WisdomTree, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS WisdomTree Investments, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Per Share Amounts) September 30, 2022 December 31, 2021 (unaudited) Assets Current assets: Cash and cash equivalents $ 132,700 $ 140,709 Securities owned, at fair value (including $ 12,387 and $ 18,526 invested in WisdomTree ETFs at September 30, 2022 and December 31, 2021, respectively) 125,110 127,166 Accounts receivable (including $ 21,222 and $ 25,628 due from related parties at September 30, 2022 and December 31, 2021, respectively) 25,306 31,864 Prepaid expenses 6,035 3,952 Other current assets 332 276 Total current assets 289,483 303,967 Fixed assets, net 575 557 Indemnification receivable (Note 19) 1,220 21,925 Securities held-to-maturity 267 308 Deferred tax assets, net 6,947 8,881 Investments (Note 7) 26,339 14,238 Right of use assets—operating leases (Note 12) 1,720 520 Goodwill (Note 21) 85,856 85,856 Intangible assets (Note 21) 603,204 601,247 Other noncurrent assets 766 361 Total assets $ 1,016,377 $ 1,037,860 Liabilities and stockholders’ equity Liabilities Current liabilities: Convertible notes—current (Note 10) $ 173,760 $ — Fund management and administration payable 21,466 20,661 Compensation and benefits payable 26,455 32,782 Deferred consideration—gold payments (Note 9) 15,162 16,739 Operating lease liabilities (Note 12) 1,186 209 Income taxes payable 2,094 3,979 Accounts payable and other liabilities 13,122 9,297 Total current liabilities 253,245 83,667 Convertible notes—long term (Note 10) 146,805 318,624 Deferred consideration—gold payments (Note 9) 149,595 211,323 Operating lease liabilities (Note 12) 554 328 Other noncurrent liabilities (Note 19) 1,220 21,925 Total liabilities 551,419 635,867 Preferred stock—Series A Non-Voting Convertible, par value $ 0.01 ; 14.750 shares authorized, issued and outstanding; redemption value of $ 73,594 and $ 90,741 at September 30, 2022 and December 31, 2021, respectively) (Note 11) 132,569 132,569 Contingencies (Note 13) Stockholders’ equity Preferred stock, par value $ 0.01 ; 2,000 shares authorized: — — Common stock, par value $ 0.01 ; 400,000 shares authorized; issued and outstanding: 146,520 and 145,107 at September 30, 2022 and December 31, 2021, respectively 1,465 1,451 Additional paid-in capital 289,284 289,736 Accumulated other comprehensive (loss) income ( 5,209 ) 682 Retained earnings/(accumulated deficit) 46,849 ( 22,445 ) Total stockholders’ equity 332,389 269,424 Total liabilities and stockholders’ equity $ 1,016,377 $ 1,037,860 The accompanying notes are an integral part of these consolidated financial statements 4 Table of Contents WisdomTree Investments, Inc. and Subsidiaries Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating Revenues: Advisory fees $ 70,616 $ 76,400 $ 222,719 $ 220,611 Other income 1,798 1,712 5,316 4,532 Total revenues 72,414 78,112 228,035 225,143 Operating Expenses: Compensation and benefits 23,714 22,027 73,066 64,985 Fund management and administration 16,285 15,181 47,855 43,495 Marketing and advertising 3,145 2,925 11,062 9,525 Sales and business development 2,724 2,935 8,464 7,239 Contractual gold payments (Note 9) 4,105 4,250 13,001 12,834 Professional fees 2,367 1,583 11,134 5,517 Occupancy, communications and equipment 986 1,163 2,788 3,904 Depreciation and amortization 58 185 158 693 Third-party distribution fees 1,833 1,873 5,863 5,346 Other 2,324 1,787 6,278 5,110 Total operating expenses 57,541 53,909 179,669 158,648 Operating income 14,873 24,203 48,366 66,495 Other Income/(Expenses): Interest expense ( 3,734 ) ( 3,729 ) ( 11,199 ) ( 8,592 ) Gain on revaluation of deferred consideration—gold payments (Note 9) 77,895 1,737 63,188 5,066 Interest income 811 689 2,375 1,145 Impairments (Notes 8, 12 and 23) — ( 15,853 ) — ( 16,156 ) Other losses, net ( 5,289 ) ( 714 ) ( 34,470 ) ( 6,558 ) Income before income taxes 84,556 6,333 68,260 41,400 Income tax expense/(benefit) 3,327 500 ( 10,713 ) 2,790 Net income $ 81,229 $ 5,833 $ 78,973 $ 38,610 Earnings per share—basic $ 0.50 $ 0.04 $ 0.49 $ 0.24 Earnings per share—diluted $ 0.50 $ 0.04 $ 0.49 $ 0.24 Weighted-average common shares—basic 143,120 142,070 142,984 144,445 Weighted-average common shares—diluted 158,953 159,213 158,741 161,706 Cash dividends declared per common share $ 0.03 $ 0.03 $ 0.09 $ 0.09 The accompanying notes are an integral part of these consolidated financial statements 5 Table of Contents WisdomTree Investments, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (In Thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income $ 81,229 $ 5,833 $ 78,973 $ 38,610 Other comprehensive loss Foreign currency translation adjustment, net of income taxes ( 3,684 ) ( 302 ) ( 5,891 ) ( 249 ) Other comprehensive loss ( 3,684 ) ( 302 ) ( 5,891 ) ( 249 ) Comprehensive income $ 77,545 $ 5,531 $ 73,082 $ 38,361 The accompanying notes are an integral part of these consolidated financial statements 6 Table of Contents WisdomTree Investments, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (In Thousands) (Unaudited) For the Three Months Ended September 30, 2022 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Accumulated Deficit)/Retained Earnings Total Shares Issued Par Value Balance—July 1, 2022 146,511 $ 1,465 $ 286,854 $ ( 1,525 ) $ ( 29,538 ) $ 257,256 Restricted stock issued and vesting of restricted stock units, net 13 — — — — — Shares repurchased ( 4 ) — ( 24 ) — — ( 24 ) Stock-based compensation — — 2,454 — — 2,454 Other comprehensive loss — — — ( 3,684 ) — ( 3,684 ) Dividends — — — — ( 4,842 ) ( 4,842 ) Net income — — — — 81,229 81,229 Balance—September 30, 2022 146,520 $ 1,465 $ 289,284 $ ( 5,209 ) $ 46,849 $ 332,389 For the Three Months Ended September 30, 2021 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Shares Issued Par Value Balance—July 1, 2021 145,114 $ 1,451 $ 285,002 $ 1,155 $ ( 29,871 ) $ 257,737 Restricted stock issued and vesting of restricted stock units, net 36 — — — — — Stock-based compensation — — 2,397 — — 2,397 Other comprehensive loss — — — ( 302 ) — ( 302 ) Dividends — — — — ( 4,797 ) ( 4,797 ) Net income — — — — 5,833 5,833 Balance—September 30, 2021 145,150 $ 1,451 $ 287,399 $ 853 $ ( 28,835 ) $ 260,868 The accompanying notes are an integral part of these consolidated financial statements 7 Table of Contents WisdomTree Investments, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Continued) (In Thousands) (Unaudited) For the Nine Months Ended September 30, 2022 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Accumulated Deficit)/Retained Earnings Total Shares Issued Par Value Balance—January 1, 2022 145,107 $ 1,451 $ 289,736 $ 682 $ ( 22,445 ) $ 269,424 Restricted stock issued and vesting of restricted stock units, net 2,006 20 ( 20 ) — — — Shares repurchased ( 593 ) ( 6 ) ( 3,412 ) — — ( 3,418 ) Stock-based compensation — — 7,822 — — 7,822 Other comprehensive loss — — — ( 5,891 ) — ( 5,891 ) Dividends — — ( 4,842 ) — ( 9,679 ) ( 14,521 ) Net income — — — — 78,973 78,973 Balance—September 30, 2022 146,520 $ 1,465 $ 289,284 $ ( 5,209 ) $ 46,849 $ 332,389 For the Nine Months Ended September 30, 2021 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Shares Issued Par Value Balance—January 1, 2021 148,716 $ 1,487 $ 317,075 $ 1,102 $ ( 53,399 ) $ 266,265 Reclassification of equity component related to convertible notes, net deferred taxes of $ 1,022 , upon the implementation of Accounting Standards Update 2020-06 (Note 10) — — ( 3,682 ) — 616 ( 3,066 ) Balance—January 1, 2021 (as adjusted) 148,716 $ 1,487 $ 313,393 $ 1,102 $ ( 52,783 ) $ 263,199 Restricted stock issued and vesting of restricted stock units, net 1,412 13 ( 13 ) — — — Shares repurchased ( 5,121 ) ( 51 ) ( 34,455 ) — — ( 34,506 ) Exercise of stock options, net 143 2 813 — — 815 Stock-based compensation — — 7,661 — — 7,661 Other comprehensive loss — — — ( 249 ) — ( 249 ) Dividends — — — — ( 14,662 ) ( 14,662 ) Net income — — — — 38,610 38,610 Balance—September 30, 2021 145,150 $ 1,451 $ 287,399 $ 853 $ ( 28,835 ) $ 260,868 The accompanying notes are an integral part of these consolidated financial statements 8 Table of Contents WisdomTree Investments, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In Thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 78,973 $ 38,610 Adjustments to reconcile net income to net cash provided by operating activities: Gain on revaluation of deferred consideration—gold payments ( 63,188 ) ( 5,066 ) Advisory and license fees paid in gold, other precious metals and cryptocurrency ( 44,886 ) ( 57,617 ) Losses on securities owned, at fair value 15,633 2,099 Contractual gold payments 13,001 12,834 Stock-based compensation 7,822 7,661 Deferred income taxes 2,233 1,515 Amortization of issuance costs—convertible notes 1,941 1,542 Amortization of right of use asset 648 1,860 Depreciation and amortization 158 693 Impairments — 16,156 Gain on sale—Canadian ETF business, including remeasurement of contingent consideration — ( 787 ) Other ( 223 ) ( 369 ) Changes in operating assets and liabilities: Accounts receivable 4,076 ( 1,273 ) Prepaid expenses ( 2,356 ) ( 1,888 ) Gold and other precious metals 33,598 44,006 Other assets ( 503 ) ( 315 ) Intangibles—software development ( 1,958 ) — Fund management and administration payable 1,369 2,868 Compensation and benefits payable ( 4,990 ) 1,756 Income taxes payable ( 1,822 ) ( 1,050 ) Operating lease liabilities ( 644 ) ( 15,462 ) Accounts payable and other liabilities 4,231 2,336 Net cash provided by operating activities 43,113 50,109 Cash flows from investing activities: Purchase of securities owned, at fair value ( 41,240 ) ( 97,570 ) Purchase of investments ( 11,863 ) ( 5,750 ) Purchase of fixed assets ( 211 ) ( 237 ) Proceeds from the sale of securities owned, at fair value 27,650 10,976 Proceeds from held-to-maturity securities maturing or called prior to maturity 38 114 Net cash used in investing activities ( 25,626 ) ( 92,467 ) Cash flows from financing activities: Dividends paid ( 14,521 ) ( 14,662 ) Shares