What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-28 · 252 added, 287 removed, 539 unchanged (50% of the section changed)

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

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

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

We are leveraging 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 and have launched next -generation digital products, services and structures, including Digital Funds and tokenized assets, as well as our blockchain -native digital wallet, WisdomTree Prime, which is currently available in the U.S.

in 38 states, representing approximately 70% of the U.S.

We had approximately $100.1 billion in AUM as of December 31, 2023.

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

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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 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 believe technology is altering the way financial advisors conduct business and through our Advisor and Portfolio Solutions programs 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.

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

WisdomTree Prime, our blockchain -native digital wallet, positions us to expand our blockchain -enabled financial product and services 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 what 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 and blockchain -enabled finance complements our existing core competencies in a holistic manner, and will diversify our revenue streams and contribute to our growth.

Executive Summary

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.

We ended 2023 with record AUM of $100.1 billion.

Our revenues and operating income increased 15.8% and 45.6%, respectively, during the year ended December 31, 2023 as compared to the prior year, which translated into 520 basis points of operating margin expansion.

This past year we generated over $10.4 billion of net inflows, representing annual organic flow growth of approximately 13%.

Our inflow profile is both broad and deep as we have gathered net inflows into 6 of our 8 major product categories, including fixed income, international equity and emerging markets products, representing organic flow growth in these categories of 39%, 28% and 21%, respectively.

This diversification is driving upward our year -to-date average fee capture on our flows, which was approximately two times greater than our fee capture in the prior year.

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

Our models strategy is another growth driver where we are succeeding, with our model portfolios available to over 70,000 advisors.

We are focused on adding new clients and continuing to deepen our impact on partner platforms such as Merrill Lynch, Morgan Stanley, LPL Financial and others, as well as being an outsourced solution for smaller registered investment advisers and independent broker -dealers to make model portfolios easier to trade through our Portfolio Solutions program.

In 2023, we observed a 20% increase in the number of clients that hold multiple WisdomTree products, while at the same time we also grew our overall client base by more than 20%.

We believe that continued success penetrating our accessible market and winning advisor mindshare should lead to model flows that are recurring in nature and stackable on top of our current inflow profile.

We are an early mover in this space, with the launch of our blockchain -native wallet, WisdomTree Prime, a new direct -to-consumer channel where spending, saving and investing are united.

WisdomTree Prime provides access to bitcoin, ether, tokenized gold and U.S.

dollar tokens, as well as 13 Digital Funds, including a government money market fund and other digital funds offering asset allocation, fixed income and equity exposures.

In addition, we have partnered with a financial institution to provide co -branded debit cards to our retail customers on the WisdomTree Prime platform.

We continue to focus on enhancing the products and capabilities of the platform with plans to allow for peer -to-peer transfers and payments in the upcoming quarters.

We are also exploring strategic partnerships and other business development opportunities for both our platform and product suite that could unlock additional tokenization revenue streams in the future.

We are executing on our long -term growth strategy and expect ongoing flows and AUM growth to translate into further margin expansion and outperformance going forward, with our recent investments in digital assets creating additional value for our stockholders over time.

Additional business highlights include the following:

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.

listed AUM covered by Morningstar in the top two quartiles of peer performance on the 3 -year and 10 -year timeframes.

In addition, approximately 50% of our U.S.

listed AUM is rated 4- or 5 -star by Morningstar (less than 5% in 1 -and 2 -star funds).

• We launched nine new European listed ETPs, three new U.S.

listed ETPs (including the WisdomTree Bitcoin Fund which was among the first to launch in the U.S.) and 12 new Digital Funds.

The WisdomTree Bitcoin Fund launched in the U.S.

on the Cboe BZX Exchange in January 2024.

• We reduced our convertible senior notes outstanding by $45.0 million, by issuing $130.0 million of convertible senior notes due 2028 and retiring $175.0 million of convertible senior notes due 2023.

We also returned approximately $24.1 million to our stockholders through our ongoing quarterly cash dividend and common stock repurchases.

• In May 2023, we closed a transaction resulting in the termination of our contractual gold payments obligation to ETFS Capital for $50.0 million in cash and Series C Preferred Stock convertible into approximately 13.1 million shares of our common stock.

The value of these shares was $86.9 million based on the closing price of our common stock on May 9, 2023 of $6.64 per share.

The Series C Preferred Stock was issued to Gold Bullion Holdings (Jersey) Limited, or GBH, a subsidiary of the World Gold Council, which was the entity that ultimately received a portion of the contractual gold payments the Company was previously obligated to make to ETFS Capital.

