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Press Release

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Jul 26, 2019

WisdomTree Announces Second Quarter 2019 Results

$2.5 million net income, or $7.8 million net income, as adjusted

$0.01 diluted EPS for the quarter, $0.05 as adjusted

Declares $0.03 quarterly dividend

NEW YORK, July 26, 2019 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. (NASDAQ: WETF), an exchange-traded fund (“ETF”) and exchange-traded product (“ETP”) sponsor and asset manager, today reported net income of $2.5 million or $0.01 diluted EPS in the second quarter.  Adjusted net income (a non-GAAP measure1) was $7.8 million1 or $0.05 diluted EPS1.  This compares to net income of $16.7 million or $0.10 diluted EPS (as adjusted, $14.3 million1 or $0.09 diluted EPS1) in the second quarter of last year and net income of $8.8 million or $0.05 diluted EPS (as adjusted, $7.7 million1 or $0.05 diluted EPS1) in the first quarter of 2019.

WisdomTree CEO and President Jonathan Steinberg said, “We experienced our third consecutive quarter of net inflows, led by the strength of our European gold franchise, a category with significant demand in the current macro environment. Overall, we are seeing an improvement on our absolute and relative growth trends; this is a direct result of the investments we’ve made to expand and diversify our product line-up, and transform our distribution reach and approach, including an award-winning solutions program.”

Steinberg continued, “There are undeniable signs our distribution strategy is working. Over the past 12 months, we achieved 20% organic growth from clients using our solutions program or on platforms where we have commission-free agreements in place; this is multiples faster than non-solutions or non-platform clients.”  

“We have worked tirelessly over the past few years to remain at the forefront of product innovation, diversify our business to reduce volatility, and to transform our distribution models. We are beginning to realize the benefits of our efforts and the investments we have made into the business,” Steinberg concluded.

 Three Months Ended
 Change From
  June 30,
2019
   Mar. 31,
2019
   June 30,
2018
   Mar. 31,
2019
   June 30,
2018
 
Consolidated Operating Highlights ($, in billions):                   
AUM$60.4  $59.1  $60.0   2.2%  0.7%
Net inflows/(outflows)$0.3  $0.6  $(1.2)  (39.6%)  n/a 
Average AUM$58.6  $57.7  $61.3   1.5%  (4.5%)
Average advisory fee 0.45%  0.46%  0.48%  -0.01   -0.03 
                    
                    
Consolidated Financial Highlights ($, in millions, except per share amounts):                   
Operating revenues$66.3  $65.5  $74.8   1.2%  (11.3%)
Net income$2.5  $8.8  $16.7   (71.9%)  (85.2%)
Diluted earnings per share$0.01  $0.05  $0.10  $(0.04) $(0.09)
Operating income margin 18.0%  16.3%  19.4%  1.7   -1.4 
Non-GAAP1:                   
Net income, as adjusted$7.8  $7.7  $14.3   0.1%  (45.4%)
Diluted earnings per share, as adjusted$0.05  $0.05  $0.09  $0.00  $(0.04)
Operating income margin, as adjusted 20.2%  19.9%  30.0%  0.3   -9.8 
                    

Recent Business Developments

Company News

  • In May 2019, LPL Financial LLC announced plans to reduce transaction charges from $9.00 to $4.95 for WisdomTree ETFs on the firm’s Strategic Asset Management (SAM) and Strategic Wealth Management (SWM) platforms. 
  • In June 2019, Pershing announced that it expanded its FundVest® ETF no-transaction-fee platform adding 43 additional WisdomTree ETFs.

Product News

  • In May 2019, we launched the Modern Tech Platform Fund (PLAT) on the NYSE Arca, offering access to companies generating substantial revenue from platform business models.
  • In May 2019, we announced our partnership with Swissquote, Switzerland’s largest execution-only broker, and now offer ten equity ETFs with 28 asset classes on the Swissquote platform; and we announced our partnership with Moneymate, a financial data provider for financial advisors and institutions in Italy. The platform now hosts data on four WisdomTree model portfolios.
  • In June 2019, we announced the addition of 8 WisdomTree ETFs to the TD Ameritrade ETF Market Center commission-free menu.
  • In July 2019, we marked the 3-year anniversary of the launch of our first suite of ETFs in Canada.

Assets Under Management and Net Flows

Assets under management (“AUM”) were $60.4 billion at June 30, 2019, up 11.6% on a year to date basis and up slightly from June 30, 2018.

Net inflows were $0.3 billion for the second quarter of 2019, primarily due to strong flows into our commodity, emerging markets and fixed income products.  Our two largest currency hedged products (HEDJ/DXJ) had outflows of $0.6 billion in the second quarter.  On a year to date basis, net inflows were $0.9 billion, or $2.7 billion excluding outflows from HEDJ/DXJ.