repurchased ( 3,418 ) ( 34,506 ) Convertible notes issuance costs — ( 4,297 ) Proceeds from the issuance of convertible notes — 150,000 Proceeds from exercise of stock options — 815 Net cash (used in)/provided by financing activities ( 17,939 ) 97,350 Decrease in cash flow due to changes in foreign exchange rate ( 7,557 ) ( 493 ) Net (decrease)/increase in cash and cash equivalents ( 8,009 ) 54,499 Cash and cash equivalents—beginning of year 140,709 73,425 Cash and cash equivalents—end of period $ 132,700 $ 127,924 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 8,769 $ 7,332 Cash paid for interest $ 6,156 $ 3,719 NON-CASH ACTIVITIES On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $ 616 , increasing the carrying value of the convertible notes by $ 4,088 , reducing additional paid in capital by $ 3,682 and reducing deferred tax liabilities by $ 1,022 , upon the implementation of Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Note 10). The accompanying notes are an integral part of these consolidated financial statements 9 Table of Contents WisdomTree Investments, Inc. and Subsidiaries Notes to Consolidated Financial Statements (In Thousands, Except Share and Per Share Amounts) 1. Organization and Description of Business WisdomTree Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange-traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The Company has the following wholly-owned operating subsidiaries: • WisdomTree Asset Management, Inc. is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Trust (“WTT”) and WisdomTree exchange-traded funds (“ETFs”). The WisdomTree ETFs are issued in the U.S. by WTT. WTT is a non-consolidated Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. • WisdomTree Management Jersey Limited (“ManJer”) is a Jersey based management company providing management services to seven issuers (the “ManJer Issuers”) in respect of the ETPs issued and listed by the ManJer Issuers covering commodity, currency, cryptocurrency and leveraged-and-inverse strategies. • WisdomTree Multi Asset Management Limited (“WTMAML”) is a Jersey based management company providing management services to WisdomTree Multi Asset Issuer PLC (“WMAI”) in respect of the ETPs issued by WMAI. WMAI is a non-consolidated public limited company domiciled in Ireland. • WisdomTree Management Limited (“WML”) is an Ireland based management company providing management services to WisdomTree Issuer ICAV (“WTI”) in respect of the WisdomTree UCITS ETFs issued by WTI. WTI is a non-consolidated public limited company domiciled in Ireland. • WisdomTree UK Limited (“WTUK”) is a U.K. based company registered with the Financial Conduct Authority currently providing distribution and support services to ManJer, WTMAML and WML. • WisdomTree Europe Limited is a U.K. based company which is the legacy distributor of the WMAI ETPs and WisdomTree UCITS ETFs. These services are now provided directly by WTUK. WisdomTree Europe Limited is no longer regulated and does not provide any regulated services. • WisdomTree Ireland Limited is an Ireland based company authorized by the Central Bank of Ireland providing distribution services to ManJer, WTMAML and WML. • WisdomTree Digital Commodity Services, LLC is a New York based company that has been formed to serve as the sponsor of the WisdomTree Bitcoin Trust and WisdomTree Ethereum Trust, each an ETF currently under review with the SEC. • WisdomTree Digital Management, Inc. is a New York based company that has been formed to serve as a SEC-registered investment adviser and will provide investment advisory and other management services to blockchain-enabled mutual funds whose shares are secondarily recorded on a blockchain. • WisdomTree Digital Movement, Inc . is a New York based company that has been formed to operate a money services business registered with the Financial Crimes Enforcement Network (“FinCEN”) and is seeking state money transmitter licenses to operate a platform for the purchase, sale and exchange of digital assets, while also providing digital wallet services to facilitate such activity. • WisdomTree Securities, Inc. is a New York based company that has been formed to operate as a limited purpose broker-dealer (i.e., mutual fund retailer) upon registration with the SEC, FINRA and state regulatory authorities. 2. Significant Accounting Policies Basis of Presentation These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 10 Table of Contents Consolidation The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company reassesses its evaluation of whether an entity is a VOE or VIE when certain reconsideration events occur. Segment and Geographic Information The Company, through its subsidiaries in the U.S. and Europe, conducts business as a single operating segment as an ETP sponsor and asset manager which is based upon the Company’s current organizational and management structure, as well as information used by the chief operating decision maker to allocate resources and other factors. Foreign Currency Translation Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income as a component of other comprehensive loss. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates. Revenue Recognition The Company earns substantially all of its revenue in the form of advisory fees from its ETPs and recognizes 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 the Company has a right to invoice. Contractual Gold Payments Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 9). Marketing and Advertising Marketing and advertising costs, including media advertising and production costs, are expensed when incurred. Depreciation and Amortization Depreciation and amortization is provided for using the straight-line method over the estimated useful lives of the related assets as follows:​​​​​​​ Equipment 3 to 5 years Internally-developed software 3 years The assets listed above are recorded at cost less accumulated depreciation and amortization. Stock-Based Awards Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period. Forfeitures are recognized when they occur. 11 Table of Contents Third-Party Distribution Fees The Company pays a percentage of its advisory fee revenues based on incremental growth in assets under management (“AUM”), subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third-party customer platforms and recognizes these expenses as incurred. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents. The Company maintains deposits with financial institutions in an amount that is in excess of federally insured limits. Accounts Receivable Accounts receivable are customer and other obligations due under normal trade terms. The Company measures credit losses, if any, by applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts to amounts outstanding using the aging method. Impairment of Long-Lived Assets The Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable. Securities Owned and Securities Sold, but not yet Purchased (at fair value) Securities owned and securities sold, but not yet purchased are securities classified as either trading or available-for-sale (“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities that have readily determinable fair values are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income/(expenses) and other comprehensive income, respectively, in the period the change occurs. Debt securities classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method. Securities Held-to-Maturity The Company accounts for certain of its securities as held-to-maturity on a trade date basis, which are recorded at amortized cost. For held-to-maturity securities, the Company has the intent and ability to hold these securities to maturity and it is not more-likely-than-not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity. Held-to-maturity securities are placed on non-accrual status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on held-to-maturity securities placed on non-accrual status is recognized on a cash basis as interest income if and when received. The Company reviews its portfolio of held-to-maturity securities for impairment on a quarterly basis, recognizing an allowance, if any, by applying an estimated loss rate after consideration for the nature of collateral securing the financial asset as well as potential future changes in collateral values and historical loss information for financial assets secured with similar collateral. Investments in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee. Investments The Company accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in Accounting Standards Codification (“ASC”) Topic 321, Investments – Equity Securities (“ASC 321”), 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. 