What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-25 · 267 added, 348 removed, 559 unchanged (52% of the section changed)

7 unchanged sentences

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

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

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

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

We have launched many first-to-market

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

We are a global financial innovator, offering a well-diversified suite of ETPs, models and solutions.

We empower investors to shape their future and support financial professionals to better serve their clients and grow their businesses.

We leverage the latest financial infrastructure to create products that provide access, transparency and an enhanced user experience.

Building on our heritage of innovation, we are also developing next-generation digital products and structures, including Digital Funds and tokenized assets, as well as our blockchain-native digital wallet, WisdomTree Prime ™ .

We have approximately $82.0 billion in AUM as of December 31, 2022.

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

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

Most of our equity-based funds employ a fundamentally weighted investment methodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other industry indexes use a capitalization weighted methodology.

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

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

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

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

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

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

We believe technology is altering the way financial advisors conduct business and through our Advisor Solutions program we offer technology-enabled and research-driven solutions including portfolio construction, asset allocation, practice management services and digital tools to help financial advisors address technology challenges and grow and scale their businesses.

We are at the forefront of innovation and believe that tokenization and leveraging the utility of blockchain technology is the next evolution in financial services.

We are building the foundation that will allow us to lead in this coming evolution.

WisdomTree Prime ™ , our blockchain-native digital wallet, is currently in beta testing and positions us to expand our blockchain-enabled financial services product offerings with a new direct-to-consumer channel where spending, saving and investing are united.

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

We believe that our expansion into digital assets will complement our existing core competencies in a holistic manner, diversify our revenue streams and contribute to our growth.

Executive Summary

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

We have benefited from the expansion and diversification of our product line-up,

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

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

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

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

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

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

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

This includes:

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

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

, a digital wallet that is native to the blockchain;

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

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

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

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

launching five crypto ETPs in Europe;

our investments in Securrency and Onramp Invest;

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

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

Our business continues to generate significant positive momentum while executing against our long-term strategic initiatives.

We have meaningful opportunities ahead in both the ETFs, models and Advisor Solutions business and as an early mover in digital assets and blockchain-enabled financial services.

We are in the midst of our 10th consecutive quarter of net inflows and this past year generated over $12 billion of net flows, our strongest flowing year since 2015, representing organic flow growth of 16%.

While we have had great success growing our U.S.

Floating Rate Treasury Fund, or USFR, to over $13 billion in AUM, our total inflow profile is both broad and deep.

During the year ended December 31, 2022, we gathered net inflows in 7 of our 8 major product categories, including U.S.

Equity, which gathered over $3.3 billion of flows, a 14% pace of organic growth in 2022.

AUM diversification and product performance have us well-positioned to continue on this growth trajectory.

Our models strategy is succeeding as we continue to expand both the number of our model partners as well as the number of models on partner platforms.

We are focused on partner platforms such as Merrill Lynch, Morgan Stanley and others, as well as being an outsourced solution for smaller registered investment advisers and independent broker-dealers that make model portfolios easier to trade through our Portfolio & Growth Solutions which we launched in April 2022.

Continued success in winning advisor mindshare should lead to model flows that are recurring in nature and stackable on top of our current inflow profile.

While we remain focused on providing investors with the best product structure to access various asset classes through ETFs, we believe that by leveraging blockchain technology, tokenized assets are the best product structure of tomorrow and future of

financial services.

Our commitment to our digital assets strategy is demonstrated through the achievement of key milestones which includes (i) continued development of our blockchain-native digital wallet, WisdomTree Prime ™ , which is currently in beta testing with a nationwide rollout targeted in 2023 (ii) the tokenization of real world assets like physical gold (i.e., gold tokens) and U.S.

dollars (i.e., dollar tokens);

(iii) the SEC declaring effective the registration of the WisdomTree Short-Term Treasury Digital Fund and nine other digital or blockchain-enabled mutual funds, which provide a variety of different exposures to fixed income and equity securities;

and (iv) FINRA approving WT Securities to operate as a mutual fund retailer, which will allow it to facilitate transactions in Digital Funds offered in WisdomTree Prime ™ .

We believe that these key milestones coupled with our ability to further execute on our digital assets strategy will serve as fundamental building blocks to solidify our position as an early mover, forward-thinking innovator and industry leader in blockchain-enabled financial services.

