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Press Release

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Oct 25, 2019

WisdomTree Announces Third Quarter 2019 Results

$4.2 million net income, or $10.6 million net income, as adjusted

$0.02 diluted EPS for the quarter, $0.06 as adjusted

Declares $0.03 quarterly dividend

NEW YORK, Oct. 25, 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 $4.2 million or $0.02 diluted EPS in the third quarter.  Adjusted net income (a non-GAAP measure1) was $10.6 million1 or $0.06 diluted EPS1.  This compares to net income of $22.0 million or $0.13 diluted EPS (as adjusted, $14.8 million1 or $0.09 diluted EPS1) in the third quarter of last year and net income of $2.5 million or $0.01 diluted EPS (as adjusted, $7.8 million1 or $0.05 diluted EPS1) in the second quarter of 2019.  

WisdomTree CEO Jonathan Steinberg said, “Our continued focus on technology has led to greater efficiency of our resources and an enhanced digital experience for our customers. Additionally, disciplined expense management led to significant improvement in operating margins and has enabled us to continue investing in market leading products and services.”

Steinberg continued, “With an increasing number of advisors looking to outsource asset allocation and portfolio construction, the development and distribution of our fully open architecture model portfolios remain a strategic priority for WisdomTree. We’ve made a key new hire for CIO of Model Portfolios who leads our Asset Allocation team and Investment Committee. We are also enhancing our relationship with Professor Jeremy Siegel in this space and intend to collaborate on model portfolios in the upcoming months. Model portfolios are an important aspect of our Advisor Solutions program along with portfolio construction tools, other technology tools, and access to practice management experts.”

  Three Months Ended
 Change From
  Sept. 30,
2019

 June 30,
2019

 Sept. 30,
2018

 June 30,
2019

 Sept. 30,
2018

Consolidated Operating Highlights ($, in billions):                    
AUM $60.0  $60.4  $59.1   (0.6%)  1.5%
Net inflows/(outflows) $(0.7) $0.3  $(1.2)  n/a   45.7%
Average AUM $60.3  $58.6  $59.5   3.0%  1.4%
Average advisory fee  0.44%  0.45%  0.48%  -0.01   -0.04 
                     
                     
Consolidated Financial Highlights ($, in millions, except per share amounts):                    
Operating revenues $67.7  $66.3  $72.6   2.1%  (6.7%)
Net income  $4.2  $2.5  $22.0   67.5%  (81.2%)
Diluted earnings per share $0.02  $0.01  $0.13  $0.01  $(0.11)
Operating income margin  23.8%  18.0%  29.9%  5.8   -6.1 
Non-GAAP1:                    
Net income, as adjusted $10.6  $7.8  $14.8   36.2%  (28.1%)
Diluted earnings per share, as adjusted $0.06  $0.05  $0.09  $0.01  $(0.03)
Operating income margin, as adjusted  24.1%  20.2%  30.5%  3.9   -6.4 
                     

Recent Business Developments

Company News

  • In September 2019, we announced the appointment of Jarrett Lilien as WisdomTree’s President and Chief Operating Officer; and we announced the addition of Scott Welch as WisdomTree’s Chief Investment Officer – Model Portfolios.      
  • In October 2019, we announced the launch of our new website that has been re-engineered with enhanced functionality and more industry-leading tools; and we announced that Michael Steinhardt has retired from WisdomTree’s Board of Directors and Frank Salerno will replace him as Chairman of the Board.

Product News

  • In September 2019, we announced the global  launch of the WisdomTree Cloud Computing Fund (WCLD) in partnership with Nasdaq and Bessemer Venture Partners (BVP) and listed on the Nasdaq (US), the London Stock Exchange (LSE), the Borsa Italiana and the Deutsche Börse Xetra; we announced that two European WisdomTree UCITS ETFs – the WisdomTree Europe Equity Income UCITS ETF - Acc (EEIA) and the WisdomTree Europe SmallCap Dividend UCITS ETF - Acc (DFEA) – have been cross-listed in Mexico on the Mexican Stock Exchange, Bolsa de Mexicana de Valores (BMV); and we announced our plan to close and liquidate the WisdomTree Global ex-Mexico Equity Fund (XMX) to be completed in late October.
  • In October 2019, we announced our 5 year anniversary since launching our first UCITS ETFs – WisdomTree US Equity Income UCITS ETF (DHS), WisdomTree US Small Cap Dividend UCITS ETF (DESE), WisdomTree Europe Equity Income UCITS ETF (EEIE) and WisdomTree Europe Small Cap Dividend UCITS ETF (DFEE) – on the London Stock Exchange (LSE); and we announced the completion of the final stage of integration of ETF Securities’ European commodity, currency and short-and-leveraged ETP business. This includes the unification of 224 products under one WisdomTree brand and closure of 192 duplicative or extraneous products across our full product set.