12 Table of Contents Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses). ​​​​​​​ Goodwill Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests 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 the Company’s 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 its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and a quantitative assessment using the market approach and its market capitalization when determining the fair value of the reporting unit. Intangible Assets Indefinite-lived intangible assets are tested for impairment at least annually and are also 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 values are less than their carrying values. Finite-lived intangible assets, if any, are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. These intangible assets are tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts. The Company may rely on a qualitative assessment when performing its 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 all of the Company’s intangible assets is November 30 th . Software Development Costs Software development costs incurred after the preliminary project stage is complete are capitalized if it is probable that the project will be completed and the software will be used as intended. Capitalized costs consist of employee compensation costs and fees paid to third parties who are directly involved in the application development efforts. Capitalized costs are amortized over the estimated useful life of the software on a straight-line basis and are included in depreciation and amortization in the Consolidated Statements of Operations. Once the application development stage is complete, additional costs are expensed as incurred. Leases The Company accounts for its lease obligations in accordance with ASC Topic 842, Leases (“ASC 842”), which requires the recognition of both (i) a lease liability equal to the present value of the remaining lease payments and (ii) an offsetting right-of-use asset. The remaining lease payments are discounted using the rate implicit in the lease, if known, or otherwise the Company’s incremental borrowing rate. After lease commencement, right-of-use assets are assessed for impairment and otherwise are amortized over the remaining lease term on a straight-line basis. These recognition requirements are not applied to short-term leases which are those with a lease term of 12 months or less. Instead, lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term. ASC 842 also provides a practical expedient which allows for consideration in a contract to be accounted for as a single lease component rather than allocated between lease and non-lease components. The Company has elected to apply this practical expedient to all lease contracts, where applicable. 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 (Note 9). Changes in the fair value of this obligation are reported as gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations. 13 Table of Contents Convertible Notes Convertible notes are carried at amortized cost, net of issuance costs. In accordance with Accounting Standards Update (“ASU”) 2020-06 Debt – Debt with Conversion and Other Options , the Company accounts for convertible instruments as a single liability (applicable to the convertible notes) or equity with no separate accounting for embedded conversion features unless the conversion feature meets the criteria for accounting under the substantial premium model or does not qualify for a derivative scope exception. Interest expense is recognized using the effective interest method and includes amortization of issuance costs over the life of the debt. Contingencies The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss contingency when the loss is probable and reasonably estimable. Contingent Payments The Company recognizes a gain on contingent payments when the contingency is resolved and the gain is realized. Earnings per Share Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. The Series A non-voting convertible preferred stock (Note 11) and unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the two-class method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive). Diluted EPS is calculated under the treasury stock method and the two-class method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A non-voting convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A non-voting convertible preferred stock and the convertible notes are computed under the if-converted method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price. Income Taxes The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all the deferred tax assets will not be realized. Tax positions are evaluated utilizing a two-step process. The Company first determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense. The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax. Non-income based taxes are recorded as part of other liabilities and other expenses. 3. Cash and Cash Equivalents Of the total cash and cash equivalents of $ 132,700 and $ 140,709 at September 30, 2022 and December 31, 2021, respectively, $ 132,348 and $ 127,328 were held at two financial institutions. At September 30, 2022 and December 31, 2021, cash equivalents were approximately $ 284 and $ 11,488 , respectively. Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was $ 23,144 and $ 12,320 at September 30, 2022 and December 31, 2021, respectively. These requirements are generally satisfied by cash on hand. 14 Table of Contents 4. Fair Value Measurements The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurement , establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows: Level 1 – Quoted prices for identical instruments in active markets. Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 – Instruments whose significant drivers are unobservable. The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three and nine months ended September 30, 2022 and 2021 there were no transfers between Levels 2 and 3. September 30, 2022 Total Level 1 Level 2 Level 3 Assets: Recurring fair value measurements: Cash equivalents $ 284 $ 284 $ — $ — Securities owned, at fair value ETFs 12,621 12,621 — — U.S. treasuries 8,437 8,437 — — Pass-through GSEs 102,248 23,694 78,554 — Corporate bonds 1,804 — 1,804 — Investments in Convertible Notes Securrency, Inc.—convertible note (Note 7) 5,844 — — 5,844 Fnality International Limited—convertible note (Note 7) 6,195 — — 6,195 Total $ 137,433 $ 45,036 $ 80,358 $ 12,039 Non-recurring fair value measurements: Onramp Invest, Inc.—preferred stock (Note 7) (1) $ 312 $ — $ — $ 312 Liabilities: Recurring fair value measurements: Deferred consideration (Note 9) $ 164,757 $ — $ — $ 164,757 (1) Fair value determined on May 10, 2022 (Note 7). 15 Table of Contents December 31, 2021 Total Level 1 Level 2 Level 3 Assets: Recurring fair value measurements: Cash equivalents $ 11,488 $ 11,488 $ — $ — Securities owned, at fair value ETFs 18,812 18,812 — — Pass-through GSEs 106,245 24,720 81,525 — Corporate bonds 2,109 — 2,109 — Total $ 138,654 $ 55,020 $ 83,634 $ — Non-recurring fair value measurements: Securrency, Inc.—Series A convertible preferred stock (1) $ 8,488 $ — $ — $ 8,488 Liabilities: Recurring fair value measurements: Deferred consideration (Note 9) $ 228,062 $ — $ — $ 228,062 (1) Fair value of $ 8,488 and $ 8,349 determined on June 9, 2021 and March 8, 2021, respectively (Note 7). Recurring Fair Value Measurements - Methodology Cash Equivalents (Note 3 ) – These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are classified as Level 1 in the fair value hierarchy. Securities Owned (Note 5 ) – Securities owned are investments in ETFs, pass-through GSEs, U.S. treasuries and corporate bonds. ETFs and U.S. treasuries are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. Pricing of pass-through GSEs and corporate bonds include consideration given to collateral characteristics and market assumptions related to yields, credit risk and timing of prepayments and are therefore generally classified as Level 2. Pass-through GSE positions invested in through a fund structure with a quoted market price on an exchange are generally classified as Level 1. Fair Value Measurements classified as Level 3 – The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Investments in Convertible Notes (Note 7) Beginning balance $ 11,712 $ — $ — $ — Purchases — — 11,863 — Net unrealized gains (1) 327 — 176 — Ending balance $ 12,039 $ — $ 12,039 $ — Deferred Consideration (Note 9) Beginning balance $ 242,767 $ 226,706 $ 228,062 $ 230,137 Net realized losses (2) 4,105 4,250 13,001 12,834 Net unrealized gains (3) ( 77,895 ) ( 1,737 ) ( 63,188 ) ( 5,066 ) Settlements ( 4,220 ) ( 4,266 ) ( 13,118 ) ( 12,952 ) Ending balance $ 164,757 $ 224,953 $ 164,757 $ 224,953 (1) Recorded in other losses, net in the Consolidated Statements of Operations. (2) Recorded as contractual gold payments expense in the Consolidated Statements of Operations. (3) Recorded as gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations 16 Table of Contents 5. Securities Owned These securities consist of the following: Securities Owned September 30, 2022 December 31, 2021 Trading securities $ 125,110 $ 127,166 The Company recognized net trading losses on securities owned that were still held at the reporting dates of $ 6,010 and $ 1,323 during the three months ended September 30, 2022 and 2021, respectively, and $ 13,922 and $ 2,156 during the nine months ended September 30, 2022 and 2021, respectively, which were recorded in other losses, net, in the Consolidated Statements of Operations. 6. Securities Held-to-Maturity The following table is a summary of the Company’s securities held-to-maturity: September 30, 2022 December 31, 2021 Debt instruments: Pass-through GSEs (amortized cost) $ 267 $ 308 During the nine months ended September 30, 2022 and 2021, the Company received proceeds of $ 38 and $ 114 , respectively, from held-to-maturity securities maturing or being called prior to maturity. The following table summarizes unrealized gains, losses and fair value (classified as Level 2 within the fair value hierarchy) of securities held-to-maturity: September 30, 2022 December 31, 2021 Cost/amortized cost $ 267 $ 308 Gross unrealized gains — 13 Gross unrealized losses ( 23 ) — Fair value $ 244 $ 321 An allowance for credit losses was not provided on the Company’s held-to-maturity securities as all securities are investments in pass-through GSEs which are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee. The following table sets forth the maturity profile of the securities held-to-maturity; however, these securities may be called prior to maturity date: September 30, 2022 December 31, 2021 Due within one year $ — $ — Due one year through five years — — Due five years through ten years 29 — Due over ten years 238 308 Total $ 267 $ 308 7. Investments The following table sets forth the Company’s investments: September 30, 2022 December 31, 2021 Carrying Value Cost Carrying Value Cost Securrency, Inc.—Series A convertible preferred stock $ 8,488 $ 8,112 $ 8,488 $ 8,112 Securrency, Inc.—Series B convertible preferred stock 5,500 5,500 5,500 5,500 Securrency, Inc.—convertible note 5,844 5,000 — — Subtotal—Securrency, Inc. $ 19,832 $ 18,612 $ 13,988 $ 13,612 Fnality International Limited—convertible note 6,195 6,863 — — Onramp Invest, Inc.