Additional business highlights include the following:

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

& Investments

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

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

We were also named Best WorkPlace for medium-sized

companies in the U.K.

for a second consecutive year.

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

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

We launched 9 new U.S.

listed ETPs and 14 new European listed ETPs.

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

Reduction in Office Footprint

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

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

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

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

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

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

We launched a brand-expansion campaign, changed our name and ticker symbol and moved our listing to the New York Stock Exchange.

In the U.S., we were named a 2022 Best Places to Work in Money Management by Pension & Investments for the third consecutive year and six years total, and were selected as the top firm within the category for managers with 100-499 employees.

We were also named Best WorkPlace for medium-sized companies in the U.K.

for a third consecutive year and a 2022 Best Workplace for Women for medium-sized companies by Great Place to Work.

We won Best US Fixed Income ETF Issuer ($1 billion to $5 billion) at the ETF Express US Awards 2022 and Asset Manager Website of the Year for the second year in a row at the Mutual Fund Industry and ETF Awards 2022.

Strong product performance with over 80% of our U.S.

listed AUM covered by Morningstar in the top two quartiles of peer performance on the very short (1 year) and very long (15 year) timeframes and over 40% of our U.S.

listed AUM in 4- and 5-star funds (less than 5% in 1-and 2-star funds).

We launched 15 new European listed ETPs and three new U.S.

We issued $130.0 million of convertible senior notes due 2028, retired $115.0 million of convertible senior notes due 2023 and returned approximately $22.8 million to our stockholders through our ongoing quarterly cash dividend and stock repurchases.

Market Environment

2 unchanged sentences

listed ETF net flows for the year ended December 31, 2022 were $567.2 billion.

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

International listed ETP Industry Flows

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

equity and fixed income gathered the majority of those flows.

European Listed ETP Industry Flows

European listed ETP net flows were $74.2 billion for the year ended December 31, 2022.

Equities and fixed income gathered the majority of those flows.

1 unchanged sentence

Asset Management – Consolidation

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

In the recent past, a number of acquisitions in the asset management industry have either been announced or completed.

These trends have accelerated, as fee compression, cost pressures and increased regulations have weighed on the industry, highlighting the importance of scale and operating efficiency to compete in today’s market.

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

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

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

We have significant opportunities ahead in both the ETFs, models and Advisor Solutions business and as an early mover in digital assets and blockchain-enabled financial services which positions us well for success to grow in this competitive landscape.

Components of Operating Revenue

15 unchanged sentences

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

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

products and fees from licensing our indexes to third parties.

Other income includes rebates from swap providers to our European listed ETPs, creation/redemption fees earned on our European non-UCITS products and fees from licensing our indexes to third parties.

Components of Operating Expenses

2 unchanged sentences

Employee compensation and benefits expenses are expensed when incurred and include salaries, incentive compensation, and related benefit costs.

Virtually all of our employees receive incentive compensation that is based on our operating results as well as their individual performance.

Therefore, a portion of this expense will fluctuate with our business results.

To attract and retain qualified personnel, we must maintain competitive employee compensation and benefit plans.

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

Our compensation costs are also affected by inflationary pressures.

To attract and retain qualified personnel, we must maintain competitive employee compensation and benefit plans and amounts we pay may be affected by inflation.

Virtually all of our employees receive incentive compensation which is variable and will fluctuate taking into consideration our operating and financial results, as well as discretion.

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

3 unchanged sentences

Fund management and administration

Fund management and administration expenses are expensed when incurred and are comprised of the following costs we pay third-party service providers to operate our ETPs:

Fund management and administration expenses are expensed when incurred and are comprised of the following costs we pay third-party service providers to operate our ETPs and Digital Funds:

portfolio management of our ETPs (sub-advisory);

16 unchanged sentences

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

The fees we pay our sub-advisers

generally are the higher of the fixed minimums per fund, which range from $25,000 to $737,040 per year, or the percentage fee, which ranges between 0.015% and 0.200% per annum of average daily AUM at various breakpoint levels depending on the nature of the ETP.

The fees we pay our sub-advisers generally are the higher of the fixed minimums per fund, which range from $25,000 to $737,000 per year, or the percentage fee, which ranges between 0.01% and 0.20% per annum of average daily AUM at various breakpoint levels depending on the nature of the ETP.

In addition, we pay certain costs based on transactions in our ETPs or based on inflow levels.

19 unchanged sentences

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

Professional and consulting fees

Professional fees

Professional fees are expensed when incurred and consist of fees we pay to corporate advisers including accountants, tax advisers, legal counsel, investment bankers, human resources or other consultants.

Professional fees also include expenses we pay third-party service providers related to WisdomTree Prime ™ and expenses incurred in response to an activist campaign.

These expenses fluctuate based on our needs or requirements at the time.

3 unchanged sentences

Depreciation and amortization

Depreciation and amortization expense results from amortization of leasehold improvements to our office space as well as depreciation on fixed assets we purchase, which is depreciated over five to fifteen years.

Depreciation and amortization expense results from depreciation on fixed assets we purchase as well as amortization of internally-developed software, which are depreciated/amortized over three to five years.

Third-party distribution fees

13 unchanged sentences

Other losses and gains, net

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

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

indemnification assets upon the expiration of the statute of limitations, for which an equal and offsetting benefit is recognized in income tax expense.

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

Also included are losses arising from the release of tax-related indemnification assets upon the expiration of the statute of limitations, for which an equal and offsetting benefit is recognized in income tax expense.

Our income tax expense consists of taxes due to federal, various state and local and certain foreign authorities.

1 unchanged sentence

Compensation Expense

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

Our compensation expense for the year ending December 31, 2023 is currently estimated to range from $96.0 million to $106.0 million and takes into consideration variability in incentive compensation, the competitive landscape, inflationary pressures and hiring both in our core business and digital assets.

Discretionary Spending

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

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

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

and the launch of additional products and services.

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

We currently estimate our discretionary spending for the year ending December 31, 2023 to range from $56.0 million to $59.0 million.

Not included in the guidance above are any potential non-recurring expenses we may incur in response to a potential proxy contest.

Such expenses could be material to our results of operations for the year ending December 31, 2023.

1 unchanged sentence

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

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

For the year ending December 31, 2023, we currently estimate that our gross margin percentage will be 78% at current AUM and revenue levels and would anticipate margin expansion assuming continued organic flow growth.

Contractual Gold Payments

2 unchanged sentences

Third-Party Distribution Expense

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

We currently estimate third-party distribution expense to be approximately $8.0 million to $9.0 million for the year ending December 31, 2023, which is dependent upon the AUM growth on our respective platforms.

Income Tax Expense

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

We currently estimate that our consolidated normalized effective tax rate will be approximately 23% for the year ending December 31, 2023, an increase from 22% during the prior year primarily due to the main rate of corporate taxation in the U.K.

rising from 19% to 25% effective April 1, 2023.

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

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

Corporate tax legislation could also impact our normalized effective tax rate.

Additional corporate tax legislation could also impact our normalized effective tax rate.

Factors that May Impact our Future Financial Results

4 unchanged sentences

Changes in product mix have led to a decline in our average advisory fee, which, for the years ended December 31, 2020, 2021 and 2022 were 0.40%, 0.41% and 0.38%, respectively.

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

The chart below sets forth the asset mix of our ETPs at December 31, 2020, 2021 and 2022:

Key Operating Statistics

The following table presents key operating statistics that serve as indicators for the performance of our business:

Years Ended December 31,

Year Ended December 31,

GLOBAL ETPs (in millions )

Beginning of period assets

Assets acquired/(sold)

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

Fund closures

3 unchanged sentences

Number of ETPs—end of the period

LISTED ETFs (in millions)

US LISTED ETFs (in millions )

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

Fund closures

1 unchanged sentence

Average assets during the period

Number of ETPs—end of period

INTERNATIONAL LISTED ETPs (in millions)

Number of ETPs—end of the period

EUROPEAN LISTED ETPs (in millions )

Beginning of period assets

Assets acquired/(sold)

Inflows/(outflows)

Market appreciation/(depreciation)

(Outflows)/inflows

Market (depreciation)/appreciation

Fund closures

1 unchanged sentence

Average assets during the period

Number of ETPs—end of period

Number of ETPs—end of the period

PRODUCT CATEGORIES (in millions )

Commodity & Currency

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

Average assets during the period

Commodity & Currency

Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

1 unchanged sentence

Average assets during the period

International Developed Market Equity

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

Average assets during the period

Years Ended December 31,

Emerging Market Equity

Year Ended December 31,

International Developed Market Equity

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

Average assets during the period

Emerging Market Equity

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

3 unchanged sentences

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

Average assets during the period

Cryptocurrency

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

Average assets during the period

Cryptocurrency

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Market (depreciation)/appreciation

End of period assets

2 unchanged sentences

Inflows/(outflows)

Market appreciation/(depreciation)

Market depreciation

Fund closures

8 unchanged sentences

Total revenues

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

These revisions had no effect on previously reported net income.

