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Press Release

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Jan 29, 2021

WisdomTree Announces Fourth Quarter 2020 Results – Diluted Loss Per Share of ($0.10), or Earnings Per Share of $0.06, as adjusted

NEW YORK, Jan. 29, 2021 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the fourth quarter of 2020.

($13.5) million net loss ($9.21 million net income, as adjusted), see “Non-GAAP Financial Measurements” for additional information.

$22.4 million of non-cash charges, associated with the revaluation of deferred consideration – gold payments.

$67.4 billion of ending AUM, an increase of 11.0% arising from market appreciation and net inflows.

$881 million of net inflows, driven by inflows into our emerging markets equity and U.S. equity products, partly offset by outflows from our fixed income, commodity, international developed market equity and leveraged & inverse products.

0.41% average global advisory fee, a decrease of 1 basis point due to AUM mix shift.

$67.1 million of operating revenues, an increase of 3.7% primarily due to higher average AUM, partly offset by a lower average global advisory fee.
        
75.6% gross margin1, a 0.9 point decrease primarily due to Brexit and fund rebalancing costs.

19.2% operating income margin, a 3.6 point decrease primarily due to higher operating expenses, partly offset by higher revenues.

$0.03 quarterly dividend declared, payable on February 24, 2021 to stockholders of record as of the close of business on February 10, 2021.

Update from Jonathan Steinberg, WisdomTree CEO


“Our business has more than navigated the global pandemic, we have emerged stronger. Not only have we adapted to the remote working environment without missing a beat, but we also gleaned new operating efficiencies and competitive strengths that represent real value for shareholders. These strengths include: Our leading European-listed Bitcoin ETP approaching an inflection point; the building of a profitable, fast-growing and complementary UCITS platform; and the achievement of true diversification, powered by a leadership position in gold.

“We ended the year with momentum which we are carrying into the new year. Our digital assets initiatives reinforce and expand upon our core business strengths, as WisdomTree is aggressively pursuing and is well-positioned for success in this growing space. In 2020, we set our strategy for these initiatives, and we have been designing workflows and engaging productively with regulators with a goal of launching products later this year.”

Update from Jarrett Lilien, WisdomTree President and COO


“I am very excited about our business. We ended 2020 with strong growth and momentum. That momentum is continuing in 2021, and we are well positioned and have a strong 2021 growth plan. To date, we have seen global organic growth of $630 million and now have global assets under management at a new record, just shy of $70 billion. 

“For 2021, with our dividend strategies, our leadership position in gold and commodities, our best-in-market crypto ETP offering, our cloud computing, AI and battery products, recent global cybersecurity launch, as well as our leading ESG offerings, we could not be better positioned.

“Lastly, remote working has worked for us. We have transformed our operating model and we are working as a global team better than ever before. With a fresh perspective we have found new efficiencies adding scalability to our model and giving us scope to make further investments in future growth. Our vision is to continue with a remote-first approach post pandemic, ensuring that these efficiencies are permanent and carried into future years.”

OPERATING AND FINANCIAL HIGHLIGHTS

 Three Months Ended
 Dec. 31,
2020
Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Consolidated Operating Highlights ($ in billions):     
AUM$67.4 $60.7 $57.7 $50.3 $63.6 
Net inflows/(outflows)$0.9 $(0.5)$0.1 $(0.5)$0.4 
Average AUM$64.1 $61.2 $55.7 $60.2 $61.9 
Average advisory fee 0.41% 0.42% 0.41% 0.42% 0.44%
      
      
Consolidated Financial Highlights ($ in millions, except per share amounts):     
Operating revenues$67.1 $64.6 $58.1 $63.9 $68.9 
Net loss$(13.5)$(0.3)$(13.3)$(8.6)$(25.9)
Diluted loss per share$(0.10)$(0.01)$(0.09)$(0.06)$(0.17)
Operating income margin 19.2% 22.8% 20.3% 24.5% 21.5%
As Adjusted (Non-GAAP1):     
Gross margin 75.6% 76.5% 75.1% 77.3% 77.3%
Net income, as adjusted$9.2 $11.0 $8.5 $11.2 $10.1 
Diluted earnings per share, as adjusted$0.06 $0.07 $0.05 $0.07 $0.06 
Operating income margin, as adjusted 19.2% 22.8% 20.4% 25.1% 22.0%
      