Second Quarter and Year to Date Financial Discussion

Our operating results for the prior year periods reported in this press release are not directly comparable to the current year periods due to our acquisition of ETFS, which was completed on April 11, 2018.  We refer to the acquisition throughout this press release as the ETFS Acquisition.

Operating Revenues

Advisory Fees

Advisory fees of $65.6 million decreased 11.0% from the second quarter of 2018 due to lower average AUM of our U.S. Business segment, partly offset by higher average AUM of our International Business segment as well as the recognition of a full quarter of revenues associated with the ETFS acquired business.  Advisory fees increased 1.2% from the first quarter of 2019 primarily due to higher average AUM of our U.S. Business segment and one additional revenue day in the current quarter, partly offset by lower average global advisory fees due to a shift in product mix.

Our average global advisory fee was 0.45%, 0.46% and 0.48% during the second quarter of 2019, first quarter of 2019 and second quarter of 2018, respectively.  The change as compared to the first quarter of 2019 was due to a change in product mix globally.  The change as compared to the second quarter of 2018 was primarily due to a change in product mix in our U.S. Business segment.

Other Income 

Other income of $0.7 million decreased 33.2% from the second quarter of 2018 primarily due to lower creation/redemption fees of our International Business segment.  Other income was essentially unchanged from the first quarter of 2019. 

Margins

Gross margin for our U.S. Business segment was 80.3%1 in the second quarter of 2019 as compared to 83.4%1 in the second quarter of 2018 and 80.4%1 in the first quarter of 2019.  The decline as compared to the second quarter of 2018 was primarily due to lower revenue capture and lower average AUM.  Gross margin for our International Business segment was 69.5%1 in the second quarter of 2019 as compared to 73.2%1 in the second quarter of 2018 and 70.1%1 in the first quarter of 2019.  These declines were primarily due to lower revenue capture when compared to the second quarter of 2018, as well as higher product operational expenses and costs associated with preparing our products for Brexit.

Operating income margin on a consolidated basis was 18.0% in the second quarter of 2019 (as adjusted 20.2%1) as compared to 19.4% in the second quarter of 2018 (as adjusted 30.0%1) and 16.3% in the first quarter of 2019 (as adjusted 19.9%1).

Operating Expenses

Total operating expenses were $54.4 million for the second quarter of 2019, down 9.7% from the second quarter of 2018.  Excluding acquisition-related costs, operating expenses increased 3.9%.  Operating expenses decreased slightly from the first quarter of 2019.   

  • Compensation and benefits expense increased 10.4% from the second quarter of 2018 to $21.3 million due to severance expense of $1.5 million and higher incentive compensation.  These expenses were essentially unchanged from the first quarter of 2019 as lower payroll taxes and lower severance expense in the current quarter were partly offset by higher accrued incentive compensation.  Payroll taxes in the first quarter of 2019 are seasonally higher due to bonus payments made during the period.  Headcount of our U.S. Business segment was 143, 141 and 155 and our International Business segment was 71, 75 and 76 at June 30, 2019, March 31, 2019 and June 30, 2018, respectively.

  • Fund management and administration expense increased 6.5% from the second quarter of 2018 to $15.6 million due to the recognition of a full quarter of expense associated with the ETFS acquired business, partly offset by lower average AUM of our U.S. Business segment.  These expenses increased 2.7% from the first quarter of 2019 primarily due to higher product operational expenses and costs associated with preparing our products for Brexit recognized by our International Business segment and higher average AUM of our U.S. Business segment.  We had 79 U.S. listed ETFs and 457 International listed ETPs at the end of the quarter.

  • Marketing and advertising expense decreased 23.0% from the second quarter of 2018 to $2.9 million due to lower global spending.  These expenses increased 8.6% from the first quarter of 2019 due to higher spending of our U.S. Business segment.

  • Sales and business development expense decreased 7.4% and 5.7% from the second quarter of 2018 and first quarter of 2019, respectively, to $4.2 million primarily due to lower spending on sales related activities of our U.S. Business segment.

  • Contractual gold payments expense increased 14.5% and 0.4% from the second quarter of 2018 and first quarter of 2019, respectively, to $3.1 million.  This expense was associated with the payment of 2,375 ounces of gold (2,085 ounces for the period April 11 through June 30, 2018) and was calculated using an average daily spot price of $1,310, $1,302 and $1,304 per ounce, during the second quarter of 2019, second quarter of 2018 and first quarter of 2019, respectively.

  • Professional and consulting fees decreased 16.9% and 12.6% from the second quarter of 2018 and first quarter of 2019, respectively, to $1.3 million due to lower spending on corporate consulting-related expenses.