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

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

Our average AUM increased 4.8% from $73.4 billion at December 31, 2021 to $77.0 billion at December 31, 2022 due to net inflows partly offset by market depreciation.

Operating Revenues

Advisory fees

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

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

Advisory fee revenues decreased 1.5% from $298.1 million during the year ended December 31, 2021 to $293.6 million in the comparable period in 2022 as higher average AUM was offset by a decline in our average advisory fee.

Our average advisory fee decreased from 0.41% during the year ended December 31, 2021 to 0.38% during the year ended December 31, 2022 due to AUM mix shift.

Other income increased 23.1% from $6.3 million during the year ended December 31, 2021 to $7.7 million in the comparable period in 2022 primarily due to higher fees associated with our European listed products.

Operating Expenses

(in thousands)

Compensation and benefits

3 unchanged sentences

Contractual gold payments

Professional and consulting fees

Professional fees

Occupancy, communications and equipment

1 unchanged sentence

Third-party distribution fees

Acquisition and disposition-related costs

Total operating expenses

5 unchanged sentences

Contractual gold payments

Professional and consulting fees

Professional fees

Occupancy, communications and equipment

1 unchanged sentence

Third-party distribution fees

Acquisition and disposition-related costs

Total operating expenses

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

These revisions had no effect on previously reported net income.

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

Compensation and benefits

2 unchanged sentences

Fund management and administration

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

Fund management and administration expense increased 9.9% from $58.9 million during the year ended December 31, 2021 to $64.8 million in the comparable period in 2022 primarily due to higher average AUM, product launches and inflows.

We had 75 U.S.

listed ETFs and 242 International listed ETPs at December 31, 2020 compared to 75 U.S.

listed ETFs and 254 International listed ETPs at December 31, 2021.

listed ETFs and 254 European listed ETPs at December 31, 2021 compared to 79 U.S.

listed ETFs and 269 European listed ETPs at December 31, 2022.

Marketing and advertising

Marketing and advertising expense increased 26.6% from $11.1 million during the year ended December 31, 2020 to $14.1 million in the comparable period in 2021 as our spending in the prior year was reduced at the onset of the COVID-19

Marketing and advertising expense increased 8.6% from $14.1 million during the year ended December 31, 2021 to $15.3 million in the comparable period in 2022 primarily resulting from an increase in online and television advertising.

Sales and business development

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

Sales and business development expense increased 19.8% from $9.9 million during the year ended December 31, 2021 to $11.9 million in the comparable period in 2022 primarily resulting from increases in conference and events spending as well as market data costs.

Contractual gold payments

Contractual gold payments expense increased 1.7% from $16.8 million during the year ended December 31, 2020 to $17.1 million in the comparable period in 2021.

This expense was associated with the payment of 9,500 ounces of gold and was calculated using the average daily spot price of $1,770 and $1,800 per ounce during the years ended December 31, 2020 and 2021, respectively.

Professional and consulting fees

Professional and consulting fees increased 55.4% from $4.9 million during the year ended December 31, 2020 to $7.6 million in the comparable period in 2021 due to spending related to our digital assets initiative.

Contractual gold payments expense was essentially unchanged from the year ended December 31, 2021.

This expense was associated with the annual payment of 9,500 ounces of gold and was calculated using the average daily spot price of $1,800 per ounce during the years ended December 31, 2021 and 2022, respectively.

Professional fees

Professional fees increased 81.2% from $7.6 million during the year ended December 31, 2021 to $13.8 million in the comparable period in 2022 due to $4.5 million incurred in response to an activist campaign and spending related to our digital assets business.

Occupancy, communications and equipment

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

Occupancy, communications and equipment expense decreased 15.8% from $4.6 million during the year ended December 31, 2021 to $3.9 million in the comparable period in 2022 as we reduced our office footprint in the U.S.

