WisdomTree, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in subsequent reports filed with or furnished to the SEC. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. Executive Summary 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 and institutional platform, WisdomTree Connect. WisdomTree Prime is available in the U.S. in 45 states and to approximately 80% of the U.S. population. We had approximately $112.6 billion in AUM as of September 30, 2024. Our family of ETPs includes products that provide exposure to equities, commodities, fixed income, leveraged-and-inverse, cryptocurrency, currency and alternatives 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. We were incorporated under the laws of the state of Delaware on September 19, 1985 as Financial Data Systems, Inc. and were ultimately renamed WisdomTree, Inc. on November 7, 2022. 35 Table of Contents Assets Under Management WisdomTree ETPs We offer ETPs covering equities, commodities and currency, fixed income, leveraged-and-inverse, cryptocurrency and alternatives. The chart below sets forth the asset mix of our ETPs at September 30, 2024, June 30, 2024 and September 30, 2023: Market Environment U.S. equity markets recovered from a correction experienced in early August and there was a rotation into small cap and value stocks. Interest rates fell in anticipation of the Federal Reserve easing cycle leading to strong total returns for fixed income. The S&P 500, MSCI EAFE Index (local currency), MSCI EMU Index (local currency), MSCI Japan Index (local currency), MSCI Emerging Markets Index (U.S. dollar) and gold prices increased by 9.1%, 7.9%, 8.2%, 11.4%, 3.4% and 12.8%, respectively, during the quarter. The U.S. dollar weakened 4.2%, 5.7% and 13.1% versus the euro, British pound and the Japanese yen, respectively, during the quarter. 36 Table of Contents U.S. Listed ETF Industry Flows U.S. listed ETF industry net flows were $283.2 billion for the three months ended September 30, 2024. U.S. equity and fixed income gathered the majority of those flows. Source: Morningstar 37 Table of Contents European Listed ETP Industry Flows European listed ETP industry net flows were $67.1 billion for the three months ended September 30, 2024. Equity and fixed income gathered the majority of those flows. Source: Morningstar 38 Table of Contents Our Operating and Financial Results We operate as an ETP sponsor and asset manager, providing investment advisory services globally through our subsidiaries in the U.S. and Europe. U.S. Listed ETFs The AUM of our U.S. listed exchange traded funds, or U.S. listed ETFs, increased from $79.7 billion at June 30, 2024 to $81.3 billion at September 30, 2024 due to market appreciation, partly offset by net outflows. European Listed ETPs The AUM of our European listed (including internationally cross-listed) ETPs, or European listed ETPs, increased from $30.0 billion at June 30, 2024 to $31.3 billion at September 30, 2024 due to market appreciation, partly offset by net outflows. 39 Table of Contents Consolidated Operating Results The following table sets forth our revenues and net income/(loss) for the most recent five quarters. · Revenues – Total revenues increased 25.2% from the three months ended September 30, 2023 to $113.2 million in the comparable period in 2024 primarily due to higher average AUM, higher other revenues attributable to our European-listed ETPs and the recognition of $3.7 million of other revenue related to legal and other related expenses, expected to be covered by insurance, incurred in connection with the SEC ESG Settlement. · Expenses – Total operating expenses increased 13.6% from the three months ended September 30, 2023 to $72.4 million in the comparable period in 2024 primarily due to higher professional fees, which is inclusive of the legal and other related expenses expected to be covered by insurance described above, as well as higher fund management and administration costs, incentive compensation and marketing expenses. · Other Income/(Expenses) – Other income/(expenses) includes interest income and interest expense, losses on extinguishment of convertible notes, gains on revaluation/termination of deferred consideration–gold payments, impairments and other losses, net. Further information is provided herein. · Net (loss)/income – We reported net (loss)/income of ($4.5) million and $13.0 million during the three months ended September 30, 2024 and 2023, respectively. Guidance Update for the Year Ending December 31, 2024 Compensation Expense Our compensation to revenue ratio for the year ending December 31, 2024 is currently estimated to range from 28% to 29% (unchanged from the prior quarter). Our estimated compensation to revenue ratio takes into consideration planned hires for 2024 and variability in incentive compensation, with drivers including the magnitude of flows, revenues and operating income growth, margin expansion and share price performance in relation to our peers. Discretionary Spending Discretionary spending includes marketing, sales, professional fees, occupancy and equipment, depreciation and amortization and other expenses. During the nine months ended September 30, 2024, discretionary spending was $45.3 million. We currently estimate discretionary spending for the year ending December 31, 2024 to range from $62.0 million to $65.0 million (previously $64.0 million to $68.0 million). Not included in the guidance above are non-recurring expenses in response to an activist campaign, including $5.0 million incurred during the nine months ended September 30, 2024, and $4.1 million of legal and other related expenses expected to be covered by insurance. 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. Our gross margin was 80.5% during the nine months ended September 30, 2024. We currently estimate our gross margin guidance for the year ending December 31, 2024 to be between 80% and 81% (unchanged from the prior quarter) considering current AUM levels and higher forecasted other revenues going forward. If AUM increases, we would anticipate further gross margin expansion. 40 Table of Contents Third-Party Distribution Fees We currently estimate third-party distribution fees to range from $10.0 million to $11.0 million (unchanged from the prior quarter), which is dependent upon the AUM growth on our respective platforms. Interest Expense We currently estimate our interest expense for the year ending December 31, 2024 to be $18.9 million (previously $16.5 million), which is inclusive of approximately $2.6 million of interest cost we are required to impute under U.S. GAAP related to our interest-free financing of the shares of Series C Non-Voting Convertible Preferred Stock (the “Series C Preferred Stock”) we repurchased from GBH in November 2023. The change in guidance from the prior quarter is due to an increase in debt effectuated to facilitate the repurchase of Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”) from ETFS Capital, as well as the repurchase of shares of common stock. Interest Income We currently estimate our interest income for the year ending December 31, 2024 to be $6.0 million (previously $5.0 million), based upon the magnitude of our forecasted interest earning assets. Income Tax Expense We currently estimate that our consolidated normalized effective tax rate will be 24.0% to 25.0% (unchanged from our guidance range provided last quarter) taking into consideration the current distribution of profits among our U.S. and European businesses. 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, the non-deductible loss on extinguishment on convertible notes, a non-deductible civil money penalty of $4.0 million relating to the SEC ESG Settlement, 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. Weighted Average Diluted Shares Our weighted average diluted shares were 156.7 million during the three months ended September 30, 2024. We currently estimate our weighted average diluted shares to be between 147.0 million and 148.0 million during the three months ended December 31, 2024 taking into consideration the full quarter impact of the repurchase of the Series A Preferred Stock and additional shares of common stock which occurred in mid-August of 2024. Our weighted average diluted share guidance was previously 166.0 million and 168.0 million during the year ending December 31, 2024. This guidance does not take into consideration any variability in shares associated with our convertible notes. While our convertible notes require principal to be paid in cash, our diluted shares would need to be increased for any incremental shares associated with an exercise of the conversion option if our stock price exceeds the applicable conversion price of our convertible notes of $9.54 per share for the 5.75% Convertible Senior Notes due 2028, $11.04 per share for the 3.25% Convertible Senior Notes due 2026 and $11.82 per share for the 3.25% Convertible Senior Notes due 2029. 41 Table of Contents Key Operating Statistics The following table presents key operating statistics that serve as indicators for the performance of our business: Three Months Ended Nine Months Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2024 2024 2023 2024 2023 GLOBAL ETPs (in millions ) Beginning of period assets $ 109,686 $ 107,230 $ 93,666 $ 100,124 $ 81,993 (Outflows)/inflows (2,395 ) 340 1,983 (65 ) 10,651 Market appreciation/(depreciation) 5,286 2,116 (1,914 ) 12,518 1,091 End of period assets $ 112,577 $ 109,686 $ 93,735 $ 112,577 $ 93,735 Average assets during the period $ 110,369 $ 108,392 $ 95,743 $ 107,041 $ 91,609 Average advisory fee during the period 0.37 % 0.37 % 0.36 % 0.37 % 0.36 % Number of ETPs—end of period 352 350 344 352 344 U.S. LISTED ETFs (in millions ) Beginning of period assets $ 79,722 $ 78,087 $ 65,903 $ 72,486 $ 55,973 (Outflows)/inflows (1,650 ) 1,106 3,601 1,439 10,862 Market appreciation/(depreciation) 3,195 529 (1,486 ) 7,342 1,183 End of period assets $ 81,267 $ 79,722 $ 68,018 $ 81,267 $ 68,018 Average assets during the period $ 80,335 $ 78,436 $ 68,008 $ 77,834 $ 63,383 Number of ETFs – end of the period 78 78 80 78 80 EUROPEAN LISTED ETPs (in millions ) Beginning of period assets $ 29,964 $ 29,143 $ 27,763 $ 27,638 $ 26,020 Outflows (745 ) (766 ) (1,618 ) (1,504 ) (211 ) Market appreciation/(depreciation) 2,091 1,587 (428 ) 5,176 (92 ) End of period assets $ 31,310 $ 29,964 $ 25,717 $ 31,310 $ 25,717 Average assets during the period $ 30,034 $ 29,956 $ 27,735 $ 29,207 $ 28,226 Number of ETPs—end of period 274 272 264 274 264 PRODUCT CATEGORIES (in millions ) U.S. Equity Beginning of period assets $ 31,834 $ 31,670 $ 26,001 $ 29,156 $ 24,112 Inflows 328 221 864 1,085 1,129 Market appreciation/(depreciation) 2,481 (57 ) (1,222 ) 4,402 402 End of period assets $ 34,643 $ 31,834 $ 25,643 $ 34,643 $ 25,643 Average assets during the period $ 33,175 $ 31,252 $ 26,501 $ 31,494 $ 25,319 Commodity & Currency Beginning of period assets $ 21,987 $ 21,944 $ 22,384 $ 21,336 $ 22,097 Outflows (741 ) (1,499 ) (1,814 ) (2,700 ) (1,324 ) Market appreciation/(depreciation) 1,788 1,542 (104 ) 4,398 (307 ) End of period assets $ 23,034 $ 21,987 $ 20,466 $ 23,034 $ 20,466 Average assets during the period $ 22,016 $ 22,437 $ 22,278 $ 21,764 $ 23,373 Fixed Income Beginning of period assets $ 21,430 $ 21,218 $ 20,215 $ 21,197 $ 15,273 (Outflows)/inflows (897 ) 236 1,670 (675 ) 6,654 Market appreciation/(depreciation) 234 (24 ) (88 ) 245 (130 ) End of period assets $ 20,767 $ 21,430 $ 21,797 $ 20,767 $ 21,797 Average assets during the period $ 21,135 $ 21,277 $ 20,965 $ 21,165 $ 19,109 International Developed Market Equity Beginning of period assets $ 19,385 $ 18,103 $ 13,423 $ 15,103 $ 10,195 (Outflows)/inflows (1,391 ) 1,253 798 1,461 2,841 Market appreciation/(depreciation) 81 29 (319 ) 1,511 866 End of period assets $ 18,075 $ 19,385 $ 13,902 $ 18,075 $ 13,902 Average assets during the period $ 18,636 $ 18,809 $ 13,873 $ 18,044 $ 12,343 42 Table of Contents Three Months Ended Nine Months Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2024 2024 2023 2024 2023 Emerging Market Equity Beginning of period assets $ 11,875 $ 11,189 $ 9,191 $ 10,726 $ 8,116 (Outflows)/inflows (20 ) 57 451 254 1,266 Market appreciation/(depreciation) 597 629 (73 ) 1,472 187 End of period assets $ 12,452 $ 11,875 $ 9,569 $ 12,452 $ 9,569 Average assets during the period $ 12,083 $ 11,448 $ 9,652 $ 11,477 $ 9,105 Leveraged & Inverse Beginning of period assets $ 1,922 $ 1,828 $ 1,864 $ 1,815 $ 1,754 (Outflows)/inflows 71 (18 ) (1 ) 3 54 Market appreciation/(depreciation) 89 112 (82 ) 264 (27 ) End of period assets $ 2,082 $ 1,922 $ 1,781 $ 2,082 $ 1,781 Average assets during the period $ 1,962 $ 1,905 $ 1,894 $ 1,886 $ 1,816 Cryptocurrency Beginning of period assets $ 838 $ 874 $ 248 $ 414 $ 136 Inflows 201 75 10 434 22 Market appreciation/(depreciation) 15 (111 ) (15 ) 206 85 End of period assets $ 1,054 $ 838 $ 243 $ 1,054 $ 243 Average assets during the period $ 917 $ 856 $ 238 $ 796 $ 221 Alternatives Beginning of period assets $ 415 $ 404 $ 340 $ 377 $ 310 Inflows 54 15 5 73 9 Market appreciation/(depreciation) 1 (4 ) (11 ) 20 15 End of period assets $ 470 $ 415 $ 334 $ 470 $ 334 Average assets during the period $ 445 $ 408 $ 342 $ 415 $ 323 Headcount: 314 304 299 304 299 Note: Previously issued statistics may be restated due to fund closures and trade adjustments. Source: WisdomTree Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Selected Operating and Financial Information Three Months Ended September 30, Percent 2024 2023 Change Change AUM (in millions) Average AUM $ 110,369 $ 95,743 $ 14,626 15.3% Operating Revenues (in thousands) Advisory fees $ 101,659 $ 86,598 $ 15,061 17.4% Other revenues 11,509 3,825 7,684 200.9% Total operating revenues $ 113,168 $ 90,423 $ 22,745 25.2% Operating Revenues Advisory fees Advisory fee revenues increased 17.4% from $86.6 million during the three months ended September 30, 2023 to $101.7 million in the comparable period in 2024 primarily due to higher average AUM. Our average advisory fee was 0.37% and 0.36% during the three months ended September 30, 2023 and 2024, respectively. Other revenues Other revenues increased 200.9% from $3.8 million during the three months ended September 30, 2023 to $11.5 million in the comparable period in 2024 due to higher other revenues attributable to our European listed products and $3.7 million of legal and other related expenses, expected to be covered by insurance, incurred in connection with the SEC ESG Settlement described in Note 14 to our Consolidated Financial Statements. 43 Table of Contents Operating Expenses Three Months Ended September 30, Percent (in thousands) 2024 2023 Change Change Compensation and benefits $ 29,405 $ 27,955 $ 1,450 5.2% Fund management and administration 21,004 18,023 2,981 16.5% Marketing and advertising 4,897 3,833 1,064 27.8% Sales and business development 3,465 3,383 82 2.4% Professional fees 6,315 3,719 2,596 69.8% Occupancy, communications and equipment 1,397 1,203 194 16.1% Depreciation and amortization 447 307 140 45.6% Third-party distribution fees 2,983 2,694 289 10.7% Other 2,463 2,601 (138 ) (5.3% ) Total operating expenses $ 72,376 $ 63,718 $ 8,658 13.6% Three Months Ended September 30, As a Percent of Revenues: 2024 2023 Compensation and benefits 26.0% 31.0% Fund management and administration 18.6% 20.0% Marketing and advertising 4.3% 4.2% Sales and business development 3.1% 3.7% Professional fees 5.6% 4.1% Occupancy, communications and equipment 1.2% 1.3% Depreciation and amortization 0.4% 0.3% Third-party distribution fees 2.6% 3.0% Other 2.2% 2.9% Total operating expenses 64.0% 70.5% Compensation and benefits Compensation and benefits expense increased 5.2% from $28.0 million during the three months ended September 30, 2023 to $29.4 million in the comparable period in 2024 due to higher stock-based compensation expense and headcount. Headcount was 299 and 314 at September 30, 2023 and 2024, respectively. Fund management and administration Fund management and administration expense increased 16.5% from $18.0 million during the three months ended September 30, 2023 to $21.0 million in the comparable period in 2024 primarily due to higher average AUM. We had 80 U.S. listed ETFs and 273 European listed ETPs at September 30, 2023 compared to 78 U.S. listed ETFs and 274 European listed ETPs at September 30, 2024. Marketing and advertising Marketing and advertising expense increased 27.8% from $3.8 million during the three months ended September 30, 2023 to $4.9 million in the comparable period in 2024 primarily due to higher spending related to digital assets and our U.S. listed products. Sales and business development Sales and business development expense was essentially unchanged from the three months ended September 30, 2023. Professional fees Professional fees expense increased 69.8% from $3.7 million during the three months ended September 30, 2023 to $6.3 million in the comparable period in 2024 primarily due to $3.7 million of legal and other related expenses incurred in connection with the SEC ESG Settlement. An equal and offsetting amount is recorded in other revenues as these expenses are expected to be covered by insurance. Occupancy, communications and equipment Occupancy, communications and equipment expense was essentially unchanged from the three months ended September 30, 2023. 44 Table of Contents Depreciation and amortization Depreciation and amortization expense increased 45.6% from $0.3 million during the three months ended September 30, 2023 to $0.4 million in the comparable period in 2024 due to amortization of software development costs. Third-party distribution fees Third-party distribution fees expense increased 10.7% from $2.7 million during the three months ended September 30, 2023 to $3.0 million in the comparable period in 2024 due to AUM growth we are experiencing on our various platforms and new platform relationships. Other Other expenses were essentially unchanged from the three months ended September 30, 2023. Other Income/(Expenses) Three Months Ended September 30, Percent (in thousands) 2024 2023 Change Change Interest expense $ (5,027 ) $ (3,461 ) $ (1,566 ) 45.2% Interest income 1,795 791 1,004 126.9% Impairments — (2,703 ) 2,703 n/a Loss on extinguishment of convertible notes (30,632 ) — (30,632 ) n/a Other losses, net (3,062 ) (2,512 ) (550 ) 21.9% Total other expenses, net $ (36,926 ) $ (7,885 ) $ (29,041 ) 368.3% Three Months Ended September 30, As a Percent of Revenues: 2024 2023 Interest expense (4.4% ) (3.8% ) Interest income 1.6% 0.9% Impairments — (3.0% ) Loss on extinguishment of convertible notes (27.1% ) — Other losses, net (2.7% ) (2.8% ) Total other expenses, net (32.6% ) (8.7% ) Interest expense Interest expense increased 45.2% from $3.5 million during the three months ended September 30, 2023 to $5.0 million in the comparable period in 2024 due to a higher level of debt outstanding, partly offset by a lower average interest rate. The increase is also due to the recognition of imputed interest related to the interest-free financing of our repurchase of the shares of Series C Preferred Stock from GBH in November 2023. Our effective interest rate during the three months ended September 30, 2023 and 2024 was 5.0% and 4.4%, respectively. Interest income Interest income increased 126.9% from $0.8 million during the three months ended September 30, 2023 to $1.8 million in the comparable period in 2024 due to a higher level of interest-earning assets. Impairments During the three months ended September 30, 2023, we recognized a non-cash impairment charge of $2.7 million, primarily related to our investment in Securrency, Inc., as we marked our investment to its estimated realizable value in connection with Securrency entering into an agreement to be acquired by an unrelated third party. Loss on Extinguishment of Convertible Notes During the three months ended September 30, 2023, we recognized a loss on extinguishment of convertible notes of $30.6 million arising from the repurchase of $104.2 million in aggregate principal amount of our 2028 Notes. Other losses, net Other losses, net were $1.3 million and $3.1 million during the three months ended September 30, 2023 and 2024, respectively. The three months ended September 30, 2024, includes a $4.0 million civil money penalty in connection with the SEC ESG Settlement. Also included are net gains of $0.8 million and $0.6 million on our financial instruments owned and investments, respectively. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items. 45 Table of Contents Income Taxes Our effective income tax rate during the three months ended September 30, 2024 was 216.0%, resulting in income tax expense of $8.4 million. The effective tax rate differs from the federal statutory rate of 21.0% primarily due to a non-deductible loss on extinguishment of convertible notes, a non-deductible civil money penalty of $4.0 million and non-deductible executive compensation. These items were partly offset by a lower tax rate on foreign earnings. Our effective income tax rate during the three months ended September 30, 2023 was 31.0%, resulting in income tax expense of $5.8 million. The effective tax rate differs from the federal statutory rate of 21.0% primarily due to an increase in the deferred tax asset valuation allowance on losses recognized on the Company’s investments and non-deductible executive compensation. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Selected Operating and Financial Information Nine Months Ended September 30, Percent 2024 2023 Change Change AUM (in millions) Average AUM $ 107,040 $ 91,609 $ 15,431 16.8% Operating Revenues (in thousands) Advisory fees $ 293,098 $ 246,239 $ 46,859 19.0% Other revenues 23,942 11,952 11,990 100.3% Total revenues $ 317,040 $ 258,191 $ 58,849 22.8% Operating Revenues Advisory fees Advisory fee revenues increased 19.0% from $246.2 million during the nine months ended September 30, 2023 to $293.1 million in the comparable period in 2024 primarily due to higher average AUM. Our average advisory fee was 0.36% during the nine months ended September 30, 2023 and 0.37% during the comparable period in 2024. Other revenues Other revenues increased 100.3% from $12.0 million during the nine months ended September 30, 2023 to $23.9 million in the comparable period in 2024 due to higher other revenues attributable to our European listed products and $4.1 million of legal and other related expenses expected to be covered by insurance, incurred in connection with the SEC ESG Settlement. Operating Expenses Nine Months Ended September 30, Percent (in thousands) 2024 2023 Change Change Compensation and benefits $ 91,249 $ 81,672 $ 9,577 11.7% Fund management and administration 61,105 52,903 8,202 15.5% Marketing and advertising 14,415 12,305 2,110 17.1% Sales and business development 10,716 9,703 1,013 10.4% Contractual gold payments — 6,069 (6,069 ) n/a Professional fees 16,539 15,768 771 4.9% Occupancy, communications and equipment 3,921 3,476 445 12.8% Depreciation and amortization 1,248 537 711 132.4% Third-party distribution fees 7,977 6,828 1,149 16.8% Other 7,617 7,473 144 1.9% Total operating expenses $ 214,787 $ 196,734 $ 18,053 9.2% 46 Table of Contents Nine Months Ended September 30, As a Percent of Revenues 2024 2023 Compensation and benefits 28.8% 31.6% Fund management and administration 19.3% 20.5% Marketing and advertising 4.5% 4.8% Sales and business development 3.4% 3.8% Contractual gold payments n/a 2.4% Professional fees 5.2% 6.1% Occupancy, communications and equipment 1.2% 1.3% Depreciation and amortization 0.4% 0.2% Third-party distribution fees 2.5% 2.6% Other 2.4% 2.9% Total operating expenses 67.7% 76.2% Compensation and benefits Compensation and benefits expense increased 11.7% from $81.7 million during the nine months ended September 30, 2023 to $91.2 million in the comparable period in 2024 due to higher incentive and stock-based compensation expense and increased headcount. Fund management and administration Fund management and administration expense increased 15.5% from $52.9 million during the nine months ended September 30, 2023 to $61.1 million in the comparable period in 2024 primarily due to higher average AUM and product launches. Marketing and advertising Marketing and advertising expense increased 17.1% from $12.3 million during the nine months ended September 30, 2023 to $14.4 million in the comparable period in 2024 primarily due to higher spending related to digital assets and our U.S. listed products. Sales and business development Sales and business development expense increased 10.4% from $9.7 million during the nine months ended September 30, 2023 to $10.7 million in the comparable period in 2024 primarily due to increases in travel and events spending, as well as higher market data spending. Contractual gold payments Contractual gold payments expense decreased from $6.1 million during the nine months ended September 30, 2023 to zero in the comparable period in 2024 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 4.9% from $15.8 million during the nine months ended September 30, 2023 to $16.5 million in the comparable period in 2024 primarily due to $4.1 million of legal and other related expenses incurred in connection with the SEC ESG Settlement. An equal and offsetting amount is recorded in other revenues as these expenses are expected to be covered by insurance. This increase was partly offset by lower activist campaign expenses and non-recurring expenses incurred in the prior year to settle our deferred consideration—gold payments obligation and our acquisition of WisdomTree Transfers, Inc. Occupancy, communications and equipment Occupancy, communications and equipment expense increased 12.8% from $3.5 million during the nine months ended September 30, 2023 to $3.9 million in the comparable period in 2024 primarily due to higher spending on office equipment. Depreciation and amortization Depreciation and amortization expense increased 132.4% from $0.5 million during the nine months ended September 30, 2023 to $1.2 million in the comparable period in 2024 due to amortization of software development costs. 47 Table of Contents Third-party distribution fees Third-party distribution fees increased 16.8% from $6.8 million during the nine months ended September 30, 2023 to $8.0 million in the comparable period in 2024 due to AUM growth we are experiencing on our various platforms and new platform relationships. Other Other expenses were essentially unchanged from the nine months ended September 30, 2023. Other Income/(Expenses) Nine Months Ended September 30, Percent (in thousands) 2024 2023 Change Change Interest expense $ (13,295 ) $ (11,484 ) $ (1,811 ) 15.8% Gain on revaluation/termination of deferred consideration—gold payments — 61,953 (61,953 ) n/a Interest income 4,631 2,874 1,757 61.1% Impairments — (7,603 ) 7,603 n/a Loss on extinguishment of convertible notes (30,632 ) (9,721 ) (20,911 ) 215.1% Other losses, net (1,753 ) (3,233 ) 1,480 (45.8% ) Total other income/(expenses), net $ (41,049 ) $ 32,786 $ (73,835 ) (225.2% ) Nine Months Ended September 30, As a Percent of Revenues: 2024 2023 Interest expense (4.2% ) (4.4% ) Gain on revaluation/termination of deferred consideration—gold payments — 24.0% Interest income 1.5% 1.1% Impairments — (2.9% ) Loss on extinguishment of convertible notes (9.7% ) (3.8% ) Other losses, net (0.6% ) (1.3% ) Total other income/(expenses), net (13.0% ) (12.7% ) Interest expense Interest expense increased 15.8% from $11.5 million during the nine months ended September 30, 2023 to $13.3 million in the comparable period in 2024 due to a higher level of debt outstanding, partly offset by a lower average interest rate. The increase is also due to the recognition of imputed interest related to the interest-free financing of our repurchase of the shares of Series C Preferred Stock from GBH in November 2023. Our effective interest rate during the nine months ended September 30, 2023 and 2024 was 4.9% and 4.8%, respectively. Gain on revaluation/termination of deferred consideration—gold payments We recognized a gain on revaluation/termination of deferred consideration—gold payments of $62.0 million during the nine months ended September 30, 2023. This obligation was settled 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 61.1% from $2.9 million during the nine months ended September 30, 2023 to $4.6 million in the comparable period in 2024 due to a higher level of interest-earning assets. Impairments During the nine months ended September 30, 2023, we recognized a non-cash impairment charge of $7.6 million primarily related to our investment in Securrency, Inc. upon the sale of Securrency to an unrelated third party. Loss on Extinguishment of Convertible Notes During the nine months ended September 30, 2024, we recognized a loss on extinguishment of convertible notes of $30.6 million, arising from the repurchase of $104.2 million in aggregate principal amount of our 2028 Notes. During the nine months ended September 30, 2023, we recognized a loss on extinguishment of convertible notes of $9.7 million, arising from the repurchase of $115.0 million in aggregate principal amount of our 4.25% Convertible Senior Notes due 2023. 48 Table of Contents Other losses, net Other losses, net were $3.2 million and $1.8 million during the nine months ended September 30, 2023 and 2024, respectively. The nine months ended September 30, 2024, includes a civil money penalty of $4.0 million in connection with the SEC ESG Settlement. Also included are gains on our financial instruments owned of $2.6 million and losses on our investments of $0.6 million. Gains and losses also generally arise from the sale of gold earned on management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items. Income Taxes Our effective income tax rate for the nine months ended September 30, 2024 was 35.6%, resulting in an income tax expense of $21.8 million. Our tax rate differs from the federal statutory rate of 21.0% primarily due to a non-deductible loss on extinguishment of convertible notes, a non-deductible civil money penalty of $4.0 million and non-deductible executive compensation. These items were partly offset by a lower tax rate on foreign earnings. Our effective income tax rate during the nine months ended September 30, 2023 was 11.4%, resulting in an income tax expense of $10.8 million. Our effective tax rate differs from the federal statutory rate of 21.0% 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 convertible notes 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. 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. · 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 of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting as well as the difference between the price of our stock on the date the award was granted and the date the award vested. 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. 49 Table of Contents · 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: Losses on extinguishment of convertible notes, a civil money penalty in connection with the SEC ESG Settlement, gains and losses recognized on our investments, changes in deferred tax asset valuation allowance, expenses incurred in response to an activist campaign, impairments, remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business and litigation expenses associated with certain provisions of our Stockholder Rights Agreement, dated as of March 17, 2023, as amended, are excluded when calculating our non-GAAP financial measurements. Three Months Ended Nine Months Ended Adjusted Net Income and Diluted Earnings per Share: Sept. 30, 2024 Sept. 30, 2023 Sept. 30, 2024 Sept. 30, 2023 Net (loss)/income, as reported $ (4,485 ) $ 12,984 $ 39,385 $ 83,469 Add back: Loss on extinguishment of convertible notes, net of income taxes 30,128 — 30,128 9,623 Add back: Civil money penalty in connection with the SEC ESG Settlement 4,000 — 4,000 — (Deduct)/add back: (Gains)/losses on financial instruments owned, net of income taxes (607 ) 1,479 (1,949 ) 762 Add back: Imputed interest on payable to GBH, net of income taxes 528 — 1,545 — (Deduct)/add back: (Gains)/losses recognized on our investments, net of income taxes (436 ) 323 469 943 (Deduct)/add back: (Decrease)/increase in deferred tax asset valuation allowance on financial instruments owned and investments (335 ) 1,234 (475 ) 2,393 Deduct: Tax windfalls upon vesting and exercise of stock-based compensation awards (25 ) (18 ) (764 ) (170 ) Add back: Expenses incurred in response to an activist campaign, net of income taxes — — 3,760 4,452 Deduct: Gain on revaluation/termination of deferred consideration—gold payments — — — (61,953 ) Add back: Litigation expenses associated with certain provisions of the Stockholder Rights Agreement, net of income taxes — — — 367 Add back: Impairments, net of income taxes (where applicable) — 2,046 — 5,756 Deduct: Remeasurement of contingent consideration—sale of Canadian ETF business — — — (1,477 ) Adjusted net income $ 28,768 $ 18,048 $ 76,099 $ 44,165 Deduct: Income distributed to participating securities (463 ) (889 ) (1,387 ) (1,884 ) Deduct: Undistributed income allocable to participating securities (1,147 ) (2,128 ) (4,840 ) (4,033 ) Adjusted net income available to common stockholders $ 27,158 $ 15,031 $ 69,872 $ 38,248 Weighted average diluted shares, excluding participating securities (in thousands) (See Note 20 to our Consolidated Financial Statements) 149,353 148,432 150,080 147,572 Adjusted earnings per share – diluted $ 0.18 $ 0.10 $ 0.47 $ 0.26 Adjusted net income, as reported on a non-GAAP basis during the three and nine months ended September 30, 2024, also excludes a loss of $11.4 million recognized upon the repurchase of our Series A Preferred Stock, which was convertible into 14.75 million shares of common stock from ETFS Capital and $1.9 million of stock repurchase excise taxes. Under U.S. GAAP, these amounts are excluded from net income but are required to be added to net income to arrive at income available to common stockholders in the calculation of earnings per share. 50 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: September 30, 2024 December 31, 2023 Balance Sheet Data (in thousands): Cash, cash equivalents and restricted cash $ 176,483 $ 129,305 Financial instruments owned, at fair value 77,341 58,722 Accounts receivable 45,200 35,473 Securities held-to-maturity 212 230 Total: Liquid assets 299,236 223,730 Less: Total current liabilities (106,473 ) (103,216 ) Less: Other assets—seed capital (WisdomTree Digital Funds) (20,524 ) (18,308 ) Less: Regulatory capital requirements (35,120 ) (29,156 ) Total: Available liquidity $ 137,119 $ 73,050 Nine Months Ended September 30, 2024 2023 Cash Flow Data (in thousands): Operating cash flows $ 78,886 $ 48,350 Investing cash flows (16,902 ) 35,860 Financing cash flows (16,939 ) (126,389 ) Foreign exchange rate effect 2,133 (441 ) Increase/(decrease) in cash, cash equivalents and restricted cash $ 47,178 $ (42,620 ) Liquidity We consider our available liquidity to be our liquid assets, less our current liabilities, seed capital in WisdomTree Digital Funds and regulatory capital requirements of certain of our subsidiaries. Liquid assets consist of cash, cash equivalents and restricted cash, 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, accrued incentive compensation for employees and the current portion of our payable to GBH. Cash, cash equivalents and restricted cash increased by $47.2 million during the nine months ended September 30, 2024 due to $345.0 million of proceeds from the issuance of convertible notes, $78.9 million of cash provided by operating activities, $42.3 million of proceeds from the sale of financial instruments owned, at fair value and $2.1 million provided by other activities. These increases were partly offset by $143.8 million used to repurchase Series A Preferred Stock, $132.7 million to repurchase a portion of our 2028 Notes, $62.9 million used to repurchase common stock, $57.9 million used to purchase financial instruments owned, at fair value, $14.8 million used to pay dividends, $7.7 million used to pay convertible notes issuance costs and $1.8 million used to pay for software development. Cash and cash equivalents decreased by $42.6 million during the nine months ended September 30, 2023 due to $184.3 million used to repurchase and settle at maturity our convertible notes, $56.8 million used to purchase financial instruments owned, at fair value, $50.0 million used to settle our deferred consideration—gold payments obligation, $14.9 million used to pay dividends, $10.0 million used to purchase investments, $3.6 million used to repurchase our common stock, $3.5 million used for convertible notes issuance costs, $1.0 million used to acquire Securrency Transfers, Inc. (renamed WisdomTree Transfers, Inc.) and $0.7 million used for other activities. These decreases were partly offset by $130.0 million of proceeds from the issuance of convertible notes, $102.3 million of proceeds from the sale of financial instruments owned, at fair value, $48.4 million provided by operating activities and $1.5 million from receipt of contingent consideration. Convertible Notes We have the following convertible notes outstanding as of September 30, 2024: · $150.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2026 (the “2026 Notes”); · $25.8 million in aggregate principal amount of 5.75% Convertible Senior Notes due 2028 (the “2028 Notes”); and · $345.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2029 (the “2029 Notes”). 51 Table of Contents Each class of notes were issued pursuant to indentures dated as of the issuance dates between us and either U.S. Bank National Association or U.S. Bank Trust Company, National Association, as trustee (or its successor in interest, the “Trustee”), in private offerings to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In connection with the issuance of the 2029 Notes, we repurchased $104.2 million in aggregate principal amount of 2028 Notes. As a result of this repurchase, we recognized a loss on extinguishment of approximately $30.6 million during the three and nine months ended September 30, 2024. As of September 30, 2024, we had an aggregate principal amount of $520,845 outstanding of the 2026 Notes, the 2028 Notes and the 2029 Notes (collectively, the “Convertible Notes”). Key terms of the Convertible Notes are as follows: 2026 Notes 2028 Notes 2029 Notes Principal outstanding $150.0 $25.8 $345.0 Issuance date June 14, 2021 February 14, 2023 August 13, 2024 Maturity date (unless earlier converted, repurchased or redeemed) June 15, 2026 August 15, 2028 August 15, 2029 Interest rate 3.25% 5.75% 3.25% Initial conversion price $11.04 $9.54 $11.82 Initial conversion rate 90.5797 104.8658 84.5934 Redemption price $14.35 $12.40 $15.37 · Interest rate: Payable semiannually in arrears on February 15 and August 15 of each year for the 2029 Notes and the 2028 Notes and on June 15 and December 15 of each year for the 2026 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. · Conversion: Holders may convert at their option at any time prior to the close of business on the business day immediately preceding May 15, 2029 and May 15, 2028 for the 2029 Notes and the 2028 Notes, respectively, and March 15, 2026 for the 2026 Notes, 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, 2029 and May 15, 2028 in respect of the 2029 Notes and the 2028 Notes, respectively, and March 15, 2026 in respect of the 2026 Notes, 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 its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in either cash, shares of its common stock or a combination of cash and shares of its common stock. · Redemption price: We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after August 20, 2026 and August 20, 2025 in respect of the 2029 Notes and the 2028 Notes, respectively, and June 20, 2023 in respect of the 2026 Notes 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 103.6269 shares, 167.7853 shares and 144.9275 shares of our common stock per $1,000 principal amount of the 2029 Notes, the 2028 Notes and the 2026 Notes, respectively (the equivalent of 69,880,434 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. 52 Table of Contents 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. 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 September 30, 2024 was approximately $35.1 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 and purchases made in open market or privately negotiated transactions. During the nine months ended September 30, 2024, we repurchased 6,800,301 shares of our common stock under the repurchase program for an aggregate cost of $62.9 million. Currently, approximately $35.5 million remains under this program for future purchases. In addition, on August 13, 2024, we repurchased all of our then-outstanding Series A Non-Voting Convertible Preferred Stock, which was convertible into 14,750,000 shares of our common stock, from ETFS Capital for aggregate cash consideration of approximately $143.8 million. See Note 11 to our Consolidated Financial Statements for additional information. Contractual Obligations Convertible Notes We currently have $520.8 million in aggregate principal amount of Convertible Notes outstanding, of which $150.0 million, $25.8 million and $345.0 million are scheduled to mature on June 15, 2026, August 15, 2028 and August 15, 2029, in respect of the 2026 Notes, the 2028 Notes and the 2029 Notes, 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 up to the principal amount, while settlement of the conversion obligation in excess of the aggregate principal amount may be satisfied in either cash, shares of our common stock or a combination of cash and shares of our common stock. We may settle and/or refinance these obligations when due. See the section titled “Issuance of Convertible Notes” above 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 Series C Preferred Stock was originally issued to GBH on May 10, 2023 in connection with the termination of our obligations relating to the contractual gold payments. 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. Operating Leases Total future minimum lease payments with respect to our operating lease liabilities were $1.6 million at September 30, 2024. 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. 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. 53 Table of Contents 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 most recent 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 most recent 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 additional information. Revenue Recognition We earn substantially all of our revenue in the form of advisory fees from our ETPs and recognize this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice. Other revenues are earned from swap providers associated with certain of our European listed ETPs, the nature of which are based on a percentage of the ETPs’ average daily net assets. We also earn transaction-based income on flows associated with certain European listed ETPs. There is no significant judgment in calculating amounts due, which are invoiced monthly or quarterly in arrears and are not subject to any potential reversal. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which we have a right to invoice.