  • Occupancy, communications and equipment expense decreased 1.7% and 4.3% from the second quarter of 2018 and first quarter of 2019 to $1.5 million.  The decrease from the second quarter of 2018 was due to the closure of our office in Japan partly offset by additional office space associated with the ETFS Acquisition.  The decrease from the first quarter of 2019 was due to the Japan office closure.

  • Depreciation expense decreased 21.7% from the second quarter of 2018 to $0.3 million primarily due to the closure of our office in Japan.  This expense was essentially unchanged from the first quarter of 2019.

  • Third-party distribution fees increased 15.2% from the second quarter of 2018 to $1.9 million primarily due to higher fees paid for platform relationships partly offset by lower fees paid to our third-party marketing agent in Latin America.  These expenses decreased 20.0% from the first quarter of 2019 primarily due to the recognition of one-time fees for a platform relationship during that period.

  • Acquisition-related costs decreased 99.6% and 89.5% from the second quarter of 2018 and first quarter of 2019, respectively, to $0.03 million as the integration of ETFS is essentially complete.  We expect to have additional acquisition-related expenses in the third quarter as we rationalize our product offering in Europe following the ETFS Acquisition.

  • Other expenses were essentially unchanged from the second quarter of 2018.  These expenses increased 9.8% from the first quarter of 2019 to $2.3 million due to higher levels of administrative spending.

Other Income/(Expenses)

  • Interest expense increased 23.5% from the second quarter of 2018 to $2.9 million due to higher interest rates as well as the recognition of a full quarter of expense as borrowing under our term loan commenced on April 11, 2018.  This expense was essentially unchanged from the first quarter of 2019.

  • We recognized a (loss)/gain on revaluation of deferred consideration of ($4.0) million, $9.9 million and $4.4 million during the second quarter of 2019, second quarter of 2018 and first quarter of 2019, respectively.  The loss arose in the current quarter due to an increase in the price of gold, partly offset by a flattening of the forward-looking gold curve when compared to the forward-looking gold curve on March 31, 2019, the date on which the deferred consideration was last measured.  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 income increased 33.7% and 5.0% from the second quarter of 2018 and first quarter of 2019, respectively, to $0.8 million primarily due to higher paid-in-kind interest on notes receivable from AdvisorEngine Inc.

  • Other gains and losses, net were $0.3 million, ($0.5) million and ($4.6) million during the second quarter of 2019, second quarter of 2018 and first quarter of 2019, respectively.  Included in the first quarter of 2019 is a charge of $4.3 million arising from a release of a tax-related indemnification asset upon the expiration of the statute of limitations.  The indemnification arose from tax exposures assumed in the ETFS Acquisition.  An equal and offsetting benefit has been recognized in income tax expense.  In addition, gains and losses 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 quarter ended June 30, 2019 of 59.1% resulted in income tax expense of $3.6 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses, non-deductible executive compensation, a non-deductible loss on revaluation of deferred consideration and state and local taxes, partly offset by a lower tax rate on foreign earnings.

Our adjusted effective income tax rate was 32.7%1.

Six Month Results

Total operating revenues decreased 1.4% to $131.8 million for the six months ended June 30, 2019 due to lower average AUM of our U.S. Business segment, partly offset by higher revenues earned from the ETFS acquired business, the acquisition of which was completed on April 11, 2018.  Total operating expenses increased 3.1% to $109.2 million due to higher expenses of the ETFS acquired business, which were recognized for the entire six months of 2019 and higher compensation expense.  These items were partly offset by lower acquisition-related costs and lower non-compensation expenses of the U.S. Business segment.

Other income/(expenses) for the six months ended June 30, 2019 includes ($5.8) million of interest expense, a gain on revaluation of deferred consideration of $0.4 million, interest income of $1.6 million, impairment of ($0.6) million and other net losses of ($4.3) million.  See quarterly discussion above for additional information regarding the other net losses.

Balance Sheet

As of June 30, 2019, we had total assets of $923.9 million which consisted primarily of intangible assets and goodwill of $689.1 million, and cash and securities owned of $108.8 million.  There were approximately 155.1 million shares of our common stock outstanding as of June 30, 2019. 

Quarterly Dividend

Our Board of Directors declared a quarterly cash dividend of $0.03 per share of our common stock. The dividend will be paid on August 21, 2019 to stockholders of record as of the close of business on August 7, 2019.

Conference Call

WisdomTree will discuss its results and operational highlights during a conference call on Friday, July 26, 2019 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.

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 ETFs 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 ETFs – 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 and ETFs have a limited track record, and poor investment performance could cause our revenues to decline.

  • We depend on third parties to provide many critical services to operate our business and our ETPs and ETFs. 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, please see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal 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.

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 $61.2 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.”

Contact Information:

Investor Relations                                               
WisdomTree Investments, Inc.                         
Jason Weyeneth, CFA                                        
+1.917.267.3858                                                                 
jweyeneth@wisdomtree.com                           

Media Relations
WisdomTree Investments, Inc.
Jessica Zaloom
+1.917.267.3735
jzaloom@wisdomtree.com

         
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
                             
 Three Months Ended
 % Change From
 Six Months Ended
  June 30,
2019
   Mar. 31,
2019
   June 30,
2018
  Mar. 31,
2019

 June 30,
2018

  June 30,
2019
   June 30,
2018
  %
Change

Operating Revenues:                            
Advisory fees$65,627  $64,840  $73,778    1.2 %   -11.0 % $130,467  $132,234    -1.3 %
Other income 666   645   997    3.3 %   -33.2 %  1,311   1,445    -9.3 %
Total revenues 66,293   65,485   74,775    1.2 %   -11.3 %  131,778   133,679    -1.4 %
Operating Expenses:                            
Compensation and benefits 21,300   21,301   19,301    0.0 %   10.4 %  42,601   38,133    11.7 %
Fund management and administration 15,576   15,166   14,621    2.7 %   6.5 %  30,742   25,533    20.4 %
Marketing and advertising 2,910   2,680   3,778    8.6 %   -23.0 %  5,590   6,973    -19.8 %
Sales and business development 4,171   4,422   4,503    -5.7 %   -7.4 %  8,593   8,316    3.3 %
Contractual gold payments 3,110   3,098   2,715    0.4 %   14.5 %  6,208   2,715   128.7 %
Professional and consulting fees 1,296   1,482   1,560    -12.6 %   -16.9 %  2,778   3,196    -13.1 %
Occupancy, communications and equipment 1,548   1,618   1,574    -4.3 %   -1.7 %  3,166   2,937    7.8 %
Depreciation and amortization 264   269   337    -1.9 %   -21.7 %  533   692    -23.0 %
Third-party distribution fees 1,919   2,400   1,666    -20.0 %   15.2 %  4,319   3,391    27.4 %
Acquisition-related costs 33   313   7,928    -89.5 %   -99.6 %  346   9,990    -96.5 %
Other 2,255   2,053   2,261    9.8 %   -0.3 %  4,308   4,051    6.3 %
Total expenses 54,382   54,802   60,244    -0.8 %   -9.7 %  109,184   105,927    3.1 %
Operating income 11,911   10,683   14,531    11.5 %   -18.0 %  22,594   27,752    -18.6 %
Other Income/(Expenses):                            
Interest expense (2,910)  (2,892)  (2,356)   0.6 %   23.5 %  (5,802)  (2,356)  146.3 %
(Loss)/gain on revaluation of deferred consideration – gold payments (4,037)  4,404   9,898     n/a     n/a   367   9,898    -96.5 %
Interest income 818   779   612    5.0 %   33.7 %  1,597   1,574    1.5 %
Impairment    (572)       n/a     n/a   (572)       n/a 
Other gains and losses, net 284   (4,627)  (501)    n/a     n/a   (4,343)  (762)  469.9 %
Income before income taxes 6,066   7,775   22,184    -22.0 %   -72.7 %  13,841   36,106    -61.7 %
Income tax expense/(benefit) 3,587   (1,049)  5,460     n/a    -34.3 %  2,538   9,958    -74.5 %
Net income$2,479  $8,824  $16,724    -71.9 %   -85.2 % $11,303  $26,148    -56.8 %
Earnings per share – basic$0.01  $0.05  $0.10        $0.07  $0.17    
Earnings per share – diluted$0.01  $0.05  $0.10        $0.07  $0.17    
Weighted average common shares – basic 151,818   151,625   149,056         151,722   142,230    
Weighted average common shares – diluted 167,249   166,811   163,346         166,855   149,979    
                             


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
 % Change From
 Six Months Ended
  June 30,
2019
   Mar. 31,
2019
   June 30,
2018
  Mar. 31,
2019
  June 30,
2018
   June 30,
2019
   June 30,
2018
  %
Change

Operating Revenues:                            
Advisory fees$43,070  $42,517  $52,931    1.3 %   -18.6 % $85,587  $108,449    -21.1 %
Other income 76   106   162    -28.3 %   -53.1 %  182   309    -41.1 %
Total revenues 43,146   42,623   53,093    1.2 %   -18.7 %  85,769   108,758    -21.1 %
Operating Expenses                            
Compensation and benefits 16,696   16,779   14,526    -0.5 %   14.9 %  33,475   30,897    8.3 %
Fund management and administration 8,505   8,340   8,802    2.0 %   -3.4 %  16,845   17,775    -5.2 %
Marketing and advertising 2,336   2,162   2,987    8.0 %   -21.8 %  4,498   5,830    -22.8 %
Sales and business development 2,867   3,359   3,446    -14.6 %   -16.8 %  6,226   6,901    -9.8 %
Professional and consulting fees 1,055   1,072   1,134    -1.6 %   -7.0 %  2,127   2,459    -13.5 %
Occupancy, communications and equipment 1,211   1,283   1,309    -5.6 %   -7.5 %  2,494   2,534    -1.6 %
Depreciation and amortization 242   246   314    -1.6 %   -22.9 %  488   653    -25.3 %
Third-party distribution fees 1,867   2,338   1,621    -20.1 %   15.2 %  4,205   3,270    28.6 %
Acquisition-related costs    11   6,773    n/a    n/a   11   7,970    -99.9 %
Other 1,628   1,586   1,726    2.6 %   -5.7 %  3,214   3,379    -4.9 %
Total expenses 36,407   37,176   42,638    -2.1 %   -14.6 %  73,583   81,668    -9.9 %
Operating income 6,739   5,447   10,455    23.7 %   -35.5 %  12,186   27,090    -55.0 %
Other Income/(Expenses):                            
Interest expense (194)  (192)  (173)   1.0 %   12.1 %  (386)  (173)   123.1 %
Interest income 818   779   612    5.0 %   33.7 %  1,597   1,574    1.5 %
Impairment    (572)      n/a    n/a   (572)      n/a 
Other gains and losses, net (54)  145   (66)   n/a    -18.2 %  91   (292)   n/a 
Income before income taxes$7,309  $5,607  $10,828    30.4 %   -32.5 % $12,916  $28,199    -54.2 %
Operating income margin 15.6%  12.8%  19.7%        14.2%  24.9%   


International Business Segment        
 Three Months Ended
 % Change From
 Six Months Ended
  June 30,
2019
   Mar. 31,
2019
   June 30,
2018
  Mar. 31,
2019
  June 30,
2018
   June 30,
2019
   June 30,
2018
  %
Change

Operating Revenues:                            
Advisory fees$22,557  $22,323  $20,847    1.0 %   8.2 % $44,880  $23,785    88.7 %
Other income 590   539   835    9.5 %   -29.3 %  1,129   1,136    -0.6 %
Total revenues 23,147   22,862   21,682    1.2 %   6.8 %  46,009   24,921    84.6 %
Operating Expenses:                            
Compensation and benefits 4,604   4,522   4,775    1.8 %   -3.6 %  9,126   7,236    26.1 %
Fund management and administration 7,071   6,826   5,819    3.6 %   21.5 %  13,897   7,758    79.1 %
Marketing and advertising 574   518   791    10.8 %   -27.4 %  1,092   1,143    -4.5 %
Sales and business development 1,304   1,063   1,057    22.7 %   23.4 %  2,367   1,415    67.3 %
Contractual gold payments 3,110   3,098   2,715    0.4 %   14.5 %  6,208   2,715    128.7 %
Professional and consulting fees 241   410   426    -41.2 %   -43.4 %  651   737    -11.7 %
Occupancy, communications and equipment 337   335   265    0.6 %   27.2 %  672   403    66.7 %
Depreciation and amortization 22   23   23    -4.3 %   -4.3 %  45   39    15.4 %
Third-party distribution fees 52   62   45    -16.1 %   15.6 %  114   121    -5.8 %
Acquisition-related costs 33   302   1,155    -89.1 %   -97.1 %  335   2,020    -83.4 %
Other 627   467   535    34.3 %   17.2 %  1,094   672    62.8 %
Total expenses 17,975   17,626   17,606    2.0 %   2.1 %  35,601   24,259    46.8 %
Operating income 5,172   5,236   4,076    -1.2 %   26.9 %  10,408   662    1,472.2 %
Other Income/(Expenses):                            
Interest expense (2,716)  (2,700)  (2,183)   0.6 %   24.4 %  (5,416)  (2,183)   148.1 %
(Loss)/gain on revaluation of deferred consideration – gold payments (4,037)  4,404   9,898    n/a    n/a   367   9,898    -96.3%
Other gains and losses, net 338   (4,772)  (435)   n/a    n/a   (4,434)  (470)   843.4 %
(Loss)/income before income taxes$(1,243) $2,168  $11,356    n/a    n/a  $925  $7,907    -88.3 %
Operating income margin 22.3%  22.9%  18.8%        22.6%  2.7%   


   
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
   
  June 30,
2019
   December 31,
2018
 
  (Unaudited)     
ASSETS       
Current assets:       
Cash and cash equivalents$79,611  $77,784 
Securities owned, at fair value 9,095   8,873 
Accounts receivable 24,442   25,834 
Income taxes receivable 1,235   1,181 
Prepaid expenses 6,192   4,441 
Other current assets 1,017   163 
Total current assets 121,592   118,276 
Fixed assets, net 8,604   9,122 
Notes receivable 31,485   28,722 
Securities held-to-maturity 20,136   20,180 
Deferred tax assets, net 4,599   7,042 
Investments, carried at cost 28,080   28,080 
Right of use assets – operating leases 18,997    
Goodwill 85,856   85,856 
Intangible assets 603,291   603,209 
Other noncurrent assets 1,258   2,155 
Total assets$923,898  $902,642 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY  
LIABILITIES  
Current liabilities:  
Fund management and administration payable$23,753  $22,508 
Compensation and benefits payable 14,619   18,453 
Deferred consideration – gold payments 12,857   11,765 
Securities sold, but not yet purchased, at fair value 543   1,698 
Operating lease liabilities 3,632    
Accounts payable and other liabilities 7,738   8,377 
Total current liabilities 63,142   62,801 
Long-term debt 195,762   194,592 
Deferred consideration – gold payments 148,416   149,775 
Operating lease liabilities 20,190    
Deferred rent payable    4,570 
Total liabilities 427,510   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: 155,108 and 153,202 at June 30, 2019 and December 31, 2018, respectively 1,551   1,532 
Additional paid-in capital 367,750   363,655 
Accumulated other comprehensive income 725   467 
Accumulated deficit (6,207)  (7,319)
Total stockholders’ equity 363,819   358,335 
Total liabilities and stockholders’ equity$923,898  $902,642 
   


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
   
 Six Months Ended
  June 30,
2019
   June 30,
2018
 
Cash flows from operating activities:       
Net income$11,303  $26,148 
Adjustments to reconcile net income to net cash provided by operating activities:  
Advisory fees received in gold and other precious metals (22,872)  (11,033)
Contractual gold payments 6,208   2,715 
Stock-based compensation 6,207   6,838 
Deferred income taxes 2,443   (1,055)
Amortization of right of use asset 1,590    
Amortization of credit facility issuance costs 1,430   637 
Paid-in-kind interest income (1,223)  (840)
Impairment 572    
Depreciation and amortization 533   692 
Gain on revaluation of deferred consideration – gold payments (367)  (9,898)
Other 5   834 
Changes in operating assets and liabilities:  
Securities owned, at fair value (222)  (2,028)
Accounts receivable 1,833   2,871 
Income taxes receivable/payable (44)  8,109 
Prepaid expenses (1,746)  (1,669)
Gold and other precious metals 16,318   8,930 
Other assets (552)  975 
Fund management and administration payable 1,231   (380)
Compensation and benefits payable (3,938)  (21,170)
Securities sold, but not yet purchased, at fair value (1,155)  1,077 
Payable to ETFS Capital Limited    222 
Operating lease liabilities (1,760)   
Accounts payable and other liabilities (435)  (2,961)
Net cash provided by operating activities 15,359   9,014 
Cash flows from investing activities:       
Purchase of fixed assets (15)  (34)
Funding of AdvisorEngine note receivable (1,540)  (5,000)
Proceeds from held-to-maturity securities maturing or called prior to maturity 39   1,063 
Proceeds from sales and maturities of debt securities available-for-sale    64,498 
Cash paid – ETFS Acquisition, net of cash acquired    (233,172)
Net cash used in investing activities (1,516)  (172,645)
Cash flows from financing activities:       
Dividends paid (10,191)  (9,167)
Shares repurchased (2,107)  (1,006)
Credit facility issuance costs    (8,690)
Preferred stock issuance costs    (181)
Proceeds from the issuance of long-term debt    200,000 
Proceeds from exercise of stock options 14   139 
Net cash (used in)/provided by financing activities (12,284)  181,095 
Increase/(decrease) in cash flows due to changes in foreign exchange rate 268   (913)
Net increase in cash and cash equivalents 1,827   16,551 
Cash and cash equivalents – beginning of period 77,784   54,193 
Cash and cash equivalents – end of period$79,611  $70,744 
        
Supplemental disclosure of cash flow information:       
Cash paid for taxes$4,403  $2,841 
Cash paid for interest$4,559  $1,241 
   


WisdomTree Investments, Inc.           
Key Operating Statistics (Unaudited)           
 Three Months Ended
  June 30,
2019
   Mar. 31,
2019
   June 30,
2018
 
GLOBAL ETPs (in millions)           
            