Depreciation and amortization

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

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

Depreciation and amortization expense decreased 64.5% from $0.7 million during the year ended December 31, 2021 to $0.3 million in the comparable period in 2022 as we reduced our office footprint in the U.S.

Third-party distribution fees

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

Acquisition and disposition-related costs

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

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

Third-party distribution fees increased 6.7% from $7.2 million during the year ended December 31, 2021 to $7.7 million in the comparable period in 2022 primarily due to new platform relationships in Europe and higher U.S.

listed AUM on third-party platforms, partly offset by lower fees paid to our third-party marketing agent in Latin America.

Other expenses increased 25.6% from $6.9 million during the year ended December 31, 2021 to $8.7 million in the comparable period in 2022 primarily due to higher insurance, public company compliance, travel and directors expenses.

Other Income/(Expenses)

(in thousands)

Interest expense

Gain/(loss) on revaluation of deferred consideration

Gain on revaluation of deferred consideration

Interest income

Loss on extinguishment of debt

Other losses and gains, net

Other losses, net

Total other expenses, net

Year Ended December 31,

As a Percent of Revenues:

Interest expense

Gain/(loss) on revaluation of deferred consideration

Gain on revaluation of deferred consideration

Interest income

Loss on extinguishment of debt

Other losses and gains, net

Other losses, net

Total other expenses, net

1 unchanged sentence

Interest expense increased 21.1% from $12.3 million during the year ended December 31, 2021 to $14.9 million in the comparable period in 2022 due to a higher level of debt outstanding in the current period.

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

Gain/(loss) on revaluation of deferred consideration

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

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

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

Our effective interest rate during the years ended December 31, 2021 and 2022 was 4.6%.

Gain on revaluation of deferred consideration

We recognized a gain on revaluation of deferred consideration of $2.0 million and $27.8 million during the years ended December 31, 2021 and 2022, respectively.

The gain was primarily due to an increase in the discount rate (from 9.0% to 11.0%) used to compute the present value of the annual payment obligations as well as a steepening of the forward-looking gold curve.

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

Interest income

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

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

During the year ended December 31, 2020, we recognized non-cash

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

Loss on extinguishment of debt

During the year ended December 31, 2020, we recognized a non-cash

loss on extinguishment of debt of $2.4 million arising from the acceleration of debt issuance cost amortization in connection with the termination of our former credit facility.

Other losses and gains, net

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

This includes a charge of $6.0 million and $5.2 million during the years ended December 31, 2020 and 2021, respectively, arising from the release of a tax-related

indemnification asset upon the expiration of the statute of limitations.

Interest income increased 65.3% from $2.0 million during the year ended December 31, 2021 to $3.3 million in the comparable period in 2022 due to an increase in financial instruments owned.

During the year ended December 31, 2021, we recognized impairment charges totaling $16.2 million, including a loss of $9.3 million upon the termination of the lease of our former principal executive office at 245 Park Avenue, New York, New York, $6.6 million related to the write-off of leasehold improvements and fixed assets associated with our former New York office and $0.3 million upon exiting our London office (See Notes 9, 14 and 26 to our Consolidated Financial Statements).

Other losses, net

Other losses, net were ($7.9) million and ($36.3) million during the years ended December 31, 2021 and 2022, respectively.

This includes a charge of $5.2 million and $19.9 million during the years ended December 31, 2021 and 2022, respectively, arising from the release of a tax-related indemnification asset upon the expiration of the statute of limitations.

An equal and offsetting benefit has been recognized in income tax expense.

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

In addition, during the year ended December 31, 2020, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business and a gain of $1.1 million arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine.

During the year ended December 31, 2021 and 2022, we also recognized losses on our financial instruments owned of $3.7 million and $16.5 million, respectively.

In addition, during the year ended December 31, 2021, we recognized a gain of $0.8 million related to the remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business.

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

Our effective income tax rate for the year ended December 31, 2022 was negative 26.9%, resulting in an income tax benefit of $10.7 million.

Our tax rate differs from the federal statutory rate of 21% primarily due to a $19.9 million reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above, a reduction in the valuation allowance on foreign net operating losses, 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 financial instruments owned.

Our effective income tax rate for the year ended December 31, 2021 of 12.1% resulted in income tax expense of $6.9 million.

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

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

executive compensation.

Our effective income tax rate for the year ended December 31, 2020 of negative 1.2% resulted in income tax expense of $0.4 million.