—Series A-4 preferred stock 312 250 250 250 $ 26,339 $ 25,725 $ 14,238 $ 13,862 17 Table of Contents Securrency, Inc. – Preferred Stock The Company owns approximately 22 % (or 18 % on a fully-diluted basis) of the capital stock of Securrency, Inc. (“Securrency”), a developer of institutional-grade blockchain-based financial and regulatory technology, issued as a result of strategic investments totaling $ 13,612 . In consideration of such investments, the Company received 5,178,488 shares of Series A convertible preferred stock (“Series A Shares”) in December of 2019 and 2,004,665 shares of Series B convertible preferred stock (“Series B Shares”) in March of 2021. The Series B Shares contain a liquidation preference that is pari passu with shares of Series B-1 convertible preferred stock (which are substantially the same as the Series B Shares except that they have limited voting rights) and senior to that of the holders of the Series A Shares, which are senior to the holders of common stock. Otherwise, the Series A Shares and Series B Shares have substantially the same terms, are convertible into common stock at the option of the Company and contain various rights and protections including a non-cumulative 6.0 % dividend, payable if and when declared by the board of directors of Securrency. In addition, the Series A Shares and Series B Shares (together with the Series B-1 convertible preferred stock) are separately redeemable, with respect to all of the shares outstanding of the applicable series of preferred stock (subject to certain regulatory restrictions of certain investors), for the original issue price thereof, plus all declared and unpaid dividends, upon approval by holders of at least 60 % of the Series A Shares (at any time on or after December 31, 2029) and 90 % of the Series B Shares (at any time on or after March 31, 2031). These investments are accounted for under the measurement alternative prescribed in ASC 321, as they do not have a readily determinable fair values and are not considered to be in-substance common stock. The investments are assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three and nine months ended September 30, 2022 and the three months ended September 30, 2021 based upon a qualitative assessment. During the nine months ended September 30, 2021, the Company recognized a gain of $ 376 on its Series A Shares, which were re-measured to fair value upon the issuance of Securrency’s Series B Shares. Fair value was determined using the backsolve method, a valuation approach that determines the value of shares for companies with complex capital structures based upon the price paid for shares recently issued. Fair value is allocated across the capital structure using the Black-Scholes option pricing model. The table below presents the inputs used in the backsolve valuation approach (classified as Level 3 in the fair value hierarchy): Inputs June 9, 2021 March 8, 2021 Expected volatility 50 % 55 % Time to exit (in years) 4.75 5.00 Securrency – Convertible Note In April 2022, the Company participated in a convertible note financing, making a $ 5,000 investment in Securrency. In consideration for its investment, the Company was issued a 7 % Convertible Promissory Note maturing on April 21, 2023 . The note is convertible into either Securrency’s common stock or the class of securities convertible into, exchangeable for, or conferring the right to purchase Securrency’s common stock that is issued in the event of a future equity financing at a conversion price equal to a discount of 25 % (or, if applicable, a greater discount offered to other holders of convertible securities in such future equity financing round) to the lowest price paid per equity share issued in the future equity financing round. The note is redeemable upon the occurrence of a corporate transaction for an amount which is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to common stock immediately prior to the occurrence of the corporate transaction. At maturity, redemption or conversion may occur upon the election by the holders of a majority-in-interest of the aggregate principal amount of outstanding notes. If no such election is made, Securrency may elect to pay or convert the notes in its sole discretion. The note is accounted for at fair value. Fair value is determined by the Company using the probability-weighted expected return method (“PWERM”), a valuation approach that estimates the value of the note assuming various outcomes. During the three and nine months ended September 30, 2022, the Company recognized a gain of $ 565 and $ 844 , respectively, when re-measuring the notes to fair value. The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy) and the time to exit: September 30, 2022 Conversion of note upon a future equity financing 85 % Redemption of note upon a corporate transaction 10 % Default 5 % Time to potential outcome (in years) 0.25 18 Table of Contents Fnality International Limited – Convertible Note In February 2022, the Company participated in a convertible note financing, making a £ 5,000 ($ 6,863 ) investment in Fnality International Limited (“Fnality”), a company incorporated in England and Wales and focused on creating a peer-to-peer digital wholesale settlement ecosystem comprised of a consortium of financial institutions, offering real time cross-border payments from a single pool of liquidity. In consideration for its investment, the Company was issued a 5 % Convertible Unsecured Loan Note maturing on December 31, 2023 . The note is convertible into equity shares in the event of a future financing round at a conversion price equal to the lower of (i) a discount of 20 % to lowest price paid per equity share issued pursuant to such future financing round and (ii) an amount paid per share subject to a pre-money valuation cap. Mandatory conversion may occur on or after the maturity date or, if earlier, in the event a future financing round has not been completed within a specified time from an initial closing of such financing round (“Long Stop Date”), upon the approval of holders of at least 75 % of the outstanding notes. The note is also convertible, at the option of the Company, following the earlier of the maturity date or such Long Stop Date. The note is redeemable upon the occurrence of a change of control for an amount which is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to equity shares immediately prior to the occurrence of the change of control. Redemption may also occur on or after maturity or prior to maturity upon approval by holders of at least 50 % and 75 %, respectively, of the outstanding notes, or in connection with bankruptcy or other liquidation events. The note is accounted for at fair value. Fair value is determined by the Company using the PWERM and is also remeasured for changes in the British pound and U.S. dollar exchange rate. During the three and nine months ended September 30, 2022, the Company recognized a loss of $ 238 and $ 668 , respectively, when re-measuring the notes to fair value. The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy) and the time to exit: September 30, 2022 Conversion of note upon a future financing round 85 % Redemption of note upon a change of control 10 % Default 5 % Time to potential outcome (in years) 0.25 Onramp Invest, Inc. – Preferred Stock In June 2021, the Company invested $ 250 in Onramp Invest, Inc. (“Onramp”), a technology company that provides access to crypto assets for registered investment advisers. In consideration for its investment, the Company was issued a Simple Agreement for Future Equity (“SAFE”), which provided the Company with the right to be issued certain shares of Onramp’s preferred stock in connection with Onramp’s future equity financing for preferred stock, at a 20 % discount to the price per share issued in connection with such equity financing, subject to a pre-determined valuation cap. In May 2022, in connection with a Series A financing by Onramp, the Company’s SAFE was converted into shares of Series A-4 Preferred Stock, representing a small ownership interest in Onramp. The investment is accounted for under the measurement alternative prescribed in ASU 2016-01, as it does not have a readily determinable fair value and is not considered to be in-substance common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. During the three and nine months ended September 30, 2022, the Company recognized a gain of $ 0 and $ 62 , respectively, in connection with the conversion of the SAFE into Series A-4 Preferred Stock of Onramp. There was no impairment recognized during the three and nine months ended September 30, 2021 based upon a qualitative assessment. 8. Fixed Assets, net The following table summarizes fixed assets: September 30, 2022 December 31, 2021 Equipment $ 919 $ 784 Less: accumulated depreciation ( 344 ) ( 227 ) Total $ 575 $ 557 During the three and nine months ended September 30, 2021, the Company recognized an impairment charge of $ 6,576 , representing the write-off of leasehold improvements and fixed assets in connection with the termination of the lease for its principal executive office at 245 Park Avenue, New York, New York. See Notes 12 and 23 for additional information. 