RECENT BUSINESS DEVELOPMENTS


Company News
  • In November 2020, we were named as “European Smart Beta Provider of the Year” for the second consecutive year and “European Fund Launch of the Year” for the WisdomTree Cloud Computing UCITS ETF (WCLD), at the Funds Europe Awards 2020.
  • In December 2020, we were named as Pensions & Investments’ “Best Places to Work” in Money Management 2020 in the category for managers with 100-499 employees.
  • In January 2021, we announced the appointment of Smita Conjeevaram to our Board of Directors.
Product News
  • In November 2020, the splits and consolidations of certain classes of WisdomTree Multi Asset Issuer ETP securities were made effective. Consolidations: WisdomTree Brent Crude Oil 3x Daily Short (3BRS), WisdomTree NASDAQ 100 3x Daily Short (QQQS), WisdomTree Natural Gas 3x Daily Leveraged (3NGL), WisdomTree S&P 500 VIX Short-Term Futures 2.25x Daily Leveraged (VIXL). Splits: WisdomTree NASDAQ 100 3x Daily Leveraged (QQQ3); and we relaunched the short and leveraged oil products; WisdomTree WTI Crude Oil 3x Daily Leveraged (3OIL), WisdomTree WTI Crude Oil 3x Daily Short (3OIS) and WisdomTree Brent Crude Oil 3x Daily Leveraged (3BRL).
  • In December 2020, we declared final year-end U.S. capital gains distributions; we announced the reorganization of the WisdomTree Enhanced Commodity Strategy Fund (GCC) – previously the WisdomTree Continuous Commodity Index Fund – with an updated approach to broad-based commodity investing; we applied an ESG screen and introduced the WisdomTree Composite Risk Score to WisdomTree US Quality Dividend Growth UCITS ETF (DGRW), and WisdomTree US Equity Income UCITS ETF (DHS); we implemented a number of volatility proofing measures for four energy ETPs: WisdomTree WTI Crude Oil Pre-roll (WTID), WisdomTree Brent Crude Oil Pre-roll (BRND), WisdomTree Natural Gas 3x Daily Short (3NGS) and WisdomTree Brent Crude Oil 3x Daily Short (3BRS); and we listed the WisdomTree Core Physical Gold ETP (WGLD) on the London Stock Exchange.
  • In January 2021, we introduced eNav (estimated NAV) in collaboration with Virtu Financial to financial professionals available on WisdomTree’s website; we announced the global launch of the WisdomTree Cyber Security Fund (WCBR) on the NASDAQ, and the UCITS ETF on the London Stock Exchange, Borsa Italiana and Börse Xetra; and we applied an ESG screen to WisdomTree ex-State-Owned Enterprises Fund (XSOE), WisdomTree China ex-State-Owned Enterprises Fund (CXSE) and India ex-State-Owned Enterprises Fund (IXSE).

  