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

loss on revaluation of deferred consideration, a valuation allowance on capital losses and tax shortfalls associated with the vesting and exercise of stock-based compensation awards.

These items were partly offset by a tax benefit of $6.0 million recognized in connection with the release of the tax-related

indemnification asset described above, a $2.9 million non-taxable

gain recognized upon sale of our Canadian ETF business in the first quarter, a tax benefit of $2.6 million recognized in connection with the release of a deferred tax asset valuation allowance on interest carryforwards arising from our debt previously held in the U.K.

and a lower tax rate on foreign earnings.

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

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Selected Operating and Financial Information

Year Ended December 31,

AUM (in millions)

2 unchanged sentences

Total revenues

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

These revisions had no effect on previously reported net income.

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

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

Our average AUM increased 20.1% from $61.2 billion at December 31, 2020 to $73.4 billion at December 31, 2021 arising from market appreciation and net inflows.

Operating Revenues

Advisory fees

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

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

Other income increased 27.8% from $2.8 million during the year ended December 31, 2019 to $3.5 million in the comparable period in 2020 primarily due to higher creation/redemption fees associated with our international listed products.

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

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

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

Operating Expenses

(in thousands)

Year Ended December 31,

Compensation and benefits

3 unchanged sentences

Contractual gold payments

Professional and consulting fees

Professional fees

Occupancy, communications and equipment

9 unchanged sentences

Contractual gold payments

Professional and consulting fees

Professional fees

Occupancy, communications and equipment

3 unchanged sentences

Total operating expenses

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

These revisions had no effect on previously reported net income.

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

Compensation and benefits

Compensation and benefits expense decreased 7.5% from $80.8 million during the year ended December 31, 2019 to $74.7 million in the comparable period in 2020 due to lower incentive compensation accruals as well as $3.5 million of severance expense included in the prior year period.

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

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

Fund management and administration

Fund management and administration expense decreased 4.9% from $59.6 million during the year ended December 31, 2019 to $56.7 million in the comparable period in 2020 due to the sale of our Canadian ETF business in February 2020, partly offset by higher average AUM.

We had 67 U.S.

listed ETFs and 269 International listed ETPs at December 31, 2019 compared to 67 U.S.

listed ETFs and 242 International listed ETPs at December 31, 2020.

listed ETFs and 242 European listed ETPs at December 31, 2020 compared to 75 U.S.

listed ETFs and 254 European listed ETPs at December 31, 2021.

Marketing and advertising

Marketing and advertising expense decreased 8.5% from $12.2 million during the year ended December 31, 2019 to $11.1 million in the comparable period in 2020 primarily due to lower discretionary spending resulting from the COVID-19

Sales and business development

Sales and business development expense decreased 42.1% from $18.3 million during the year ended December 31, 2019 to $10.6 million in the comparable period in 2020 primarily due to lower discretionary spending resulting from the COVID-19

Contractual gold payments

Contractual gold payments expense increased 1.7% from $16.8 million during the year ended December 31, 2020 to $17.1 million in the comparable period in 2021.

This expense was associated with the payment of 9,500 ounces of gold and was calculated using the average daily spot price of $1,393 and $1,770 per ounce during the years ended December 31, 2019 and 2020, respectively.

Professional and consulting fees

Professional and consulting fees decreased 13.1% from $5.6 million during the year ended December 31, 2019 to $4.9 million in the comparable period in 2020 due to lower corporate consulting-related expenses.

This expense was associated with the annual payment of 9,500 ounces of gold and was calculated using the average daily spot price of $1,770 and $1,800 per ounce during the years ended December 31, 2020 and 2021, respectively.

Professional fees

Professional fees increased 55.4% from $4.9 million during the year ended December 31, 2020 to $7.6 million in the comparable period in 2021 due to spending related to our digital assets business.

Occupancy, communications and equipment

Occupancy, communications and equipment expense was essentially unchanged from the year ended December 31, 2019.

Depreciation and amortization

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

Depreciation and amortization expense decreased 27.7% from $1.0 million during the year ended December 31, 2020 to $0.7 million in the comparable period in 2021 due to the write-off of fixed assets related to the exit of our New York office.

Third-party distribution fees

Third-party distribution fees decreased 25.1% from $7.0 million during the year ended December 31, 2019 to $5.2 million in the comparable period in 2020 primarily due to lower fees for platform relationships.

Acquisition and disposition-related costs

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

These were incurred in connection with the integration of ETFS during the year ended December 31, 2019 and costs associated with the sale of our Canadian ETF business, which was completed in February 2020.

Other expenses decreased 14.3% from $8.1 million during the year ended December 31, 2019 to $6.9 million in the comparable period in 2020 primarily due to lower office-related and travel expenses as a result of our employees working remotely.

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

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

Other Income/(Expenses)

2 unchanged sentences

Interest expense

Loss on revaluation of deferred consideration

Gain/(loss) on revaluation of deferred consideration

Interest income

Loss on extinguishment of debt

Other gains and losses, net

Other losses and gains, net

Total other expenses, net

2 unchanged sentences

Interest expense

Loss on revaluation of deferred consideration

Gain/(loss) on revaluation of deferred consideration

Interest income

Loss on extinguishment of debt

Other gains and losses, net

Other losses and gains, net

Total other expenses, net

Interest expense

Interest expense decreased 14.0% from $11.2 million during the year ended December 31, 2019 to $9.7 million in the comparable period in 2020 due to a lower level of debt outstanding.

Our effective interest rate during the years ended December 31, 2019 and 2020 were 5.3% and 5.5%, respectively.

Loss on revaluation of deferred consideration

We recognized a loss on revaluation of deferred consideration of $11.3 million and $56.8 million during the years ended December 31, 2019 and 2020, respectively.

The loss in each period was due to an increase in the forward-looking price of gold when compared to the forward-looking gold curve at the beginning of each respective year.

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

In addition, the loss in the current year also resulted from a reduction in the discount rate used to compute the present value of the annual payment obligations.

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

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

Gain/(loss) on revaluation of deferred consideration

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

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

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

Interest income

Interest income decreased 77.7% from $3.3 million during the year ended December 31, 2019 to $0.7 million in the comparable period in 2020 as paid-in-kind

interest income was accrued in the prior period on our former AdvisorEngine notes receivable.

During the year ended December 31, 2020, we recognized non-cash

impairment charges totaling $22.8 million, including $19.7 million related to our former investment in AdvisorEngine, and $3.1 million related to our investment in Thesys (See Note 26 to our Consolidated Financial Statements).

During the year ended December 31, 2019, we recognized non-cash

impairment charges totaling $30.7 million, including $30.1 million to our former investment in AdvisorEngine and $0.6 million in connection with the termination of our Japan office lease.

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

During the year ended December 31, 2020, we recognized non-cash impairment charges totaling $22.8 million, including $19.7 million related to our former investment in AdvisorEngine Inc., or AdvisorEngine, and $3.1 million related to our investment in Thesys Group, Inc., or Thesys.

Loss on extinguishment of debt

During the year ended December 31, 2020, we recognized a non-cash

loss on extinguishment of debt of $2.4 million arising from the acceleration of debt issuance cost amortization in connection with the termination of our former credit facility.

Other gains and losses, net

Other gains and losses, net were ($3.5) million and $0.6 million during the years ended December 31, 2019 and 2020, respectively.

This includes a charge of $4.3 million and $6.0 million during the years ended December 31, 2019 and 2020, respectively, arising from the release of a tax-related

indemnification asset upon the expiration of the statute of limitations.

During the year ended December 31, 2020, we recognized a non-cash loss on extinguishment of debt of $2.4 million arising from the acceleration of debt issuance cost amortization in connection with the termination of our former credit facility.

Other losses and gains, net

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

This includes a charge of $6.0 million and $5.2 million during the years ended December 31, 2020 and 2021, respectively, arising from the release of a tax-related indemnification asset upon the expiration of the statute of limitations.

An equal and offsetting benefit has been recognized in income tax expense.

The year ended December 31, 2019 also includes a gain of $0.4 million from the recognition of the foreign currency translation adjustment upon the liquidation of our Japan business.

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

During the year ended December 31, 2021, we also recognized losses on our financial instruments owned of $3.7 million, a gain of $0.8 million related to the remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business and an unrealized gain of $0.4 million on our investment in Securrency.

In addition, during the year ended December 31, 2020, we recognized a gain of $2.9 million

associated with the sale of our Canadian ETF business and a gain of $1.1 million arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine.