WisdomTree, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward -looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward -looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A. “Risk Factors” of this Report. 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. Introduction 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. population. 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. 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 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 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 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. 43 Table of Contents 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. 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 the future of financial services. 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: • 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 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. 44 Table of Contents • 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 The following chart reflects the annual returns of the broad -based equity indexes and gold prices over the last three years. Source: FactSet 45 Table of Contents U.S. Listed ETF Industry Flows U.S. listed ETF net flows for the year ended December 31, 2023 were $489.1 billion. U.S. equity and fixed income gathered the majority of those flows. Source: Morningstar European Listed ETP Industry Flows European listed ETP net flows were $146.5 billion for the year ended December 31, 2023. Equities and fixed income gathered the majority of those flows. Source: Morningstar 46 Table of Contents Industry Developments Asset Management – Consolidation 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. 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 Advisory fees Substantially all of our revenues are comprised of advisory fees we earn from our ETPs. These advisory fees are calculated based on a percentage of the ETPs’ average daily net assets. As of the date of this Report, our weighted average fee rates by product category are as follows: Commodity & Currency: 37bps Leveraged & Inverse: 84bps International Developed Market Equity: 49bps Fixed Income: 16bps U.S. Equity: 31bps Alternatives: 58bps Emerging Market Equity: 59bps Cryptocurrency: 36bps We determine the appropriate advisory fee to charge for our ETPs based on the cost of operating each ETP considering the types of securities the ETPs will hold, fees third -party service providers will charge us for operating the ETPs and our competitors’ fees for similar ETPs. From time to time, we implement voluntary waivers of a portion of our advisory fee. In addition, we earn a fee based on daily aggregate AUM of our ETPs in exchange for bearing certain fund expenses. Our advisory fee revenues may fluctuate based on general stock market trends, which include market value appreciation or depreciation, currency fluctuations against the U.S. dollar, increased competition and level of inflows or outflows from our ETPs. Other income 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 Our operating expenses consist primarily of costs related to selling, operating and marketing our ETPs as well as the infrastructure needed to run our business. Compensation and benefits Employee compensation and benefits expenses are expensed when incurred and include salaries, incentive compensation, and related benefit costs. 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. Our executive management and Board of Directors strongly believe that equity awards are an important part of our employees’ overall compensation package and that incentivizing our employees with equity in the Company aligns the interests of our employees with that of our stockholders. We use the fair value method in recording compensation expense for equity -based awards. Under the fair value method, compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period. 47 Table of Contents 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 and Digital Funds: • portfolio management of our ETPs (sub -advisory ); • fund accounting and administration; • custodial and storage services; • market making; • transfer agency; • accounting and tax services; • printing and mailing of shareholder materials; • index calculation; • indicative values; • distribution fees; • legal and compliance services; • exchange listing fees; • trustee fees and expenses; • preparation of regulatory reports and filings; • insurance; • certain local income taxes; and • other administrative services. We are not responsible for extraordinary expenses, taxes and certain other expenses related to the funds. 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 $180,000 per year, or the percentage fee, which ranges between 0.01% and 0.50% 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. 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. Marketing and advertising Marketing and advertising expenses are recorded when incurred and include the following: • advertising and product promotion campaigns that are initiated to promote our existing and new ETPs as well as brand awareness; • development and maintenance of our website; and • creation and preparation of marketing materials. Our discretionary advertising comprises the largest portion of this expense. In addition, we may incur expenditures in certain periods to attract inflows, the benefit of which may or may not be recognized from increases to our AUM in future periods. However, due to the discretionary nature of some of these costs, they can generally be reduced if there were a decline in the markets. Sales and business development Sales and business development expenses are recorded when incurred and include the following: • travel and entertainment or conference related expenses for our sales force; • market data services for our research team; • sales related software tools; • voluntary payment of certain costs associated with the creation or redemption of ETP shares, as we may elect from time to time; and • legal and other advisory fees associated with the development of new funds or business initiatives. 48 Table of Contents Contractual gold payments 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. 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. Certain of these costs are at our discretion and can fluctuate year to year. Occupancy, communications and equipment Occupancy, communications and equipment expense includes costs for our corporate headquarters in New York City as well as office related costs in our other locations. Depreciation and amortization 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 Third -party distribution fees, which are expensed as incurred, include payments made to enable our products and models to be included on certain third -party platforms in exchange for commission -free trading or other preferential access. These expenses also include payments to our third -party marketing agents in Latin America and Israel. Other 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. Components of Other Income/(Expenses) of a Recurring Nature Interest expense We recognize interest expense using the effective interest method which includes the amortization of discounts, premiums and issuance costs. 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 into interest -bearing financial instruments. 49 Table of Contents 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. Income Taxes Our income tax expense consists of taxes due to federal, various state and local and certain foreign authorities. Expense Guidance for the Year Ending December 31, 2024 Compensation Expense 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 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, 2024 to range from $64.0 million to $68.0 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, 2024. Gross Margin We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. 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 We currently estimate third -party distribution expense to be approximately $10.0 million to $11.0 million for the year ending December 31, 2024, 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 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, 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. 50 Table of Contents Factors that May Impact our Future Financial Results Our AUM is well diversified across the commodity, U.S. equity, international developed markets and emerging markets sectors. As a result, our operating results are particularly exposed to investor sentiment toward investing in these products’ strategies and our ability to maintain AUM of these products, as well as the performance of these products. Our revenues are also highly correlated to the level and relative mix of our AUM, as well as the fee rate associated with our ETPs. Changes in product mix have led to a decline in our average advisory fee, which for the years ended December 31, 2021, 2022 and 2023 were 0.41%, 0.38% and 0.36%, respectively. The chart below sets forth the asset mix of our ETPs at December 31, 2021, 2022 and 2023: 51 Table of Contents Key Operating Statistics The following table presents key operating statistics that serve as indicators for the performance of our business: Year Ended December 31, 2023 2022 2021 GLOBAL ETPs (in millions ) Beginning of period assets $ 81,993 $ 77,479 $ 67,392 Inflows 10,396 12,182 4,660 Market appreciation/(depreciation) 7,735 (7,668) 5,427 End of period assets $ 100,124 $ 81,993 $ 77,479 Average assets during the period $ 92,847 $ 76,969 $ 73,430 Average advisory fee during the period 0.36% 0.38% 0.41% Number of ETPs—end of the period 337 339 329 US LISTED ETFs (in millions ) Beginning of period assets $ 55,973 $ 48,210 $ 38,517 Inflows 10,795 14,572 4,950 Market appreciation/(depreciation) 5,718 (6,809) 4,743 End of period assets $ 72,486 $ 55,973 $ 48,210 Average assets during the period $ 64,967 $ 49,723 $ 44,325 Number of ETPs—end of the period 76 79 75 EUROPEAN LISTED ETPs (in millions ) Beginning of period assets $ 26,020 $ 29,269 $ 28,875 Outflows (399) (2,390) (290) Market appreciation/(depreciation) 2,017 (859) 684 End of period assets $ 27,638 $ 26,020 $ 29,269 Average assets during the period $ 27,880 $ 27,246 $ 29,105 Number of ETPs—end of the period 261 260 254 PRODUCT CATEGORIES (in millions ) U.S. Equity Beginning of period assets $ 24,112 $ 23,860 $ 18,367 Inflows 1,616 3,346 1,544 Market appreciation/(depreciation) 3,428 (3,094) 3,949 End of period assets $ 29,156 $ 24,112 $ 23,860 Average assets during the period $ 25,701 $ 22,881 $ 21,254 Commodity & Currency Beginning of period assets $ 22,097 $ 24,599 $ 25,879 Outflows (1,774) (2,912) (1,479) Market appreciation 1,013 410 199 End of period assets $ 21,336 $ 22,097 $ 24,599 Average assets during the period $ 22,843 $ 23,406 $ 25,027 Fixed Income Beginning of period assets $ 15,273 $ 4,356 $ 3,324 Inflows 5,940 11,300 1,130 Market depreciation (16) (383) (98) End of period assets $ 21,197 $ 15,273 $ 4,356 Average assets during the period $ 19,804 $ 9,039 $ 3,565 52 Table of Contents Year Ended December 31, 2023 2022 2021 International Developed Market Equity Beginning of period assets $ 10,195 $ 11,894 $ 9,414 Inflows 2,850 101 1,260 Market appreciation/(depreciation) 2,058 (1,800) 1,220 End of period assets $ 15,103 $ 10,195 $ 11,894 Average assets during the period $ 12,824 $ 10,568 $ 10,750 Emerging Market Equity Beginning of period assets $ 8,116 $ 10,375 $ 8,539 Inflows 1,678 27 2,041 Market appreciation/(depreciation) 932 (2,286) (205) End of period assets $ 10,726 $ 8,116 $ 10,375 Average assets during the period $ 9,287 $ 8,843 $ 10,619 Leveraged & Inverse Beginning of period assets $ 1,754 $ 1,777 $ 1,486 (Outflows)/inflows (5) 193 41 Market appreciation/(depreciation) 66 (216) 250 End of period assets $ 1,815 $ 1,754 $ 1,777 Average assets during the period $ 1,813 $ 1,704 $ 1,679 Cryptocurrency Beginning of period assets $ 136 $ 357 $ 168 Inflows 50 36 84 Market appreciation/(depreciation) 228 (257) 105 End of period assets $ 414 $ 136 $ 357 Average assets during the period $ 247 $ 230 $ 312 Alternatives Beginning of period assets $ 310 $ 261 $ 215 Inflows 41 91 39 Market appreciation/(depreciation) 26 (42) 7 End of period assets $ 377 $ 310 $ 261 Average assets during the period $ 328 $ 298 $ 224 Headcount 303 273 241 Note: Previously issued statistics may be restated due to fund closures and trade adjustments Source: WisdomTree Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Selected Operating and Financial Information Year Ended December 31, Change Percent Change 2023 2022 AUM (in millions) Average AUM $ 92,847 $ 76,969 $ 15,878 20.6% Operating Revenues (in thousands) Advisory fees $ 333,227 $ 293,632 $ 39,595 13.5% Other income 15,808 7,713 8,095 105.0% Total revenues $ 349,035 $ 301,345 $ 47,690 15.8% 53 Table of Contents Operating Revenues Advisory fees 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 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 (in thousands) Year Ended December 31, Change Percent Change 2023 2022 Compensation and benefits $ 109,532 $ 97,897 $ 11,635 11.9% Fund management and administration 71,348 64,761 6,587 10.2% Marketing and advertising 17,256 15,302 1,954 12.8% Sales and business development 13,584 11,871 1,713 14.4% Contractual gold payments 6,069 17,108 (11,039) (64.5%) Professional fees 18,969 13,800 5,169 37.5% Occupancy, communications and equipment 4,684 3,898 786 20.2% Depreciation and amortization 872 262 610 232.8% Third-party distribution fees 9,377 7,656 1,721 22.5% Other 9,852 8,705 1,147 13.2% Total operating expenses $ 261,543 $ 241,260 $ 20,283 8.4% As a Percent of Revenues: Year Ended December 31, 2023 2022 Compensation and benefits 31.6% 32.5% Fund management and administration 20.4% 21.5% Marketing and advertising 4.9% 5.1% Sales and business development 3.9% 3.9% Contractual gold payments 1.7% 5.7% Professional fees 5.4% 4.6% Occupancy, communications and equipment 1.3% 1.3% Depreciation and amortization 0.2% 0.1% Third-party distribution fees 2.7% 2.5% Other 2.8% 2.9% Total operating expenses 74.9% 80.1% Compensation and benefits 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. 54 Table of Contents Fund management and administration 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. listed ETFs and 260 European listed ETPs at December 31, 2022 compared to 76 U.S. listed ETFs and 261 European listed ETPs at December 31, 2023. Marketing and 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 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 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 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 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 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 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 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. 55 Table of Contents Other Income/(Expenses) (in thousands) Year Ended December 31, Change Percent Change 2023 2022 Interest expense $ (15,242) $ (14,935) $ (307) 2.1% Gain on revaluation/termination of deferred consideration—gold payments 61,953 27,765 34,188 123.1% Interest income 4,099 3,320 779 23.5% Impairments (7,942) — (7,942) n/a Loss on extinguishment of convertible notes (9,721) — (9,721) n/a Other losses, net (1,631) (36,285) 34,654 95.5% Total other income/(expenses), net $ 31,516 $ (20,135) $ 51,651 256.5% As a Percent of Revenues: Year Ended December 31, 2023 2022 Interest expense (4.4%) (5.0%) Gain on revaluation/termination of deferred consideration—gold payments 17.8% 9.2% Interest income 1.2% 1.1% Impairments (2.3%) — Loss on extinguishment of convertible notes (2.8%) — Other losses, net (0.5%) (12.0%) Total other income/(expenses), net 9.0% (6.7%) Interest expense 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 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. Impairments 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 Other losses, net were $36.3 million and $1.6 million during the years ended December 31, 2022 and 2023, respectively. This includes a charge of $19.9 million and $1.4 million during the years ended December 31, 2022 and 2023, 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 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. 56 Table of Contents Income Taxes 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. 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. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Selected Operating and Financial Information Year Ended December 31, Change Percent Change 2022 2021 AUM (in millions) Average AUM $ 76,969 $ 73,430 $ 3,539 4.8% Operating Revenues (in thousands) Advisory fees $ 293,632 $ 298,052 $ (4,420) (1.5%) Other income 7,713 6,266 1,447 23.1% Total revenues $ 301,345 $ 304,318 $ (2,973) (1.0%) 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 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. 57 Table of Contents Operating Expenses (in thousands) Year Ended December 31, Change Percent Change 2022 2021 Compensation and benefits $ 97,897 $ 88,163 $ 9,734 11.0% Fund management and administration 64,761 58,912 5,849 9.9% Marketing and advertising 15,302 14,090 1,212 8.6% Sales and business development 11,871 9,907 1,964 19.8% Contractual gold payments 17,108 17,096 12 0.1% Professional fees 13,800 7,616 6,184 81.2% Occupancy, communications and equipment 3,898 4,629 (731) (15.8%) Depreciation and amortization 262 738 (476) (64.5%) Third-party distribution fees 7,656 7,176 480 6.7% Other 8,705 6,933 1,772 25.6% Total operating expenses $ 241,260 $ 215,260 $ 26,000 12.1% As a Percent of Revenues: Year Ended December 31, 2022 2021 Compensation and benefits 32.5% 28.9% Fund management and administration 21.5% 19.4% Marketing and advertising 5.1% 4.6% Sales and business development 3.9% 3.3% Contractual gold payments 5.7% 5.6% Professional fees 4.6% 2.5% Occupancy, communications and equipment 1.3% 1.5% Depreciation and amortization 0.1% 0.2% Third-party distribution fees 2.5% 2.4% Other 2.9% 2.3% Total operating expenses 80.1% 70.7% 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. Headcount was 241 and 273 at December 31, 2021 and 2022, 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. We had 75 U.S. 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 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 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. 58 Table of Contents 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. 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 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. and Europe. 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. and Europe. 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 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) Year Ended December 31, Change Percent Change (in thousands) 2022 2021 Interest expense $ (14,935) $ (12,332) $ (2,603) 21.1% Gain on revaluation/termination of deferred consideration—gold payments 27,765 2,018 25,747 1,275.9% Interest income 3,320 2,009 1,311 65.3% Impairments — (16,156) 16,156 n/a Other losses, net (36,285) (7,926) (28,359) 357.8% Total other expenses, net $ (20,135) $ (32,387) $ 12,252 (37.8%) As a Percent of Revenues: Year Ended December 31, 2022 2021 Interest expense (5.0%) (4.1%) Gain on revaluation/termination of deferred consideration—gold payments 9.2% 0.7% Interest income 1.1% 0.7% Impairments — (5.3%) Other losses, net (12.0%) (2.6%) Total other expenses, net (6.7%) (10.6%) 59 Table of Contents 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 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 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 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. Impairments 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). 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 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. Income Taxes 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. 60 Table of Contents Quarterly Results The following tables set forth our unaudited consolidated quarterly statement of operations data, both in dollar amounts and as a percentage of total revenues, and our unaudited consolidated quarterly operating data for the quarters in 2023 and 2022. In our opinion, this unaudited information has been prepared on substantially the same basis as the consolidated financial statements appearing elsewhere in this Report and includes all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the unaudited consolidated quarterly data. The unaudited consolidated quarterly data should be read together with the consolidated financial statements and related notes included elsewhere in this Report. The results for any quarter are not necessarily indicative of results for any future period, and you should not rely on them as such. (in thousands, except per share amounts) Q4/23 Q3/23 Q2/23 Q1/23 Q4/22 Q3/22 Q2/22 Q1/22 Operating Revenues: Advisory fees $ 86,988 $ 86,598 $ 82,004 $ 77,637 $ 70,913 $ 70,616 $ 75,586 $ 76,517 Other income 3,856 3,825 3,720 4,407 2,397 1,798 1,667 1,851 Total revenues 90,844 90,423 85,724 82,044 73,310 72,414 77,253 78,368 Operating Expenses: Compensation and benefits 27,860 27,955 26,319 27,398 24,831 23,714 24,565 24,787 Fund management and administration 18,445 18,023 17,727 17,153 16,906 16,285 16,076 15,494 Marketing and advertising 4,951 3,833 4,465 4,007 4,240 3,145 3,894 4,023 Sales and business development 3,881 3,383 3,326 2,994 3,407 2,724 3,131 2,609 Contractual gold payments — — 1,583 4,486 4,107 4,105 4,446 4,450 Professional fees 3,201 3,719 8,334 3,715 2,666 2,367 4,308 4,459 Occupancy, communications and equipment 1,208 1,203 1,172 1,101 1,110 986 1,049 753 Depreciation and amortization 335 307 121 109 104 58 53 47 Third-party distribution fees 2,549 2,694 1,881 2,253 1,793 1,833 1,818 2,212 Other 2,379 2,601 2,615 2,257 2,427 2,324 2,109 1,845 Total operating expenses 64,809 63,718 67,543 65,473 61,591 57,541 61,449 60,679 Operating income 26,035 26,705 18,181 16,571 11,719 14,873 15,804 17,689 Other Income/(Expenses): Interest expense (3,758) (3,461) (4,021) (4,002) (3,736) (3,734) (3,733) (3,732) Gain/(loss) on revaluation/termination of deferred consideration — — 41,361 20,592 (35,423) 77,895 2,311 (17,018) Interest income 1,225 791 1,000 1,083 945 811 770 794 Impairments (339) (2,703) — (4,900) — — — — Loss on extinguishment of convertible notes — — — (9,721) — — — — Other gains and losses, net 1,602 (2,512) 1,286 (2,007) (1,815) (5,289) (4,474) (24,707) Income/(loss) before income taxes 24,765 18,820 57,807 17,616 (28,310) 84,556 10,678 (26,974) Income tax expense/(benefit) 5,688 5,836 3,555 1,383 (21) 3,327 2,673 (16,713) Net income/(loss) $ 19,077 $ 12,984 $ 54,252 $ 16,233 $ (28,289) $ 81,229 $ 8,005 $ (10,261) Earnings/(loss) per share—basic $ 0.16 $ 0.07 $ 0.32 $ 0.10 $ (0.20) $ 0.50 $ 0.05 $ (0.08) Earnings/(loss) per share—diluted $ 0.16 $ 0.07 $ 0.32 $ 0.10 $ (0.20) $ 0.50 $ 0.05 $ (0.08) Dividends per common share $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 61 Table of Contents Q4/23 Q3/23 Q2/23 Q1/23 Q4/22 Q3/22 Q2/22 Q1/22 Percent of Total Revenues Operating Revenues Advisory fees 95.8% 95.8% 95.7% 94.6% 96.7% 97.5% 97.8% 97.6% Other income 4.2% 4.2% 4.3% 5.4% 3.3% 2.5% 2.2% 2.4% Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Operating Expenses Compensation and benefits 30.6% 31.0% 30.7% 33.5% 34.0% 32.7% 31.7% 31.5% Fund management and administration 20.3% 20.0% 20.7% 20.9% 23.1% 22.5% 20.7% 19.8% Marketing and advertising 5.5% 4.2% 5.2% 4.9% 5.8% 4.3% 5.0% 5.1% Sales and business development 4.3% 3.7% 3.9% 3.6% 4.6% 3.8% 4.1% 3.3% Contractual gold payments — n/a 1.8% 5.5% 5.6% 5.7% 5.8% 5.7% Professional fees 3.5% 4.1% 9.7% 4.5% 3.6% 3.3% 5.6% 5.7% Occupancy, communications and equipment 1.3% 1.3% 1.4% 1.3% 1.5% 1.4% 1.4% 1.0% Depreciation and amortization 0.4% 0.3% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Third-party distribution fees 2.8% 3.0% 2.2% 2.7% 2.4% 2.5% 2.4% 2.8% Other 2.6% 2.9% 3.1% 2.8% 3.3% 3.2% 2.7% 2.4% Total operating expenses 71.3% 70.5% 78.8% 79.8% 84.0% 79.5% 79.5% 77.4% Operating income 28.7% 29.5% 21.2% 20.2% 16.0% 20.5% 20.5% 22.6% Other Income/(Expenses) Interest expense (4.1%) (3.8%) (4.7%) (4.9%) (5.1%) (5.2%) (4.8%) (4.8%) Gain/(loss) on revaluation/termination of deferred consideration — — 48.2% 25.1% (48.3%) 107.6% 3.0% (21.7%) Interest income 1.3% 0.9% 1.2% 1.3% 1.3% 1.1% 1.0% 1.0% Impairments (0.4%) (3.0%) — (6.0%) — — — — Loss on extinguishment of convertible notes — — — (11.8%) — — — — Other gains and losses, net 1.8% (2.8%) 1.5% (2.4%) (2.5%) (7.3%) (5.8%) (31.5%) Income/(loss) before income taxes 27.3% 20.8% 67.4% 21.5% (38.6%) 116.8% 13.8% (34.4%) Income tax expense/(benefit) 6.3% 6.5% 4.1% 1.7% (0.0%) 4.6% 3.5% (21.3%) Net income/(loss) 21.0% 14.4% 63.3% 19.8% (38.6%) 112.2% 10.4% (13.1%) 62 Table of Contents Q4/23 Q3/23 Q2/23 Q1/23 Q4/22 Q3/22 Q2/22 Q1/22 Operating Statistics GLOBAL ETPs (in millions ) Beginning of period assets $ 93,735 $ 93,666 $ 90,740 $ 81,993 $ 70,878 $ 74,302 $ 79,407 $ 77,479 (Outflows)/inflows (255) 1,983 2,327 6,341 5,264 1,747 3,852 1,319 Market appreciation/(depreciation) 6,644 (1,914) 599 2,406 5,851 (5,171) (8,957) 609 End of period assets $ 100,124 $ 93,735 $ 93,666 $ 90,740 $ 81,993 $ 70,878 $ 74,302 $ 79,407 Average assets during the period $ 96,557 $ 95,743 $ 91,578 $ 87,508 $ 77,649 $ 74,677 $ 77,738 $ 77,809 Average advisory fee during the period 0.36% 0.36% 0.36% 0.36% 0.36% 0.41% 0.40% 0.41% Number of ETPs—end of the period 337 344 344 341 339 347 344 341 U.S. LISTED ETFs (in millions ) Beginning of period assets $ 68,018 $ 65,903 $ 61,283 $ 55,973 $ 48,043 $ 47,255 $ 48,622 $ 48,210 (Outflows)/inflows (67) 3,601 3,249 4,012 4,232 3,812 4,278 2,250 Market appreciation/(depreciation) 4,535 (1,486) 1,371 1,298 3,698 (3,024) (5,645) (1,838) End of period assets $ 72,486 $ 68,018 $ 65,903 $ 61,283 $ 55,973 $ 48,043 $ 47,255 $ 48,622 Average assets during the period $ 69,717 $ 68,008 $ 62,712 $ 59,430 $ 53,655 $ 49,466 $ 48,270 $ 47,499 Number of ETFs—end of the period 76 80 80 80 79 78 77 77 EUROPEAN LISTED ETPs ( in millions ) Beginning of period assets $ 25,717 $ 27,763 $ 29,457 $ 26,020 $ 22,835 $ 27,047 $ 30,785 $ 29,269 (Outflows)/inflows (188) (1,618) (922) 2,329 1,032 (2,065) (426) (931) Market appreciation/(depreciation) 2,109 (428) (772) 1,108 2,153 (2,147) (3,312) 2,447 End of period assets $ 27,638 $ 25,717 $ 27,763 $ 29,457 $ 26,020 $ 22,835 $ 27,047 $ 30,785 Average assets during the period $ 26,840 $ 27,735 $ 28,866 $ 28,078 $ 23,994 $ 25,211 $ 29,468 $ 30,310 Number of ETPs—end of the period 261 264 264 261 260 269 267 264 PRODUCT CATEGORIES U.S. Equity Beginning of period assets $ 25,644 $ 26,001 $ 24,534 $ 24,112 $ 20,952 $ 21,058 $ 23,738 $ 23,860 Inflows/(outflows) 487 864 414 (149) 1,022 1,239 306 779 Market appreciation/(depreciation) 3,025 (1,221) 1,053 571 2,138 (1,345) (2,986) (901) End of period assets $ 29,156 $ 25,644 $ 26,001 $ 24,534 $ 24,112 $ 20,952 $ 21,058 $ 23,738 Average assets during the period $ 26,844 $ 26,501 $ 24,732 $ 24,725 $ 23,492 $ 22,534 $ 22,362 $ 23,134 63 Table of Contents Q4/23 Q3/23 Q2/23 Q1/23 Q4/22 Q3/22 Q2/22 Q1/22 Commodity & Currency Beginning of period assets $ 20,465 $ 22,384 $ 24,924 $ 22,097 $ 19,561 $ 23,624 $ 26,302 $ 24,599 (Outflows)/inflows (449) (1,815) (1,513) 2,003 796 (2,180) (475) (1,053) Market appreciation/(depreciation) 1,320 (104) (1,027) 824 1,740 (1,883) (2,203) 2,756 End of period assets $ 21,336 $ 20,465 $ 22,384 $ 24,924 $ 22,097 $ 19,561 $ 23,624 $ 26,302 Average assets during the period $ 21,254 $ 22,278 $ 24,033 $ 23,807 $ 20,345 $ 21,625 $ 25,766 $ 25,891 Fixed Income Beginning of period assets $ 21,797 $ 20,215 $ 18,708 $ 15,273 $ 11,695 $ 9,192 $ 5,418 $ 4,356 (Outflows)/inflows (715) 1,671 1,471 3,513 3,392 2,628 4,038 1,242 Market appreciation/(depreciation) 115 (89) 36 (78) 186 (125) (264) (180) End of period assets $ 21,197 $ 21,797 $ 20,215 $ 18,708 $ 15,273 $ 11,695 $ 9,192 $ 5,418 Average assets during the period $ 21,889 $ 20,965 $ 19,185 $ 17,176 $ 13,962 $ 10,077 $ 7,426 $ 4,691 International Developed Market Equity Beginning of period assets $ 13,902 $ 13,423 $ 11,433 $ 10,195 $ 9,183 $ 9,968 $ 11,422 $ 11,894 Inflows/(outflows) 9 798 1,593 450 40 (115) 79 97 Market appreciation/(depreciation) 1,192 (319) 397 788 972 (670) (1,533) (569) End of period assets $ 15,103 $ 13,902 $ 13,423 $ 11,433 $ 10,195 $ 9,183 $ 9,968 $ 11,422 Average assets during the period $ 14,267 $ 13,873 $ 12,276 $ 10,879 $ 10,000 $ 10,032 $ 10,695 $ 11,543 Emerging Market Equity Beginning of period assets $ 9,569 $ 9,191 $ 8,811 $ 8,116 $ 7,495 $ 8,386 $ 9,991 $ 10,375 Inflows/(outflows) 412 451 329 486 (53) 114 (223) 189 Market appreciation/(depreciation) 745 (73) 51 209 674 (1,005) (1,382) (573) End of period assets $ 10,726 $ 9,569 $ 9,191 $ 8,811 $ 8,116 $ 7,495 $ 8,386 $ 9,991 Average assets during the period $ 9,833 $ 9,652 $ 8,998 $ 8,666 $ 7,770 $ 8,329 $ 9,155 $ 10,116 64 Table of Contents Q4/23 Q3/23 Q2/23 Q1/23 Q4/22 Q3/22 Q2/22 Q1/22 Leveraged & Inverse Beginning of period assets $ 1,781 $ 1,864 $ 1,785 $ 1,754 $ 1,523 $ 1,618 $ 1,860 $ 1,777 (Outflows)/inflows (59) (1) 12 43 59 45 90 (1) Market appreciation/(depreciation) 93 (82) 67 (12) 172 (140) (332) 84 End of period assets $ 1,815 $ 1,781 $ 1,864 $ 1,785 $ 1,754 $ 1,523 $ 1,618 $ 1,860 Average assets during the period $ 1,803 $ 1,894 $ 1,798 $ 1,757 $ 1,623 $ 1,589 $ 1,770 $ 1,835 Cryptocurrency Beginning of period assets $ 243 $ 248 $ 239 $ 136 $ 163 $ 151 $ 383 $ 357 Inflows/(outflows) 28 10 (1) 13 (4) — 3 37 Market appreciation/(depreciation) 143 (15) 10 90 (23) 12 (235) (11) End of period assets $ 414 $ 243 $ 248 $ 239 $ 136 $ 163 $ 151 $ 383 Average assets during the period $ 325 $ 238 $ 236 $ 190 $ 152 $ 178 $ 265 $ 324 Alternatives Beginning of period assets $ 334 $ 340 $ 306 $ 310 $ 306 $ 305 $ 293 $ 261 Inflows/(outflows) 32 5 22 (18) 12 16 34 29 Market appreciation/(depreciation) 11 (11) 12 14 (8) (15) (22) 3 End of period assets $ 377 $ 334 $ 340 $ 306 $ 310 $ 306 $ 305 $ 293 Average assets during the period $ 342 $ 342 $ 320 $ 308 $ 305 $ 313 $ 299 $ 275 Headcount 303 299 291 279 273 274 264 253 Note: Previously issued statistics may be restated due to fund closures and trade adjustments Source: WisdomTree Non-GAAP Financial Measurements In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non -GAAP information which we believe provides useful and meaningful information. Our management reviews these non -GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non -GAAP measurements so as to share this perspective of management. Non -GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non -GAAP financial measurements should be considered in the context with our GAAP results. The non -GAAP financial measurements contained in this Report include: Adjusted net income and diluted earnings per share. We disclose adjusted net income and diluted earnings per share as non -GAAP financial measurements in order to report our results exclusive of items that are non -recurring or not core to our operating business. We believe presenting these non -GAAP financial measurements provides investors with a consistent way to analyze our performance. These non -GAAP financial measurements exclude the following: • Unrealized gains or losses on 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. 65 Table of Contents • Gains or losses on financial instruments owned: 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 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. 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. Under U.S. 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. 66 Table of Contents Adjusted Net Income and Diluted Earnings per Share: Years Ended December 31, 2023 2022 2021 Net income, as reported $ 102,546 $ 50,684 $ 49,797 Deduct: Gain on revaluation/termination of deferred consideration (61,953) (27,765) (2,018) Add back: Loss on extinguishment of convertible notes, net of income taxes 9,623 — — Add back: Impairments, net of income taxes 6,013 — 12,247 Add back: Expenses incurred in response to an activist campaign, net of income taxes 4,452 3,376 — Add back: Increase in deferred tax valuation allowance on financial instruments owned and investments 2,113 4,729 — Deduct: Gain recognized from the sale of Canadian ETF business, including remeasurement of contingent consideration (1,477) — (787) Add back/(deduct): Unrealized loss/(gain) recognized on our investments, net of income taxes 607 290 (284) Add back: Losses on financial instruments owned, at fair value, net of income taxes 392 12,505 2,507 Add back: Litigation expenses associated with certain provisions of the Stockholder Rights Agreement, net of income taxes 367 — — Add back: Imputed interest on payable to GBH, net of income taxes 224 — — Deduct: Tax windfalls upon vesting and exercise of stock-based compensation awards (176) (541) (110) Deduct: Decrease in deferred tax valuation allowance on net operating losses of a European subsidiary — (1,609) — Adjusted net income $ 62,731 $ 41,669 $ 61,352 Deduct: Income distributed to participating securities (2,770) (2,186) (2,168) Deduct: Undistributed income allocable to participating securities (5,868) (2,509) (4,630) Adjusted net income available to common stockholders $ 54,093 $ 36,974 $ 54,554 Weighted average diluted shares, excluding participating securities (See Note 21 to our Consolidated Financial Statements) 147,827 143,295 145,055 Adjusted earnings per share—diluted $ 0.37 $ 0.26 $ 0.38 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. Under U.S. 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. 67 Table of Contents Liquidity and Capital Resources The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations: December 31, 2023 December 31, 2022 Balance Sheet Data (in thousands): Cash and cash equivalents $ 129,305 $ 132,101 Financial instruments owned, at fair value 58,722 126,239 Accounts receivable 35,473 30,549 Securities held-to-maturity 230 259 Total: Liquid assets 223,730 289,148 Less: Total current liabilities (103,216) (148,434) Less: Other assets—seed capital (WisdomTree Digital Funds) (18,308) (1,765) Less: Regulatory capital requirements (29,156) (25,988) Total: Available liquidity $ 73,050 $ 112,961 Year Ended December 31, 2023 2022 2021 Cash Flow Data (in thousands): Operating cash flows $ 85,600 $ 55,087 $ 75,318 Investing cash flows 82,049 (37,657) (99,632) Financing cash flows (171,636) (22,780) 92,553 Foreign exchange rate effect 1,191 (3,258) (955) (Decrease)/increase in cash and cash equivalents $ (2,796) $ (8,608) $ 67,284 Liquidity We consider our available liquidity to be our liquid assets, less our current liabilities and regulatory capital requirements of certain European subsidiaries. Liquid assets consist of cash and cash equivalents, financial instruments owned, at fair value, accounts receivable and securities held -to-maturity . Our financial instruments owned, at fair value are highly liquid investments. Accounts receivable are current assets and primarily represent receivables from advisory fees we earn from our ETPs. Our current liabilities consist primarily of payments owed to vendors and third parties in the normal course of business, deferred consideration and accrued incentive compensation for employees. Cash and cash equivalents decreased $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. 68 Table of Contents 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 On February 14, 2023, we issued and sold $130.0 million in aggregate principal amount of 5.75% Convertible Senior Notes due 2028 (the “2023 Notes”) pursuant to an indenture dated February 14, 2023, between us and U.S. Bank Trust Company, National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Rule 144A”). On June 14, 2021, we issued and sold $150.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2021 Notes”) pursuant to an indenture dated June 14, 2021, between us and the trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On June 16, 2020, we issued and sold $150.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 (the “June 2020 Notes”) pursuant to an indenture dated June 16, 2020, between us and the trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A. On August 13, 2020, we issued and sold $25.0 million in aggregate principal amount of 4.25% Convertible Senior Notes due 2023 at a price equal to 101% of the principal amount thereof, plus interest deemed to have accrued since June 16, 2020, which 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: 2023 Notes 2021 Notes Principal outstanding $ 130.0 $ 150.0 Maturity date (unless earlier converted, repurchased or redeemed) August 15, 2028 June 15, 2026 Interest rate 5.75% 3.25% Conversion price $ 9.54 $ 11.04 Conversion rate 104.8658 90.5797 Redemption price $ 12.40 $ 14.35 • 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 on June 15 and December 15 of each year for the 2021 Notes. • Conversion price: 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. 69 Table of Contents • 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; (ii) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sales price of our common stock and the conversion rate on each such trading day; (iii) upon a notice of redemption delivered by us in accordance with the terms of the indentures but only with respect to the Convertible Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after 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: Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted. At our election, we will also settle our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of our common stock or a combination of cash and shares of its common stock. • Redemption price: 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. • Limited investor put rights: Holders of the Convertible Notes have the right to require us to repurchase for cash all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events. • Conversion rate increase in certain customary circumstances: In certain circumstances, conversions in connection with a “make -whole fundamental change” (as defined in the indentures) or conversions of Convertible Notes called (or deemed called) for redemption may result in an increase to the conversion rate, provided that the conversion rate will not exceed 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 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 Our principal source of financing is our operating cash flow. We believe that current cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for the foreseeable future. 70 Table of Contents Our ability to satisfy our contractual obligations as they arise are discussed in the section titled “Contractual Obligations” below. Use of Capital Our business does not require us to maintain a significant cash position. However, certain of our subsidiaries are required to maintain a minimum level of regulatory capital, which at December 31, 2023 was approximately $29.2 million in the aggregate. Notwithstanding these regulatory capital requirements, we expect that our main uses of cash will be to fund the ongoing operations of our business. We also maintain a capital return program which includes a $0.03 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2025, including purchases to offset future equity grants made under our equity plans. During the year ended December 31, 2023, we repurchased 635,653 shares of our common stock under the repurchase program for an aggregate cost of $3.6 million. 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. 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. Contractual Obligations Convertible Notes 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. The Convertible Notes require cash settlement of the principal amount, while settlement of the conversion obligation in excess of the aggregate principal amount may be satisfied in either cash, shares of our common stock or a combination of cash and shares of its common stock. We currently anticipate refinancing these obligations when due. See the section titled “Issuance of Convertible Notes” above for additional information. Deferred Consideration–Gold Payments On 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. 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. Operating Leases Total future minimum lease payments with respect to our operating lease liabilities were $0.6 million at December 31, 2023. Cash flows generated by our operating activities and existing cash balances should be sufficient to satisfy the future minimum lease payments. See Note 13 to our Consolidated Financial Statements for additional information. 71 Table of Contents Off-Balance Sheet Arrangements We do not have any off -balance sheet financing or other arrangements and have neither created nor are party to any special -purpose or off -balance sheet entities for the purpose of raising capital, incurring debt or operating our business. Critical Accounting Policies and Estimates Goodwill and Intangible Assets Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. We test goodwill for impairment at least annually and at the time of a triggering event requiring re -evaluation , if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Goodwill is allocated to our U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics. Goodwill is assessed for impairment annually on November 30 th . When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, and the market approach and its market capitalization when determining the fair value of the reporting unit. The results of our analysis indicated no impairment based upon a quantitative assessment. Indefinite -lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite -lived intangible assets are impaired if their estimated fair value is less than their carrying value. We may rely on a qualitative assessment when performing our intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for our intangible assets is November 30 th . 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%. Investments 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. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment. See Note 7 to our Consolidated Financial Statements for information. Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income/(expenses). Revenue Recognition We earn substantially all of our revenue in the form of advisory fees from our ETPs and recognize this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice. 72 Table of Contents