 
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
        
 Three Months Ended
  Years Ended
 Dec. 31,
2020
Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019
  Dec. 31,
2020
Dec. 31,
2019
Operating Revenues:       
Advisory fees$66,105  $63,919  $57,208  $62,950  $68,179  $250,182  $265,652 
Other income 954   721   918   924   728   3,517   2,751 
Total revenues 67,059   64,640   58,126   63,874   68,907   253,699   268,403 
Operating Expenses:                           
Compensation and benefits 20,827   19,098   17,455   17,295   19,280   74,675   80,761 
Fund management and administration 16,350   15,219   14,461   14,485   15,650   60,515   61,502 
Marketing and advertising 3,715   2,996   1,949   2,468   3,551   11,128   12,163 
Sales and business development 2,595   2,386   2,181   3,417   5,329   10,579   18,276 
Contractual gold payments 4,449   4,539   4,063   3,760   3,516   16,811   13,226 
Professional and consulting fees 1,322   950   1,357   1,273   1,604   4,902   5,641 
Occupancy, communications and equipment 1,622   1,611   1,643   1,551   1,587   6,427   6,302 
Depreciation and amortization 261   253   251   256   253   1,021   1,045 
Third-party distribution fees 1,291   1,233   1,340   1,355   1,146   5,219   6,968 
Acquisition and disposition-related costs       33   383   366   416   902 
Other 1,720   1,611   1,596   1,997   1,816   6,924   8,083 
Total operating expenses 54,152   49,896   46,329   48,240   54,098   198,617   214,869 
Operating income 12,907   14,744   11,797   15,634   14,809   55,082   53,534 
Other Income/(Expenses):       
Interest expense (2,694)  (2,511)  (2,044)  (2,419)  (2,606)  (9,668)  (11,240)
Loss on revaluation of deferred consideration – gold payments (22,385)  (8,870)  (23,358)  (2,208)  (5,354)  (56,821)  (11,293)
Interest income 351   111   119   163   936   744   3,332 
Impairments    (3,080)     (19,672)  (30,138)  (22,752)  (30,710)
Loss on extinguishment of debt       (2,387)        (2,387)   
Other gains and losses, net 524   744   1,819   (2,507)  (2)  580   (3,502)
(Loss)/income before income taxes (11,297)  1,138   (14,054)  (11,009)  (22,355)  (35,222)  121 
Income tax expense/(benefit) 2,200   1,408   (804)  (2,371)  3,525   433   10,546 
Net loss$(13,497) $(270) $(13,250) $(8,638) $(25,880) $(35,655) $(10,425)
Loss per share – basic ($0.10)2 ($0.01)2 ($0.09) ($0.06) ($0.17) ($0.25)2 ($0.08)2
Loss per share – diluted($0.10)2 ($0.01)2 ($0.09) ($0.06) ($0.17) ($0.25)2 ($0.08)2
Weighted average common shares – basic 145,096   145,564   151,623   152,519   151,948   148,682   151,823 
Weighted average common shares – diluted 145,096   145,564   151,623   152,519   151,948   148,682   151,823 
        
As Adjusted (Non-GAAP1)       
Total operating expenses$54,152  $49,896  $46,296  $47,857  $53,732    
Operating income$12,907  $14,744  $11,830  $16,017  $15,175    
Income before income taxes$11,504  $13,242  $10,911  $14,358  $13,503    
Income tax expense$2,281  $2,205  $2,417  $3,134  $3,396    
Net income$9,223  $11,037  $8,494  $11,224  $10,107    
Earnings per share – diluted$0.06  $0.07  $0.05  $0.07  $0.06    
        

QUARTERLY HIGHLIGHTS

Operating Revenues

  • Operating revenues increased 3.7% from the third quarter of 2020 due to higher average global AUM arising from market appreciation and net inflows, partly offset by a 1 basis point decrease in our average global advisory fee due to AUM mix shift.
  • Operating revenues decreased 2.7% from the fourth quarter of 2019 due to a 3 basis point decline in our average global advisory fee arising from AUM mix shift, notwithstanding the increase in our average AUM.
  • Our average global advisory fee was 0.41%, 0.42% and 0.44% during the fourth quarter of 2020, the third quarter of 2020 and the fourth quarter of 2019, respectively.

Operating Expenses

  • Operating expenses increased 8.5% from the third quarter of 2020 due to higher incentive compensation, higher fund management and administration costs arising from Brexit and fund rebalances, as well as higher marketing expenses and professional fees.
  • Operating expenses were essentially unchanged from the fourth quarter of 2019.

Other Income/(Expenses)

  • We recognized a non-cash loss on revaluation of deferred consideration of ($22.4) million, ($8.9) million and ($5.4) million during the fourth quarter of 2020, third quarter of 2020 and fourth quarter of 2019, respectively. The loss in the fourth quarter of 2020 arose primarily from a reduction in the discount rate used to compute the present value of the annual payment obligations. The prior quarter losses arose due to an increase in forward-looking gold prices.   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 increased 7.3% from the third quarter of 2020 to $2.7 million primarily due to higher levels of debt outstanding. This expense increased 3.4% from the fourth quarter of 2019 due to a higher effective interest rate, partly offset by lower levels of debt outstanding.
  • Other gains and losses, net, were $0.5 million, $0.7 million and $0.0 million for the fourth quarter of 2020, third quarter of 2020 and fourth quarter of 2019, respectively. The third quarter of 2020 includes a gain of $0.2 million from the exit of our investment in AdvisorEngine Inc. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items.

