WisdomTree(WT) - 2022 Q2 - Quarterly Report

General Information This section covers the administrative details of the Form 10-Q filing for WisdomTree Investments, Inc., including registrant information and filing status Form 10-Q Filing Details This section provides the administrative details of the Form 10-Q filing for WisdomTree Investments, Inc. for the quarterly period ended June 30, 2022, including registrant information, exchange listings, and filer status - The filing is a Quarterly Report (Form 10-Q) for the period ended June 30, 2022[2] - WisdomTree Investments, Inc. (WETF) is incorporated in Delaware and listed on The NASDAQ Stock Market LLC[3][4] - The registrant is classified as a Large Accelerated Filer[5] Common Stock Outstanding | Date | Shares Outstanding | | :----------- | :----------------- | | July 26, 2022 | 146,584,951 | Cautionary Note Regarding Forward-Looking Statements This section provides a cautionary note regarding forward-looking statements, highlighting inherent risks and uncertainties that could cause actual results to differ materially Forward-Looking Statements Disclosure This section advises readers that the report contains forward-looking statements based on management's beliefs and assumptions, which involve known and unknown risks and uncertainties that could cause actual results to differ materially. It lists specific areas where forward-looking statements may be found, such as market trends, product development, and regulatory impacts - Forward-looking statements are based on management's beliefs and assumptions, and actual results may differ materially due to known and unknown risks and uncertainties[11][12] - Key areas for forward-looking statements include the impact of COVID-19 and the war in Ukraine, global market trends, ETP inflows/outflows, competition, new product development (e.g., digital assets strategy like WisdomTree Prime™), and regulatory effects[15] PART I: FINANCIAL INFORMATION This part presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements of WisdomTree Investments, Inc. and its subsidiaries, including the balance sheets, statements of operations, comprehensive income/(loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and specific financial line items Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 (unaudited) | December 31, 2021 | | :------------------------- | :------------------------ | :---------------- | | Total Assets | $1,006,473 | $1,037,860 | | Total Liabilities | $616,648 | $635,867 | | Total Stockholders' Equity | $257,256 | $269,424 | | Cash and cash equivalents | $109,736 | $140,709 | | Convertible notes—current | $173,325 | $— | - Total assets decreased by approximately $31.4 million from December 31, 2021, to June 30, 2022[18] - Current liabilities significantly increased due to $173.3 million in convertible notes becoming current[18] Consolidated Statements of Operations This section presents the company's revenues, expenses, and net income or loss over specific reporting periods Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $77,253 | $75,775 | $155,621 | $147,031 | | Total operating expenses | $61,449 | $52,090 | $122,128 | $104,739 | | Operating income | $15,804 | $23,685 | $33,493 | $42,292 | | Net income/(loss) | $8,005 | $17,630 | $(2,256) | $32,777 | | Earnings/(loss) per share—basic | $0.05 | $0.11 | $(0.02) | $0.20 | - Net income for the three months ended June 30, 2022, decreased by 54.6% YoY, while the six-month period saw a net loss compared to a profit in the prior year[20] - Total operating expenses increased significantly by 18.0% for the three months and 16.6% for the six months ended June 30, 2022, compared to the prior year[20] Consolidated Statements of Comprehensive Income/(Loss) This section reports the company's net income or loss and other comprehensive income or loss, reflecting all changes in equity during a period except those resulting from investments by and distributions to owners Consolidated Statements of Comprehensive Income/(Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income/(loss) | $8,005 | $17,630 | $(2,256) | $32,777 | | Foreign currency translation adjustment, net of income taxes | $(1,721) | $170 | $(2,207) | $53 | | Comprehensive income/(loss) | $6,284 | $17,800 | $(4,463) | $32,830 | - Comprehensive income for the three months ended June 30, 2022, decreased by 64.7% YoY, primarily due to lower net income and negative foreign currency translation adjustments[23] Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's stockholders' equity over time, including net income, dividends, stock-based compensation, and other comprehensive income or loss Changes in Stockholders' Equity (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Balance—April 1 | $253,377 | $274,184 | | Stock-based compensation | $2,432 | $2,121 | | Other comprehensive loss | $(1,721) | $170 | | Dividends | $(4,837) | $(4,928) | | Net income | $8,005 | $17,630 | | Balance—June 30 | $257,256 | $257,737 | - For the six months ended June 30, 2022, total stockholders' equity decreased from $269.4 million to $257.3 million, primarily due to net loss, dividends, and other comprehensive loss, partly offset by stock-based compensation[27] - Share repurchases significantly decreased from $34.5 million in the six months ended June 30, 2021, to $3.4 million in the comparable period of 2022[27] Consolidated Statements of Cash Flows This section reports the cash generated and used by the company's operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $8,542 | $22,390 | | Net cash used in investing activities | $(23,070) | $(30,453) | | Net cash (used in)/provided by financing activities | $(13,073) | $102,147 | | Net (decrease)/increase in cash and cash equivalents | $(30,973) | $94,210 | | Cash and cash equivalents—end of period | $109,736 | $167,635 | - Net cash provided by operating activities decreased by 61.8% YoY for the six months ended June 30, 2022[29] - Financing activities shifted from a significant cash inflow in 2021 (due to convertible notes issuance) to a cash outflow in 2022[29] Notes to Consolidated Financial Statements This section provides detailed explanations and additional information about the amounts presented in the consolidated financial statements Note 1. Organization and Description of Business WisdomTree Investments, Inc. is an ETP sponsor and asset manager offering a diverse range of ETPs. The company operates through various wholly-owned subsidiaries globally, including those focused on traditional ETPs and emerging digital asset strategies - WisdomTree is an ETP sponsor and asset manager, headquartered in New York, offering ETPs across equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency, and alternative strategies[32] - The company has established subsidiaries for digital asset initiatives, including WisdomTree Digital Commodity Services, LLC, WisdomTree Digital Management, Inc., and WisdomTree Digital Movement, Inc.[34] Note 2. Significant Accounting Policies This note details the significant accounting policies used in preparing the consolidated financial statements, including the basis of presentation, consolidation principles, foreign currency translation, use of estimates, and specific policies for revenue recognition, expenses, and various asset and liability classifications. It also includes immaterial error corrections and reclassifications from prior periods - The financial statements are prepared in conformity with U.S. GAAP, consolidating wholly-owned subsidiaries with elimination of intercompany transactions[33] - Revenue is primarily from advisory fees, recognized over time based on a percentage of ETPs' average daily net assets[45] - An immaterial error correction was made to the Consolidated Statements of Operations for the three and six months ended June 30, 2021, reclassifying amounts collected on behalf of third parties from advisory fee revenue and fund management expense, with no effect on net income[36] - Cash flows from purchasing and selling securities owned were reclassified from operating to investing activities for the six months ended June 30, 2021, to conform to the current year's presentation[37][38] Note 3. Cash and Cash Equivalents This note provides a breakdown of cash and cash equivalents, highlighting the concentration of funds in two financial institutions and the regulatory capital requirements for international subsidiaries Cash and Cash Equivalents (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :------------------ | :------------ | :---------------- | | Total | $109,736 | $140,709 | | Held at two FIs | $107,666 | $127,328 | | Cash equivalents | $2,001 | $11,488 | - Certain international subsidiaries are required to maintain minimum regulatory capital, which increased from $12.3 million at December 31, 2021, to $25.5 million at June 30, 2022[83] Note 4. Fair Value Measurements This note describes the fair value hierarchy (Levels 1, 2, and 3) used for financial instruments and provides a summary of assets and liabilities measured at fair value, including a reconciliation of Level 3 measurements - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[85][86][87] Assets and Liabilities Measured at Fair Value (in thousands) | Category | June 30, 2022 Total | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :------------------ | :------ | :------- | :-------- | | Assets: | | | | | | Cash equivalents | $2,001 | $2,001 | $— | $— | | Securities owned, at fair value (ETFs) | $13,091 | $13,091 | $— | $— | | Securities owned, at fair value (Pass-through GSEs) | $114,004 | $24,347 | $89,657 | $— | | Securities owned, at fair value (Corporate bonds) | $1,757 | $— | $1,757 | $— | | Investments in Convertible Notes | $11,712 | $— | $— | $11,712 | | Onramp Invest, Inc. – preferred stock | $312 | $— | $— | $312 | | Liabilities: | | | | | | Deferred consideration | $242,767 | $— | $— | $242,767 | - Investments in convertible notes and deferred consideration are classified as Level 3 due to significant unobservable inputs[90][95] Note 5. Securities Owned This note details the company's trading securities, which are measured at fair value, and reports net trading losses recognized during the periods Securities Owned (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :---------------- | :------------ | :---------------- | | Trading securities | $128,852 | $127,166 | Net Trading Losses on Securities Owned (in thousands) | Period | 2022 | 2021 | | :----------------------------------- | :------- | :------- | | Three months ended June 30 | $3,596 | $272 | | Six months ended June 30 | $7,912 | $833 | Note 6. Securities Held-to-Maturity This note provides information on securities classified as held-to-maturity, which are recorded at amortized cost, and their maturity profile. These securities are primarily pass-through GSEs with an estimated zero loss rate due to implicit U.S. government guarantees Securities Held-to-Maturity (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Debt instruments: Pass-through GSEs (amortized cost) | $277 | $308 | | Gross unrealized gains | $2 | $13 | | Gross unrealized losses | $(12) | $— | | Fair value | $267 | $321 | - No allowance for credit losses was provided as all held-to-maturity securities are investments in pass-through GSEs with an implicit U.S. government guarantee[100] Maturity Profile of Securities Held-to-Maturity (in thousands) | Maturity Profile | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Due five years through ten years | $30 | $— | | Due over ten years | $247 | $308 | | Total | $277 | $308 | Note 7. Investments This note details the company's equity and convertible note investments, primarily in Securrency, Inc., Fnality International Limited, and Onramp Invest, Inc. It describes the accounting methods used (measurement alternative for equity, fair value for convertible notes) and the valuation inputs for Level 3 fair value measurements Company's Investments (in thousands) | Investment | June 30, 2022 Carrying Value | June 30, 2022 Cost | December 31, 2021 Carrying Value | December 31, 2021 Cost | | :--------------------------------------- | :----------------------------- | :----------------- | :------------------------------- | :--------------------- | | Securrency, Inc. – Series A convertible preferred stock | $8,488 | $8,112 | $8,488 | $8,112 | | Securrency, Inc. – Series B convertible preferred stock | $5,500 | $5,500 | $5,500 | $5,500 | | Securrency, Inc. – convertible note | $5,279 | $5,000 | $— | $— | | Fnality International Limited – convertible note | $6,433 | $6,863 | $— | $— | | Onramp Invest, Inc. – Series A-4 preferred stock | $312 | $250 | $250 | $250 | | Total | $26,012 | $25,725 | $14,238 | $13,862 | - The company recognized a gain of $279 on the Securrency convertible note and a loss of $163 on the Fnality convertible note for the three months ended June 30, 2022, both valued using the Probability-Weighted Expected Return Method (PWERM)[111][116] - A gain of $62 was recognized in connection with the conversion of SAFE into Series A-4 Preferred Stock of Onramp Invest, Inc. during the three and six months ended June 30, 2022[119] Note 8. Fixed Assets, net This note provides a summary of the company's fixed assets, primarily equipment, net of accumulated depreciation Fixed Assets, net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------ | :------------ | :---------------- | | Equipment | $947 | $784 | | Less: accumulated depreciation | $(306) | $(227) | | Total | $641 | $557 | Note 9. Deferred Consideration This note details the deferred consideration obligation assumed from the ETFS Acquisition, which involves perpetual physical gold bullion payments. It outlines the valuation assumptions and the recognized gains/losses on revaluation - Deferred consideration is an obligation to pay 9,500 ounces of gold per year through March 31, 2058, then 6,333 ounces perpetually, stemming from the ETFS Acquisition[121] Deferred Consideration Valuation Assumptions | Metric | June 30, 2022 | December 31, 2021 | | :--------------------------- | :------------ | :---------------- | | Weighted average gold price (per ounce) | $2,265 | $2,106 | | Discount rate | 9.0% | 9.0% | | Perpetual growth rate | 1.43% | 1.0% | Deferred Consideration and Revaluation (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Deferred consideration (carrying value) | $242,767 | $226,706 | $242,767 | $226,706 | | Contractual gold payments | $4,446 | $4,314 | $8,896 | $8,584 | | Gain/(loss) on revaluation of deferred consideration | $2,311 | $497 | $(14,707) | $3,329 | - The gain on revaluation for Q2 2022 was due to lower spot gold prices, partly offset by a steepening of the forward-looking gold curve. The six-month period saw a loss due to increased forward-looking gold prices[126] Note 10. Convertible Notes This note details the company's 2021 and 2020 Convertible Senior Notes, including their principal amounts, maturity dates, interest rates, conversion prices, and other key terms. It also provides the carrying value and fair value of these notes - The company has $325.0 million in Convertible Notes outstanding, comprising $150.0 million of 3.25% notes due June 15, 2026, and $175.0 million of 4.25% notes due June 15, 2023[129][131] Convertible Notes Key Terms | Metric | 2021 Notes | 2020 Notes | | :-------------- | :------------ | :------------ | | Maturity date | June 15, 2026 | June 15, 2023 | | Interest rate | 3.25% | 4.25% | | Conversion price | $11.04 | $5.92 | Convertible Notes Carrying and Fair Value (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------- | :------------ | :---------------- | | Carrying amount | $319,917 | $318,624 | | Fair value | $322,311 | $360,571 | - Interest expense on Convertible Notes increased by 45.4% YoY for the three months and 53.5% YoY for the six months ended June 30, 2022, due to a higher level of debt outstanding[136] Note 11. Preferred Shares This note describes the Series A Non-Voting Convertible Preferred Stock issued in connection with the ETFS Acquisition, outlining its economic rights, conversion limitations, and redemption features - The company issued 14,750 shares of Series A Non-Voting Convertible Preferred Stock, convertible into 14,750,000 common shares, with a carrying value of $132.6 million[140][141] - The Preferred Shares have no voting rights, are not transferable, and have economic rights equivalent to common stock on an as-converted basis, but conversion is limited to prevent beneficial ownership exceeding 9.99% of outstanding common stock[138][139] Preferred Shares Redemption Value (in thousands) | Date | Redemption Value | | :------------ | :--------------- | | June 30, 2022 | $81,970 | | Dec 31, 2021 | $90,741 | Note 12. Leases This note provides details on the company's operating leases for corporate headquarters, office facilities, and equipment, including lease costs, cash payments, and future minimum lease payments Lease Costs (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $243 | $643 | $332 | $1,340 | | Short-term lease cost | $251 | $259 | $527 | $554 | | Total lease cost | $494 | $902 | $859 | $1,894 | Future Minimum Lease Payments (undiscounted, in thousands) | Period | Amount | | :---------------- | :----- | | Remainder of 2022 | $958 | | 2023 | $1,128 | | 2024 | $317 | | Total | $2,403 | - The weighted-average remaining lease term for operating leases is 1.8 years, with a weighted-average discount rate of 6.3% at June 30, 2022[145] Note 13. Contingencies This note discloses legal proceedings related to the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP (3OIL), with investors seeking damages. The company is assessing these claims, and no accrual has been made as of June 30, 2022 - The company is facing legal actions in Italy from investors seeking damages related to the compulsory redemption of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP (3OIL) in March 2020[149][150][151] - Total damages sought by all investors are approximately €15.8 million ($16.6 million) at June 30, 2022[152] - The Court of Udine ruled in the company's favor in February 2022 for one of the cases[150] Note 14. Variable Interest Entities This note explains the company's variable interests in non-consolidated Variable Interest Entities (VIEs), primarily Securrency, Fnality, and Onramp, and clarifies that WisdomTree is not the primary beneficiary as it lacks control over their economic performance-impacting activities - The company holds variable interests in non-consolidated VIEs, including Securrency, Fnality, and Onramp, but is not the primary beneficiary as it does not have the power to direct their most significant economic activities[154][155] Carrying Amount of Variable Interests in Non-Consolidated VIEs (in thousands) | Entity (Investment Type) | June 30, 2022 Carrying Amount | December 31, 2021 Carrying Amount | | :--------------------------------------- | :------------------------------ | :-------------------------------- | | Securrency (Preferred stock & convertible note) | $19,267 | $13,988 | | Fnality (Convertible note) | $6,433 | $— | | Onramp (Preferred stock) | $312 | $250 | | Total | $26,012 | $14,238 | | Maximum exposure to loss | $26,012 | $14,238 | Note 15. Revenues from Contracts with Customers This note details the company's revenue recognition policy, primarily from investment advisory agreements, and provides a geographic breakdown of total operating revenues - Substantially all revenues are derived from investment advisory agreements with related parties, recognized over time based on a percentage of ETPs' average daily net assets[158][161] Total Operating Revenues (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advisory fees | $75,586 | $74,169 | $152,103 | $144,211 | | Other income | $1,667 | $1,606 | $3,518 | $2,820 | | Total operating revenues | $77,253 | $75,775 | $155,621 | $147,031 | Geographic Distribution of Revenue (in thousands) | Region | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $45,807 | $44,522 | $92,036 | $85,221 | | Jersey | $27,811 | $28,812 | $56,409 | $57,228 | | Ireland | $3,635 | $2,441 | $7,176 | $4,582 | Note 16. Related Party Transactions This note outlines the company's primary revenue source from investment advisory agreements with related parties, detailing receivables and advisory services provided to these entities, and also mentions investments in WisdomTree ETFs - Revenues are primarily from investment advisory agreements with related parties, where the company licenses its indexes and provides management services to U.S. WisdomTree ETFs and WisdomTree UCITS ETFs[161] Accounts Receivable from Related Parties (in thousands) | Related Party | June 30, 2022 | December 31, 2021 | | :------------------ | :------------ | :---------------- | | Receivable from WTT | $14,719 | $15,987 | | Receivable from ManJer Issuers | $5,871 | $6,460 | | Receivable from WMAI and WTI | $3,315 | $3,181 | | Total | $23,905 | $25,628 | Advisory Services Provided to Related Parties (in thousands) | Related Party | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | WTT | $45,670 | $44,442 | $91,740 | $84,978 | | ManJer Issuers | $26,282 | $25,065 | $53,187 | $50,536 | | WMAI and WTI | $3,634 | $4,662 | $7,176 | $8,697 | | Total | $75,586 | $74,169 | $152,103 | $144,211 | Note 17. Stock-Based Awards This note describes the company's equity award plan, including stock options, restricted stock awards (RSAs), restricted stock units (RSUs), and performance-based restricted stock units (PRSUs), and reports stock-based compensation expense and unrecognized amounts - The company grants stock options, RSAs, RSUs, and PRSUs to employees and directors, with PRSUs vesting based on relative Total Shareholder Return (TSR) compared to a peer group[167][168][169] Stock-Based Compensation Expense (in thousands) | Period | 2022 | 2021 | | :----------------------------------- | :------ | :------ | | Three months ended June 30 | $2,432 | $2,121 | | Six months ended June 30 | $5,368 | $5,264 | Unrecognized Stock-Based Compensation Expense | Metric | Amount (in thousands) | Average Remaining Vesting Period (Years) | | :----------------------------------- | :-------------------- | :--------------------------------------- | | Unrecognized Stock-Based Compensation | $17,044 | 1.90 | Note 18. Stockholder Rights Plan This note describes the adoption and subsequent termination of the company's stockholder rights plan (poison pill) in connection with a cooperation agreement - The Board of Directors adopted a stockholder rights plan on March 13, 2022, distributing one Preferred Stock Purchase Right per common share[172] - The rights plan expired on June 2, 2022, following a cooperation agreement with ETFS Capital and other parties[173] Note 19. Earnings Per Share This note provides the reconciliation of basic and diluted earnings per share (EPS) computations, detailing the impact of participating securities and common stock equivalents Basic Earnings/(Loss) per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income/(loss) available to common stockholders – Basic EPS | $7,099 | $15,698 | $(3,353) | $29,131 | | Weighted average common shares | 143,046 | 145,542 | 142,915 | 145,652 | | Basic earnings/(loss) per share | $0.05 | $0.11 | $(0.02) | $0.20 | Diluted Earnings/(Loss) per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income/(loss) available to common stockholders – Diluted EPS | $7,100 | $15,725 | $(3,353) | $29,152 | | Weighted average diluted shares, excluding participating securities | 143,425 | 148,814 | 142,915 | 147,004 | | Diluted earnings/(loss) per share | $0.05 | $0.11 | $(0.02) | $0.20 | - For the six months ended June 30, 2022, there were no dilutive common stock equivalents due to the reported net loss[175] Note 20. Income Taxes This note details the company's effective income tax rates, deferred tax assets and liabilities, net operating and capital losses, valuation allowance, and uncertain tax positions. It highlights the impact of a reduction in unrecognized tax benefits on the six-month effective tax rate Effective Income Tax Rate | Period | Effective Tax Rate | | :----------------------------------- | :----------------- | | Three months ended June 30, 2022 | 25.0% | | Six months ended June 30, 2022 | 86.2% (benefit) | | Three months ended June 30, 2021 | 19.5% | | Six months ended June 30, 2021 | 6.5% | - The six months ended June 30, 2022, saw an 86.2% income tax benefit, primarily due to a $19.9 million reduction in unrecognized tax benefits (including interest and penalties) and a lower tax rate on foreign earnings[179][193] Deferred Tax Assets, Net (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------- | :------------ | :---------------- | | Total deferred tax assets | $28,149 | $28,094 | | Total deferred tax liabilities | $771 | $556 | | Less: Valuation allowance | $(21,311) | $(18,657) | | Deferred tax assets, net | $6,067 | $8,881 | - Unrecognized tax benefits, including interest and penalties, totaled $1.35 million at June 30, 2022, and are reasonably possible to reduce to zero in the next 12 months[189] Note 21. Shares Repurchased This note details the company's share repurchase program, including the board's approval for an increased authorization and the number of shares repurchased during the periods - The board approved an increase of $85.7 million to the share repurchase program, bringing the total authorization to $100.0 million, extended through April 27, 2025[194] Shares Repurchased | Period | Shares Repurchased | Aggregate Cost (in thousands) | | :----------------------------------- | :----------------- | :---------------------------- | | Three months ended June 30, 2022 | 588,694 | $3,394 | | Six months ended June 30, 2022 | 588,694 | $3,394 | | Three months ended June 30, 2021 | 4,630,733 | $31,876 | | Six months ended June 30, 2021 | 5,120,496 | $34,506 | - As of June 30, 2022, $100.0 million remained available under the repurchase program[196] Note 22. Goodwill and Intangible Assets This note provides a summary of goodwill and intangible assets, including their carrying values, impairment testing policies, and expected amortization for finite-lived assets Goodwill and Intangible Assets (in thousands) | Asset Category | June 30, 2022 | January 1, 2022 | | :-------------------- | :------------ | :-------------- | | Goodwill | $85,856 | $85,856 | | ETFS acquisition (Indefinite-Lived) | $601,247 | $601,247 | | Software development (Finite-Lived) | $724 | $— | | Total | $601,971 | $601,247 | - Goodwill and indefinite-lived intangible assets are tested for impairment annually on November 30th[197][199] Expected Amortization Expense for Finite-Lived Intangible Assets (in thousands) | Period | Amount | | :---------------- | :----- | | Remainder of 2022 | $105 | | 2023 | $241 | | 2024 | $241 | | 2025 | $137 | | Total | $724 | Note 23. Contingent Payments This note discusses potential future contingent payments from the sale of financial interests in AdvisorEngine and the Canadian ETF business, which are dependent on achieving specific revenue or AUM growth targets - The company may receive up to $10.4 million in contingent payments from the sale of AdvisorEngine Inc., dependent on revenue milestones through the fourth anniversary of the exit[201] - Additional cash consideration of CDN $0 to $4.0 million may be received from the sale of the Canadian ETF business, based on AUM growth targets at the 36-month anniversary of the closing date[203] - No value has been ascribed to these contingent payments as of June 30, 2022, and no payments were received during the reported periods[201][203] Note 24. Subsequent Events This note reports subsequent events after the reporting period, including stockholder approval to increase authorized common stock and the adoption of a new equity plan - On July 15, 2022, stockholders approved an amendment to increase authorized common stock from 250 million to 400 million shares[205] - Stockholders also approved the 2022 Equity Plan, authorizing the issuance of up to 16 million shares of common stock for stock-based awards[207] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an executive summary of its business, market environment, operating results, expense guidance, non-GAAP financial measures, liquidity, capital resources, and critical accounting policies Executive Summary This section provides an overview of WisdomTree's business, market environment, and key financial and operational highlights for the period - WisdomTree is a global ETP sponsor and asset manager with $74.3 billion in AUM as of June 30, 2022, expanding into blockchain technology and digital assets[210] - The company is developing WisdomTree Prime™, a digital wallet for saving, spending, and investing in native crypto assets and tokenized mainstream financial assets, and plans to launch asset- and fund-tokenization products[212] - During Q2 2022, global markets faced pressure from interest rate rises and recession risk, with U.S. and European equities falling, while gold showed steady performance[214][215] Assets Under Management (AUM) (in millions) | Metric | June 30, 2022 | March 31, 2022 | June 30, 2021 | | :---------------------- | :------------ | :------------- | :------------ | | Global ETPs End of Period AUM | $74,297 | $79,390 | $73,923 | | U.S. Listed ETFs End of Period AUM | $47,255 | $48,622 | $45,129 | | European Listed ETPs End of Period AUM | $27,042 | $30,768 | $28,794 | - U.S. listed ETFs' AUM decreased from $48.6 billion to $47.3 billion in Q2 2022 due to market depreciation, partly offset by net inflows[220] - European listed ETPs' AUM decreased from $30.8 billion to $27.0 billion in Q2 2022 due to market depreciation and net outflows[222] Consolidated Operating Results This section presents a summary of the company's operating revenues, expenses, and net income over recent quarters Consolidated Operating Results (in millions) | Metric | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | | :--------------------- | :------ | :------ | :------ | :------ | :------ | | Operating Revenues | $77.3 | $78.4 | $79.0 | $78.0 | $75.8 | | Operating Expenses | $61.4 | $60.7 | $60.0 | $57.0 | $52.1 | | Operating Income | $15.8 | $17.7 | $19.0 | $21.0 | $23.7 | | Net Income/(Loss) | $8.0 | $(10.3) | $14.0 | $15.0 | $17.6 | - Operating revenues for Q2 2022 increased by 2.0% YoY to $77.3 million, driven by higher average AUM, partly offset by a lower average advisory fee[227] - Total operating expenses increased by 18.0% YoY to $61.4 million in Q2 2022, primarily due to higher incentive compensation, headcount, professional fees (including $2.0 million for an activist campaign), and sales/business development expenses[227] - Net income for Q2 2022 was $8.0 million, down from $17.6 million in Q2 2021[227] Expense Guidance Update for the Year Ending December 31, 2022 This section provides updated financial guidance for key expense categories for the fiscal year ending December 31, 2022 Updated Expense Guidance for FY2022 (in millions) | Expense Category | Previous Guidance | Updated Guidance | | :--------------------------- | :---------------- | :--------------- | | Compensation expense | $92.0 - $102.0 | $96.0 - $99.0 | | Discretionary spending | $49.0 - $57.0 | $51.0 - $53.0 | | Contractual gold payments | $18.0 - $19.0 | ~$17.0 | | Third-party distribution expense | ~$9.5 | ~$8.5 | - The high-end of compensation expense guidance was reduced due to tempered hiring plans amid uncertain market conditions[225] - Contractual gold payments guidance was lowered due to current lower gold prices[229] - Third-party distribution expense guidance was lowered due to market volatility suppressing AUM growth on third-party platforms[230] - Non-recurring expenses of $4.5 million were incurred during the six months ended June 30, 2022, in response to an activist campaign, not included in guidance[227] Gross Margin This section provides the estimated gross margin percentage for the current fiscal year - The estimated gross margin percentage for the year ending December 31, 2022, is 79%, a decrease from the previously estimated 80% to 81%[228] Income Tax Expense This section outlines the estimated consolidated normalized effective tax rate for the current fiscal year - The consolidated normalized effective tax rate for the year ending December 31, 2022, is estimated to range from 21% to 22%, unchanged from prior guidance[231] Key Operating Statistics This section presents key operational metrics for global ETPs, including assets under management, inflows, and advisory fees Global ETPs Key Operating Statistics (in millions, except for fee) | Metric | Q2 2022 | Q1 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :-------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Beginning of period assets | $79,390 | $77,456 | $69,515 | $77,456 | $67,383 | | Inflows/(outflows) | $3,852 | $1,319 | $931 | $5,171 | $2,210 | | Market appreciation/(depreciation) | $(8,941) | $615 | $3,481 | $(8,326) | $4,334 | | End of period assets | $74,297 | $79,390 | $73,923 | $74,297 | $73,923 | | Average assets during the period | $77,731 | $77,794 | $73,603 | $77,763 | $71,581 | | Average ETP advisory fee during the period | 0.39% | 0.40% | 0.40% | 0.39% | 0.42% | | Number of ETPs—end of period | 346 | 341 | 318 | 346 | 318 | | Headcount | 264 | 253 | 227 | 264 | 227 | - Global ETPs experienced significant market depreciation of $(8,941) million in Q2 2022, leading to a decrease in end-of-period assets despite positive inflows[232] - The average ETP advisory fee decreased from 0.40% in Q2 2021 to 0.39% in Q2 2022[232] Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 This section provides a detailed comparative analysis of the company's operating and financial performance for the three months ended June 30, 2022, versus the prior year Selected Operating and Financial Information (Three Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :---------------------- | :-------- | :-------- | :-------- | :------- | | Average AUM | $77,731 | $73,603 | $4,128 | 5.6% | | Advisory fees | $75,586 | $74,169 | $1,417 | 1.9% | | Other income | $1,667 | $1,606 | $61 | 3.8% | | Total revenues | $77,253 | $75,775 | $1,478 | 2.0% | - Average AUM increased by 5.6% YoY, contributing to a 1.9% increase in advisory fees, despite a lower average advisory fee (0.39% vs. 0.40%)[235][236] Operating Expenses (Three Months Ended June 30, in thousands) | Expense Category | 2022 | 2021 | Change | % Change | | :-------------------------------- | :-------- | :-------- | :-------- | :------- | | Compensation and benefits | $24,565 | $20,331 | $4,234 | 20.8% | | Fund management and administration | $16,076 | $14,367 | $1,709 | 11.9% | | Marketing and advertising | $3,894 | $3,594 | $300 | 8.3% | | Sales and business development | $3,131 | $2,159 | $972 | 45.0% | | Contractual gold payments | $4,446 | $4,314 | $132 | 3.1% | | Professional fees | $4,308 | $1,921 | $2,387 | 124.3% | | Occupancy, communications and equipment | $1,049 | $1,266 | $(217) | (17.1%) | | Depreciation and amortization | $53 | $256 | $(203) | (79.3%) | | Third-party distribution fees | $1,818 | $2,130 | $(312) | (14.6%) | | Other | $2,109 | $1,752 | $357 | 20.4% | | Total operating expenses | $61,449 | $52,090 | $9,359 | 18.0% | - Professional fees surged by 124.3% YoY due to expenses from an activist campaign[245] Other Income/(Expenses) (Three Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :----------------------------------------- | :-------- | :-------- | :--------- | :------- | | Interest expense | $(3,733) | $(2,567) | $(1,166) | 45.4% | | Gain on revaluation of deferred consideration – gold payments | $2,311 | $497 | $1,814 | 365.0% | | Interest income | $770 | $225 | $545 | 242.2% | | Other losses and gains, net | $(4,474) | $49 | $(4,523) | n/a | | Total other expenses, net | $(5,126) | $(1,796) | $(3,330) | 185.4% | - Other losses and gains, net, shifted from a slight gain to a $4.5 million loss, primarily due to $4.2 million in losses on securities owned[254] Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021 This section provides a detailed comparative analysis of the company's operating and financial performance for the six months ended June 30, 2022, versus the prior year Selected Operating and Financial Information (Six Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :---------------------- | :-------- | :-------- | :-------- | :------- | | Average global AUM | $77,763 | $71,581 | $6,182 | 8.6% | | Advisory fees | $152,103 | $144,211 | $7,892 | 5.5% | | Other income | $3,518 | $2,820 | $698 | 24.8% | | Total revenues | $155,621 | $147,031 | $8,590 | 5.8% | - Average global AUM increased by 8.6% YoY, leading to a 5.5% increase in advisory fees, despite a lower average global advisory fee (0.39% vs. 0.42%)[258][259] Operating Expenses (Six Months Ended June 30, in thousands) | Expense Category | 2022 | 2021 | Change | % Change | | :-------------------------------- | :-------- | :-------- | :-------- | :------- | | Compensation and benefits | $49,352 | $42,958 | $6,394 | 14.9% | | Fund management and administration | $31,570 | $28,314 | $3,256 | 11.5% | | Marketing and advertising | $7,917 | $6,600 | $1,317 | 20.0% | | Sales and business development | $5,740 | $4,304 | $1,436 | 33.4% | | Contractual gold payments | $8,896 | $8,584 | $312 | 3.6% | | Professional fees | $8,767 | $3,934 | $4,833 | 122.9% | | Occupancy, communications and equipment | $1,802 | $2,741 | $(939) | (34.3%) | | Depreciation and amortization | $100 | $508 | $(408) | (80.3%) | | Third-party distribution fees | $4,030 | $3,473 | $557 | 16.0% | | Other | $3,954 | $3,323 | $631 | 19.0% | | Total operating expenses | $122,128 | $104,739 | $17,389 | 16.6% | - Professional fees increased by 122.9% YoY, largely due to expenses incurred in response to an activist campaign[268] Other Income/(Expenses) (Six Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :----------------------------------------- | :-------- | :-------- | :---------- | :------- | | Interest expense | $(7,465) | $(4,863) | $(2,602) | 53.5% | | (Loss)/gain on revaluation of deferred consideration – gold payments | $(14,707) | $3,329 | $(18,036) | n/a | | Interest income | $1,564 | $456 | $1,108 | 243.0% | | Impairments | $— | $(303) | $303 | (100.0%) | | Other losses, net | $(29,181) | $(5,844) | $(23,337) | 399.3% | | Total other expenses, net | $(49,789) | $(7,225) | $(42,564) | 589.1% | - A significant loss of $(14.7) million was recognized on revaluation of deferred consideration, compared to a $3.3 million gain in the prior year, primarily due to an increase in forward-looking gold prices[275] - Other losses, net, increased substantially due to a $19.9 million non-cash charge from the release of a tax-related indemnification asset and $9.3 million in losses on securities owned[278] Non-GAAP Financial Measurements This section presents non-GAAP financial measures, such as Adjusted Net Income and Adjusted Diluted Earnings per Share, to provide a clearer view of core operational performance by excluding certain non-recurring or non-cash items - The company provides Adjusted Net Income and Adjusted Diluted Earnings per Share as non-GAAP measures to exclude non-recurring or non-core items, offering a consistent view of performance[282][283] - Excluded items include unrealized gains/losses on revaluation of deferred consideration, gains/losses on securities owned, tax shortfalls/windfalls from stock-based compensation, unrealized gains/losses on investments, changes in deferred tax asset valuation allowance, activist campaign expenses, and impairment charges[283][284][285][286] Adjusted Net Income and Diluted EPS (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income/(loss), as reported | $8,005 | $17,630 | $(2,256) | $32,777 | | Adjusted net income | $11,257 | $16,795 | $25,320 | $29,299 | | Adjusted net income available to common stockholders | $9,985 | $14,980 | $22,460 | $26,058 | | Adjusted earnings per share – diluted | $0.07 | $0.10 | $0.16 | $0.18 | Liquidity and Capital Resources This section discusses the company's financial liquidity, capital resources, and ability to meet its short-term and long-term obligations, including cash flows, debt, and critical accounting policies Liquidity and Capital Resources (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $109,736 | $140,709 | | Securities owned, at fair value | $128,852 | $127,166 | | Accounts receivable | $34,061 | $31,864 | | Securities held-to-maturity | $277 | $308 | | Total: Liquid assets | $272,926 | $300,047 | | Less: Total current liabilities (excl. conv. notes) | $(68,298) | $(83,667) | | Less: Regulatory capital requirement | $(25,450) | $(12,320) | | Total: Available liquidity | $179,178 | $204,060 | - Available liquidity decreased by $24.9 million from December 31, 2021, to June 30, 2022, primarily due to a decrease in cash and cash equivalents[289] - The company's principal source of financing is operating cash flow, which is expected to be sufficient for foreseeable operations[301] - Key uses of cash include funding ongoing operations, a $0.03 per share quarterly cash dividend, and share repurchases (with $100 million remaining under the program)[303][304] - The company has $325.0 million in Convertible Notes outstanding, with $175.0 million maturing on June 15, 2023, and is actively exploring refinancing and extension alternatives[305][307] - The deferred consideration obligation for gold payments was $242.8 million at June 30, 2022, paid from advisory fee income from physically-backed gold ETPs[309][310] - Total future minimum lease payments for office space were $2.4 million at June 30, 2022[313] - The company does not have any off-balance sheet financing arrangements[314] - Critical accounting policies include goodwill and intangible assets impairment testing, investments valuation, deferred consideration for gold payments, and revenue recognition[315][318][319][320][322] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to various market risks, including those related to ETP values, interest rates, foreign currency exchange rates, and commodity/cryptocurrency prices, and outlines its current approach to managing these risks - Market risk primarily stems from fluctuations in ETP values due to securities/commodity prices, foreign currency exchange rates, and interest rates, directly impacting advisory fee revenues[324] - The company invests corporate cash in short-term interest-earning assets, recognizing $9.3 million in losses on these securities during the six months ended June 30, 2022[326] - Foreign currency translation exposure exists for non-U.S. operations, particularly in the UK and Europe, with expenses incurred in British pounds while advisory fees are predominantly in U.S. dollars[328] - Commodity and cryptocurrency price risk affects AUM and revenues, as a portion of advisory fees for physically-backed ETPs are paid in the underlying metal or cryptocurrency. The company currently does not hedge against these fluctuations[330] ITEM 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, and states that there were no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[331] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[332] PART II: OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and other corporate disclosures ITEM 1. Legal Proceedings This section refers to ongoing legal proceedings, specifically investor claims related to the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP, with total damages sought of approximately €15.8 million ($16.6 million) - The company is subject to legal proceedings, including investor claims totaling approximately €15.8 million ($16.6 million) related to the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP[334] ITEM 1A. Risk Factors This section highlights a key risk factor: the potential failure to repay, refinance, or extend the maturity of the company's $175.0 million 2020 Notes due June 15, 2023, which could have a material adverse effect on the business - A significant risk is the potential failure to repay, refinance, or extend the maturity of the $175.0 million 2020 Notes due June 15, 2023[336] - The ability to manage this debt depends on company performance and general economic factors, and failure could lead to an event of default[336] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no recent unregistered sales of equity securities and provides details on the company's share repurchase program, including the remaining authorization - No unregistered sales of equity securities occurred during the reporting period[337] - The company's board approved an increase of $85.7 million to its share repurchase program, bringing the total authorization to $100.0 million, extended through April 27, 2025[340] Share Repurchase Program Status (in thousands) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Dollar Value of Shares that May Yet Be Purchased | | :----------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------- | | April 1, 2022 to June 30, 2022 | — | $— | $100,000 | ITEM 3. Default Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[341] ITEM 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the registrant[342] ITEM 5. Other Information This section details amendments to the company's By-Laws, effective August 1, 2022, which include revisions to nomination provisions, implementation of proxy access, changes to Board meeting procedures, and establishment of exclusive forum provisions for certain legal actions - The company's By-Laws were amended, effective August 1, 2022, to enhance informational and procedural requirements for stockholder nominations and proposals, including changes to address Rule 14a-19 of the Exchange Act[343] - Proxy access was implemented, allowing stockholders owning at least 3% of common stock for three years to nominate up to the greater of two directors or 25% of the Board[343] - Other amendments include changes to Board meeting call procedures, quorum requirements, stock certification, By-Law amendment process, and establishing federal district courts as the exclusive forum for Securities Act and Exchange Act claims[343] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, convertible note indentures, equity plans, and certifications - Exhibits include the Third Amended and Restated By-Laws, various certificates of incorporation, convertible note indentures, the 2022 Equity Plan, and Rule 13a-14(a)/15d-14(a) certifications[346][347] SIGNATURE This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the filing of the report - The report is signed by Jonathan Steinberg, Chief Executive Officer, and Bryan Edmiston, Chief Financial Officer, on August 5, 2022[350][352]