Item 2. Management’s Discussion and Analysis
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K
for the fiscal year ended December 31, 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
Introduction
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 $74.3 billion as of June 30, 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.
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. Most of our equity-based funds employ a fundamentally weighted investment methodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other industry indexes use a capitalization weighted methodology. These products are distributed through all major channels in the asset management industry, including banks, brokerage firms, registered investment advisers, institutional investors, private wealth managers and online brokers primarily through our sales force.
We 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.
We were incorporated under the laws of the state of Delaware on September 19, 1985 as Financial Data Systems, Inc. and ultimately renamed WisdomTree Investments, Inc. on September 6, 2005.
34
Table of Contents
Assets Under Management
WisdomTree ETPs
We offer ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The chart below sets forth the asset mix of our ETPs at June 30, 2021, March 31, 2022 and June 30, 2022:
Market Environment
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. U.S. 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 5.8%, 7.4% and 10.6% versus the euro, British pound and the Japanese yen, respectively, the during the quarter.
U.S. Listed ETF Industry Flows
U.S. 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.
Source: Morningstar
35
Table of Contents
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.
Source: Morningstar
Our Operating and Financial Results
We operate as an ETP sponsor and asset manager providing investment advisory services globally through our subsidiaries in the United States and Europe.
U.S. Listed ETFs
Our U.S. 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.
36
Table of Contents
European Listed ETPs
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.
37
Table of Contents
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 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.
•
Revenues
– 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 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 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.
•
Net income
– 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). The high-end
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.
38
Table of Contents
Gross Margin
We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. 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
The following table presents key operating statistics that serve as indicators for the performance of our business:
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
2022
2022
2021
2022
2021
GLOBAL ETPs (in millions
)
Beginning of period assets
$
79,390
$
77,456
$
69,515
$
77,456
$
67,383
Inflows/(outflows)
3,852
1,319
931
5,171
2,210
Market appreciation/(depreciation)
(8,941
)
615
3,481
(8,326
)
4,334
Fund closures
(4
)
—
(4
)
(4
)
(4
)
End of period assets
$
74,297
$
79,390
$
73,923
$
74,297
$
73,923
Average assets during the period
$
77,731
$
77,794
$
73,603
$
77,763
$
71,581
Average ETP advisory fee during the period
0.39
%
0.40
%
0.40
%
0.39
%
0.42
%
Revenue days
91
90
91
181
181
Number of ETPs—end of period
346
341
318
346
318
U.S. LISTED ETFs (in millions
)
Beginning of period assets
$
48,622
$
48,210
$
42,163
$
48,210
$
38,517
Inflows/(outflows)
4,278
2,250
1,130
6,528
2,473
Market appreciation/(depreciation)
(5,645
)
(1,838
)
1,836
(7,483
)
4,139
Fund closures
—
—
—
—
—
End of period assets
$
47,255
$
48,622
$
45,129
$
47,255
$
45,129
Average assets during the period
$
48,273
$
47,503
$
44,183
$
47,888
$
42,445
Number of ETFs – end of the period
77
77
73
77
73
EUROPEAN LISTED ETPs (in millions
)
Beginning of period assets
$
30,768
$
29,246
$
27,352
$
29,246
$
28,866
Inflows/(outflows)
(426
)
(931
)
(199
)
(1,357
)
(263
)
Market appreciation/(depreciation)
(3,296
)
2,453
1,645
(843
)
195
Fund closures
(4
)
—
(4
)
(4
)
(4
)
End of period assets
$
27,042
$
30,768
$
28,794
$
27,042
$
28,794
Average assets during the period
$
29,458
$
30,291
$
29,420
$
29,875
$
29,137
Number of ETPs—end of period
269
264
245
269
245
39
Table of Contents
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
2022
2022
2021
2022
2021
PRODUCT CATEGORIES (in millions
)
Commodity & Currency
Beginning of period assets
$
26,301
$
24,597
$
23,656
$
24,597
$
25,880
Inflows/(outflows)
(475
)
(1,053
)
(318
)
(1,528
)
(979
)
Market appreciation/(depreciation)
(2,201
)
2,757
1,434
556
(129
)
End of period assets
$
23,625
$
26,301
$
24,772
$
23,625
$
24,772
Average assets during the period
$
25,765
$
25,890
$
25,550
$
25,828
$
25,420
U.S. Equity
Beginning of period assets
$
23,738
$
23,860
$
20,019
$
23,860
$
18,367
Inflows/(outflows)
306
779
191
1,085
409
Market appreciation/(depreciation)
(2,986
)
(901
)
1,075
(3,887
)
2,509
End of period assets
$
21,058
$
23,738
$
21,285
$
21,058
$
21,285
Average assets during the period
$
22,366
$
23,139
$
20,982
$
22,753
$
20,151
International Developed Market Equity
Beginning of period assets
$
11,407
$
11,876
$
9,975
$
11,876
$
9,406
Inflows/(outflows)
79
97
398
176
415
Market appreciation/(depreciation)
(1,523
)
(566
)
403
(2,089
)
955
End of period assets
$
9,963
$
11,407
$
10,776
$
9,963
$
10,776
Average assets during the period
$
10,687
$
11,527
$
10,511
$
11,107
$
10,145
Emerging Market Equity
Beginning of period assets
$
9,991
$
10,375
$
10,477
$
10,375
$
8,539
Inflows/(outflows)
(223
)
189
531
(34
)
2,194
Market appreciation/(depreciation)
(1,382
)
(573
)
511
(1,955
)
786
End of period assets
$
8,386
$
9,991
$
11,519
$
8,386
$
11,519
Average assets during the period
$
9,155
$
10,116
$
11,012
$
9,636
$
10,444
Fixed Income
Beginning of period assets
$
5,417
$
4,352
$
3,241
$
4,352
$
3,308
Inflows/(outflows)
4,038
1,242
168
5,280
178
Market appreciation/(depreciation)
(264
)
(177
)
27
(441
)
(50
)
End of period assets
$
9,191
$
5,417
$
3,436
$
9,191
$
3,436
Average assets during the period
$
7,425
$
4,688
$
3,332
$
6,057
$
3,282
Leveraged & Inverse
Beginning of period assets
$
1,856
$
1,775
$
1,519
$
1,775
$
1,477
Inflows/(outflows)
90
(2
)
(2
)
88
(7
)
Market appreciation/(depreciation)
(328
)
83
174
(245
)
221
End of period assets
$
1,618
$
1,856
$
1,691
$
1,618
$
1,691
Average assets during the period
$
1,765
$
1,830
$
1,664
$
1,798
$
1,609
Cryptocurrency
Beginning of period assets
$
383
$
357
$
377
$
357
$
167
Inflows/(outflows)
3
37
8
40
44
Market appreciation/(depreciation)
(235
)
(11
)
(156
)
(246
)
18
End of period assets
$
151
$
383
$
229
$
151
$
229
Average assets during the period
$
265
$
324
$
300
$
295
$
282
Alternatives
Beginning of period assets
$
293
$
261
$
227
$
261
$
215
Inflows/(outflows)
34
29
(39
)
63
(39
)
Market appreciation/(depreciation)
(22
)
3
10
(19
)
22
End of period assets
$
305
$
293
$
198
$
305
$
198
Average assets during the period
$
299
$
275
$
231
$
287
$
227
Closed ETPs
Beginning of period assets
$
4
$
3
$
24
$
3
$
24
Inflows/(outflows)
—
1
(6
)
1
(5
)
Market appreciation/(depreciation)
—
—
3
—
2
Fund closures
(4
)
—
(4
)
(4
)
(4
)
End of period assets
$
—
$
4
$
17
$
—
$
17
Average assets during the period
$
4
$
5
$
21
$
5
$
23
Headcount:
264
253
227
264
227
40
Table of Contents
Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTree
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Selected Operating and Financial Information
Three Months Ended
June 30,
Change
Percent
Change
AUM (in millions)
2022
2021
Average AUM
$
77,731
$
73,603
$
4,128
5.6
%
Operating Revenues (in thousands)
Advisory fees (1)
$
75,586
$
74,169
$
1,417
1.9
%
Other income
1,667
1,606
61
3.8
%
Total revenues
$
77,253
$
75,775
$
1,478
2.0
%
(1)
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 AUM
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 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
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
Three Months Ended
June 30,
Change
Percent
Change
(in thousands)
2022
2021
Compensation and benefits
$
24,565
$
20,331
$
4,234
20.8
%
Fund management and administration (1)
16,076
14,367
1,709
11.9
%
Marketing and advertising
3,894
3,594
300
8.3
%
Sales and business development
3,131
2,159
972
45.0
%
Contractual gold payments
4,446
4,314
132
3.1
%
Professional fees
4,308
1,921
2,387
124.3
%
Occupancy, communications and equipment
1,049
1,266
(217
)
(17.1
%)
Depreciation and amortization
53
256
(203
)
(79.3
%)
Third-party distribution fees
1,818
2,130
(312
)
(14.6
%)
Other
2,109
1,752
357
20.4
%
Total operating expenses
$
61,449
$
52,090
$
9,359
18.0
%
41
Table of Contents
Three Months Ended
June 30,
As a Percent of Revenues:
2022
2021
Compensation and benefits
31.7
%
26.8
%
Fund management and administration (1)
20.7
%
19.0
%
Marketing and advertising
5.0
%
4.8
%
Sales and business development
4.1
%
2.8
%
Contractual gold payments
5.8
%
5.7
%
Professional fees
5.6
%
2.5
%
Occupancy, communications and equipment
1.4
%
1.7
%
Depreciation and amortization
0.1
%
0.3
%
Third-party distribution fees
2.4
%
2.8
%
Other
2.7
%
2.3
%
Total operating expenses
79.5
%
68.7
%
(1)
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 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 11.9% 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 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 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 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 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 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 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.
42
Table of Contents
Third-party distribution fees
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
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)
Three Months Ended
June 30,
Change
Percent
Change
(in thousands)
2022
2021
Interest expense
$
(3,733
)
$
(2,567
)
$
(1,166
)
45.4
%
Gain on revaluation of deferred consideration – gold payments
2,311
497
1,814
365.0
%
Interest income
770
225
545
242.2
%
Other losses and gains, net
(4,474
)
49
(4,523
)
n/a
Total other expenses, net
$
(5,126
)
$
(1,796
)
$
(3,330
)
185.4
%
Three Months Ended
June 30,
As a Percent of Revenues:
2022
2021
Interest expense
(4.8
%)
(3.5
%)
Gain on revaluation of deferred consideration – gold payments
3.0
%
0.7
%
Interest income
1.0
%
0.3
%
Other losses and gains, net
(5.8
%)
0.1
%
Total other expenses, net
(6.6
%)
(2.4
%)
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.
Income taxes
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.
43
Table of Contents
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
June 30,
Change
Percent
Change
2022
2021
Global AUM (in millions)
Average global AUM
$
77,763
$
71,581
$
6,182
8.6
%
Revenues (in thousands)
Advisory fees (1)
$
152,103
$
144,211
$
7,892
5.5
%
Other income
3,518
2,820
698
24.8
%
Total revenues
$
155,621
$
147,031
$
8,590
5.8
%
(1)
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
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
June 30,
Change
Percent
Change
(in thousands)
2022
2021
Compensation and benefits
$
49,352
$
42,958
$
6,394
14.9
%
Fund management and administration
31,570
28,314
3,256
11.5
%
Marketing and advertising
7,917
6,600
1,317
20.0
%
Sales and business development
5,740
4,304
1,436
33.4
%
Contractual gold payments
8,896
8,584
312
3.6
%
Professional fees
8,767
3,934
4,833
122.9
%
Occupancy, communications and equipment
1,802
2,741
(939
)
(34.3
%)
Depreciation and amortization
100
508
(408
)
(80.3
%)
Third-party distribution fees
4,030
3,473
557
16.0
%
Other
3,954
3,323
631
19.0
%
Total operating expenses
$
122,128
$
104,739
$
17,389
16.6
%
44
Table of Contents
Six Months Ended
June 30,
As a Percent of Revenues:
2022
2021
Compensation and benefits
31.7
%
29.2
%
Fund management and administration
20.3
%
19.3
%
Marketing and advertising
5.1
%
4.4
%
Sales and business development
3.7
%
2.9
%
Contractual gold payments
5.7
%
5.8
%
Professional fees
5.6
%
2.7
%
Occupancy, communications and equipment
1.2
%
1.9
%
Depreciation and amortization
0.1
%
0.3
%
Third-party distribution fees
2.6
%
2.4
%
Other
2.5
%
2.3
%
Total operating expenses
78.5
%
71.2
%
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.