Income Taxes

  • Our effective income tax rate for the fourth quarter of 2020 of negative 19.5% resulted in income tax expense of $2.2 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, partly offset by a lower tax rate on foreign earnings.
  • Our adjusted effective income tax rate was 19.8%1.

ANNUAL HIGHLIGHTS

  • Operating revenues decreased 5.5% as compared to 2019 due to a 4 basis point decline in our average global advisory fee arising from AUM mix shift, notwithstanding the increase in our average AUM.
  • Operating expenses decreased 7.6% as compared to 2019 due to lower incentive compensation accruals as well as $3.5 million of severance expense included in the prior year, lower sales and business development costs, third party distribution costs, marketing expenses and other expenses, as well as lower fund management and administration costs primarily due to the sale of our Canadian ETF business. These declines were partly offset by higher contractual gold payments due to higher average gold prices.
  • Significant changes in items reported in other income/(expenses) include a decrease in interest expense of 14.0% due to a lower level of debt outstanding; non-cash losses on revaluation of deferred consideration of ($56.8) million and ($11.3) million in 2020 and 2019, respectively; a decrease in interest income of 77.7% as the prior year included accrued paid-in-kind interest income on our former AdvisorEngine investment; non-cash impairment charges of $22.8 million and $30.7 million recorded in 2020 and 2019, respectively; a loss on extinguishment of debt of $2.4 million in 2020; non-cash charges of $6.0 million and $4.3 million in 2020 and 2019, respectively, arising from the release of tax-related indemnification assets upon the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense); and a gain of $1.1 million in 2020 arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine.
  • Our effective income tax rate for 2020 of negative 1.2% resulted in income tax expense of $0.4 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a non-deductible loss on revaluation of deferred consideration, a valuation allowance on capital losses and tax shortfalls associated with the vesting and exercise of stock-based compensation awards. These items were partly offset by a tax benefit of $6.0 million recognized in connection with the release of the tax-related indemnification asset described above, a $2.9 million non-taxable gain recognized upon sale of our Canadian ETF business in the first quarter, a tax benefit of $2.6 million recognized in connection with the release of a deferred tax asset valuation allowance on interest carryforwards arising from our debt previously held in the United Kingdom 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 29, 2021 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. and Europe (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 $69.2 billion in assets under management globally.

WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.
_____________________________
1 See “Non-GAAP Financial Measurements.”
2 Earnings/(loss) per share (“EPS”) is calculated pursuant to the two-class method as it results in a lower EPS amount as compared to the treasury stock method.

Contact Information:

Media Relations
Jessica Zaloom
+1.917.267.3735
jzaloom@wisdomtree.com

WisdomTree Investments, Inc.      
Key Operating Statistics (Unaudited)      
 Three Months Ended
 Dec. 31,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019
GLOBAL ETPs ($ in millions)      
Beginning of period assets$60,710  $57,666  $50,347  $63,615  $59,981 
Assets sold          (778)   
Inflows/(outflows) 881   (477)  126   (536)  390 
Market appreciation/(depreciation) 5,898   3,567   7,489   (11,934)  3,247 
Fund closures (97)  (46)  (296)  (20)  (3)
End of period assets$67,392  $60,710  $57,666  $50,347  $63,615 
Average assets during the period$64,125  $61,216  $55,708  $60,189  $61,858 
Average advisory fee during the period 0.41%  0.42%  0.41%  0.42%  0.44%
Revenue days 92   92   91   91   92 
Number of ETFs – end of the period 309   305   311   331   349 
       
