owned.

Cash and cash equivalents decreased $11.1 million during the three months ended March 31, 2021 due to $5.5 million used to purchase investments, $4.9 million used to pay dividends on our common stock, $2.6 million used to repurchase our common stock and $1.7 million used to purchase investments.

These decreases were partly offset by $2.3 million provided by operating activities, $1.2 million of proceeds from the sale of securities owned and $0.1 provided by other activities.

Cash and cash equivalents decreased $31.0 million during the six months ended June 30, 2022 due to $32.5 million used to purchase securities owned, $11.9 million used to purchase investments, $9.7 million used to pay dividends on our common stock, $3.4 million used to repurchase our common stock, $3.4 million of foreign exchange rate losses and $0.1 million used in other activities.

These decreases were partly offset by $21.5 million of proceeds from the sale of securities owned and $8.5 million of net cash provided by operating activities.

Cash and cash equivalents increased $94.2 million during the six months ended June 30, 2021 due to $150.0 million of proceeds received from the issuance of the 2021 Notes, $22.4 million of net cash provided by operating activities, $5.2 million of proceeds from the sale of securities owned, at fair value and $0.9 million provided by other activities.

These increases were partly offset by $34.5 million used to repurchase our common stock, $29.8 million used to purchase securities owned, at fair value, $9.9 million used to pay dividends on our common stock, $5.8 million used to purchase investments and $4.3 million used to pay the 2021 Note issuance costs.

Issuance of Convertible Notes

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Our business does not require us to maintain a significant cash position.

However, certain of our international subsidiaries are required to maintain a minimum level of regulatory capital, which at March 31, 2022 was approximately $12.6 million in the aggregate.

However, certain of our international subsidiaries are required to maintain a minimum level of regulatory capital, which at June 30, 2022 was approximately $25.5 million in the aggregate.

Notwithstanding these regulatory capital requirements, we expect that our main uses of cash will be to fund the ongoing operations of our business.

We also maintain a capital return program which includes a $0.03 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2025, including purchases to offset future equity grants made under our equity plans.

During the three months ended March 31, 2022, we repurchased 588,694 shares of our common stock under the repurchase program for an aggregate cost of $3.4 million.

Currently, $100.0 million remains under this program for future purchases.

There were no shares repurchased during the three months ended June 30, 2022.

As of June 30, 2022, $100 million remains under this program for future purchases.

Contractual Obligations

Convertible Notes

At March 31, 2022, we had $325.0 million aggregate principal amount of Convertible Notes outstanding, of which $175.0 million are scheduled to mature on June 15, 2023 and $150.0 million are scheduled to mature on June 15, 2026, unless earlier converted, repurchased or redeemed.

At June 30, 2022, we had $325.0 million aggregate principal amount of Convertible Notes outstanding, of which $175.0 million are scheduled to mature on June 15, 2023 and $150.0 million are scheduled to mature on June 15, 2026, unless earlier converted, repurchased or redeemed.

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

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

The present value of the deferred consideration was $245.2 million at March 31, 2022.

The present value of the deferred consideration was $242.8 million at June 30, 2022.

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

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Operating Leases

Total future minimum lease payments with respect to our office space was $0.5 million at March 31, 2022.

In keeping with our hybrid remote-first philosophy, employees primarily work remotely on a permanent basis.

However, we maintain office space in New York and London, as well as other regional locations, to align with employees choosing to collaborate in person.

Total future minimum lease payments with respect to our office space was $2.4 million at June 30, 2022.

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

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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 $2,263, 9.0% and 0.9%, respectively, at March 31, 2022.

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

During the three months ended March 31, 2022, we reported a loss on deferred consideration – gold payments of $17.0 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, a 1 percentage point increase in the discount rate would have reduced this reported loss by $24.7 million and a 1 percentage point increase in the perpetual growth rate would have increased this reported loss by $21.7 million.

The weighted average forward-looking gold price per ounce, discount rate and perpetual growth rate were $2,265, 9.0% and 1.4%, respectively, at June 30, 2022.

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

During the three months ended June 30, 2022, we reported a gain on deferred consideration–gold payments of $2.3 million.

A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.7 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $25.7 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $22.0 million.

See Note 9 to our Consolidated Financial Statements for additional information.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis