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Press Release

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Jan 31, 2020

WisdomTree Announces Fourth Quarter 2019 Results – Diluted EPS of $0.02 ($0.06 as adjusted)

NEW YORK, Jan. 31, 2020 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the fourth quarter of 2019.

$4.3 million net income ($10.11 million net income, as adjusted), see “Non-GAAP Financial Measurements” for additional information.    

$63.6 billion of ending AUM, an increase of 6.1% resulting from market appreciation and net inflows for the quarter and an increase of 17.6% for the full year.

$368 million of net inflows ($560 million of net inflows excluding HEDJ/DXJ), driven by flows into our U.S. equity, fixed income  and emerging markets products, partly offset by outflows from our commodity and international developed market equity products.  For the full year, net inflows were $572 million or $3.3 billion excluding outflows from HEDJ/DXJ.

0.44% average global advisory fee, unchanged from the prior quarter.

$68.9 million of operating revenues, an increase of 1.8% primarily due to higher average AUM of our U.S. listed products.

81.2% gross margin1 for our U.S. Business, a 0.4 point increase due to higher revenues.

70.7% gross margin1 for our International Business, a 1.9 point decrease due to higher market making fees incurred in connection with transitioning to new arrangements as well as costs associated with preparing our products for Brexit.

21.5% operating income margin (22.0%1 as adjusted), a 2.3 point decrease (2.1 point decrease, as adjusted1) primarily due to higher non-compensation expenses, partly offset by higher revenues.

$6.0 million of available capital used to pay down debt, in connection with our capital management strategy.

$0.03 quarterly dividend declared, payable on February 26, 2020 to stockholders of record as of the close of business February 12, 2020.

We are currently pursuing an exit from our $58 million investment in AdvisorEngine Inc.  While the process is not yet finalized, we estimate taking a non-cash impairment charge of $22.0 million to $30.0 million in the fourth quarter, which is not yet included in these unaudited financial results.  The final impairment charge will be recognized and disclosed in our Form 10-K.  We do not anticipate the exit of our investment will drive any asset attrition or change our organic growth outlook.

Update from Jonathan Steinberg, WisdomTree CEO

“WisdomTree exited 2019 with momentum building across our business. The performance track records of our funds remain excellent with thirty-five 4- or 5-star Morningstar rated funds across our ETF and UCITS product range. We’ve generated positive net flows in four of the past five quarters, adoption of our model portfolios by advisors is accelerating and we are excited by the recent launch of the Siegel-WisdomTree models.” 
 
“As we look toward 2020, we are focused on capitalizing on the tailwinds that exist in our business, continuing to drive operating efficiencies and prudently investing to remain at the forefront of industry innovation. For example, in January we announced a strategic investment in Securrency, Inc., a blockchain-based financial services infrastructure company. Blockchain has the potential to be revolutionary in financial services and we believe we have the right vision and the right partner to be a global leader in digital assets. There are reasons to be optimistic, and I believe WisdomTree has reached an inflection point with top line and bottom line growth set to emerge.” 

OPERATING AND FINANCIAL HIGHLIGHTS

 Three Months Ended
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Consolidated Operating Highlights ($, in billions):     
AUM$63.6 $60.0 $60.4 $59.1 $54.1 
Net inflows/(outflows)$0.4 $(0.7)$0.3 $0.6 $0.2 
Average AUM$61.9 $60.3 $58.6 $57.7 $56.4 
Average advisory fee 0.44% 0.44% 0.45% 0.46% 0.47%
                
                
Consolidated Financial Highlights ($, in millions, except per share amounts):               
Operating revenues$68.9 $67.7 $66.3 $65.5 $67.9 
Net income/(loss)$4.3 $4.2 $2.5 $8.8 $(11.6)
Diluted earnings/(loss) per share$0.02 $0.02 $0.01 $0.05 $(0.08)
Operating income margin 21.5% 23.8% 18.0% 16.3% 17.4%
As Adjusted (Non-GAAP1):               
Gross Margin – U.S. Business 81.2% 80.8% 80.3% 80.4% 80.2%
Gross Margin – International Business 70.7% 72.6% 69.5% 70.1% 69.1%
Net income, as adjusted$10.1 $10.6 $7.8 $7.7 $9.8 
Diluted earnings per share, as adjusted$0.06 $0.06 $0.05 $0.05 $0.06 
Operating income margin, as adjusted 22.0% 24.1% 20.2% 19.9% 21.9%
      

RECENT BUSINESS DEVELOPMENTS

Company News

  • In November 2019, we entered into an agreement to sell our Canadian asset management business to CI Financial Corp. (TSX: CIX); and we were named as European Smart Beta Provider of the Year at the Funds Europe Awards 2019.
  • In January 2020, we announced a strategic investment in Securrency, Inc. with plans to pursue the integration of blockchain technology into the ETF ecosystem; we announced the appointment of Ravinder Azad as Head of UK and Nordic Sales; and we announced the collaboration with Professor Jeremy Siegel to design and launch two model portfolios – The Siegel-WisdomTree Global Equity Model and the Siegel-WisdomTree Longevity Model.

Product News

  • In November 2019, we launched the Mortgage Plus Bond Fund (MTGP) in the U.S. on the NYSE Arca; the WisdomTree Artificial Intelligence UCITS ETF (WTAI) reached its one-year anniversary, and the WisdomTree Emerging Markets Equity Income UCITS ETF (DEM) and WisdomTree Emerging Markets Small Cap Dividend UCITS ETF (DGSG) reached their five-year anniversaries.
  • In December 2019, we declared final capital gains distributions for our U.S. ETFs; we announced the closing and liquidation of three ETFs in January 2020 – DYB, WBAL and RPUT; and we announced the launch of the WisdomTree Bitcoin ETP (BTCW) on the Swiss stock exchange (SIX).
  • In January 2020, we announced the unitholders’ approval of proposed change in manager for our Canadian ETFs.


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)

 Three Months Ended
 Years Ended
 Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Dec. 31,
2019
 Dec. 31,
2018
Operating Revenues:                           
Advisory fees$68,179  $67,006  $65,627  $64,840  $67,191  $265,652  $271,104 
Other income 728   712   666   645   676   2,751   3,012 
Total revenues 68,907   67,718   66,293   65,485   67,867   268,403   274,116 
Operating Expenses:                           
Compensation and benefits 19,280   18,880   21,300   21,301   18,838   80,761   74,515 
Fund management and administration 15,650   15,110   15,576   15,166   15,861   61,502   56,686 
Marketing and advertising 3,551   3,022   2,910   2,680   3,672   12,163   13,884 
Sales and business development 5,329   4,354   4,171   4,422   5,036   18,276   17,153 
Contractual gold payments 3,516   3,502   3,110   3,098   2,917   13,226   8,512 
Professional and consulting fees 1,604   1,259   1,296   1,482   2,854   5,641   7,984 
Occupancy, communications and equipment 1,587   1,549   1,548   1,618   1,544   6,302   6,203 
Depreciation and amortization 253   259   264   269   303   1,045   1,301 
Third-party distribution fees 1,146   1,503   1,919   2,400   1,813   6,968   6,611 
Acquisition and disposition- related costs 366   190   33   313   1,008   902   11,454 
Other 1,816   1,959   2,255   2,053   2,202   8,083   8,534 
Total expenses 54,098   51,587   54,382   54,802   56,048   214,869   212,837 
Operating income 14,809   16,131   11,911   10,683   11,819   53,534   61,279 
Other Income/(Expenses):                           
Interest expense (2,606)  (2,832)  (2,910)  (2,892)  (2,859)  (11,240)  (7,962)
(Loss)/gain on revaluation of deferred consideration – gold payments (5,354)  (6,306)  (4,037)  4,404   (5,410)  (11,293)  12,220 
Interest income 936   799   818   779   800   3,332   3,093 
Impairments          (572)  (17,386)  (572)  (17,386)
Other gains and losses, net (2)  843   284   (4,627)  439   (3,502)  (205)
                            
Income/(loss) before income taxes 7,783   8,635   6,066   7,775   (12,597)  30,259   51,039 
Income tax expense/(benefit) 3,525   4,483   3,587   (1,049)  (1,033)  10,546   14,406 
                            
Net income/(loss)$4,258  $4,152  $2,479  $8,824  $(11,564) $19,713  $36,633 
                            
Earnings/(loss) per share – basic$0.02  $0.02  $0.01  $0.05  $(0.08) $0.12  $0.23 
Earnings/(loss) per share – diluted$0.022  $0.02  $0.01  $0.05  $(0.08) $0.12  $0.23 
Weighted average common shares – basic 151,948   151,897   151,818   151,625   151,083   151,823   146,645 
Weighted average common shares – diluted 167,203   167,163   167,249   166,811   151,083   166,977   158,415 
        
As Adjusted (Non-GAAP1)       
Compensation and benefits$19,280  $18,880  $19,825  $19,281  $16,824   
Total expenses$53,732  $51,397  $52,874  $52,469  $53,026   
Operating income$15,175  $16,321  $13,419  $13,016  $14,841   
Income before income taxes$13,503  $15,131  $11,611  $10,586  $13,221   
Income tax expense$3,396  $4,489  $3,798  $2,849  $3,392   
Net income$10,107  $10,642  $7,813  $7,737  $9,829   
Earnings per share – diluted$0.06  $0.06  $0.05  $0.05  $0.06   
        

QUARTERLY HIGHLIGHTS

Operating Revenues

  • Operating revenues increased 1.8% from the third quarter of 2019 primarily due to higher average AUM of our U.S. listed products arising from market appreciation and net inflows.
  • Operating revenues increased 1.5% from the fourth quarter of 2018 primarily due to higher average AUM of our International listed products arising from market appreciation and net inflows, partly offset by a 3 basis point decline in our average global advisory fee due to AUM mix shift.
  • Our average global advisory fee was 0.44% during the third and fourth quarters of 2019 and 0.47% during the fourth quarter of 2018.

Operating Expenses

  • Operating expenses increased 4.9% from the third quarter of 2019 due to higher sales and business development expenses inclusive of costs associated with the launch of our Bitcoin ETP; higher fund management and administration costs due to higher market making fees in connection with transitioning to new arrangements, as well as costs associated with preparing our products for Brexit; and higher marketing and advertising expenses, compensation, and professional fees.
  • Operating expenses decreased 3.5% from the fourth quarter of 2018 largely due to lower professional fees, acquisition and disposition-related costs and third-party distribution fees.

Other Income/(Expenses)

  • We recognized a non-cash loss on revaluation of deferred consideration of ($5.4) million and ($6.3) million during the fourth and third quarters of 2019, and ($5.4) million during the fourth quarter of 2018.  These losses arose due to an increase in forward-looking gold prices when compared to the previous periods forward-looking gold curves.  The magnitude of any gain or loss recognized is highly correlated to the magnitude of the change in the forward-looking price of gold.
  • Interest expense decreased 8.0% from the third quarter of 2019 due to a lower level of debt outstanding.  During the third and fourth quarters of 2019, we used $21.0 million of available capital to pay down our debt in connection with our capital management strategy.

Income Taxes

  • Our effective income tax rate for the fourth quarter of 45.3% resulted in income tax expense of $3.5 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to a non-deductible loss on revaluation of deferred consideration, a valuation allowance on foreign net operating losses, state and local taxes and non-deductible executive compensation, partly offset by a lower tax rate on foreign earnings.

    Our adjusted effective income tax rate was 25.1%1.

ANNUAL HIGHLIGHTS

Our operating results for the current year are not directly comparable to the prior year due to our acquisition of ETFS, which was completed on April 11, 2018.

  • Operating revenues decreased 2.1% as compared to 2018 to a 3 basis point decline in our average global advisory fee and lower average AUM of our U.S. listed products due to AUM mix shift, partly offset by higher revenues earned from the ETFS acquired business, which were recognized for the entire year of 2019. 
  • Operating expenses increased 1.0% as compared to 2018 due to expenses associated with the ETFS acquired business, which were recognized for the entire year of 2019, and higher compensation expenses.  These items were partly offset by lower acquisition and disposition-related costs, professional fees, marketing and advertising expenses and fund management and administration costs associated with our U.S. listed products.
  • Significant changes in items reported in other income/(expenses) include a non-cash loss on revaluation of deferred consideration of ($11.3) million in 2019 as compared to a gain of $12.2 million in 2018; a 41.2% increase in interest expense as borrowing under our term loan commenced on April 11, 2018 and a $4.3 million non-cash charge arising from the release of a tax-related indemnification asset which arose from tax exposures assumed from the ETFS acquisition.  This item was recognized upon the expiration of the statute of limitations which occurred in the first quarter of 2019 and an equal and offsetting benefit was recognized in income tax expense.
  • Our effective income tax rate for 2019 of 34.9% resulted in income tax expense of $10.5 million.  Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, non-deductible executive compensation, state and local income taxes and tax shortfalls associated with the vesting and exercise of stock-based compensation awards, partly offset by a $4.3 million reduction in unrecognized tax benefits and a lower tax rate on foreign earnings.

CONFERENCE CALL

WisdomTree will discuss its results and operational highlights during a conference call on Friday, January 31, 2020 at 9:00 a.m. ET. The call-in number will be (877) 303-7209. Anyone outside the U.S. or Canada should call (970) 315-0420. The slides used during the presentation will be available at http://ir.wisdomtree.com. For those unable to join the conference call at the scheduled time, an audio replay will be available on http://ir.wisdomtree.com.

ABOUT WISDOMTREE

WisdomTree Investments, Inc., through its subsidiaries in the U.S., Europe and Canada (collectively, “WisdomTree”), is an ETF and ETP sponsor and asset manager headquartered in New York. WisdomTree offers products covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. WisdomTree currently has approximately $63.2 billion in assets under management globally.

WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.

Contact Information:

Investor RelationsMedia Relations
Jason Weyeneth, CFAJessica Zaloom
+1.917.267.3858+1.917.267.3735
jweyeneth@wisdomtree.comjzaloom@wisdomtree.com

 

See “Non-GAAP Financial Measurements.” 

Earnings per share calculated pursuant to the two-class method.

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(in thousands)
(Unaudited)

The following tables set forth the pre-tax operating results for our U.S. Business and International Business segments.    

U.S. BUSINESS SEGMENT

 Three Months Ended Years Ended
 Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Dec. 31,
2019
 Dec. 31,
2018
Operating Revenues:                           
Advisory fees$42,952  $41,950  $43,070  $42,517  $45,633  $170,489  $204,298 
Other income 76   81   76   106   126   339   608 
Total revenues 43,028   42,031   43,146   42,623   45,759   170,828   204,906 
Operating Expenses:                           
Compensation and benefits 14,947   14,531   16,696   16,779   14,370   62,953   58,307 
Fund management and administration 8,070   8,072   8,505   8,340   9,038   32,987   35,728 
Marketing and
advertising
 2,745   2,411   2,336   2,162   2,704   9,654   11,003 
Sales and business development 3,144   3,124   2,867   3,359   3,747   12,494   13,426 
Professional and consulting fees 1,144   908   1,055   1,072   2,166   4,179   6,169 
Occupancy, communications and equipment 1,235   1,215   1,211   1,283   1,205   4,944   5,162 
Depreciation and amortization 235   238   242   246   280   961   1,215 
Third-party distribution fees 914   1,404   1,867   2,338   1,789   6,523   6,457 
Acquisition and disposition-related costs 170         11   72   181   8,289 
Other 1,403   1,574   1,628   1,586   1,617   6,191   6,674 
Total expenses 34,007   33,477   36,407   37,176   36,988   141,067   152,430 
Operating income 9,021   8,554   6,739   5,447   8,771   29,761   52,476 
Other Income/(Expenses):                           
Interest expense (197)  (197)  (194)  (192)  (197)  (780)  (566)
Interest income 936   793   818   779   800   3,326   3,093 
Impairments          (572)  (17,386)  (572)  (17,386)
Other gains and losses, net (54)  235   (54)  145   266   272   292 
Income/(loss) before income taxes$9,706  $9,385  $7,309  $5,607  $(7,746) $32,007  $37,909 
Operating income margin 21.0%  20.4%  15.6%  12.8%  19.2%  17.4%  25.6%


INTERNATIONAL BUSINESS SEGMENT

 Three Months Ended
 Years Ended
 Dec. 31,
2019

 Sept. 30,
2019

 June 30,
2019

 Mar. 31,
2019

 Dec. 31,
2018

 Dec. 31,
2019

 Dec. 31,
2018

Operating Revenues:                           
Advisory fees$25,227  $25,056  $22,557  $22,323  $21,558  $95,163  $66,806 
Other income 652   631   590   539   550   2,412   2,404 
Total revenues 25,879   25,687   23,147   22,862   22,108   97,575   69,210 
Operating Expenses:                           
Compensation and benefits 4,333   4,349   4,604   4,522   4,468   17,808   16,208 
Fund management and administration 7,580   7,038   7,071   6,826   6,823   28,515   20,958 
Marketing and advertising 806   611   574   518   968   2,509   2,881 
Sales and business development 2,185   1,230   1,304   1,063   1,289   5,782   3,727 
Contractual gold payments 3,516   3,502   3,110   3,098   2,917   13,226   8,512 
Professional and consulting fees 460   351   241   410   688   1,462   1,815 
Occupancy, communications and equipment 352   334   337   335   339   1,358   1,041 
Depreciation and amortization 18   21   22   23   23   84   86 
Third-party distribution fees 232   99   52   62   24   445   154 
Acquisition and disposition-related costs 196   190   33   302   936   721   3,165 
Other 413   385   627   467   585   1,892   1,860 
Total expenses 20,091   18,110   17,975   17,626   19,060   73,802   60,407 
Operating income 5,788   7,577   5,172   5,236   3,048   23,773   8,803 
Other Income/(Expenses):                           
Interest expense (2,409)  (2,635)  (2,716)  (2,700)  (2,662)  (10,460)  (7,396)
(Loss)/gain on revaluation of deferred consideration – gold payments (5,354)  (6,306)  (4,037)  4,404   (5,410)  (11,293)  12,220 
Interest income    6            6    
Other gains and losses, net 52   608   338   (4,772)  173   (3,774)  (497)
(Loss)/income before income taxes$(1,923) $(750) $(1,243) $2,168  $(4,851) $(1,748) $13,130 
                            
Operating income margin 22.4%  29.5%  22.3%  22.9%  13.8%  24.4%  12.7%


WisdomTree Investments, Inc.                   
Key Operating Statistics (Unaudited)                   
                    
 Three Months Ended
 Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
                    
GLOBAL ETPs (in millions)                   
                    
Beginning of period assets$59,981  $60,389  $59,112  $54,094  $59,140 
Inflows/(outflows) 368   (694)  337   561   245 
Market appreciation/(depreciation) 3,269   467   940   4,544   (5,291)
Fund closures (3)  (181)     (87)   
End of period assets$63,615  $59,981  $60,389  $59,112  $54,094 
Average assets during the period$61,858  $60,306  $58,575  $57,683  $56,423 
Average advisory fee during the period 0.44%  0.44%  0.45%  0.46%  0.47%
Revenue days 92   92   91   90   92 
Number of ETFs – end of the period 367   366   536   534   537 
                    
U.S. LISTED ETFs (in millions)                   
                    
Beginning of period assets$37,592  $39,220  $39,366  $35,486  $41,556 
Inflows/(outflows) 563   (1,198)  (166)  147   (894)
Market appreciation/(depreciation) 2,448   (430)  20   3,820   (5,176)
Fund closures (3)        (87)   
End of period assets$40,600  $37,592  $39,220  $39,366  $35,486 
Average assets during the period$39,094  $37,857  $38,945  $38,061  $38,246 
Average advisory fee during the period 0.44%  0.44%  0.44%  0.45%  0.47%
Number of ETFs – end of the period 80   80   79   77   85 
                    
INTERNATIONAL LISTED ETPs (in millions)                   
                    
Beginning of period assets$22,389  $21,169  $19,746  $18,608  $17,584 
Inflows/(outflows) (195)  504   503   414   1,139 
Market appreciation/(depreciation) 821   897   920   724   (115)
Fund closures    (181)         
End of period assets$23,015  $22,389  $21,169  $19,746  $18,608 
Average assets during the period$22,764  $22,449  $19,630  $19,622  $18,177 
Average advisory fee during the period 0.44%  0.44%  0.46%  0.47%  0.47%
Number of ETPs – end of the period 287   286   457   457   452 
                    
PRODUCT CATEGORIES (in millions)                   
                    
Commodity & Currency                   
Beginning of period assets$19,954  $18,446  $16,978  $16,213  $14,998 
Inflows/(outflows) (267)  534   563   227   988 
Market appreciation/(depreciation) 639   974   905   538   227 
End of period assets$20,326  $19,954  $18,446  $16,978  $16,213 
Average assets during the period$20,146  $19,796  $16,912  $16,995  $15,620 
                    
U.S. Equity                   
Beginning of period assets$16,416  $16,021  $15,880  $13,335  $15,186 
Inflows/(outflows) 468   242   103   632   393 
Market appreciation/(depreciation) 1,002   153   38   1,913   (2,244)
End of period assets$17,886  $16,416  $16,021  $15,880  $13,335 
Average assets during the period$17,112  $16,004  $15,808  $14,947  $14,291 
                    
International Developed Market Equity                   
Beginning of period assets$12,541  $13,687  $14,414  $14,508  $19,385 
Inflows/(outflows) (122)  (1,001)  (729)  (1,530)  (2,216)
Market appreciation/(depreciation) 1,006   (145)  2   1,436   (2,661)
End of period assets$13,425  $12,541  $13,687  $14,414  $14,508 
Average assets during the period$13,001  $12,747  $13,957  $14,506  $16,869 


 Three Months Ended
 Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
                    
Emerging Market Equity                   
Beginning of period assets$5,814  $6,090  $5,730  $5,278  $5,346 
Inflows/(outflows) 193   173   367   (84)  232 
Market appreciation/(depreciation) 516   (449)  (7)  536   (300)
End of period assets$6,523  $5,814  $6,090  $5,730  $5,278 
Average assets during the period$6,111  $5,851  $5,785  $5,502  $5,148 
                    
Fixed Income                   
Beginning of period assets$3,655  $4,258  $4,023  $2,570  $1,720 
Inflows/(outflows) 220   (582)  208   1,418   880 
Market appreciation/(depreciation) 34   (21)  27   35   (30)
End of period assets$3,909  $3,655  $4,258  $4,023  $2,570 
Average assets during the period$3,856  $4,050  $4,119  $3,511  $2,140 
                    
Leveraged & Inverse                   
Beginning of period assets$1,130  $1,149  $1,226  $1,083  $1,250 
Inflows/(outflows) (55)  11   (63)  83   (18)
Market appreciation/(depreciation) 71   (30)  (14)  60   (149)
End of period assets$1,146  $1,130  $1,149  $1,226  $1,083 
Average assets during the period$1,186  $1,154  $1,199  $1,213  $1,193 
                    
Alternatives                   
Beginning of period assets$468  $514  $628  $755  $674 
Inflows/(outflows) (69)  (48)  (108)  (141)  178 
Market appreciation/(depreciation) 1   2   (6)  14   (97)
End of period assets$400  $468  $514  $628  $755 
Average assets during the period$443  $490  $574  $666  $712 
                    
Closed ETPs                   
Beginning of period assets$3  $224  $233  $352  $581 
Inflows/(outflows)    (23)  (4)  (44)  (192)
Market appreciation/(depreciation)    (17)  (5)  12   (37)
Fund closures (3)  (181)     (87)   
End of period assets$  $3  $224  $233  $352 
Average assets during the period$3  $214  $221  $343  $450 
                    
Headcount – U.S. Business segment 137   142   143   141   153 
Headcount – International Business segment 71   70   71   75   75 


Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTree

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

 Dec. 31,
2019
 Dec. 31,
2018
 (Unaudited)
    
ASSETS       
Current assets:       
Cash and cash equivalents$74,972  $77,784 
Securities owned, at fair value 17,319   8,873 
Accounts receivable 26,838   25,834 
Income taxes receivable    1,181 
Prepaid expenses 3,724   4,441 
Other current assets 207   163 
        
Total current assets 123,060   118,276 
Fixed assets, net 8,127   9,122 
Notes receivable 33,310   28,722 
Securities held-to-maturity 16,863   20,180 
Deferred tax assets, net 7,398   7,042 
Investments, carried at cost 36,192   28,080 
Right of use assets – operating leases 18,161    
Goodwill 85,856   85,856 
Intangible assets 603,294   603,209 
Other noncurrent assets 983   2,155 
        
Total assets$933,244  $902,642 
        
LIABILITIES AND STOCKHOLDERS’ EQUITY       
LIABILITIES       
Current liabilities:       
Fund management and administration payable$22,021  $22,508 
Compensation and benefits payable 26,501   18,453 
Deferred consideration – gold payments 13,953   11,765 
Securities sold, but not yet purchased, at fair value 582   1,698 
Operating lease liabilities 3,682    
Income taxes payable 3,372    
Accounts payable and other liabilities 8,930   8,377 
        
Total current liabilities 79,041   62,801 
Debt 175,956   194,592 
Deferred consideration – gold payments 159,071   149,775 
Operating lease liabilities 19,057    
Deferred rent payable    4,570 
        
Total liabilities 433,125   411,738 
Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding 132,569   132,569 
        
STOCKHOLDERS’ EQUITY       
Common stock, par value $0.01; 250,000 shares authorized:       
Issued and outstanding: 155,264 and 153,202 at December 31, 2019 and December 31, 2018, respectively 1,553   1,532 
Additional paid-in capital 373,043   363,655 
Accumulated other comprehensive income 945   467 
Accumulated deficit (7,991)  (7,319)
        
Total stockholders’ equity 367,550   358,335 
        
Total liabilities and stockholders’ equity$933,244  $902,642 
        

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)  

 Years Ended
 Dec. 31,
2019
 Dec. 31,
2018
Cash flows from operating activities:       
Net income$19,713  $36,633 
Adjustments to reconcile net income to net cash provided by operating activities:       
Advisory fees received in gold and other precious metals (49,887)  (32,238)
Contractual gold payments 13,226   8,512 
Stock-based compensation 11,590   13,255 
Loss/(gain) on revaluation of deferred consideration – gold payments 11,293   (12,220)
Amortization of right of use asset 3,174    
Amortization of credit facility issuance costs 2,888   2,087 
Paid-in-kind interest income (2,498)  (1,974)
Depreciation and amortization 1,045   1,301 
Impairments 572   17,386 
Deferred income taxes (349)  (6,083)
Other (173)  798 
Changes in operating assets and liabilities:       
Securities owned, at fair value (8,446)  (7,182)
Accounts receivable (19)  3,804 
Income taxes receivable/payable 4,524   5,706 
Prepaid expenses 738   427 
Gold and other precious metals 35,886   25,604 
Other assets 172   984 
Fund management and administration payable (476)  221 
Compensation and benefits payable 7,885   (16,050)
Securities sold, but not yet purchased, at fair value (1,116)  748 
Operating lease liabilities (3,587)   
Accounts payable and other liabilities 677   (4,251)
        
Net cash provided by operating activities 46,832   37,468 
        
Cash flows from investing activities:       
Purchase of fixed assets (47)  (71)
Purchase of investments (8,112)   
Funding of notes receivable (2,090)  (8,000)
Proceeds from held-to-maturity securities maturing or called prior to maturity 3,244   1,107 
Proceeds from sales and maturities of debt securities available-for-sale    64,498 
Cash paid for acquisition, net of cash acquired    (239,313)
        
Net cash used in investing activities (7,005)  (181,779)
        
Cash flows from financing activities:       
Dividends paid (20,385)  (19,236)
Repayment of debt (21,000)   
Shares repurchased (2,341)  (2,885)
Credit facility issuance costs    (8,690)
Preferred stock issuance costs    (181)
Proceeds from the issuance of debt    200,000 
Proceeds from exercise of stock options 160   191 
        
Net cash (used in)/provided by financing activities (43,566)  169,199 
        
Increase/(decrease) in cash flows due to changes in foreign exchange rate 927   (1,297)
        
(Decrease)/increase in cash and cash equivalents (2,812)  23,591 
Cash and cash equivalents – beginning of year 77,784   54,193 
        
Cash and cash equivalents – year$74,972  $77,784 
        
Supplemental disclosure of cash flow information:       
Cash paid for taxes$10,060  $14,398 
Cash paid for interest$8,037  $5,577 
        

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 release include:

  • Adjusted compensation, operating income, total expenses, income before income taxes, income tax expense, net income and diluted earnings per share.  We disclose adjusted compensation, operating income, total expenses, income before income taxes, income tax expense, net income and diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business.  We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance.  These non-GAAP financial measures exclude the following:

    • Unrealized gains or losses on the revaluation of deferred consideration:  Deferred consideration is an obligation we assumed in connection with the ETFS acquisition that is carried at fair value.  This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices.  Changes in the forward-looking price of gold may have 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 is not core to our operating business.  The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

    • Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense.  These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised.  We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.

    • Other items:  Impairment charges, severance expense and acquisition and disposition-related costs are excluded when calculating our non-GAAP financial measurements.

  • Adjusted effective income tax rate.  We disclose our adjusted effective income tax rate as a non-GAAP financial measurement in order to report our effective income tax rate exclusive of items that are non-recurring or not core to our operating business.  We believe reporting our adjusted effective income tax rate provides investors with a consistent way to analyze our income taxes.  Our adjusted effective income tax rate is calculated by dividing adjusted income tax expense by adjusted income before income taxes.  See above for information regarding the items that are excluded. 

  • Gross margin and gross margin percentage.  We disclose our gross margin and gross margin percentage as non-GAAP financial measurements for our U.S. Business segment and International Business segment because we believe they provide investors with a consistent way to analyze the amount we retain after paying third-party service providers to operate our ETPs.  These ratios also assist us in analyzing the profitability of our products.  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. 

  • Adjusted operating income margin.  We disclose adjusted operating income margin as a non-GAAP financial measurement on a consolidated basis, as well as for our U.S. Business segment and International Business segment in order to report our operating income margin exclusive of items that are non-recurring or not core to our operating business.   

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION (CONSOLIDATED)
(in thousands)
(Unaudited)

 Three Months Ended
                    
Adjusted Net Income and Diluted Earnings per Share:Dec. 31,
 Sept. 30,
 June 30,
 Mar. 31,
 Dec. 31,
  2019   2019   2019   2019   2018 
                    
Net income/(loss), as reported$4,258  $4,152  $2,479  $8,824  $(11,564)
                    
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration 5,354   6,306   4,037   (4,404)  5,410 
Add back: Severance expense, net of income taxes       1,194   1,521   1,526 
Add back/(deduct): Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards 142   30   76   971   (403)
Add back: Impairments, net of income taxes          572   14,048 
Add back: Acquisition and disposition-related costs, net of income taxes 353   154   27   253   812 
Adjusted net income$10,107  $10,642  $7,813  $7,737  $9,829 
Weighted average common shares - diluted 167,203   167,163   167,249   166,811   166,686 
Adjusted earnings per share - diluted$0.06  $0.06  $0.05  $0.05  $0.06 
                    
                    
 Three Months Ended
                    
Adjusted Operating Income and Adjusted OperatingDec. 31,
 Sept. 30,
 June 30,
 Mar. 31,
 Dec. 31,
Income Margin: 2019   2019   2019   2019   2018 
                    
Operating revenues$68,907  $67,718  $66,293  $65,485  $67,867 
                    
Operating income$14,809  $16,131  $11,911  $10,683  $11,819 
Add back: Severance expense, before income taxes       1,475   2,020   2,014 
Add back: Acquisition and disposition-related costs, before income taxes 366   190   33   313   1,008 
Adjusted operating income$15,175  $16,321  $13,419  $13,016  $14,841 
Adjusted operating income margin 22.0%  24.1%  20.2%  19.9%  21.9%
                    
                    
 Three Months Ended
                    
Adjusted Compensation:Dec. 31,
 Sept. 30,
 June 30,
 Mar. 31,
 Dec. 31,
  2019   2019   2019   2019   2018 
                    
Compensation expense$19,280  $18,880  $21,300  $21,301  $18,838 
Deduct: Severance expense, before income taxes       (1,475)  (2,020)  (2,014)
Adjusted compensation expense$19,280  $18,880  $19,825  $19,281  $16,824 
                    
                    
 Three Months Ended
                    
Adjusted Total Operating Expenses:Dec. 31,
 Sept. 30,
 June 30,
 Mar. 31,
 Dec. 31,
  2019   2019   2019   2019   2018 
                    
Total operating expenses$54,098  $51,587  $54,382  $54,802  $56,048 
Deduct: Severance expense, before income taxes       (1,475)  (2,020)  (2,014)
Deduct: Acquisition and disposition-related costs, before income taxes (366)  (190)  (33)  (313)  (1,008)
Adjusted operating expenses$53,732  $51,397  $52,874  $52,469  $53,026 
                    
                    
 Three Months Ended
                    
Adjusted Income Before Income Taxes:Dec. 31,
 Sept. 30,
 June 30,
 Mar. 31,
 Dec. 31,
  2019   2019   2019   2019   2018 
                    
Income/(loss) before income taxes$7,783  $8,635  $6,066  $7,775  $(12,597)
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration 5,354   6,306   4,037   (4,404)   5,410 
Add back: Loss recognized upon reduction of a tax-related indemnification asset          4,310    
Add back: Severance expense, before income taxes       1,475   2,020   2,014 
Add back: Impairments, before income taxes          572   17,386 
Add back: Acquisition and disposition-related costs, before income taxes 366   190   33   313   1,008 
Adjusted income before income taxes$13,503  $15,131  $11,611  $10,586  $13,221 
                    
                    
 Three Months Ended
                    
Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate:Dec. 31,
 Sept. 30,
 June 30,
 Mar. 31,
 Dec. 31,
  2019   2019   2019   2019   2018 
                    
Adjusted income before income taxes (above)$13,503  $15,131  $11,611  $10,586  $13,221 
                    
Income tax expense/(benefit)$3,525  $4,483  $3,587  $(1,049) $(1,033)
Add back: Tax benefit arising from reduction of a tax-related indemnification asset          4,310    
Add back: Tax benefit arising from severance expense       281   499   488 
Add back: Tax benefit arising from impairments             3,338 
Add back/(deduct): Tax windfalls/(shortfalls) upon vesting and exercise of stock-based compensation awards (142)  (30)  (76)  (971)  403 
Add back: Tax benefit arising from acquisition and disposition-related costs 13   36   6   60   196 
Adjusted income tax expense$3,396  $4,489  $3,798  $2,849  $3,392 
Adjusted effective income tax rate 25.1%  29.7%  32.7%  26.9%  25.7%
                    


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION (SEGMENTS)
(in thousands)
(Unaudited)

 Three Months Ended
Gross Margin and Gross Margin Percentage (U.S. Business):Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
Operating revenues$43,028  $42,031  $43,146  $42,623  $45,759 
Less: Fund management and administration (8,070)  (8,072)  (8,505)  (8,340)  (9,038)
Gross margin$34,958  $33,959  $34,641  $34,283  $36,721 
Gross margin percentage (U.S. Business) 81.2%  80.8%  80.3%  80.4%  80.2%
                    
                    
 Three Months Ended
Adjusted Operating Income Margin (U.S. Business):
Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
Operating revenues$43,028  $42,031  $43,146  $42,623  $45,759 
                    
                    
Operating income$9,021  $8,554  $6,739  $5,447  $8,771 
Add back: Severance expense, before income taxes       1,366   2,020   2,014 
Add back: Acquisition and disposition-related costs, before income taxes 170         11   72 
Adjusted operating income$9,191  $8,554  $8,105  $7,478  $10,857 
Adjusted operating income margin (U.S. Business) 21.4%  20.4%  18.8%  17.5%  23.7%
                    


 Three Months Ended
Gross Margin and Gross Margin Percentage (International):Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
Operating revenues$25,879  $25,687  $23,147  $22,862  $22,108 
Less: Fund management and administration (7,580)  (7,038)  (7,071)  (6,826)  (6,823)
Gross margin$18,299  $18,649  $16,076  $16,036  $15,285 
Gross margin percentage (International) 70.7%  72.6%  69.5%  70.1%  69.1%
                    
 Three Months Ended
Adjusted Operating Income Margin (International):Dec. 31,
2019
 Sept. 30,
2019
 June 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
Operating revenues$25,879  $25,687  $23,147  $22,862  $22,108 
                    
                    
Operating income$5,788  $7,577  $5,172  $5,236  $3,048 
Add back: Severance expense, before income taxes       109       
Add back: Acquisition and disposition-related costs, before income taxes 196   190   33   302   936 
Adjusted operating income$5,984  $7,767  $5,314  $5,538  $3,984 
Adjusted operating income margin (International) 23.1%  30.2%  23.0%  24.2%  18.0%
                    

Cautionary Statement Regarding Forward-Looking Statements

This press release 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 results. Factors that may cause actual results to differ materially from current expectations include, among other things, the risks described below. 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 press release 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.

In particular, forward-looking statements in this press release may include statements about

  • anticipated trends, conditions and investor sentiment in the global markets and ETPs;
  • anticipated levels of inflows into and outflows out of our ETPs;
  • our ability to deliver favorable rates of return to investors;
  • competition in our business;
  • our ability to develop new products and services;
  • our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;
  • our ability to successfully operate and expand our business in non-U.S. markets; and
  • the effect of laws and regulations that apply to our business.

Our business is subject to many risks and uncertainties, including without limitation:

  • declining prices of securities, precious metals and other commodities can adversely affect our business by reducing the market value of the assets we manage or causing WisdomTree ETP investors to sell their fund shares and trigger redemptions;
  • fluctuations in the amount and mix of our AUM, whether caused by disruptions in the financial markets or otherwise, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity, increase the cost of borrowing or result in our debt being called prior to maturity;
  • withdrawals or broad changes in investments in our ETPs by investors with significant positions may negatively impact revenues and operating margins;
  • competitive pressures could reduce revenues and profit margins;
  • we derive a substantial portion of our revenues from a limited number of products, and as a result, our operating results are particularly exposed to investor sentiment toward investing in the products’ strategies and our ability to maintain the AUM of these products, as well as the performance of these products and market-specific and political and economic risk;
  • a significant portion of our AUM is held in ETPs that invest in foreign securities and we therefore have substantial exposure to foreign market conditions and are subject to currency exchange rate risks;
  • net outflows in our two largest currency hedged ETPs – the WisdomTree Europe Hedged Equity Fund and the WisdomTree Japan Hedged Equity Fund – have had, and in the future could continue to have, a negative impact on our revenues;
  • over the last few years, we have expanded our business globally. This expansion subjects us to increased operational, regulatory, financial and other risks;
  • many of our ETPs have a limited track record, and poor investment performance could cause our revenues to decline; and
  • we depend on third parties to provide many critical services to operate our business and our ETPs. The failure of key vendors to adequately provide such services could materially affect our operating business and harm WisdomTree ETP investors.

Other factors, such as general economic conditions, including currency exchange rate fluctuations, also may have an effect on the results of our operations. For a more complete description of the risks noted above and other risks that could cause our actual results to differ from our current expectations, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

The forward-looking statements in this press release represent our views as of the date of this press release. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this press release.

RESTRICTED MATERIAL
This material is intended for Financial Professionals only

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