Beginning of period assets$59,112  $54,094  $44,962 
Assets acquired       17,641 
Inflows/(outflows) 337   561   (1,223)
Market appreciation/(depreciation) 938   4,544   (1,402)
Fund closures    (87)  (9)
End of period assets$60,387  $59,112  $59,969 
Average assets during the period$58,569  $57,683  $61,301 
Average ETF advisory fee during the period 0.45%  0.46%  0.48%
Revenue days 91   90   91 
Number of ETFs – end of the period 536   534   526 
            
U.S. LISTED ETFs (in millions)           
            
Beginning of period assets$39,366  $35,486  $42,886 
Inflows/(outflows) (166)  147   (1,231)
Market appreciation/(depreciation) 20   3,820   (306)
Fund closures    (87)  (9)
End of period assets$39,220  $39,366  $41,340 
Average assets during the period$38,945  $38,061  $43,464 
Average ETF advisory fee during the period 0.44%  0.45%  0.49%
Number of ETFs – end of the period 79   77   81 
            
INTERNATIONAL LISTED ETPs (in millions)           
            
Beginning of period assets$19,746  $18,608  $2,076 
Assets acquired       17,641 
Inflows/(outflows) 503   414   8 
Market appreciation/(depreciation) 918   724   (1,096)
End of period assets$21,167  $19,746  $18,629 
Average assets during the period$19,624  $19,622  $17,837 
Average ETP advisory fee during the period 0.46%  0.47%  0.47%
Number of ETPs – end of the period 457   457   445 
            
PRODUCT CATEGORIES (in millions)           
            
Commodity & Currency           
Beginning of period assets$17,015  $16,251  $399 
Assets acquired       16,778 
Inflows/(outflows) 558   227   (77)
Market appreciation/(depreciation) 905   537   (945)
End of period assets$18,478  $17,015  $16,155 
Average assets during the period$16,940  $17,033  $15,301 
            
U.S. Equity           
Beginning of period assets$15,880  $13,334  $13,359 
Inflows/(outflows) 103   632   114 
Market appreciation/(depreciation) 38   1,914   828 
End of period assets$16,021  $15,880  $14,301 
Average assets during the period$15,807  $14,947  $14,021 
    
International Developed Market Equity   
Beginning of period assets$14,417  $14,532  $22,287 
Inflows/(outflows) (729)  (1,553)  (1,466)
Market appreciation/(depreciation) 1   1,438   (604)
End of period assets$13,689  $14,417  $20,217 
Average assets during the period$13,960  $14,521  $22,319 
    
Emerging Market Equity   
Beginning of period assets$5,730  $5,278  $6,289 
Inflows/(outflows) 367   (84)  (119)
Market appreciation/(depreciation) (7)  536   (527)
End of period assets$6,090  $5,730  $5,643 
Average assets during the period$5,785  $5,502  $6,116 
    
Fixed Income   
Beginning of period assets$4,023  $2,570  $1,083 
Inflows/(outflows) 208   1,418   349 
Market appreciation/(depreciation) 26   35   (32)
End of period assets$4,257  $4,023  $1,400 
Average assets during the period$4,119  $3,511  $1,219 
    
Leveraged & Inverse   
Beginning of period assets$1,419  $1,282  $872 
Assets acquired       863 
Inflows/(outflows) (62)  67   (62)
Market appreciation/(depreciation) (19)  70   (142)
End of period assets$1,338  $1,419  $1,531 
Average assets during the period$1,384  $1,408  $1,593 
    
Alternatives   
Beginning of period assets$628  $755  $492 
Inflows/(outflows) (108)  (141)  66 
Market appreciation/(depreciation) (6)  14   20 
End of period assets$514  $628  $578 
Average assets during the period$574  $666  $564 
    
Closed ETPs   
Beginning of period assets$  $92  $181 
Inflows/(outflows)    (5)  (28)
Market appreciation/(depreciation)        
Fund closures    (87)  (9)
End of period assets$  $  $144 
Average assets during the period$  $95  $168 
    
Headcount – U.S. Business segment 143   141   155 
Headcount – International Business segment 71   75   76 
Note: Previously issued statistics may be restated due to fund closures and trade adjustments           
Source: WisdomTree           
            

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 net income and adjusted diluted earnings per share.  We disclose adjusted net income and adjusted 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 net income.  We exclude this item when arriving at adjusted net income and adjusted diluted earnings per share 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 determining adjusted net income and adjusted diluted earnings per share as they introduce volatility in earnings and are not core to our operating business.

    • Other items:  Severance expense of $1.5 million and $2.0 million (or $1.2 million and $1.5 million after-tax) for the second quarter of 2019 and first quarter of 2019, respectively, acquisition-related costs of $0.03 million, $0.3 million and $7.9 million (or $0.03 million, $0.3 million and $7.5 million after-tax) for the second quarter of 2019, first quarter of 2019, and second quarter of 2018, respectively, and impairment of $0.6 million for the first quarter of 2019 are excluded when determining adjusted net income and adjusted earnings per share.

  • 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.  During the first quarter of 2019, income tax expense and income before income taxes has been adjusted for the $4.3 million reduction in unrecognized tax benefits and offsetting reduction of a tax-related indemnification asset.  In addition, see “adjusted net income and adjusted diluted earnings per share” above for information regarding the other 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
(in thousands)
(Unaudited) 
     
Consolidated Three Months Ended
   June 30,   Mar. 31,   June 30, 
Adjusted Net Income and Diluted Earnings per Share:  2019   2019   2018 
Net income, as reported $2,479  $8,824  $16,724 
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration  4,037   (4,404)  (9,898)
Add back: Severance expense, net of income taxes  1,194   1,521    
Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards  76   971   3 
Add back: Impairment, net of income taxes     572    
Add back: Acquisition-related costs, net of income taxes  27   253   7,489 
Adjusted net income $7,813  $7,737  $14,318 
Weighted average common shares - diluted  167,249   166,811   163,346 
Adjusted earnings per share - diluted $0.05  $0.05  $0.09 
             
   
  Three Months Ended
   June 30,   Mar. 31,   June 30, 
Adjusted Operating Income Margin:  2019   2019   2018 
Operating revenues $66,293  $65,485  $74,775 
     
Operating income $11,911  $10,683  $14,531 
Add back: Severance expense, before income taxes  1,475   2,020    
Add back: Acquisition-related costs, before income taxes  33   313   7,928 
Adjusted operating income $13,419  $13,016  $22,459 
Adjusted operating income margin  20.2%  19.9%  30.0%


  Three Months Ended
   June 30,   Mar. 31,   June 30, 
Adjusted Effective Income Tax Rate:  2019   2019   2018 
Income before income taxes $6,066  $7,775  $22,184 
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration  4,037   (4,404)  (9,898)
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    
Add back: Impairment, before income taxes     572    
Add back: Acquisition-related costs, before income taxes  33   313   7,928 
Adjusted income before income taxes $11,611  $10,586  $20,214 
             
Income tax expense/(benefit) $3,587  $(1,049) $5,460 
Add back: Tax benefit arising from severance expense  281   499    
Deduct: Tax shortfalls upon vesting and exercise of stock-based compensation awards  (76)  (971)   
Add back: Tax benefit arising from acquisition-related costs  6   60   439 
Add back: Tax benefit arising from reduction in unrecognized tax benefits     4,310    
Add back: Tax benefit arising from impairment         
Adjusted income tax expense $3,798  $2,849  $5,899 
Adjusted effective income tax rate  32.7%  26.9%  29.2%


U.S. Business Segment            
  Three Months Ended
   June 30,   Mar. 31,   June 30, 
Gross Margin and Gross Margin Percentage:  2019   2019   2018 
Operating revenues $43,146  $42,623  $53,093 
Less: Fund management and administration  (8,505)  (8,340)  (8,802)
Gross margin $34,641  $34,283  $44,291 
Gross margin percentage  80.3%  80.4%  83.4%
             
  Three Months Ended
   June 30,   Mar. 31,   June 30, 
Adjusted Operating Income Margin:  2019   2019   2018 
Operating revenues $43,146  $42,623  $53,093 
             
Operating income $6,739  $5,447  $10,455 
Add back: Severance expense, before income taxes  1,366   2,020    
Add back: Acquisition-related costs, before income taxes     11   6,773 
Adjusted operating income $8,105  $7,478  $17,228 
Adjusted operating income margin  18.8%  17.5%  32.4%


International Business Segment    
  Three Months Ended
   June 30,   Mar. 31,   June 30, 
Gross Margin and Gross Margin Percentage:  2019   2019   2018 
Operating revenues $23,147  $22,862  $21,682 
Less: Fund management and administration  (7,071)  (6,826)  (5,819)
Gross margin $16,076  $16,036  $15,863 
Gross margin percentage  69.5%  70.1%  73.2%
             
  Three Months Ended
   June 30,   Dec. 31,   June 30, 
Adjusted Operating Income Margin:  2019   2018   2018 
Operating revenues $23,147  $22,862  $21,682 
             
Operating income $5,172  $5,236  $4,076 
Add back: Severance expense, before income taxes  109       
Add back: Acquisition-related costs, before income taxes  33   302   1,155 
Adjusted operating income $5,314  $5,538  $5,231 
Adjusted operating income margin  23.0%  24.2%  24.1%
             

 

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