U.S. LISTED ETFs ($ in millions)      
Beginning of period assets$33,310  $31,362  $28,920  $40,600  $37,592 
Inflows/(outflows) 919   575   (1,474)  (1,273)  563 
Market appreciation/(depreciation) 4,385   1,373   4,030   (10,397)  2,448 
Fund closures (97)     (114)  (10)  (3)
End of period assets$38,517  $33,310  $31,362  $28,920  $40,600 
Average assets during the period$36,002  $32,984  $30,626  $36,940  $39,094 
Average advisory fee during the period 0.40%  0.41%  0.41%  0.43%  0.44%
Number of ETFs – end of the period 67   67   67   77   80 
       
INTERNATIONAL LISTED ETPs ($ in millions)      
Beginning of period assets$27,400  $26,304  $21,427  $23,015  $22,389 
Assets sold          (778)   
Inflows/(outflows) (38)  (1,052)  1,600   737   (173)
Market appreciation/(depreciation) 1,513   2,194   3,459   (1,537)  799 
Fund closures    (46)  (182)  (10)   
End of period assets$28,875  $27,400  $26,304  $21,427  $23,015 
Average assets during the period$28,123  $28,232  $25,082  $23,249  $22,764 
Average advisory fee during the period 0.42%  0.42%  0.41%  0.40%  0.44%
Number of ETPs – end of the period 242   238   244   254   269 
       
PRODUCT CATEGORIES ($ in millions)      
       
Commodity & Currency      
Beginning of period assets$25,122  $24,191  $19,748  $19,947  $19,599 
Inflows/(outflows) (254)  (1,106)  1,325   622   (250)
Market appreciation/(depreciation) 1,179   2,037   3,118   (821)  598 
End of period assets$26,047  $25,122  $24,191  $19,748  $19,947 
Average assets during the period$25,676  $25,878  $22,964  $20,302  $19,770 
       
U.S. Equity      
Beginning of period assets$15,612  $13,997  $12,151  $17,732  $16,281 
Inflows/(outflows) 395   897   (241)  (285)  460 
Market appreciation/(depreciation) 2,360   718   2,087   (5,296)  991 
End of period assets$18,367  $15,612  $13,997  $12,151  $17,732 
Average assets during the period$17,050  $15,141  $13,302  $16,011  $16,969 
       
International Developed Market Equity      
Beginning of period assets$8,621  $8,839  $8,659  $13,011  $12,169 
Inflows/(outflows) (191)  (587)  (965)  (1,097)  (135)
Market appreciation/(depreciation) 984   369   1,145   (3,255)  977 
End of period assets$9,414  $8,621  $8,839  $8,659  $13,011 
Average assets during the period$8,930  $8,835  $8,779  $11,453  $12,607 
       


       
 Three Months Ended
 Dec. 31,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 30,
2020
Dec. 31,
2019
       
Emerging Market Equity      
Beginning of period assets$5,979  $5,413  $4,600  $6,400  $5,699 
Inflows/(outflows) 1,399   257   (25)  69   195 
Market appreciation/(depreciation) 1,161   309   838   (1,869)  506 
End of period assets$8,539  $5,979  $5,413  $4,600  $6,400 
Average assets during the period$7,249  $5,917  $5,129  $5,919  $5,991 
       
Fixed Income      
Beginning of period assets$3,630  $3,530  $3,527  $3,585  $3,337 
Inflows/(outflows) (330)  76   (53)  21   218 
Market appreciation/(depreciation) 24   24   56   (79)  30 
End of period assets$3,324  $3,630  $3,530  $3,527  $3,585 
Average assets during the period$3,472  $3,605  $3,523  $3,653  $3,540 
       
Leveraged & Inverse      
Beginning of period assets$1,430  $1,350  $896  $1,138  $1,121 
Inflows/(outflows) (118)  (9)  312   12   (22)
Market appreciation/(depreciation) 175   89   142   (254)  39 
End of period assets$1,487  $1,430  $1,350  $896  $1,138 
Average assets during the period$1,436  $1,482  $1,169  $1,147  $1,178 
       
Alternatives      
Beginning of period assets$229  $225  $244  $358  $418 
Inflows/(outflows) (26)  (4)  (29)  (66)  (61)
Market appreciation/(depreciation) 11   8   10   (48)  1 
End of period assets$214  $229  $225  $244  $358 
Average assets during the period$224  $226  $226  $328  $398 
       
Closed ETPs      
Beginning of period assets$87  $121  $522  $1,444  $1,357 
Assets sold          (778)   
Inflows/(outflows) 6   (1)  (198)  188   (15)
Market appreciation/(depreciation) 4   13   93   (312)  105 
Fund closures (97)  (46)  (296)  (20)  (3)
End of period assets$  $87  $121  $522  $1,444 
Average assets during the period$88  $132  $616  $1,376  $1,405 
       
Headcount 217   211   214   210   208 

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,
2020
 Dec. 31,
2019
 (Unaudited)
  
ASSETS     
Current assets:     
Cash and cash equivalents$73,425  $74,972 
Securities owned, at fair value 34,895   17,319 
Accounts receivable 29,455   26,838 
Prepaid expenses 3,827   3,724 
Other current assets 259   207 
Total current assets 141,861   123,060 
Fixed assets, net 7,579   8,127 
Notes receivable    28,172 
Securities held-to-maturity 451   16,863 
Deferred tax assets, net 8,063   7,398 
Investments 8,112   11,192 
Right of use assets – operating leases 16,327   18,161 
Goodwill 85,856   85,856 
Intangible assets 601,247   603,294 
Other noncurrent assets 180   983 
Total assets$869,676  $903,106 
        
LIABILITIES AND STOCKHOLDERS’ EQUITY       
LIABILITIES       
Current liabilities:       
Fund management and administration payable$19,564  $22,021 
Compensation and benefits payable 22,803   26,501 
Deferred consideration – gold payments 17,374   13,953 
Securities sold, but not yet purchased, at fair value    582 
Operating lease liabilities 3,135   3,682 
Income taxes payable 916   3,372 
Accounts payable and other liabilities 10,207   8,930 
Total current liabilities 73,999   79,041 
Convertible notes 166,646    
Debt    175,956 
Deferred consideration – gold payments 212,763   159,071 
Operating lease liabilities 17,434   19,057 
Total liabilities 470,842   433,125 
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: 148,716 and 155,264 at December 31, 2020 and December 31, 2019, respectively 1,487   1,553 
Additional paid-in capital 317,075   352,658 
Accumulated other comprehensive income 1,102   945 
Accumulated deficit (53,399)  (17,744)
Total stockholders’ equity 266,265   337,412 
Total liabilities and stockholders’ equity$869,676  $903,106 
        


 
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)  
 
   
 Years Ended
 Dec. 31,
2020
 Dec. 31,
2019
Cash flows from operating activities:  
Net loss$(35,655) $(10,425)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Advisory fees received in gold and other precious metals (62,416)  (49,887)
Loss on revaluation of deferred consideration – gold payments 56,821   11,293 
Impairments 22,752   30,710 
Contractual gold payments 16,811   13,226 
Stock-based compensation 11,706   11,590 
Amortization of right of use asset 3,182   3,174 
Gain on sale –Canadian ETF business (2,877)   
Loss on extinguishment of debt 2,387    
Deferred income taxes (2,192)  (349)
Amortization of issuance costs - convertible notes 1,710    
Amortization of issuance costs - former credit facility 1,328   2,888 
Depreciation and amortization 1,021   1,045 
Paid-in-kind interest income    (2,498)
Other (1,169)  (173)
Changes in operating assets and liabilities:  
Securities owned, at fair value (17,576)  (8,446)
Accounts receivable (193)  (19)
Prepaid expenses (159)  738 
Gold and other precious metals 45,087   35,886 
Other assets 107   172 
Fund management and administration payable (2,264)  (476)
Compensation and benefits payable (3,804)  7,885 
Income taxes payable (2,441)  4,524 
Securities sold, but not yet purchased, at fair value (582)  (1,116)
Operating lease liabilities (3,517)  (3,587)
Accounts payable and other liabilities 1,328   677 
Net cash provided by operating activities 29,395   46,832 
        
Cash flows from investing activities:       
Purchase of fixed assets (472)  (47)
Proceeds from held-to-maturity securities maturing or called prior to maturity 16,488   3,244 
Proceeds from the sale of our financial interests in AdvisorEngine 9,592    
Proceeds from sale of Canadian ETF business, net 2,774    
Purchase of investments    (8,112)
Funding of notes receivable    (2,090)
Net cash provided by/(used in) investing activities 28,382   (7,005)
        
Cash flows from financing activities:       
Repayment of debt (179,000)  (21,000)
Shares repurchased (31,197)  (2,341)
Dividends paid (20,113)  (20,385)
Convertible notes issuance costs (5,411)   
Proceeds from the issuance of convertible notes 175,250    
Proceeds from exercise of stock options 292   160 
Net cash used in financing activities (60,179)  (43,566)
Increase in cash flows due to changes in foreign exchange rate 855   927 
Decrease in cash and cash equivalents (1,547)  (2,812)
Cash and cash equivalents – beginning of year 74,972   77,784 
Cash and cash equivalents – end of year$73,425  $74,972 
Supplemental disclosure of cash flow information:       
Cash paid for taxes$10,131  $10,060 
Cash paid for interest$7,088  $8,037 
        

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 press release include:

• Adjusted operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share. We disclose adjusted operating income, operating 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 and changes in the discount rate used to compute the present value of the annual payment obligations 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.
  • Interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the convertible notes: GAAP requires convertible instruments to be separated into their liability and equity components by allocating the issuance proceeds to each of these components. The liability component for convertible instruments that qualify for a derivative scope exception (applicable to our convertible notes) is allocated proceeds equal to the estimated fair value of similar debt without the conversion option. The difference between the gross proceeds received from the issuance of the convertible instrument and the proceeds allocated to the liability component represents the residual amount that is classified in equity. The discount arising from the recognition of the residual amount classified in equity is amortized as interest expense over the life of the instrument. We exclude this item when calculating our non-GAAP financial measurements as it is non-cash and distorts our actual cost of borrowing. In addition, in August 2020, the FASB issued Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options, Cash Conversion which includes the elimination of the requirement to bifurcate conversion options qualifying for a derivative scope exception. Once effective, this interest expense will no longer be recognized.
  • Other items:   Loss on extinguishment of debt, the release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from our debt previously outstanding in the United Kingdom, a gain arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine, impairment charges, a gain recognized upon sale of our Canadian ETF business 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 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 measures 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 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,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019

Net loss, as reported
$(13,497) $(270) $(13,250) $(8,638) $(25,880)
Add back: Loss on revaluation of deferred consideration 22,385   8,870   23,358   2,208   5,354 
Add back: Interest expense from the amortization of discount arising from the bifurcation of the   conversion option embedded in the convertible notes, net of income taxes 314   286   42       
Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards 21   50   119   501   142 
Add back: Impairments, net of income taxes    2,326      19,672   30,138 
Deduct: Gain arising from an adjustment to the estimated fair value of consideration received from   the exit of investment in AdvisorEngine    (225)  (868)      
Add back: Loss on extinguishment of debt, net of income taxes       1,910       
Deduct: Release of a deferred tax asset valuation allowance recognized on interest carryforwards   arising from debt previously outstanding in the United Kingdom       (2,842)      
Deduct: Gain recognized upon sale of Canadian ETF business          (2,877)   
Add back: Acquisition and disposition-related costs, net of income taxes       25   358   353 
Adjusted net income$9,223  $11,037  $8,494  $11,224  $10,107 
Weighted average common shares - diluted 161,138   160,876   166,634   167,561   167,203 
Adjusted earnings per share - diluted$0.06  $0.07  $0.05  $0.07  $0.06 
                    
                    
 Three Months Ended
Gross Margin and Gross Margin Percentage:
Dec. 31,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019

Operating revenues
$67,059  $64,640  $58,126  $63,874  $68,907 
Less: Fund management and administration (16,350)  (15,219)  (14,461)  (14,485)  (15,650)
Gross margin$50,709  $49,421  $43,665  $49,389  $53,257 
Gross margin percentage 75.6%  76.5%  75.1%  77.3%  77.3%
                    


       
 Three Months Ended
Adjusted Operating Income and Adjusted Operating
Income Margin:
Dec. 31,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019

Operating revenues
$67,059  $64,640  $58,126  $63,874  $68,907 
                    
Operating income$12,907  $14,744  $11,797  $15,634  $14,809 
Add back: Acquisition and disposition-related costs, before income taxes       33   383   366 
Adjusted operating income$12,907  $14,744  $11,830  $16,017  $15,175 
Adjusted operating income margin 19.2%  22.8%  20.4%  25.1%  22.0%
                    


 Three Months Ended
Adjusted Total Operating Expenses:
Dec. 31,
2020
  Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019

Total operating expenses
$54,152  $49,896  $46,329  $48,240  $54,098 
Deduct: Acquisition and disposition-related costs, before income taxes       (33)  (383)  (366)
Adjusted total operating expenses$54,152  $49,896  $46,296  $47,857  $53,732 
                    


 Three Months Ended
Adjusted Income Before Income Taxes:
Dec. 31,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019

(Loss)/income before income taxes        
$            (11,297) $         1,138  $         (14,054) $         (11,009) $(22,355)
Add back: Loss on revaluation of deferred consideration                  22,385            8,870            23,358   2,208   5,354 
Add back: Interest expense from the amortization of discount arising from the bifurcation of the   conversion option embedded in the convertible notes, before income taxes                 416           379           55                   —   —  
Add back: Impairments, before income taxes                 —             3,080           —     19,672   30,138 
Deduct: Gain arising from an adjustment to the estimated fair value of consideration received from the   exit of investment in AdvisorEngine                 —              (225)           (868)                —   —   
Add back: Loss on extinguishment of debt                 —             —              2,387                 —   —   
Add back: Loss recognized upon reduction of a tax-related indemnification asset                 —             —             —     5,981   —   
Deduct: Gain recognized upon sale of Canadian ETF business                 —             —             —     (2,877)  —   
Add back: Acquisition and disposition-related costs, before income taxes                 —             —              33   383   366 
Adjusted income before income taxes        $         11,504  $         13,242  $         10,911  $         14,358  $      13,503 
                    


 Three Months Ended
Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate:
Dec. 31,
2020
 Sept. 30,
2020
June 30,
2020
Mar. 31,
2020
Dec. 31,
2019

Adjusted income before income taxes (above)
$11,504  $13,242  $10,911  $14,358  $13,503 
                    
Income tax expense/(benefit)$2,200  $1,408  $(804) $(2,371) $3,525 
Add back: Tax benefit arising from the amortization of discount associated with the bifurcation
 of the conversion option embedded in the convertible notes
 102   93   13       
Deduct: Tax shortfalls upon vesting and exercise of stock-based compensation awards (21)  (50)  (119)  (501)  (142)
Add back: Tax benefit arising from impairments    754          
Add back: Tax benefit arising from loss on extinguishment of debt       477       
Add back: Release of a deferred tax asset valuation allowance recognized on interest
 carryforwards arising from debt previously outstanding in the United Kingdom
       2,842       
Add back: Tax benefit arising from reduction of a tax-related indemnification asset          5,981    
Add back: Tax benefit arising from acquisition and disposition-related costs       8   25   13 
Adjusted income tax expense$2,281  $2,205  $2,417  $3,134  $3,396 
Adjusted effective income tax rate 19.8%  16.7%  22.2%  21.8%  25.1%
                    

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

  • the ultimate duration of the COVID-19 pandemic and its short-term and long-term impact on our business and the global economy;
  • 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, gold and other 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, including but not limited to a pandemic event such as COVID-19, 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;
  • 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 products with exposure to U.S. and international developed markets and we therefore have exposure to domestic and foreign market conditions and are subject to currency exchange rate risks;
  • withdrawals or broad changes in investments in our ETPs by investors with significant positions may negatively impact revenues and operating margins;
  • 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, 2019 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

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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