19 Table of Contents 9. Deferred Consideration Deferred consideration represents an obligation the Company assumed in connection with its acquisition of the European exchange-traded commodity, currency and leveraged and inverse business of ETFS Capital Limited (“ETFS Capital”) which occurred on April 11, 2018 (“ETFS Acquisition”). The obligation is for fixed payments to ETFS Capital of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”). The Contractual Gold Payments are paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold and are subject to adjustment and reduction for declines in advisory fee income generated by such products, with any reduction remaining due and payable until paid in full. ETFS Capital’s recourse is limited to such advisory fee income and it has no recourse back to the Company for any unpaid amounts that exceed advisory fees earned. ETFS Capital ultimately has the right to claw back Gold Bullion Securities Ltd. (a physically backed gold ETP issuer) if the Company fails to remit any amounts due. The Company determined the present value of the deferred consideration of $ 164,757 and $ 228,062 at September 30, 2022 and December 31, 2021 using the following assumptions: September 30, 2022 December 31, 2021 Forward-looking gold price (low)—per ounce $ 1,665 $ 1,833 Forward-looking gold price (high)—per ounce $ 3,027 $ 2,705 Forward-looking gold price (weighted average)—per ounce $ 2,037 $ 2,106 Discount rate 12.25 % 9.0 % Perpetual growth rate 1.54 % 1.0 % The forward-looking gold prices at September 30, 2022 were extrapolated from the last observable CMX exchange price (beyond 2028) and the weighted-average price per ounce was derived from the relative present values of the annual payment obligations. The perpetual growth rate was determined based upon the increase in observable forward-looking gold prices through 2027. This obligation is classified as Level 3 as the discount rate, the extrapolated forward-looking gold prices and perpetual growth rate are significant unobservable inputs. An increase in spot gold prices, forward-looking gold prices and the perpetual growth rate would result in an increase in deferred consideration, whereas an increase in the discount rate would reduce the fair value. Current amounts payable were $ 15,162 and $ 16,739 and long-term amounts payable were $ 149,595 and $ 211,323 , respectively, at September 30, 2022 and December 31, 2021, respectively. During the three and nine months ended September 30, 2022 and 2021, the Company recognized the following in respect of deferred consideration: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Contractual gold payments $ 4,105 $ 4,250 $ 13,001 $ 12,834 Contractual gold payments—gold ounces paid 2,375 2,375 7,125 7,125 Gain on revaluation of deferred consideration—gold payments (1) $ 77,895 $ 1,737 $ 63,188 $ 5,066 (1) Gains on revaluation of deferred consideration—gold payments result from a decrease in spot gold prices, a decrease in the forward-looking price of gold, a decrease in the perpetual growth rate and an increase in the discount rate used to compute the present value of the annual payment obligations. 10. Convertible Notes On June 14, 2021, the Company issued and sold $ 150,000 in aggregate principal amount of 3.25 % Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, between the Company and U.S. Bank National Association, as trustee (the “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, the Company issued and sold $ 150,000 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 the Company and the Trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On August 13, 2020, the Company issued and sold $ 25,000 in aggregate principal amount of 4.25 % Convertible Senior Notes due 2023 at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, and constitute a further issuance of, and form a single series with, the Company’s June 2020 Notes (the “August 2020 Notes” and together with the June 2020 Notes, the “2020 Notes”). 20 Table of Contents After the issuance of the 2021 Notes (and together with the 2020 Notes, the “Convertible Notes”), the Company had $ 325,000 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 of the Company’s 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 the Company’s 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 the Company’s common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption delivered by the Company 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. • Cash settlement of principal amount : Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At its election, the Company will also settle its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of its common stock or a combination of cash and shares of its common stock. • Redemption price: The Company may redeem for cash all or any portion of the notes, at its 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 the Company’s 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 the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. No sinking fund is provided for the Convertible Notes. • Limited investor put rights : Holders of the Convertible Notes have the right to require the Company 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 the Company’s common stock per $1,000 principal amount of the 2021 Notes and 2020 Notes, respectively (the equivalent of 69,036,410 shares of the Company’s common stock), subject to adjustment. • Seniority and Security : The 2021 Notes and 2020 Notes rank equal in right of payment, and are the Company’s senior unsecured obligations, but are subordinated in right of payment to the Company’s obligations to make certain redemption payments (if and when due) in respect of its Series A Non-Voting Convertible Preferred Stock (Note 12). 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. 21 Table of Contents The following table provides a summary of the carrying value of the Convertible Notes at September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 2021 Notes 2020 Notes Total 2021 Notes 2020 Notes Total Principal amount $ 150,000 $ 175,000 $ 325,000 $ 150,000 $ 175,000 $ 325,000 Plus: Premium — 250 250 — 250 250 Gross proceeds $ 150,000 $ 175,250 $ 325,250 $ 150,000 $ 175,250 $ 325,250 Less: Unamortized issuance costs (1) ( 3,195 ) ( 1,490 ) ( 4,685 ) ( 3,833 ) ( 2,793 ) ( 6,626 ) Carrying amount $ 146,805 $ 173,760 $ 320,565 $ 146,167 $ 172,457 $ 318,624 Effective interest rate (1) 3.83 % 5.26 % 4.60 % 3.83 % 5.26 % 4.60 % (1) Includes amortization of the issuance costs and premium. On January 1, 2021, the Company early adopted ASU 2020-06, which simplified the accounting for convertible instruments by providing for such instruments being reported as a single liability (applicable to the convertible notes) or equity with no separate accounting for the embedded conversion features unless the conversion feature meets the criteria for accounting under the substantial premium model or does not qualify for a derivative scope exception. Previously, convertible instruments were required to be separated into their liability and equity components by allocating the issuance proceeds to each of those components. The discount arising from the recognition of the equity component was amortized as interest expense over the life of the 2020 Notes. Interest expense on the Convertible Notes was $ 3,734 and $ 11,199 , respectively, during the three and nine months ended September 30, 2022, and $ 3,729 and $ 8,592 , respectively, during the comparable periods in 2021. Interest payable of $ 3,691 and $ 590 at September 30, 2022 and December 31, 2021 is included in accounts payable and other liabilities in the Consolidated Balance Sheets. The fair value of the Convertible Notes (classified as Level 2 in the fair value hierarchy) was $ 310,890 and $ 360,571 at September 30, 2022 and December 31, 2021, respectively. The if-converted value of the 2020 Notes did not exceed the principal amount at September 30, 2022 and was $ 180,912 at December 31, 2021. The if-converted value of the 2021 Notes did not exceed the principal amount at September 30, 2022 and December 31, 2021. 11. Preferred Shares On April 10, 2018, the Company filed a Certificate of Designations of Series A Non-Voting Convertible Preferred Stock with the Secretary of State of the State of Delaware establishing the rights, preferences, privileges, qualifications, restrictions, and limitations relating to the Preferred Shares (defined below). The Preferred Shares are intended to provide ETFS Capital with economic rights equivalent to the Company’s common stock on an as-converted basis. The Preferred Shares have no voting rights, are not transferable and have the same priority with regard to dividends, distributions and payments as the common stock. As described in the Certificate of Designations, the Company will not issue, and ETFS Capital does not have the right to require the Company to issue, any shares of common stock upon conversion of the Preferred Shares, if, as a result of such conversion, ETFS Capital (together with certain attribution parties) would beneficially own more than 9.99% of the Company’s outstanding common stock immediately after giving effect to such conversion. In connection with the completion of the ETFS Acquisition, the Company issued 14,750 shares of Series A Non-Voting Convertible Preferred Stock (the “Preferred Shares”), which are convertible into an aggregate of 14,750,000 shares of common stock. The fair value of this consideration was $ 132,750 , based on the closing price of the Company’s common stock on April 10, 2018 of $ 9.00 per share, the trading day prior to the closing of the acquisition. The following is a summary of the Preferred Share balance: September 30, 2022 December 31, 2021 Issuance of Preferred Shares $ 132,750 $ 132,750 Less: Issuance costs ( 181 ) ( 181 ) Preferred Shares—carrying value $ 132,569 $ 132,569 Cash dividends declared per share $ 0.03 $ 0.03 Temporary equity classification is required for redeemable instruments for which redemption triggers are outside of the issuer’s control. ETFS Capital has the right to redeem all the Preferred Shares specified to be converted during the period of time specified in the Certificate of Designations in the event that: (a) the number of shares of the Company’s common stock authorized by its certificate of incorporation is insufficient to permit the Company to convert all of the Preferred Shares requested by ETFS Capital to be converted; or (b) ETFS Capital does not, upon completion of a change of control of the Company, receive the same amount per Preferred Share as it would have received had each outstanding Preferred Share been converted into common stock immediately prior to the change of control. However, the Company will not be obligated to make any such redemption payments to the extent such payments would be a breach of any covenant or obligation the Company owes to any of its secured creditors or is otherwise prohibited by applicable law. 22 Table of Contents Any such redemption will be at a price per Preferred Share equal to the dollar volume-weighted average price for a share of common stock for the 30-trading day period ending on the date of such attempted conversion or change of control, as applicable, multiplied by 1,000. Such redemption payment will be made in one payment no later than 10 business days following the last day of the Company’s first fiscal quarter that begins on a date following the date ETFS Capital exercises such redemption right. The redemption value of the Preferred Shares was $ 73,594 and $ 90,741 at September 30, 2022 and December 31, 2021, respectively. The carrying amount of the Preferred Shares was not adjusted as it was not probable that the Preferred Shares would become redeemable. 