Assets Under Management and Net Flows

Assets under management (“AUM”) were $60.0 billion at September 30, 2019, up 1.5% from September 30, 2018 due to market appreciation and net inflows.  AUM was down 0.6% from June 30, 2019 due to net outflows and fund closures associated with the rationalization of our product offering in Europe, partly offset by market appreciation.

Net outflows were ($0.7) billion for the third quarter of 2019, primarily due to outflows from one of our fixed income products and two largest currency hedged products (HEDJ/DXJ), partly offset by inflows into our commodity, U.S. equity and emerging markets products.  Outflows from HEDJ/DXJ were $0.7 billion in the third quarter.  On a year to date basis, net inflows were $0.2 billion, or $2.7 billion excluding outflows from HEDJ/DXJ.

Operating Revenues

Advisory Fees

Advisory fees of $67.0 million decreased 6.5% from the third 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.  Advisory fees increased 2.1% from the second quarter of 2019 primarily due to higher average AUM of our International Business segment, partly offset by lower average AUM of our U.S. Business segment. 

In addition, our average global advisory fee was 0.44%, 0.45% and 0.48% during the third quarter of 2019, second quarter of 2019 and third quarter of 2018, respectively.  The change as compared to the second quarter of 2019 was due to a change in product mix of our International Business segment.  The change as compared to the third quarter of 2018 was primarily due to a change in product mix globally.

Other Income 

Other income of $0.7 million decreased 20.1% from the third quarter of 2018 primarily due to lower creation/redemption fees of our International Business segment.  Other income was essentially unchanged from the second quarter of 2019. 

Margins

Gross margin for our U.S. Business segment was 80.8%1 in the third quarter of 2019 as compared to 82.3%1 in the third quarter of 2018 and 80.3%1 in the second quarter of 2019.  The decline as compared to the third quarter of 2018 was primarily due to lower revenue capture and lower average AUM.  The increase as compared to the second quarter of 2019 was primarily due to cost savings achieved through recent vendor negotiations.  Gross margin for our International Business segment was 72.6%1 in the third quarter of 2019 as compared to 71.3%1 in the third quarter of 2018 and 69.5%1 in the second quarter of 2019.  These increases were primarily due to higher revenues as well as lower fees from vendor negotiations.

Operating income margin on a consolidated basis was 23.8% in the third quarter of 2019 (as adjusted 24.1%1) as compared to 29.9% in the third quarter of 2018 (as adjusted 30.5%1) and 18.0% in the second quarter of 2019 (as adjusted 20.2%1).

Operating Expenses

Total operating expenses were $51.6 million for the third quarter of 2019, up 1.4% from the third quarter of 2018 and down 5.1% from the second quarter of 2019.  

  • Compensation and benefits expense increased 7.6% from the third quarter of 2018 to $18.9 million due to higher incentive compensation.  These expenses decreased 11.4% from the second quarter of 2019 due to lower headcount related expenses.  In addition, the second quarter of 2019 included severance expense of $1.5 million.  Headcount of our U.S. Business segment was 142, 143 and 151 and our International Business segment was 70, 71 and 76 at September 30, 2019, June 30, 2019 and September 30, 2018, respectively.

  • Fund management and administration expense decreased 1.2% and 3.0% from the third quarter of 2018 and second quarter of 2019, respectively, to $15.1 million.  The decrease as compared to the third quarter of 2018 was primarily due to lower variable fees associated with lower average AUM of our U.S. Business segment, partly offset by higher average AUM of our International Business segment.  The decrease as compared to the second quarter of 2019 was primarily due to cost savings achieved through recent vendor negotiations.  We had 80 U.S. listed ETFs and 286 International listed ETPs at the end of the third quarter.

  • Marketing and advertising expense decreased 6.7% from the third quarter of 2018 to $3.0 million due to lower spending in our International Business segment.  These expenses were essentially unchanged from the second quarter of 2019.

  • Sales and business development expense increased 14.5% and 4.4% from the third quarter of 2018 and second quarter of 2019, respectively, to $4.4 million primarily due to higher spending on sales related activities in our U.S. Business segment.   