45
Table of Contents
Other
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
June 30,
Change
Percent
Change
(in thousands)
2022
2021
Interest expense
$
(7,465
)
$
(4,863
)
$
(2,602
)
53.5
%
(Loss)/gain on revaluation of deferred consideration – gold payments
(14,707
)
3,329
(18,036
)
n/a
Interest income
1,564
456
1,108
243.0
%
Impairments
—
(303
)
303
(100.0
%)
Other losses, net
(29,181
)
(5,844
)
(23,337
)
399.3
%
Total other expenses, net
$
(49,789
)
$
(7,225
)
$
(42,564
)
589.1
%
Six Months Ended
June 30,
As a Percent of Revenues:
2022
2021
Interest expense
(4.8
%)
(3.3
%)
(Loss)/gain on revaluation of deferred consideration – gold payments
(9.5
%)
2.3
%
Interest income
1.0
%
0.3
%
Impairments
n/a
(0.2
%)
Other losses, net
(18.7
%)
(4.0
%)
Total other expenses, net
(32.0
%)
(4.9
%)
Interest expense
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 $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 243.0% 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.
Impairments
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 $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 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.
46
Table of Contents
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.
Income taxes
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 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.
Non-GAAP
Financial Measurements
In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP
information which we believe provides useful and meaningful information. Our management reviews these non-GAAP
financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP
measurements so as to share this perspective of management. Non-GAAP
measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP
financial measurements should be considered in the context with our GAAP results. The non-GAAP
financial measurements contained in this Report include:
Adjusted Net Income and Diluted Earnings per Share
We disclose adjusted net income and adjusted diluted earnings per share as non-GAAP
financial measurements in order to report our results exclusive of items that are non-recurring
or not core to our operating business. We believe presenting these non-GAAP
financial measurements provides investors with a consistent way to analyze our performance. These non-GAAP
financial measurements exclude the following:
Unrealized gains or losses on the revaluation of deferred consideration:
Deferred consideration is an obligation we assumed in connection with the ETFS Acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations may have a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when calculating our non-GAAP
financial measurements 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 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:
GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when calculating our non-GAAP
financial measurements as they introduce volatility in earnings and are not core to our operating business.
Other items:
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.
47
Table of Contents
Three Months Ended
Six Months Ended
June 30,
June 30,
June 30,
June 30,
Adjusted Net Income and Diluted Earnings per Share:
2022
2021
2022
2021
Net income/(loss), as reported
$
8,005
$
17,630
$
(2,256
)
$
32,777
Deduct/add back: (Gain)/loss on revaluation of deferred consideration
(2,311
)
(497
)
14,707
(3,329
)
Add back: Increase in deferred tax asset valuation allowance on securities owned
901
—
2,911
—
Add back: Losses on securities owned, net of income taxes
3,165
—
7,058
—
Add back: Expenses incurred in response to an activist campaign, net of income taxes
1,532
—
3,376
—
Add back/deduct: Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards
20
(233
)
(545
)
(110
)
Deduct/add back: Unrealized (gain)/loss recognized on our investments, net of income taxes
(55
)
(105
)
69
(284
)
Add back: Impairments, net of income taxes (where applicable)
—
—
—
245
Adjusted net income
$
11,257
$
16,795
$
25,320
$
29,299
Deduct: Income distributed to participating securities
(548
)
(538
)
(1,097
)
(1,096
)
Deduct: Undistributed income allocable to participating securities
(724
)
(1,277
)
(1,763
)
(2,145
)
Adjusted net income available to common stockholders
$
9,985
$
14,980
$
22,460
$
26,058
Weighted average diluted shares, excluding participating securities (in thousands) (See Note 19 to our Consolidated Financial Statements)
143,425
148,814
143,271
147,004
Adjusted earnings per share – diluted
$
0.07
$
0.10
$
0.16
$
0.18
Liquidity and Capital Resources
The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:
June 30,
2022
December 31,
2021
Balance Sheet Data (in thousands)
:
Cash and cash equivalents
$
109,736
$
140,709
Securities owned, at fair value
128,852
127,166
Accounts receivable
34,061
31,864
Securities held-to-maturity
277
308
Total: Liquid assets
272,926
300,047
Less: Total current liabilities (1)
(68,298
)
(83,667
)
Less: Regulatory capital requirement – certain international subsidiaries
(25,450
)
(12,320
)
Total: Available liquidity
$
179,178
$
204,060
(1)
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,
2022
2021
Cash Flow Data (in thousands)
:
Operating cash flows (1)
$
8,542
$
22,390
Investing cash flows (1)
(23,070
)
(30,453
)
Financing cash flows
(13,073
)
102,147
Foreign exchange rate effect
(3,372
)
126
(Decrease)/increase in cash and cash equivalents
$
(30,973
)
$
94,210
(1)
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.
48
Table of Contents
Liquidity
We consider our available liquidity to be our liquid assets, less our current liabilities and regulatory capital requirements of certain international subsidiaries. Liquid assets consist of cash and cash equivalents, securities owned, at fair value, accounts receivable and securities held-to-maturity.
Our securities owned, at fair value are highly liquid investments. 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 $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
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:
2021 Notes
2020 Notes
Maturity date (unless earlier converted, repurchased or redeemed)
June 15, 2026
June 15, 2023
Interest rate
3.25
%
4.25
%
Conversion price
$
11.04
$
5.92
Conversion rate
90.5797
168.9189
Redemption price
$
14.35
$
7.70
•
Interest rate
: Payable semiannually in arrears on June 15 and December 15 of each year.
•
Conversion price
: Convertible at an initial conversion rate (as disclosed in the table above) of shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price as disclosed in the table above).
•
Conversion
:
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 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, 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.
49
Table of Contents
•
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 of the Convertible Notes being converted in either cash, shares of our common stock or a combination of cash and shares of our common stock.
•
Redemption price
: We may redeem for cash all or any portion of the notes, at our option, on or after June 20, 2023 and June 20, 2021 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.
•
Limited investor put rights
: Holders of the Convertible Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events.
•
Conversion rate increase in certain customary circumstances
: In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the 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 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 our Series A Non-Voting
Convertible Preferred Stock (See Note 10 to our Consolidated Financial Statements).
The indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or the 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 cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for the foreseeable future.
Our ability to satisfy our contractual obligations as they arise are discussed in the section titled “Contractual Obligations” below.
Use of Capital
Our business does not require us to maintain a significant cash position. However, certain of our 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.
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 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.
50
Table of Contents
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 our 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 Limited. The obligation is for fixed payments to ETFS Capital Limited of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”). The present value of the deferred consideration was $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.
See Note 9 to our Consolidated Financial Statements for additional information.
Operating Leases
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. See Note 12 to our Consolidated Financial Statements for additional information.
Off-Balance
Sheet Arrangements
We do not have any off-balance
sheet financing or other arrangements and have neither created nor are party to any special-purpose or off-balance
sheet entities for the purpose of raising capital, incurring debt or operating our business.
Critical Accounting Policies
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. We test goodwill for impairment at least annually and at the time of a triggering event requiring re-evaluation,
if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Goodwill is allocated to our U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.
Goodwill is assessed for impairment annually on November 30 th
. When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, the market approach and its market capitalization when determining the fair value of the reporting unit. The results of our analysis indicated no impairment based upon a quantitative assessment.
Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair value is less than their carrying value. We may rely on a qualitative assessment when performing our intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for our intangible assets is November 30 th
.
Investments
We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in ASU 2016-01,
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
, to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
51
Table of Contents
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 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 $2,265, 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.
Revenue Recognition
We earn substantially all of our revenue in the form of advisory fees from our ETPs and recognize this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.