12. Leases The Company has entered into operating leases for its corporate headquarters and office facilities, financial data terminals and equipment. The Company has no finance leases. The following table provides additional information regarding the Company’s leases: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Lease cost: Operating lease cost $ 316 $ 520 $ 648 $ 1,860 Short-term lease cost 296 242 856 797 Total lease cost $ 612 $ 762 $ 1,504 $ 2,657 Other information: Cash paid for amounts included in the measurement of operating liabilities (operating leases) $ 296 $ 13,804 $ 644 $ 15,462 Right-of-use assets obtained in exchange for new operating lease liabilities n/a n/a n/a n/a Weighted-average remaining lease term (in years)—operating leases 1.5 1.8 1.5 1.8 Weighted-average discount rate—operating leases 6.3 % 4.4 % 6.3 % 4.4 % None of the Company’s leases include variable payments, residual value guarantees or any restrictions or covenants relating to the Company’s ability to pay dividends or incur additional financing obligations. During the three and nine months ended September 30, 2021, the Company recognized an impairment charge of $ 9,277 and $ 9,580 , respectively, resulting from the derecognition of right-of-use assets upon exiting its New York and London offices in September 2021 and February 2021, respectively, as well as costs incurred to restore the office spaces to their original condition. These losses are included in impairments in the Company’s Consolidated Statements of Operations (Note 23). The following table discloses future minimum lease payments at September 30, 2022 with respect to the Company’s operating lease liabilities: Remainder of 2022 $ 317 2023 1,110 2024 397 2025 — 2026 — 2027 and thereafter — Total future minimum lease payments (undiscounted) $ 1,824 23 Table of Contents The following table reconciles the future minimum lease payments (disclosed above) at September 30, 2022 to the operating lease liabilities recognized in the Consolidated Balance Sheets: Amounts recognized in the Consolidated Balance Sheets Lease liability—short term $ 1,186 Lease liability—long term 554 Subtotal 1,740 Difference between undiscounted and discounted cash flows 84 Total future minimum lease payments (undiscounted) $ 1,824 13. Contingencies The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. Closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP In December 2020, WMAI, WTMAML, WTUK and WisdomTree Ireland Limited (“WT Ireland”) were served with a writ of summons to appear before the Court of Milan, Italy. In January 2021, WTUK was served with a writ of summons to appear before the Court of Udine, Italy. Investors had filed actions seeking damages resulting from the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP (“3OIL”) in March 2020. The product was dependent on the receipt of payments from a swap provider to satisfy payment obligations to the investors. Due to an extreme adverse move in oil futures relative to the oil futures’ closing price, the swap contract underlying 3OIL was terminated by the swap provider, which resulted in the compulsory redemption of 3OIL, all in accordance with the prospectus. In February 2022, the Court of Udine ruled in the Company’s favor. Also in February 2022, WMAI, WTMAML, WTUK and WT Ireland were served with another writ of summons to appear before the Court of Milan by additional investors seeking damages resulting from the closure of 3OIL. In March 2022, WMAI and WTUK were served with writs of summons to appear before the Court of Turin and the Court of Milan by additional investors seeking damages. These writs also were served on the intermediary brokers for the respective claimants, with the claimants alleging joint and several liability of WMAI, WTUK and such intermediary brokers. Total damages sought by all investors are approximately € 15,800 ($ 15,378 ) at September 30, 2022. The Company is currently assessing these claims with its external counsel. An accrual has not been made with respect to these matters at September 30, 2022 and December 31, 2021. 14. Variable Interest Entities VIEs are entities with any of the following characteristics: (i) the entity does not have enough equity to finance its activities without additional financial support; (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. Consolidation of a VIE is required for the party deemed to be the primary beneficiary, if any. The primary beneficiary is the party who has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. The Company is not the primary beneficiary of any entities in which it has a variable interest as it does not have the power to direct the activities that most significantly impact the entities’ economic performance. Such power is conveyed through the entities’ boards of directors and the Company does not have control over the boards. 24 Table of Contents The following table presents information about the Company’s variable interests in non-consolidated VIEs: September 30, 2022 December 31, 2021 Carrying Amount — Assets (Securrency) Preferred stock—Series A Shares $ 8,488 $ 8,488 Preferred stock—Series B Shares 5,500 5,500 Convertible note 5,844 — Subtotal—Securrency $ 19,832 $ 13,988 Carrying Amount — Assets (Fnality) Convertible note 6,195 — Carrying Amount — Assets (Onramp) Preferred stock 312 250 Total (Note 7) $ 26,339 $ 14,238 Maximum exposure to loss $ 26,339 $ 14,238 15. Revenues from Contracts with Customers The following table presents the Company’s total revenues from contracts with customers: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues from contracts with customers: Advisory fees $ 70,616 $ 76,400 $ 222,719 $ 220,611 Other 1,798 1,712 5,316 4,532 Total operating revenues $ 72,414 $ 78,112 $ 228,035 $ 225,143 The Company recognizes revenues from contracts with customers when the performance obligation is satisfied, which is when the promised services are transferred to the customer. A service is considered to be transferred when the customer obtains control, which is represented by the transfer of rights with regard to the service. Transfer of control happens either over time or at a point in time. When a performance obligation is satisfied over time, an entity is required to select a single method of measuring progress for each performance obligation that depicts the entity’s performance in transferring control of services to the customer. Substantially all the Company’s revenues from contracts with customers are derived primarily from investment advisory agreements with related parties (Note 16). These advisory fees are recognized over time, are earned from the Company’s ETPs and are calculated based on a percentage of the ETPs’ average daily net assets. There is no significant judgment in calculating amounts due which are invoiced monthly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice. There are no contract assets or liabilities that arise in connection with the recognition of advisory fee revenue. In addition, there are no costs incurred to obtain or fulfill the contracts with customers, all of which are investment advisory agreements with related parties. Geographic Distribution of Revenue The following table presents the Company’s total revenues geographically as determined by where the respective management companies reside: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues from contracts with customers: United States $ 45,263 $ 46,523 $ 137,299 $ 131,744 Jersey 23,702 28,724 80,111 85,953 Ireland 3,449 2,865 10,625 7,446 Total operating revenues $ 72,414 $ 78,112 $ 228,035 $ 225,143 25 Table of Contents 16. Related Party Transactions The Company’s revenues are derived primarily from investment advisory agreements with related parties. Under these agreements, the Company has licensed to related parties the use of certain of its own indexes for the U.S. WisdomTree ETFs and WisdomTree UCITS ETFs. The Board of Trustees and Board of Directors (including certain officers of the Company) of the related parties are primarily responsible for overseeing the management and affairs of the entities for the benefit of their stakeholders and have contracted with the Company to provide for general management and administration services. The Company is also responsible for certain expenses of the related parties, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, and other non-distribution services, excluding extraordinary expenses, taxes and certain other expenses, which are included in fund management and administration in the Consolidated Statements of Operations. In exchange, the Company receives fees based on a percentage of the ETPs’ average daily net assets. A majority of the independent members of the Board of Trustees are required to annually approve the advisory agreements of the U.S. WisdomTree ETFs and these agreements may be terminated by the Board of Trustees upon notice. The following table summarizes accounts receivable from related parties which are included as a component of accounts receivable in the Consolidated Balance Sheets: September 30, 2022 December 31, 2021 Receivable from WTT $ 14,618 $ 15,987 Receivable from ManJer Issuers 4,624 6,460 Receivable from WMAI and WTI 1,980 3,181 Total $ 21,222 $ 25,628 The allowance for credit losses on accounts receivable from related parties is insignificant when applying historical loss rates, adjusted for current conditions and supportable forecasts, to the amounts outstanding in the table above. Amounts outstanding are all invoiced in arrears, are less than 30 days aged and are collected shortly after the applicable reporting period. The following table summarizes revenues from advisory services provided to related parties: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Advisory services provided to WTT $ 45,112 $ 46,386 $ 136,852 $ 131,364 Advisory services provided to ManJer Issuers 22,055 24,759 75,242 75,296 Advisory services provided to WMAI and WTI 3,449 5,255 10,625 13,951 Total $ 70,616 $ 76,400 $ 222,719 $ 220,611 The Company also has investments in certain WisdomTree ETFs of approximately $ 12,387 and $ 18,526 at September 30, 2022 and December 31, 2021, respectively. Net gain and (losses) related to trading WisdomTree ETFs were ($ 489 ) and ($ 1,608 ), respectively, during the three and nine months ended September 30, 2022, and ($ 92 ) and $ 75 , respectively, during the comparable periods in 2021. Such gains and losses are recorded in other losses, net in the Consolidated Statements of Operations. 17. Stock-Based Awards On July 15, 2022, the Company’s stockholders approved the 2022 Equity Plan under which the Company may issue up to 16,000,000 shares of common stock (less one share for every share granted under the 2016 Equity Plan since March 31, 2022 and inclusive of shares available under the 2016 Equity Plan as of March 31, 2022) in the form of stock options and other stock-based awards. The Company grants equity awards to employees and directors which include restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and stock options. Certain awards described below are subject to acceleration under certain conditions. Stock options: Generally issued for terms of ten years and may vest after at least one year of service and have an exercise price equal to the Company’s stock price on the grant date. The Company estimates the fair value of stock options (when granted) using the Black-Scholes option pricing model. RSAs/RSUs: Awards are valued based on the Company’s stock price on grant date and generally vest ratably over three years. 26 Table of Contents PRSUs: These awards cliff vest three years from the grant date and contain a market condition whereby the number of PRSUs ultimately vesting is tied to how the Company’s total shareholder return (“TSR”) compares to a peer group of other publicly traded asset managers over the three-year period. A Monte Carlo simulation is used to value these awards. The number of PRSUs vesting ranges from 0 % to 200 % of the target number of PRSUs granted, as follows: •   If the relative TSR is below the 25 th percentile, then 0 % of the target number of PRSUs granted will vest; •   If the relative TSR is at the 25 th percentile, then 50 % of the target number of PRSUs granted will vest; and •   If the relative TSR is above the 25 th percentile, then linear scaling is applied such that the percent of the target number of PRSUs vesting is 100 % at the 50 th percentile and capped at 200 % of the target number of PRSUs granted for performance at the 85 th percentile (or 100 th percentile for grants made during 2019 and 2020). •   If the Company’s TSR is negative, the target number of PRSUs vesting is capped at 100 % regardless of the relative TSR percentile. Stock-based compensation expense was $ 2,454 and $ 7,822 , respectively, during the three and nine months ended September 30, 2022, and $ 2,397 and $ 7,661 , respectively, during the comparable periods in 2021. A summary of unrecognized stock-based compensation expense and average remaining vesting period is as follows: September 30, 2022 Unrecognized Stock- Based Compensation Average Remaining Vesting Period (Years) Employees and directors $ 15,109 1.63 A summary of stock-based compensation award activity (shares) during the three months ended September 30, 2022 is as follows: RSAs RSUs PRSUs Balance at July 1, 2022 3,399,274 47,656 668,188 Granted 82,458 95,687 — Exercised/vested ( 19,210 ) — — Forfeitures ( 69,272 ) ( 1,380 ) — Balance at September 30, 2022 3,393,250 141,963 668,188 18. Earnings Per Share The following tables set forth reconciliations of the basic and diluted earnings per share computations for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, Basic Earnings per Share 2022 2021 2022 2021 Net income $ 81,229 $ 5,833 $ 78,973 $ 38,610 Less: Income distributed to participating securities ( 546 ) ( 538 ) ( 1,644 ) ( 1,634 ) Less: Undistributed income allocable to participating securities ( 8,583 ) ( 115 ) ( 7,268 ) ( 2,666 ) Net income available to common stockholders—Basic EPS $ 72,100 $ 5,180 $ 70,061 $ 34,310 Weighted average common shares (in thousands) 143,120 142,070 142,984 144,445 Basic earnings per share $ 0.50 $ 0.04 $ 0.49 $ 0.24 27 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, Diluted Earnings per Share 2022 2021 2022 2021 Net income available to common stockholders $ 72,100 $ 5,180 $ 70,061 $ 34,310 Add back: Undistributed income allocable to participating securities 8,583 115 7,268 2,666 Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive ( 8,568 ) ( 115 ) ( 7,257 ) ( 2,647 ) Net income available to common stockholders—Diluted EPS $ 72,115 $ 5,180 $ 70,072 $ 34,329 Weighted Average Diluted Shares (in thousands): Weighted average common shares 143,120 142,070 142,984 144,445 Dilutive effect of common stock equivalents, excluding participating securities 287 1,072 261 1,159 Weighted average diluted shares, excluding participating securities (in thousands) 143,407 143,142 143,245 145,604 Diluted earnings per share $ 0.50 $ 0.04 $ 0.49 $ 0.24 Diluted earnings per share presented above is calculated using the two-class method as this method results in the lowest diluted earnings per share amount for common stock. Total antidilutive non-participating common stock equivalents were 483 and 410 , respectively, during the three and nine months ended September 30, 2022, and 48 and 130 , respectively, during the comparable periods in 2021 (shares herein are reported in thousands). Potential common shares associated with the conversion option embedded in the Convertible Notes were excluded from the computation for the three and nine months ended September 30, 2022 as the Company’s average stock price during those respective periods was lower than the conversion price. Potential common shares associated with the conversion option embedded in the Convertible Notes for the three and nine months ended September 30, 2021 were 1,042 and 1,140 , respectively (shares herein are reported in thousands). The following table reconciles weighted average diluted shares as reported in the Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021, which are determined pursuant to the treasury stock method, to the weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above: Three Months Ended September 30, Nine Months Ended September 30, Reconciliation of Weighted Average Diluted Shares (in thousands) 2022 2021 2022 2021 Weighted average diluted shares as disclosed on the consolidated statements of operations 158,953 159,213 158,741 161,706 Less: Participating securities Weighted average shares of common stock issuable upon conversion of the Preferred Shares (Note 11) ( 14,750 ) ( 14,750 ) ( 14,750 ) ( 14,750 ) Potentially dilutive restricted stock awards ( 796 ) ( 1,321 ) ( 746 ) ( 1,352 ) Weighted average diluted shares used to calculate diluted earnings/(loss) per share as disclosed in the table above 143,407 143,142 143,245 145,604 19. Income Taxes Effective Income Tax Rate – Three and nine months ended September 30, 2022 The Company’s effective income tax rate during the three months ended September 30, 2022 of 3.9 % resulted in income tax expense of $ 3,327 . The effective income tax rate differs from the federal statutory tax rate of 21 % primarily due a non-taxable gain on revaluation of deferred consideration. This was partly offset an increase in the deferred tax asset valuation allowance on losses recognized on securities owned. The Company’s effective income tax rate during the nine months ended September 30, 2022 of negative 15.7 % resulted in an income tax benefit of $ 10,713 . The effective income tax rate differs from the federal statutory tax rate of 21 % primarily due to a $ 19,897 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. These items were partly offset by an increase in the deferred tax asset valuation allowance on losses recognized on securities owned. 28 Table of Contents Effective Income Tax Rate – Three and nine months ended September 30, 2021 The Company’s effective income tax rate during the three months ended September 30, 2021 of 7.9 % resulted in income tax expense of $ 500 . The effective income tax rate differs from the federal statutory tax rate of 21 % primarily due to a lower tax rate on foreign earnings and a non-taxable gain on revaluation of deferred consideration, partly offset by higher non-deductible compensation. The Company’s effective income tax rate for the nine months ended September 30, 2021 of 6.7 % resulted in income tax expense of $ 2,790 . The effective income tax rate differs from the federal statutory rate of 21 % primarily due to a $ 5,171 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 non-deductible executive compensation. Deferred Tax Assets A summary of the components of the Company’s deferred tax assets at September 30, 2022 and December 31, 2021 are as follows: September 30, 2022 December 31, 2021 Deferred tax assets: Capital losses $ 17,033 $ 16,601 Accrued expenses 4,228 4,993 Unrealized losses 3,938 614 NOLs—Foreign 1,607 1,934 Goodwill and intangible assets 1,133 1,276 Stock-based compensation 1,107 1,359 Interest carryforwards 321 437 NOLs—U.S. 255 382 Foreign currency translation adjustment 169 — Outside basis differences 122 122 Other 354 376 Deferred tax assets 30,267 28,094 Deferred tax liabilities: Fixed assets and prepaid assets 422 257 Unremitted earnings—International subsidiaries 198 118 Foreign currency translation adjustment — 181 Deferred tax liabilities 620 556 Total deferred tax assets less deferred tax liabilities 29,647 27,538 Less: Valuation allowance ( 22,700 ) ( 18,657 ) Deferred tax assets, net $ 6,947 $ 8,881 Net Operating and Capital Losses—U.S. The Company’s tax effected net operating losses (“NOLs”) at September 30, 2022 were $ 255 , which expire in 2024 . The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change. The Company’s tax effected capital losses at September 30, 2022 were $ 17,033 . These capital losses expire between the years 2023 and 2027. Net Operating Losses—International One of the Company’s European subsidiaries generated NOLs outside the U.S. These tax effected NOLs, all of which are carried forward indefinitely, were $ 1,607 at September 30, 2022. Valuation Allowance The Company’s valuation allowance has been established on its net capital losses, international net operating losses, unrealized losses and outside basis differences, as it is more-likely-than-not that these deferred tax assets will not be realized. 29 Table of Contents Uncertain Tax Positions Tax positions are evaluated utilizing a two-step process. The Company first determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. In connection with the ETFS Acquisition, the Company accrued a liability for uncertain tax positions and interest and penalties at the acquisition date. The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims. The table below sets forth the aggregate changes in the balance of these gross unrecognized tax benefits: Total Unrecognized Tax Benefits Interest and Penalties Balance on January 1, 2022 $ 21,925 $ 18,218 $ 3,707 Decrease—Settlements (1) ( 13,052 ) ( 11,865 ) ( 1,187 ) Decrease—Lapse of statute of limitations (1) ( 6,845 ) ( 4,825 ) ( 2,020 ) Increases 7 — 7 Foreign currency translation (2) ( 583 ) ( 485 ) ( 98 ) Balance at March 31, 2022 $ 1,452 $ 1,043 $ 409 Increases 7 — 7 Foreign currency translation (2) ( 108 ) ( 78 ) ( 30 ) Balance at June 30, 2022 $ 1,351 $ 965 $ 386 Increases 6 — 6 Foreign currency translation (2) ( 137 ) ( 98 ) ( 39 ) Balance at September 30, 2022 $ 1,220 $ 867 $ 353 (1) In January 2022, an audit of ManJer’s tax returns (a Jersey-based subsidiary) for the years ended December 31, 2014, 2016, 2017 and 2018 were resolved in favor of ManJer. The settlement, as well as the reduction in unrecognized tax benefits from the lapse of the statute of limitations totaling $ 19,897 during the three months ended March 31, 2022, was recorded as an income tax benefit with an equal and offsetting amount recorded in other losses, net, to recognize a reduction in the indemnification asset. During the three months ended March 31, 2021, an income tax benefit of $ 5,171 was recorded along with an equal and offsetting amount in other losses, net. (2) The gross unrecognized tax benefits were accrued in British pounds. The gross unrecognized tax benefits and interest and penalties totaling $ 1,220 at September 30, 2022 are included in other non-current liabilities in the Consolidated Balance Sheets. It is reasonably possible that these unrecognized tax benefits will reduce to zero in the next 12 months upon lapsing of the statute of limitations. If recognized, these unrecognized tax benefits would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims. Income Tax Examinations The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. As of September 30, 2022, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for the years before 2017. ManJer’s tax returns (a Jersey-based subsidiary) were previously under review for the years ended December 31, 2014, 2016, 2017 and 2018. In January 2022, the audit was resolved in favor of ManJer. In addition, the Company’s tax returns were previously under review by the State of Michigan for the years ended 2017 through 2020. In August 2022, the audit was resolved in favor of the Company. Undistributed Earnings of Foreign Subsidiaries ASC 740-30, Income Taxes, provides guidance that US companies do not need to recognize tax effects on foreign earnings that are indefinitely reinvested. The Company repatriates earnings of its foreign subsidiaries and therefore has recognized a deferred tax liability of $ 198 and $ 118 at September 30, 2022 and December 31, 2021, respectively. 30 Table of Contents 20. Shares Repurchased On February 22, 2022, the Company’s board of directors approved an increase of $ 85,709 to the Company’s share repurchase program to $ 100,000 and extended the term for three years through April 27, 2025 . Included under the Company’s share repurchase program are purchases to offset future equity grants made under the Company’s equity plans and purchases made in open market or privately negotiated transactions. This authority may be exercised from time to time, subject to regulatory considerations. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The repurchase program may be suspended or terminated at any time without prior notice. Shares repurchased under this program are returned to the status of authorized and unissued on the Company’s books and records. During the three and nine months ended September 30, 2022, the Company repurchased 4,567 and 593,261 shares of its common stock, respectively, for aggregate consideration of $ 24 and $ 3,418 , respectively. During the three and nine months ended September 30, 2021, the Company repurchased zero shares and 5,120,496 shares of its common stock, respectively for aggregate consideration of zero and $ 34,506 , respectively. Shares repurchased under this program were returned to the status of authorized and unissued on the Company’s books and records. As of September 30, 2022, $ 99,976 remained under this program for future purchases. 21. Goodwill and Intangible Assets Goodwill The table below sets forth goodwill which is tested annually for impairment on November 30 th : Total Balance at January 1, 2022 $ 85,856 Changes — Balance at September 30, 2022 $ 85,856 Goodwill arising from the ETFS Acquisition of $ 84,057 is not deductible for tax purposes as the acquisition was structured as a stock acquisition occurring in the United Kingdom. The remainder of the goodwill is deductible for U.S. tax purposes. Intangible Assets Item Gross Asset Accumulated Amortization Net Asset ETFS acquisition $ 601,247 $ — $ 601,247 Software development 1,958 ( 1 ) 1,957 Balance at September 30, 2022 $ 603,205 $ ( 1 ) $ 603,204 ETFS Acquisition (Indefinite-Lived) In connection with the ETFS Acquisition, which was completed on April 11, 2018 , the Company identified intangible assets valued at $ 601,247 related to the right to manage AUM through customary advisory agreements. These intangible assets were determined to have indefinite useful lives and are not deductible for tax purposes. The Company’s tests these indefinite-lived intangible assets annually for impairment on November 30 th . Software Development (Finite-Lived) Internally-developed software is amortized over a useful life of three years . During the three and nine months ended September 30, 2022, the Company recognized amortization expense on internally-developed software of $ 1 . 31 Table of Contents As of September 30, 2022, expected amortization expense for the unamortized finite-lived intangible assets for the next five years and thereafter is as follows: Remainder of 2022 $ 57 2023 653 2024 653 2025 594 2026 — 2027 and thereafter — Total expected amortization expense $ 1,957 The weighted-average remaining useful life of the finite-lived intangible assets is 3.0 years. 22. Contingent Payments AdvisorEngine – Sale of Financial Interests On May 4, 2020, the Company closed a transaction to exit its investment in AdvisorEngine Inc. The fair value of upfront consideration paid to the Company was $ 9,592 . Consideration also included contingent payments totaling up to $ 10,408 which will be payable only upon AdvisorEngine achieving certain revenue milestones during the first through fourth anniversaries of such exit. No value has been ascribed to these contingent payments at September 30, 2022 and December 31, 2021 and no contingent payments were received during the three and nine months ended September 30, 2022 and 2021. Sale of Canadian ETF Business On February 19, 2020, the Company completed the sale of all the outstanding shares of WisdomTree Asset Management Canada, Inc., the operating entity of the Company’s prior Canadian ETF business, to CI Financial Corp. The Company received CDN $ 3,720 (USD $ 2,774 ) in cash at closing and was paid CDN $ 3,000 (USD $ 2,360 ) of additional cash consideration based upon the achievement of certain AUM growth targets as determined during the 18-month anniversary of the closing date. The Company may receive additional cash consideration of CDN $ 0 to $ 4,000 depending on the achievement of certain AUM growth targets as determined on the 36-month anniversary of the closing date. No value has been ascribed to these contingent payments at September 30, 2022 and December 31, 2021 and no contingent payments were received during the three and nine months ended September 30, 2022 and 2021. 23. Impairments The following table summarizes impairments recognized by the Company: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Lease termination—New York office (Note 12) $ — $ 9,277 $ — $ 9,277 Fixed assets—New York office (Note 8) — 6,576 — 6,576 Lease termination—London office (Note 12) — — — 303 Total $ — $ 15,853 $ — $ 16,156 24. Subsequent Events The Company evaluated subsequent events through the date of issuance of the accompanying consolidated financial statements. There were no events requiring disclosure. 32