  • Contractual gold payments expense increased 21.6% and 12.6% from the third quarter of 2018 and second quarter of 2019, respectively, to $3.5 million.  This expense was associated with the payment of 2,375 ounces of gold and was calculated using an average daily spot price of $1,474, $1,213 and $1,310 per ounce during the third quarter of 2019, third quarter of 2018 and second quarter of 2019, respectively.

  • Professional and consulting fees decreased 34.9% and 2.9% from the third quarter of 2018 and second quarter of 2019, respectively, to $1.3 million due to lower spending on corporate consulting-related expenses.

  • Occupancy, communications and equipment expense decreased 10.0% from the third quarter of 2018 to $1.5 million due to the closure of our office in Japan.  These expenses were essentially unchanged from the second quarter of 2019.

  • Depreciation expense decreased 15.4% from the third quarter of 2018 to $0.3 million primarily due to the closure of our office in Japan.  This expense was essentially unchanged from the second quarter of 2019.

  • Third-party distribution fees were essentially unchanged from the third quarter of 2018.  These expenses decreased 21.7% from the second quarter of 2019 to $1.5 million primarily due to lower fees paid for platform relationships.

  • Acquisition-related costs decreased 58.3% from the third quarter of 2018 to $0.2 million as the integration of ETFS is essentially complete.  These expenses increased from the second quarter of 2019 due to the rationalization of our product offering in Europe following our acquisition of ETFS. 

  • Other expenses decreased 14.1% and 13.1% from the third quarter of 2018 and second quarter of 2019, respectively, to $2.0 million due to lower levels of administrative spending.

Other Income/(Expenses)

  • Interest expense increased 3.1% from the third quarter of 2018 and decreased 2.7% from the second quarter of 2019 to $2.8 million due to changes in interest rates.

  • We recognized a (loss)/gain on revaluation of deferred consideration of ($6.3) million, $7.7 million and ($4.0) million during the third quarter of 2019, third quarter of 2018 and second quarter of 2019, respectively.  The loss arose in the current quarter due to an increase in the price of gold and the steepening of the forward-looking gold curve when compared to the forward-looking gold curve on June 30, 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 11.1% from the third quarter of 2018 to $0.8 million primarily due to higher paid-in-kind interest on notes receivable from AdvisorEngine Inc.  Interest income was essentially unchanged from the second quarter of 2019.

  • Other gains, net were $0.8 million, $0.1 million and $0.3 million during the third quarter of 2019, third quarter of 2018 and second quarter of 2019, respectively.  Included in the third quarter of 2019 is a gain of $0.4 million arising from the recognition of the foreign currency translation adjustment upon the liquidation of our Japan business.  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 September 30, 2019 of 51.9% resulted in income tax expense of $4.5 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, non-deductible executive compensation and state and local taxes, partly offset by a lower tax rate on foreign earnings.

Our adjusted effective income tax rate was 29.7%1.

Nine Month Results

Our operating results for the current year are not directly comparable to the nine months ended September 30, 2018 due to our acquisition of ETFS, which was completed on April 11, 2018.

Total operating revenues decreased 3.3% to $199.5 million for the nine months ended September 30, 2019 due to a 4bps decline in our average global ETP advisory fee and lower average AUM of our U.S. Business segment, partly offset by higher revenues earned from the ETFS acquired business, which were recognized for the entire nine months of 2019.  Total operating expenses increased 2.5% to $160.8 million due to higher expenses of the ETFS acquired business, which were recognized for the entire nine months of 2019.  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 nine months ended September 30, 2019 includes ($8.6) million of interest expense, a loss on revaluation of deferred consideration of ($5.9) million, interest income of $2.4 million, impairment of ($0.6) million and other net losses of ($3.5) million.  Included within other net losses is a charge of $4.3 million arising from the release of a tax-related indemnification asset which arose from tax exposures assumed from the ETFS acquisition.  This item was recognized upon the expiration of the statute of limitations which occurred in the first quarter of 2019 and an equal and offsetting benefit was recognized in income tax expense.  See the quarterly discussion above for additional information regarding the other gains and losses.

Balance Sheet

As of September 30, 2019, we had total assets of $923.8 million which consisted primarily of intangible assets and goodwill of $689.1 million, and cash and securities owned of $109.7 million.  There were approximately 154.8 million shares of our common stock outstanding as of September 30, 2019.

In addition, in connection with our capital management strategy we used $15.0 million of available capital during the quarter to begin to pay down our long-term debt. 

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 November 20, 2019 to stockholders of record as of the close of business on November 6, 2019.

Conference Call

WisdomTree will discuss its results and operational highlights during a conference call on Friday, October 25, 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 $61.4 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 Media Relations
WisdomTree Investments, Inc. WisdomTree Investments, Inc.
Jason Weyeneth, CFA Jessica Zaloom
+1.917.267.3858     +1.917.267.3735
jweyeneth@wisdomtree.com jzaloom@wisdomtree.com 
  
  

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

 
  Three Months Ended  
 % Change From  
 Nine Months Ended  
  Sept. 30,
2019

 June 30,
2019

 Sept. 30,
2018

 June 30,
2019

 Sept. 30,
2018

 Sept. 30,
2019

 Sept. 30,
2018

 %
Change

Operating Revenues:                             
Advisory fees  $67,006  $65,627  $71,679    2.1 %   -6.5 % $197,473  $203,913    -3.2 %
Other income   712   666   891    6.9 %   -20.1 %  2,023   2,336    -13.4 %
Total revenues   67,718   66,293   72,570    2.1 %   -6.7 %  199,496   206,249    -3.3 %
Operating Expenses:                             
Compensation and benefits  18,880   21,300   17,544    -11.4 %   7.6 %  61,481   55,677    10.4 %
Fund management and administration  15,110   15,576   15,292    -3.0 %   -1.2 %  45,852   40,825    12.3 %
Marketing and advertising  3,022   2,910   3,239    3.8 %   -6.7 %  8,612   10,212    -15.7 %
Sales and business development   4,354   4,171   3,801    4.4 %   14.5 %  12,947   12,117    6.8 %
Contractual gold payments  3,502   3,110   2,880    12.6 %   21.6 %  9,710   5,595    73.5 %
Professional and consulting fees   1,259   1,296   1,934    -2.9 %   -34.9 %  4,037   5,130    -21.3 %
Occupancy, communications and equipment   1,549   1,548   1,722    0.1 %   -10.0 %  4,715   4,659    1.2 %
Depreciation and amortization  259   264   306    -1.9 %   -15.4 %  792   998    -20.6 %
Third-party distribution fees  1,503   1,919   1,407    -21.7 %   6.8 %  5,822   4,798    21.3 %
Acquisition-related costs  190   33   456   475.8 %   -58.3 %  536   10,446    -94.9 %
Other  1,959   2,255   2,281    -13.1 %   -14.1 %  6,267   6,332    -1.0 %
Total expenses  51,587   54,382   50,862    -5.1 %   1.4 %  160,771   156,789    2.5 %
Operating income   16,131   11,911   21,708    35.4 %   -25.7 %  38,725   49,460    -21.7 %
Other Income/(Expenses):                             
Interest expense   (2,832)  (2,910)  (2,747)   -2.7 %   3.1 %  (8,634)  (5,103)   69.2 %
(Loss)/gain on revaluation of deferred consideration – gold payments   (6,306)  (4,037)  7,732    56.2 %    n/a   (5,939)  17,630     n/a 
Interest income  799   818   719    -2.3 %   11.1 %  2,396   2,293    4.5 %
Impairment              n/a     n/a   (572)       n/a 
Other gains and losses, net  843   284   118   196.8 %  614.4 %  (3,500)  (644)  443.5 %
Income before income taxes  8,635   6,066   27,530    42.4 %   -68.6 %  22,476   63,636    -64.7 %
Income tax expense   4,483   3,587   5,481    25.0 %   -18.2 %  7,021   15,439    -54.5 %
Net income $4,152  $2,479  $22,049    67.5 %   -81.2 % $15,455  $48,197    -67.9 %
Earnings per share – basic  $0.02  $0.01  $0.13        $0.09  $0.31    
Earnings per share – diluted  $0.02  $0.01  $0.13        $0.09  $0.31    
Weighted average common shares – basic  151,897   151,818   150,892         151,782   145,149    
Weighted average common shares – diluted   167,163   167,249   166,622         166,944   155,584    
                              
                              

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
 Nine Months Ended
  Sept. 30,
2019

 June 30,
2019

 Sept. 30,
2018

 June 30,
2019

 Sept. 30,
2018

 Sept. 30,
2019

 Sept. 30,
2018

 %
Change

Operating Revenues:                             
Advisory fees  $41,950  $43,070  $50,216    -2.6 %   -16.5 % $127,537  $158,665    -19.6 %
Other income   81   76   173    6.6 %   -53.2 %  263   482    -45.4 %
Total revenues   42,031   43,146   50,389    -2.6 %   -16.6 %  127,800   159,147    -19.7 %
Operating Expenses:                             
Compensation and benefits  14,531   16,696   13,040    -13.0 %   11.4 %  48,006   43,937    9.3 %
Fund management and administration   8,072   8,505   8,915    -5.1 %   -9.5 %  24,917   26,690    -6.6 %
Marketing and advertising  2,411   2,336   2,469    3.2 %   -2.3 %  6,909   8,299    -16.7 %
Sales and business development   3,124   2,867   2,778    9.0 %   12.5 %  9,350   9,679    -3.4 %
Professional and consulting fees  908   1,055   1,544    -13.9 %   -41.2 %  3,035   4,003    -24.2 %
Occupancy, communications and equipment  1,215   1,211   1,423    0.3 %   -14.6 %  3,709   3,957    -6.3 %
Depreciation and amortization  238   242   282    -1.7 %   -15.6 %  726   935    -22.4 %
Third-party distribution fees  1,404   1,867   1,398    -24.8 %   0.4 %  5,609   4,668    20.2 %
Acquisition-related costs        247    n/a    n/a   11   8,217    -99.9 %
Other   1,574   1,628   1,678    -3.3 %   -6.2 %  4,788   5,057    -5.3 %
Total expenses  33,477   36,407   33,774    -8.0 %   -0.9 %  107,060   115,442    -7.3 %
Operating income   8,554   6,739   16,615    26.9 %   -48.5 %  20,740   43,705    -52.5 %
Other Income/(Expenses):                             
Interest expense  (197)  (194)  (196)   1.5 %   0.5 %  (583)  (369)   58.0 %
Interest income  793   818   719    -3.1 %   10.3 %  2,390   2,293    4.2 %
Impairment             n/a    n/a   (572)      n/a 
Other gains and losses, net  235   (54)  318    n/a    -26.1 %  326   26   1,153.8 %
Income before income taxes $9,385  $7,309  $17,456    28.4 %   -46.2 % $22,301  $45,655    -51.2 %
Operating income margin  20.4%  15.6%  33.0%        16.2%  27.5%   
                              

International Business Segment

          
  Three Months Ended
 % Change From
 Nine Months Ended
  Sept. 30,
2019

 June 30,
2019

 Sept. 30,
2018

 June 30,
2019

 Sept. 30,
2018
  Sept. 30,
2019

 Sept. 30,
2018

 %
Change

Operating Revenues:                             
Advisory fees $25,056  $22,557  $21,463    11.1 %   16.7 % $69,936  $45,248    54.6 %
Other income  631   590   718    6.9 %   -12.1 %  1,760   1,854    -5.1 %
Total revenues  25,687   23,147   22,181    11.0 %   15.8 %  71,696   47,102    52.2 %
Operating Expenses:                             
Compensation and benefits  4,349   4,604   4,504    -5.5 %   -3.4 %  13,475   11,740    14.8 %
Fund management and administration  7,038   7,071   6,377    -0.5 %   10.4 %  20,935   14,135    48.1 %
Marketing and advertising  611   574   770    6.4 %   -20.6 %  1,703   1,913    -11.0 %
Sales and business development  1,230   1,304   1,023    -5.7 %   20.2 %  3,597   2,438    47.5 %
Contractual gold payments  3,502   3,110   2,880    12.6 %   21.6 %  9,710   5,595    73.5 %
Professional and consulting fees  351   241   390    45.6 %   -10.0 %  1,002   1,127    -11.1 %
Occupancy, communications and equipment  334   337   299    -0.9 %   11.7 %  1,006   702    43.3 %
Depreciation and amortization  21   22   24    -4.5 %   -12.5 %  66   63    4.8 %
Third-party distribution fees  99   52   9    90.4 %   1,000.0 %  213   130    63.8 %
Acquisition-related costs  190   33   209    475.8 %   -9.1 %  525   2,229    -76.4 %
Other  385   627   603    -38.6 %   -36.2 %  1,479   1,275    16.0 %
Total expenses  18,110   17,975   17,088    0.8 %   6.0 %  53,711   41,347    29.9 %
Operating income  7,577   5,172   5,093    46.5 %   48.8 %  17,985   5,755    212.5 %
Other Income/(Expenses):                             
Interest expense  (2,635)  (2,716)  (2,551)   -3.0 %   3.3 %  (8,051)  (4,734)   70.1 %
(Loss)/gain on revaluation of deferred consideration – gold payments  (6,306)  (4,037)  7,732    56.2 %   n/a   (5,939)  17,630    n/a 
Interest income  6          n/a    n/a   6       n/a 
Other gains and losses, net  608   338   (200)   79.9 %   n/a   (3,826)  (670)   471.0 %
(Loss)/income before income taxes $(750) $(1,243) $10,074    -39.7 %   n/a  $175  $17,981    -99.0 %
Operating income margin  29.5%  22.3%  23.0%        25.1%  12.2%   
                              
                              

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

         
 September 30,
2019
 
 December 31,
2018
 
 (Unaudited)
  
ASSETS        
Current assets:        
Cash and cash equivalents  $  88,575  $  77,784 
Securities owned, at fair value    3,376     8,873 
Accounts receivable     24,381     25,834 
Income taxes receivable    —     1,181 
Prepaid expenses    5,297     4,441 
Other current assets    1,134     163 
Total current assets     122,763     118,276 
Fixed assets, net     8,354     9,122 
Notes receivable    32,368     28,722 
Securities held-to-maturity    17,796     20,180 
Deferred tax assets, net    5,655     7,042 
Investments, carried at cost     28,080     28,080 
Right of use assets – operating leases    18,543     —  
Goodwill     85,856     85,856 
Intangible assets    603,268     603,209 
Other noncurrent assets    1,076     2,155 
Total assets $  923,759  $  902,642 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES        
Current liabilities:        
Fund management and administration payable $  22,024  $  22,508 
Compensation and benefits payable    19,810     18,453 
Deferred consideration – gold payments    13,403     11,765 
Securities sold, but not yet purchased, at fair value     568     1,698 
Operating lease liabilities    3,671     —  
Income taxes payable    3,122     —  
Accounts payable and other liabilities    8,879     8,377 
Total current liabilities     71,477     62,801 
Long-term debt    181,359     194,592 
Deferred consideration – gold payments    154,237     149,775 
Operating lease liabilities    19,581     —  
Deferred rent payable     —      4,570 
Total liabilities     426,654     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: 154,819 and 153,202 at September 30, 2019 and December 31, 2018, respectively    1,548     1,532 
Additional paid-in capital     370,103     363,655 
Accumulated other comprehensive income    35     467 
Accumulated deficit    (7,150)    (7,319)
Total stockholders’ equity     364,536     358,335 
Total liabilities and stockholders’ equity $  923,759  $  902,642 
         
         

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

         
  Nine Months Ended  
  Sept. 30,
2019
 
 Sept. 30,
2018
 
Cash flows from operating activities:        
Net income $15,455  $48,197 
Adjustments to reconcile net income to net cash provided by operating activities:        
Advisory fees received in gold and other precious metals  (36,306)  (21,998)
Contractual gold payments  9,710   5,595 
Stock-based compensation  8,581   10,078 
Loss/(gain) on revaluation of deferred consideration – gold payments  5,939   (17,630)
Amortization of right of use asset  2,379    
Amortization of credit facility issuance costs  2,159   1,360 
Paid-in-kind interest income  (1,856)  (1,373)
Deferred income taxes  1,383   (1,251)
Depreciation and amortization  792   998 
Impairment  572    
Other  (330)  810 
Changes in operating assets and liabilities:        
Securities owned, at fair value  5,497   (2,735)
Accounts receivable  2,358   3,771 
Income taxes receivable/payable  4,350   7,654 
Prepaid expenses  (888)  (621)
Gold and other precious metals  25,751   18,472 
Other assets  (571)  954 
Fund management and administration payable  (366)  1,998 
Compensation and benefits payable   1,476   (21,025)
Securities sold, but not yet purchased, at fair value  (1,130)  1,068 
Operating lease liabilities  (2,662)   
Accounts payable and other liabilities  788   (4,122)
Net cash provided by operating activities  43,081   30,200 
         
Cash flows from investing activities:        
Purchase of fixed assets  (25)  (45)
Funding of notes receivable  (1,790)  (8,000)
Proceeds from held-to-maturity securities maturing or called prior to maturity  2,313   1,096 
Proceeds from sales and maturities of debt securities available-for-sale     64,498 
Cash paid for acquisition, net of cash acquired     (239,313)
Net cash provided by/(used in) investing activities   498   (181,764)
         
Cash flows from financing activities:        
Dividends paid  (15,286)  (14,202)
Repayment of long-term debt  (15,000)   
Shares repurchased  (2,187)  (1,430)
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  70   157 
Net cash (used in)/provided by financing activities  (32,403)  175,654 
Decrease in cash flows due to changes in foreign exchange rate  (385)  (1,158)
Net increase in cash and cash equivalents  10,791   22,932 
Cash and cash equivalents – beginning of period  77,784   54,193 
Cash and cash equivalents – end of period $88,575  $77,125 
Supplemental disclosure of cash flow information:        
Cash paid for taxes $5,439  $8,759 
Cash paid for interest $6,997  $3,351 
         
         


WisdomTree Investments, Inc.   
Key Operating Statistics (Unaudited)   
 Three Months Ended
 Sept. 30,
2019

 June 30,
2019

 Sept. 30,
2018

            
GLOBAL ETPs (in millions)           
            
Beginning of period assets$60,389  $59,111  $59,970 
Inflows/(outflows) (670)  337   (1,233)
Market appreciation/(depreciation) 474   941   403 
Fund closures (181)      
End of period assets$60,012  $60,389  $59,140 
Average assets during the period$60,314  $58,569  $59,460 
Average ETF advisory fee during the period 0.44%  0.45%  0.48%
Revenue days 92   91   92 
Number of ETFs – end of the period 366   536   535 
            
U.S. LISTED ETFs (in millions)           
            
Beginning of period assets$39,220  $39,366  $41,340 
Inflows/(outflows) (1,197)  (166)  (878)
Market appreciation/(depreciation) (431)  20   1,094 
End of period assets$37,592  $39,220  $41,556 
Average assets during the period$37,857  $38,945  $41,555 
Average ETF advisory fee during the period 0.44%  0.44%  0.48%
Number of ETFs – end of the period 80   79   84 
            
INTERNATIONAL LISTED ETPs (in millions)           
            
Beginning of period assets$21,169  $19,745  $18,630 
Inflows/(outflows) 527   503   (355)
Market appreciation/(depreciation) 905   921   (691)
Fund closures (181)      
End of period assets$22,420  $21,169  $17,584 
Average assets during the period$22,457  $19,624  $17,905 
Average ETP advisory fee during the period 0.44%  0.46%  0.48%
Number of ETPs – end of the period 286   457   451 
            
PRODUCT CATEGORIES (in millions)           
            
Commodity & Currency           
Beginning of period assets$18,446  $16,978  $16,115 
Inflows/(outflows) 558   563   (418)
Market appreciation/(depreciation) 973   905   (699)
End of period assets$19,977  $18,446  $14,998 
Average assets during the period$19,804  $16,906  $15,330 
            
U.S. Equity           
Beginning of period assets$16,021  $15,880  $14,301 
Inflows/(outflows) 242   103   347 
Market appreciation/(depreciation) 153   38   538 
End of period assets$16,416  $16,021  $15,186 
Average assets during the period$16,004  $15,808  $14,950 
            
International Developed Market Equity           
Beginning of period assets$13,690  $14,416  $20,218 
Inflows/(outflows) (1,001)  (729)  (1,277)
Market appreciation/(depreciation) (145)  3   647 
End of period assets$12,544  $13,690  $19,588 
Average assets during the period$12,750  $13,960  $19,796 


Emerging Market Equity           
Beginning of period assets$6,090  $5,730  $5,643 
Inflows/(outflows)  173   367   (216)
Market appreciation/(depreciation)  (449)  (7)  (81)
End of period assets$5,814  $6,090  $5,346 
Average assets during the period $5,851  $5,785  $5,548 
            
Fixed Income           
Beginning of period assets$4,258  $4,023  $1,400 
Inflows/(outflows) (582)  208   329 
Market appreciation/(depreciation) (21)  27   (9)
End of period assets$3,655  $4,258  $1,720 
Average assets during the period $4,050  $4,119  $1,536 
            
Leveraged & Inverse           
Beginning of period assets$1,149  $1,226  $1,340 
Inflows/(outflows) (5)  (63)  (70)
Market appreciation/(depreciation)  (6)  (14)  (20)
End of period assets$1,138  $1,149  $1,250 
Average assets during the period $1,170  $1,199  $1,294 
            
Alternatives           
Beginning of period assets$514  $628  $578 
Inflows/(outflows)  (48)  (108)  72 
Market appreciation/(depreciation)  2   (6)  24 
End of period assets$468  $514  $674 
Average assets during the period $490  $574  $628 
            
Closed ETPs           
Beginning of period assets$221  $230  $375 
Inflows/(outflows)  (7)  (4)   
Market appreciation/(depreciation) (33)  (5)  3 
Fund closures (181)      
End of period assets$  $221  $378 
Average assets during the period$195  $218  $378 
            
Headcount – U.S. Business segment 142   143   151 
Headcount – International Business segment 70   71   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 (or $1.2 million after-tax) for the second quarter of 2019 and acquisition-related costs of $0.2 million, $0.03 million and $0.5 million (or $0.2 million, $0.03 million and $0.4 million after-tax) for the third quarter of 2019, second quarter of 2019, and third quarter of 2018, respectively, 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.  See “adjusted net income and adjusted diluted earnings per share” above for information regarding the items that are excluded.  

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

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


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

Consolidated

     
  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Adjusted Net Income and Diluted Earnings per Share: 2019 2019
 2018
Net income, as reported $4,152  $2,479  $22,049 
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration  6,306   4,037   (7,732)
Add back: Severance expense, net of income taxes     1,194    
Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards  30   76   135 
Add back: Acquisition-related costs, net of income taxes  154   27   356 
Adjusted net income $10,642  $7,813  $14,808 
Weighted average common shares - diluted  167,163   167,249   166,622 
Adjusted earnings per share - diluted $0.06  $0.05  $0.09 
             
             
  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Adjusted Operating Income Margin: 2019
 2019
 2018
Operating revenues  $67,718  $66,293  $72,570 
             
Operating income $16,131  $11,911  $21,708 
Add back: Severance expense, before income taxes     1,475    
Add back: Acquisition-related costs, before income taxes  190   33   456 
Adjusted operating income $16,321  $13,419  $22,164 
Adjusted operating income margin  24.1%  20.2%  30.5%


  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Adjusted Effective Income Tax Rate:  2019   2019   2018 
Income before income taxes $8,635  $6,066  $27,530 
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration  6,306   4,037   (7,732)
Add back: Severance expense, before income taxes     1,475    
Add back: Acquisition-related costs, before income taxes  190   33   456 
Adjusted income before income taxes $15,131  $11,611  $20,254 
             
Income tax expense $4,483  $3,587  $5,481 
Add back: Tax benefit arising from severance expense .     281    
Deduct: Tax shortfalls upon vesting and exercise of stock-based compensation awards  (30)  (76)  (135)
Add back: Tax benefit arising from acquisition-related costs  36   6   100 
Adjusted income tax expense $4,489  $3,798  $5,446 
Adjusted effective income tax rate  29.7%  32.7%  26.9%


U.S. Business Segment    
  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Gross Margin and Gross Margin Percentage:  2019   2019   2018 
Operating revenues $42,031  $43,146  $50,389 
Less: Fund management and administration   (8,072)  (8,505)  (8,915)
Gross margin $33,959  $34,641  $41,474 
Gross margin percentage  80.8%  80.3%  82.3%
             
             
  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Adjusted Operating Income Margin:  2019   2019   2018 
Operating revenues  $42,031  $43,146  $50,389 
             
Operating income $8,554  $6,739  $16,615 
Add back: Severance expense, before income taxes     1,366    
Add back: Acquisition-related costs, before income taxes        247 
Adjusted operating income $8,554  $8,105  $16,862 
Adjusted operating income margin  20.4%  18.8%  33.5%


International Business Segment    
  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Gross Margin and Gross Margin Percentage: 2019
 2019
 2018
Operating revenues $25,687  $23,147  $22,181 
Less: Fund management and administration  (7,038)  (7,071)  (6,377)
Gross margin $18,649  $16,076  $15,804 
Gross margin percentage  72.6%  69.5%  71.3%
             
  Three Months Ended
  Sept. 30,
 June 30,
 Sept. 30,
Adjusted Operating Income Margin: 
$
2019  2019
 2018
Operating revenues . 25,687  $23,147  $22,181 
             
Operating income $7,577  $5,172  $5,093 
Add back: Severance expense, before income taxes     109    
Add back: Acquisition-related costs, before income taxes  190   33   209 
Adjusted operating income $7,767  $5,314  $5,302 
Adjusted operating income margin  30.2%  23.0%  23.9%
             
RESTRICTED MATERIAL
This material is intended for Financial Professionals only

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