The transaction expanded our operating margin by over 500 basis points, was accretive to earnings per share and reduced volatility in our financial results.

• In November 2023, we repurchased our Series C Preferred Stock, which was convertible into approximately 13.1 million shares of our common stock from GBH for aggregate cash consideration of approximately $84.4 million.

Under the terms of the transaction, we paid GBH $40.0 million on the closing date, with the remainder of the purchase price payable in equal, interest -free installments on the first, second and third anniversaries of the closing date.

The implied price per share was $6.02 when considering the interest -free financing element of the transaction, and the repurchase was also accretive to earnings per share.

• In the U.S., we were named a “2023 Best Places to Work in Money Management” by Pensions & Investments for the fourth consecutive year and seventh year since the award was created.

We ranked second within the category for managers with 100 -499 employees, the second consecutive year earning a ranking among the top five employers.

In the U.K., we were also named Best Workplace for medium -sized companies for a fourth consecutive year and a 2023 Best Workplace for Women for medium -sized companies by Great Place to Work .

• We won “Best Leveraged & Inverse ETF Issuer ($100M+)” and “Best Crypto Issuer Linked ETF Issuer ($100M+)” at the 2023 ETF Express Europe Awards and our European business won “Best ETF Issuer” at the Online Money Awards, marking the second consecutive year of winning the award.

The WisdomTree Siegel Strategic Value Index™, an index developed by Professor Jeremy Siegel, Senior Economist to WisdomTree, also won the FIA Index of the Year Award by Structured Retail Products .

Market Environment

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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.

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.

We have significant opportunities ahead in both ETPs and the Portfolio 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

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These advisory fees are calculated based on a percentage of the ETPs’ average daily net assets.

Our weighted average fee rates by product category are as follows:

As of the date of this Report, our weighted average fee rates by product category are as follows:

Commodity & Currency:

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• accounting and tax services;

printing and mailing of stockholder materials;

• printing and mailing of shareholder materials;

• index calculation;

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

The fees we pay for accounting, tax, transfer agency, index calculation, indicative values and exchange listing are based on the number of ETFs we have.

The fees we pay for accounting, tax, transfer agency, index calculation, indicative values and exchange listing are based on the number of ETPs we have.

The remaining fees are based on a combination of both AUM and number of funds, or as incurred.

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• sales related software tools;

voluntary payment of certain costs associated with the creation or redemption of ETF shares, as we may elect from time to time;

• voluntary payment of certain costs associated with the creation or redemption of ETP shares, as we may elect from time to time;

• legal and other advisory fees associated with the development of new funds or business initiatives.

Contractual gold payments

Contractual gold payments expense represents an ongoing obligation requiring us to pay 9,500 ounces of gold annually from the advisory fee income we earn for managing physically backed gold ETPs.

Contractual gold payments expense represented an obligation requiring us to pay 9,500 ounces of gold annually from the advisory fee income we earned for managing physically backed gold ETPs.

Our obligation to continue making these payments was terminated on May 10, 2023.

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

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Depreciation and amortization

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.

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

Third-party distribution fees

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These expenses also include payments to our third -party marketing agents in Latin America and Israel.

Acquisition and disposition-related costs

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

Other expenses consist primarily of insurance premiums, general office related expenses, securities license fees for our sales force, public company related expenses, corporate related travel and entertainment and Board of Director fees, including stock -based compensation related to equity awards we granted to our directors.

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We recognize interest expense using the effective interest method which includes the amortization of discounts, premiums and issuance costs.

Revaluation of deferred consideration–gold payments

Deferred consideration arose in connection with the ETFS Acquisition and is remeasured each reporting period using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate.

Revaluation/termination of deferred consideration–gold payments

Deferred consideration arose in connection with the ETFS Acquisition and was remeasured each reporting period using forward -looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate.

This obligation was terminated on May 10, 2023 for approximately $137.0 million.

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

Interest income

Interest income, which is recognized on an accrual basis, arises from investing our corporate cash and on notes receivable previously outstanding.

Other losses and gains, net

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.

Interest income, which is recognized on an accrual basis, arises from investing our corporate cash into interest -bearing financial instruments.

Other losses, net

Included herein are gains and losses arising from our financial instruments owned and investments, 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.

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Compensation Expense

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.

Our compensation expense for the year ending December 31, 2024 is currently estimated to range from $108.0 million to $118.0 million and takes into consideration planned hires as well as year -end compensation adjustments and the annualization of hires made during 2023.

The range also considers variability in incentive compensation with drivers including the magnitude of our flows, revenue and operating income growth, margin expansion and our share price performance in relation to our peers.

A wide range is provided in consideration of uncertain market conditions.

Discretionary Spending

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

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

We currently estimate our contractual gold payments expense for the year ending December 31, 2023 to be approximately $18.0 million based upon current gold prices.

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

For the year ending December 31, 2024, we currently estimate that our gross margin percentage will be 79.0% to 80.0% at current AUM and revenue levels.

If AUM drives higher from continued organic flow growth or favorable market conditions, we would anticipate further gross margin expansion.

Third-Party Distribution Expense

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Income Tax Expense

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.

We currently estimate that our consolidated normalized effective tax rate will be approximately 24.0% to 25.0% for the year ending December 31, 2024, a slight increase as compared to the year ended December 31, 2022 to account for the full year impact of the U.K.

tax rate change to 25.0% that went into effect on 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.

Such items may include, but are not limited to, reductions in unrecognized tax benefits, increases or decreases in valuation allowances and any stock -based compensation windfalls or shortfalls.

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

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Beginning of period assets

Inflows/(outflows)

Market (depreciation)/appreciation

Fund closures

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Number of ETPs—end of the period

US LISTED ETFs (in millions )

LISTED ETFs (in millions )

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Number of ETPs—end of the period

EUROPEAN LISTED ETPs (in millions )

LISTED ETPs (in millions )

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Market (depreciation)/appreciation

Fund closures

Market appreciation/(depreciation)

End of period assets

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Number of ETPs—end of the period

PRODUCT CATEGORIES (in millions )

CATEGORIES (in millions )

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Market (depreciation)/appreciation

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Average assets during the period

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Total revenues

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 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.

Advisory fee revenues increased 13.5% from $293.6 million during the year ended December 31, 2022 to $333.2 million during the year ended December 31, 2023 as higher average AUM was partially offset by a decline in our average advisory fee.

Our average advisory fee declined from 0.38% during the year ended December 31, 2022 to 0.36% during the year ended December 31, 2023.

Other income increased 105.0% from $7.7 million during the year ended December 31, 2022 to $15.8 million during the year ended December 31, 2023 primarily due to large flows from some of our European products.

Operating Expenses

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Compensation and benefits

Compensation and benefits expense increased 11.0% from $88.2 million during the year ended December 31, 2021 to $97.9 million in the comparable period in 2022 due to higher incentive compensation and headcount.

Compensation and benefits expense increased 11.9% from $97.9 million during the year ended December 31, 2022 to $109.5 million during the year ended December 31, 2023 due to higher stock -based compensation and headcount.

Headcount was 273 and 303 at December 31, 2022 and 2023, respectively.

Fund management and administration

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.

Fund management and administration expense increased 10.2% from $64.8 million during the year ended December 31, 2022 to $71.3 million during the year ended December 31, 2023 primarily due to higher average AUM and inflows.

We had 79 U.S.

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Marketing and advertising

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.

Marketing and advertising expense increased 12.8% from $15.3 million during the year ended December 31, 2022 to $17.3 million during the year ended December 31, 2023 primarily resulting from higher spending related to our U.S.

listed products.

Sales and business development

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.

Sales and business development expense increased 14.4% from $11.9 million during the year ended December 31, 2022 to $13.6 million during the year ended December 31, 2023 primarily resulting from increases in travel and events spending.

Contractual gold payments

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.

Contractual gold payments expense decreased 64.5% from $17.1 million during the year ended December 31, 2022 to $6.1 million during the year ended December 31, 2023 due to the termination of our deferred consideration—gold payments obligation on May 10, 2023.

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

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.

Professional fees increased 37.5% from $13.8 million during the year ended December 31, 2022 to $19.0 million during the year ended December 31, 2023 due to higher expenses related to our digital assets business, as well as expenses incurred to terminate our deferred consideration—gold payments obligation and higher expenses related to an activist campaign.

Occupancy, communications and equipment

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.

Occupancy, communications and equipment expense increased 20.2% from $3.9 million during the year ended December 31, 2022 to $4.7 million during the year ended December 31, 2023 as our New York office lease became effective in May 2022.

Depreciation and amortization

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.

Depreciation and amortization expense increased 232.8% from $0.3 million during the year ended December 31, 2022 to $0.9 million during the year ended December 31, 2023 due to amortization of software development costs.

Third-party distribution fees

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.

Third -party distribution fees increased 22.5% from $7.7 million during the year ended December 31, 2022 to $9.4 million during the year ended December 31, 2023 primarily due to AUM growth we are experiencing in Latin America.

Other expenses increased 13.2% from $8.7 million during the year ended December 31, 2022 to $9.9 million during the year ended December 31, 2023 primarily due to higher travel, public relations and Board of Directors expenses.

Other Income/(Expenses)

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Interest expense

Gain on revaluation of deferred consideration

Gain on revaluation/termination of deferred consideration—gold payments

Interest income

Loss on extinguishment of convertible notes

Other losses, net

Total other expenses, net

Year Ended December 31,

Total other income/(expenses), net

As a Percent of Revenues:

Interest expense

Gain on revaluation of deferred consideration

Gain on revaluation/termination of deferred consideration—gold payments

Interest income

Loss on extinguishment of convertible notes

Other losses, net

Total other expenses, net

Total other income/(expenses), net

Interest expense

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, 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 expense was essentially unchanged during the year ended December 31, 2023.

Our effective interest rate on our outstanding convertible notes during the years ended December 31, 2022 and 2023 was 4.6% and 4.9%, respectively.

Gain on revaluation/termination of deferred consideration

We recognized a gain on revaluation/termination of deferred consideration—gold payments of $27.8 million and $62.0 million during the years ended December 31, 2022 and 2023, respectively.

This obligation was terminated on May 10, 2023 for approximately $137.0 million.

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

Interest income

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).

Interest income increased 23.5% from $3.3 million during the year ended December 31, 2022 to $4.1 million during the year ended December 31, 2023 due to rising interest rates, partially offset by a decrease in our interest -bearing assets.

During the year ended December 31, 2023, we recognized a non -cash impairment charge of $7.9 million primarily related to our investment in Securrency, Inc.

upon the sale of Securrency, Inc.

to an unrelated third party.

(See Notes 7, 8, 13 and 26 to our Consolidated Financial Statements).

Other losses, net

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

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.

During the years ended December 31, 2022 and 2023, we also recognized losses on our financial instruments owned and investments of $16.9 million and $0.7 million, respectively.

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 2023 was 13.8%, resulting in income tax expense of $16.5 million.

The effective tax rate differs from the federal statutory rate of 21% primarily due to a non -taxable gain on revaluation/termination of deferred consideration, a reduction in unrecognized tax benefits associated with the release of the tax -related indemnification asset described above and a lower tax rate on foreign earnings.

These items were partly offset by a non -deductible loss on extinguishment of our 4.25% Convertible Senior Notes due 2023 during the first quarter of 2023, an increase in the deferred tax asset valuation allowance on losses recognized on our investments and non -deductible executive compensation.

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.

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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.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Selected Operating and Financial Information

Year Ended December 31,

AUM (in millions)

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Total revenues

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 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.

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.

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(in thousands)

Year Ended December 31,

Compensation and benefits

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Third-party distribution fees

Acquisition and disposition-related costs

Total operating expenses

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Third-party distribution fees

Acquisition and disposition-related costs

Total operating expenses

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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 and product launches.

We had 75 U.S.

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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 pandemic.

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 pandemic.

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 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.

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

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

Depreciation and amortization

Depreciation and amortization expense 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 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 Income/(Expenses)

Year Ended December 31,

(in thousands)

Interest expense

Gain/(loss) on revaluation of deferred consideration

Gain on revaluation/termination of deferred consideration—gold payments

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/termination of deferred consideration—gold payments

Interest income

Loss on extinguishment of debt

Other losses and gains, net

Other losses, net

Total other expenses, net

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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.

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

Gain on revaluation/termination of deferred consideration

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

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 financial instruments owned.

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 our interest -bearing assets.

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 7, 8, 13 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.

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 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.

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.

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.

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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.

Quarterly Results

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Interest expense

(Loss)/gain on revaluation of deferred consideration

Gain/(loss) on revaluation/termination of deferred consideration

Interest income

Other losses and gains, net

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

(Loss)/earnings per share—basic

(Loss)/earnings per share—diluted

Loss on extinguishment of convertible notes

Other gains and losses, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Earnings/(loss) per share—basic

Earnings/(loss) per share—diluted

Dividends per common share

Percent of Revenues

Percent of Total Revenues

Operating Revenues

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Interest expense

(Loss)/gain on revaluation of deferred consideration

Gain/(loss) on revaluation/termination of deferred consideration

Interest income

Other losses and gains, net

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

Loss on extinguishment of convertible notes

Other gains and losses, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Operating Statistics

1 unchanged sentence

Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

Fund closures

End of period assets

4 unchanged sentences

Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

Fund closures

End of period assets

1 unchanged sentence

Number of ETFs—end of the period

EUROPEAN LISTED ETPs

(in millions )

EUROPEAN LISTED ETPs ( in millions )

Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

Fund closures

End of period assets

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Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

2 unchanged sentences

Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

9 unchanged sentences

Beginning of period assets

(Outflows)/inflows

Inflows/(outflows)

Market appreciation/(depreciation)

3 unchanged sentences

Beginning of period assets

Inflows/(outflows)

(Outflows)/inflows

Market appreciation/(depreciation)

1 unchanged sentence

Average assets during the period

Beginning of period assets

Inflows/(outflows)

Market (depreciation)/appreciation

End of period assets

Average assets during the period

Cryptocurrency

Beginning of period assets

(Outflows)/inflows

Market (depreciation)/appreciation

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

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Inflows/(outflows)

Market (depreciation)/appreciation

Fund closures

Market appreciation/(depreciation)

End of period assets

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We disclose adjusted net income and diluted earnings per share as non -GAAP financial measurements in order to report our results exclusive of items that are non -recurring or not core to our operating business.

We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance.

These non-GAAP financial measures exclude the following:

Unrealized gains or losses on the revaluation of deferred consideration:

Deferred consideration is an obligation we assumed in connection with the ETFS Acquisition that is carried at fair value.

This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices.

Changes in the forward-looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations may have a material impact on the carrying value of the deferred consideration and our reported financial results.

We exclude this item when arriving at adjusted net income and diluted earnings per share as it is not core to our operating business.

The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

We believe presenting these non -GAAP financial measurements provides investors with a consistent way to analyze our performance.

These non -GAAP financial measurements exclude the following:

• Unrealized gains or losses on revaluation/termination of deferred consideration—gold payments:

Deferred consideration—gold payments was an obligation we assumed in connection with the ETFS Acquisition that was carried at fair value.

This item represented the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward -looking gold prices.

Changes in the forward -looking price of gold and changes in the discount rate used to compute the present value of the annual payment obligations have had a material impact on the carrying value of the deferred consideration and our reported financial results.

We exclude this item when calculating our non -GAAP financial measurements as it was not core to our operating business.

The item was not adjusted for income taxes as the obligation was assumed by a wholly -owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

During the second quarter of 2023, we terminated this obligation for aggregate consideration totaling approximately $137.0 million.

• Gains or losses on financial instruments owned:

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

In the third quarter of 2021, we began excluding these items when calculating our non-GAAP financial measurements as these instruments have become a more meaningful percentage of total assets and the gains and losses introduce volatility in earnings and are not core to our operating business.

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

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

We exclude these items when calculating our non -GAAP financial measurements as the gains and losses introduce volatility in earnings and are not core to our operating business.

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

GAAP requires the recognition of tax windfalls and shortfalls within income tax expense.

These items arise upon the vesting and exercise of stock -based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised.

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

Unrealized gains and losses recognized on our investments, changes in deferred tax asset valuation allowances, expenses incurred in response to an activist campaign, impairment charges, interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the Convertible Notes (prior to January 1, 2021, the effective date of Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options, Cash Conversion ), a loss on extinguishment of debt, a gain arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine, a gain recognized upon the sale of our Canadian ETF business (including the remeasurement of contingent consideration) and acquisition and disposition-related costs are excluded when calculating our non-GAAP financial measurements.

We exclude these items when calculating our non -GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.

• Imputed interest on our payable to GBH:

During the fourth quarter of 2023, we repurchased our Series C Preferred Stock, which was convertible into approximately 13.1 million shares of our common stock, from GBH for aggregate cash consideration of approximately $84.4 million.

GAAP, the obligation is recorded at its present value utilizing a market rate of interest on the closing date of 7.0% and the corresponding discount is amortized as interest expense pursuant to the effective interest method of accounting over the life of the obligation.

We exclude this item when calculating our non -GAAP financial measurements as recognition of interest expense is non -cash and contrary to the stated terms of our obligation.

• Other items:

Unrealized gains and losses recognized on our investments, changes in deferred tax asset valuation allowances, expenses incurred in response to an activist campaign, impairment charges, a loss on extinguishment of debt and a gain recognized upon the sale of our Canadian ETF business (including the remeasurement of contingent consideration) are excluded when calculating our non -GAAP financial measurements.

Adjusted Net Income and Diluted Earnings per Share:

Net income/(loss), as reported

(Deduct)/add back:

(Gain)/loss on revaluation of deferred consideration

Losses on financial instruments owned, at fair value, net of income taxes

Increase in deferred tax valuation allowance on financial instruments owned and investments

Ended December 31,

Net income, as reported

Gain on revaluation/termination of deferred consideration

Loss on extinguishment of convertible notes, net of income taxes

Impairments, net of income taxes

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

Decrease in deferred tax valuation allowance on net operating losses of a European subsidiary

(Deduct)/add back:

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

Increase in deferred tax valuation allowance on financial instruments owned and investments

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

Add back/(deduct):

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

Impairments, net of income taxes

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

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

Loss on extinguishment of debt, net of income taxes

Gain arising from an adjustment to the estimated fair value of consideration received from the exit of investment in AdvisorEngine

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

Acquisition and disposition-related costs, net of income taxes

Losses on financial instruments owned, at fair value, net of income taxes

Litigation expenses associated with certain provisions of the Stockholder Rights Agreement, net of income taxes

Imputed interest on payable to GBH, net of income taxes

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

Decrease in deferred tax valuation allowance on net operating losses of a European subsidiary

Adjusted net income

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Adjusted earnings per share—diluted

Adjusted net income as reported on a non -GAAP basis during the year ended December 31, 2023 also excludes a gain of $8.0 million recognized upon the repurchase of our Series C Preferred Stock, which was convertible into approximately 13.1 million shares of our common stock.

GAAP, this amount is excluded from net income, but is required to be added to net income to arrive at income available to common stockholders in the calculation of earnings per share.

Liquidity and Capital Resources

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Total current liabilities

Other assets—seed capital

Other assets—seed capital (WisdomTree Digital Funds)

Regulatory capital requirements

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

Cash and cash equivalents decreased $2.8 million during the year ended December 31, 2023 due to $184.3 million used to repurchase and settle our 4.25% Convertible Senior Notes due 2023, $57.4 million used to purchase financial instruments owned, at fair value, $50.0 million used to terminate our deferred consideration—gold payments obligation, $40.0 million used to repurchase our Series C Preferred Stock, $20.1 million used to pay dividends on our common stock, $11.2 million used to purchase investments, $3.6 million used to repurchase our common stock, $3.5 million used to pay issuance costs in respect of our 5.75% Convertible Senior Notes due 2028, or the 2023 Notes, $2.1 million used for software development and $1.2 million used in other activities.

These decreases were partly offset by $130.0 million of proceeds from the issuance of the 2023 Notes, $123.6 million of proceeds from the sale of financial instruments owned, at fair value, $85.6 million of net cash provided by operating activities, $28.8 million of proceeds from the exit from our investment in Securrency, Inc.

in connection with the sale of Securrency, Inc.

to an unaffiliated third party, $1.5 million from receipt of contingent consideration related to the sale of our Canadian ETF business, and $1.1 million from other activities.

Cash and cash equivalents decreased $8.6 million during the year ended December 31, 2022 due to $55.1 million of net cash provided by operating activities and $52.1 million of proceeds from the sale of financial instruments owned, at fair value.

These increases were partly offset by $67.7 million used to purchase financial instruments owned, at fair value, $21.9 million used to purchase investments, $19.4 million used to pay dividends, $3.4 million used to repurchase our common stock and $3.4 million from other activities.

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

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

Cash and cash equivalents decreased $1.5 million during the year ended December 31, 2020 due to $179.0 million used to repay our debt, $36.4 million used to purchase financial instruments owned, at fair value, $31.2 million used to repurchase our common stock, $20.1 million used to pay dividends on our common stock and $5.4 million used to pay Convertible Notes issuance costs.

These decreases were partly offset by $175.3 million of proceeds from the issuance of Convertible Notes, $47.1 million of net cash provided by operating activities, $18.7 million of proceeds from the sale of financial instruments owned, at fair value, $16.5 million of proceeds from held-to-maturity securities maturing or called prior to maturity, $9.6 million of proceeds from the sale of our financial interests in AdvisorEngine, $2.8 million of net proceeds from the sale of our Canadian ETF business and $0.6 million from other activities.

Cash and cash equivalents increased $67.3 million during the year ended December 31, 2021 due to $150.0 million of proceeds from the issuance of our 3.25% Convertible Senior Notes due 2026, or the 2021 Notes, $75.3 million of net cash provided by operating activities, $19.4 million of proceeds from the sale of financial instruments owned, at fair value and $2.4 million of proceeds from the receipt of contingent consideration from the sale of our Canadian ETF business.

These increases were partly offset by $115.5 million used to purchase financial instruments owned, at fair value, $34.5 million used to repurchase our common stock, $19.5 million used to pay dividends on our common stock, $5.8 million used to purchase investments, $4.3 million used to pay the 2021 Notes issuance costs and $0.2 million from other activities.

Issuance of Convertible Notes

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

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

In connection with the issuance of the 2023 Notes, we repurchased $115.0 million of aggregate principal amount of the 2020 Notes.

As a result of this repurchase, we recognized a loss on extinguishment of approximately $9.7 million during the three months ended March 31, 2023.

After the issuance of the 2023 Notes (and together with the remaining 2020 Notes and the 2021 Notes, the “Convertible Notes”), we had $340.0 million aggregate principal amount of Convertible Notes outstanding.

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

In connection with the issuance of the 2023 Notes, we repurchased $115.0 million in aggregate principal amount of the 2020 Notes.

As a result of this repurchase, we recognized a loss on extinguishment of approximately $9.7 million during the year ended December 31, 2023.

The remainder of the 2020 Notes matured on June 15, 2023 and were settled for approximately $59.9 million of cash and approximately 1.0 million shares of our common stock.

After the repurchase and maturity of the 2020 Notes and the issuance of the 2023 Notes (such 2023 Notes, together with the 2021 Notes, the “Convertible Notes”), we had $280.0 million in aggregate principal amount of Convertible Notes outstanding.

Key terms of the Convertible Notes are as follows:

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June 15, 2026

June 15, 2023

Interest rate

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• Interest rate:

Payable semiannually in arrears on February 15 and August 15 of each year for the 2023 Notes (beginning on August 15, 2023) and June 15 and December 15 of each year for the 2020 Notes and the 2021 Notes.

Payable semiannually in arrears on February 15 and August 15 of each year for the 2023 Notes (beginning on August 15, 2023) and on June 15 and December 15 of each year for the 2021 Notes.

• Conversion price:

Convertible at an initial conversion rate into shares of our common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price set forth in the table above), subject to adjustment.

Holders may convert at their option at any time prior to the close of business on the business day immediately preceding May 15, 2028, March 15, 2026 and March 15, 2023 for the 2023 Notes, 2021 Notes and 2020 Notes, respectively, only under the following circumstances:

Convertible at an initial conversion rate set forth in the table above into shares of our common stock, per $1,000 principal amount of notes (equivalent to an initial conversion price set forth in the table above), subject to adjustment.

• Conversion:

Holders may convert at their option at any time prior to the close of business on the business day immediately preceding May 15, 2028 and March 15, 2026 for the 2023 Notes and the 2021 Notes, respectively, only under the following circumstances:

(i) if the last reported sale price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the respective Convertible Notes on each applicable trading day;

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or (iv) upon the occurrence of specified corporate events.

On or after May 15, 2028, March 15, 2026 and March 15, 2023 in respect of the 2023 Notes, 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.

On or after May 15, 2028 and March 15, 2026 in respect of the 2023 Notes, and the 2021 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:

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• Redemption price:

We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after August 20, 2025, June 20, 2023 and June 20, 2021 in respect of the 2023 Notes, 2021 Notes and 2020 Notes, respectively, and on or prior to the 55th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price for the respective Convertible Notes then in effect for at least 20 trading days, including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date.

We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after August 20, 2025 and June 20, 2023 in respect of the 2023 Notes and the 2021 Notes, respectively, and on or prior to the 55 th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price for the respective Convertible Notes then in effect for at least 20 trading days, including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date.

No sinking fund is provided for the Convertible Notes.

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• Conversion rate increase in certain customary circumstances:

In certain circumstances, conversions in connection with a “make-whole fundamental change” (as defined in the 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 167.7853 shares, 144.9275 shares and 270.2702 shares of our common stock per $1,000 principal amount of the 2023 Notes, 2021 Notes and 2020 Notes, respectively (the equivalent of 59,767,426 shares of our common stock), subject to adjustment.

In certain circumstances, conversions in connection with a “make -whole fundamental change” (as defined in the indentures) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 167.7853 shares and 144.9275 shares of our common stock per $1,000 principal amount of the 2023 Notes and the 2021 Notes, respectively (the equivalent of 43,551,214 shares of our common stock), subject to adjustment.

• Seniority and Security:

The Convertible Notes rank equal in right of payment, and are our senior unsecured obligations, but are subordinated in right of payment to our obligations to make certain redemption payments (if and when due) in respect of its Series A Non-Voting Convertible Preferred Stock (See Note 12 to our Consolidated Financial Statements).

The 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.

The 2023 Notes and 2021 Notes rank equal in right of payment, and are our senior unsecured obligations, but are subordinated in right of payment to our obligations to make certain redemption payments (if and when due) in respect of our Series A Preferred Stock (See Note 11 to our Consolidated Financial Statements).

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

Capital Resources

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Currently, approximately $96.4 million remains under this program for future purchases.

We also repurchased our Series C Preferred Stock, which was convertible into approximately 13.1 million shares of common stock, from GBH for aggregate cash consideration of approximately $84.4 million.

Contractual Obligations

Convertible Notes

We currently have $340.0 million aggregate principal amount of Convertible Notes outstanding, of which $60.0 million, $150.0 million and $130.0 million are scheduled to mature on June 15, 2023, June 15, 2026 and August 15, 2028, respectively, unless earlier converted, repurchased or redeemed.

We currently have $280.0 million aggregate principal amount of Convertible Notes outstanding, of which $150.0 million and $130.0 million are scheduled to mature on June 15, 2026 and August 15, 2028, respectively, unless earlier converted, repurchased or redeemed.

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

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Deferred Consideration–Gold Payments

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

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

The present value of the deferred consideration was $200.3 million at December 31, 2022.

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

May 10, 2023, we entered into and closed on a Sale, Purchase and Assignment Deed to terminate our obligations relating to the

contractual gold payments.

Pursuant to that agreement, we paid consideration totaling $136.9 million, including an aggregate of

$50.0 million in cash and the issuance of 13,087 shares of Series C Preferred Stock (valued at $86.9 million, based

on the closing price of our common stock on May 9, 2023 of $6.64 per share), which was convertible into 13,087,000 shares of

our common stock.

The Series C Preferred Stock was subsequently repurchased on November 20, 2023 as described in

“Payable to GBH” below.

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

Payable to GBH

On November 20, 2023, we repurchased our Series C Preferred Stock from GBH for aggregate cash consideration of approximately $84.4 million.

The implied price per share was $6.02 when considering the interest -free financing element of the transaction.

Operating Leases

Total future minimum lease payments with respect to our operating lease liabilities were $1.5 million at December 31, 2022.

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

future minimum lease payments with respect to our operating lease liabilities were $0.6 million at December 31, 2023.

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

See Note 13 to our Consolidated Financial Statements for additional information.

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The annual impairment testing date for our intangible assets is November 30 th .

The results of our analysis identified no indicators of impairment to be recognized based upon a quantitative assessment (discounted cash flow analysis) which relied upon significant unobservable inputs including projected revenue growth rates ranging from 3% to 8% (5% weighted average) and a weighted average cost of capital of 11.0%.

The results of our analysis identified no indicators of impairment to be recognized based upon a quantitative assessment (discounted cash flow analysis) which relied upon significant unobservable inputs including projected revenue growth rates of 3.0% and a weighted average cost of capital of 10.5%.

We account for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed within ASU 2016 -01 , Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities , to the extent such investments are not subject to consolidation or the equity method.

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Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses).

Deferred consideration—gold payments

Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate.

The weighted average forward-looking gold price per ounce, discount rate and perpetual growth rate were $2,237, 11.0% and 1.3%, respectively, at December 31, 2022.

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

During the year ended December 31, 2022, we reported a gain on deferred consideration—gold payments of $27.8 million.

A 1.0% increase in the weighted average forward-looking gold price per ounce would have reduced this reported gain by $1.4 million, a 1 percentage point increase in the discount rate would have increased this reported gain by $17.2 million and a 1 percentage point increase in the perpetual growth rate would have reduced this reported gain by $13.5 million.

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

Revenue Recognition

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Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice.

Recently Adopted Accounting Pronouncements

On January 1, 2021, we early adopted ASU 2020-06, Debt – Debt with Conversion and Other Options (ASU 2020-06) under the modified retrospective approach.

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

Accordingly, more convertible instruments are reported as a single liability or equity with no separate accounting for embedded conversion features.

Certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception are removed and, as a result, more equity contracts will qualify for the scope exception.

The ASU also simplifies the diluted earnings-per-share calculation in certain areas.

Upon the adoption of this ASU, we reclassified the equity component related to the Convertible Notes, net of deferred taxes, reducing accumulated deficit by $0.6 million, increasing the carrying value of the Convertible Notes by $4.1 million, reducing additional paid-in capital by $3.7 million and reducing deferred tax liabilities by $1.0 million.

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

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

On January 1, 2021, we adopted ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (ASU 2019-12).

The main objective of the standard is to reduce complexity in the accounting for income taxes by removing the following exceptions:

(1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income);

(2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

(3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The standard also simplifies the accounting for income taxes by enacting the following:

(a) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount as a non-income-based tax;

(b) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered as a separate transaction;

(c) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements;

and (d) requiring that an entity reflect the enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis