WisdomTree, Inc. - Quarter Report: 2022 March (Form 10-Q)

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

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Indicate by check mark whether the registrant is a shell company (as defined in Rule of the Exchange Act).    Yes  ☐    No  ☒

This Quarterly Report on Form contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in Amendment No. 1 on Form to our Annual Report on Form for the fiscal year ended December 31, 2021. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

		Three Months Ended March 31,
		2022				2021
Operating Revenues:
Advisory fees		$	76,517			$	70,042
Other income			1,851				1,214
Total revenues			78,368				71,256
Operating Expenses:
Compensation and benefits			24,787				22,627
Fund management and administration			15,494				13,947
Marketing and advertising			4,023				3,006
Sales and business development			2,609				2,145
Contractual gold payments (Note 9)			4,450				4,270
Professional fees			4,459				2,013
Occupancy, communications and equipment			753				1,475
Depreciation and amortization			47				252
Third-party distribution fees			2,212				1,343
Other			1,845				1,571
Total operating expenses			60,679				52,649
Operating income			17,689				18,607
Other Income/(Expenses):
Interest expense			(3,732	)			(2,296	)
(Loss)/gain on revaluation of deferred consideration – gold payments (Note 9)			(17,018	)			2,832
Interest income			794				231
Impairment (Note 12)			—				(303	)
Other losses, net			(24,707	)			(5,893	)
(Loss)/income before income taxes			(26,974	)			13,178
Income tax benefit			(16,713	)			(1,969	)
Net (loss)/income		$	(10,261	)		$	15,147
(Loss)/earnings per share—basic		$	(0.08	)		$	0.09
(Loss)/earnings per share—diluted		$	(0.08	)		$	0.09
Weighted-average common shares—basic			142,782				145,649
Weighted-average common shares—diluted			142,782				161,831
Cash dividends declared per common share		$	0.03			$	0.03

On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $616, increasing the carrying value of the convertible notes by $4,088, reducing additional paid in capital by $3,682 and reducing deferred tax liabilities by $1,022, upon the implementation of Accounting Standards Update (“ASU”)

Securities owned and securities sold, but not yet purchased are securities classified as either trading or (“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income and other comprehensive income, respectively, in the period the change occurs. Debt securities classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method.

The Company accounts for certain of its securities as on a trade date basis, which are recorded at amortized cost. For securities, the Company has the intent and ability to hold these securities to maturity and it is not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity. securities are placed on status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on securities placed on status is recognized on a cash basis as interest income if and when received.

The Company reviews its portfolio of securities for impairment on a quarterly basis, recognizing an allowance, if any, by applying an estimated loss rate after consideration for the nature of collateral securing the financial asset as well as potential future changes in collateral values and historical loss information for financial assets secured with similar collateral.

 12

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. The Series A convertible preferred stock (Note 12) and unvested share-based payment awards that contain rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive).

Diluted EPS is calculated under the treasury stock method and the method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A convertible preferred stock and the convertible notes are computed under the method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price.

The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is that some portion or all the deferred tax assets will not be realized.

Tax positions are evaluated utilizing a process. The Company first determines whether any of its tax positions are to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense.

The Global Intangible Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax.

based taxes are recorded as part of other liabilities and other expenses.

– These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are classified as Level 1 in the fair value

4,316561

The following table is a summary of the Company’s securities

During the three months ended March 31, 2022 and 2021, the Company received proceeds of $18 and $38, respectively, from securities maturing or being called prior to maturity.

The following table summarizes unrealized gains, losses and fair value (classified as Level 2 within the fair value hierarchy) of securities

An allowance for credit losses was not provided on the Company’s securities as all securities are investments in pass-through GSEs which are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.

owns approximately 22% (or 17% on a fully-diluted basis) of the capital stock of Securrency, Inc. (“Securrency”), a developer of institutional-grade blockchain-based financial and regulatory technology, issued as a result of strategic investments totaling $13,612. In consideration of such investments, the Company received 5,178,488 shares  2,004,665 6.0% dividend, payable if and when declared by the board of directors of Securrency. In addition, the Series A Shares and Series B Shares (together with the Series convertible preferred stock) are separately redeemable, with respect to all of the shares outstanding of the applicable series of preferred stock (subject to certain regulatory restrictions of certain investors), for the original issue price thereof, plus all declared and unpaid dividends, upon approval by holders of at least 60% of the Series A Shares (at any time on or after December 31, 2029) and 90% of the Series B Shares (at any time on or after March 31, 2031).

determinable fair value and is not considered to be common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three months ended March 31, 2022 based upon a qualitative assessment. On March 8, 2021, the Company recognized a gain of $237 on its Series A Shares, which was to fair value upon the issuance of Securrency’s Series B Shares. Fair value was determined using the backsolve method, a valuation approach that determines the value of shares for companies with complex capital structures based upon the price paid for shares recently issued. Fair value is allocated across the capital structure using the Black-Scholes option pricing model.

a £5,000 ($6,863) investment in Fnalitya company incorporated in England and Wales and focused on creating a digital wholesale settlement ecosystem, offering real time cross-border payments from a single pool of liquidity. In consideration for its investment, the Company was issued a 5% Convertible Unsecured Loan Note maturing on December 31, 2023.

 of 20% to

of $163 when the notes to fair value.

25020

The investment is accounted for under the measurement alternative prescribed in ASU as it does not have a readily determinable fair value and is not considered to be common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three months ended March 31, 2022 based upon a qualitative assessment.