Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 24, 2018

 

 

WisdomTree Investments, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-10932   13-3487784

(State or other jurisdiction

of incorporation)

 

Commission

File Number:

 

(IRS Employer

Identification No.)

245 Park Avenue

35th Floor

New York, NY 10167

(Address of principal executive offices, including zip code)

(212) 801-2080

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 


Item 2.02.

Results of Operations and Financial Condition

On July 27, 2018, WisdomTree Investments, Inc. (the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2018. A copy of the press release containing this information is being furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section and shall not be deemed incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended.

 

Item 8.01.

Other Events

On July 24, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.03 per share of common stock, payable on August 22, 2018 to stockholders of record as of the close of business on August 8, 2018. A copy of the press release issued in connection with the dividend is attached as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.

 

Item 9.01.

Financial Statements and Exhibits

(d) Exhibits:

 

Exhibit 99.1    Press Release, dated July 27, 2018


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    WisdomTree Investments, Inc.
Date: July 27, 2018     By:   /s/ Amit Muni
      Amit Muni
      Chief Financial Officer

 

2

EX-99.1

Exhibit 99.1

WisdomTree Announces Second Quarter 2018 Results

$16.7 million net income, or $14.3 million as adjusted

$0.10 diluted EPS for the quarter, or $0.09 as adjusted

Declares $0.03 quarterly dividend

New York, NY – (GlobeNewswire) – July 27, 2018 – WisdomTree Investments, Inc. (NASDAQ: WETF), an exchange-traded fund (“ETF”) and exchange-traded product (“ETP”) sponsor and asset manager today reported net income of $16.7 million or $0.10 diluted EPS in the second quarter. Adjusted net income (a non-GAAP measure1) was $14.3 million1 or $0.09 diluted EPS1. This compares to net income of $12.1 million or $0.09 diluted EPS (as adjusted, $7.8 million1 or $0.06 diluted EPS1) in the second quarter of last year and net income of $9.4 million or $0.07 diluted EPS (as adjusted, $11.3 million1 or $0.08 diluted EPS1) in the first quarter of 2018.

WisdomTree CEO and President Jonathan Steinberg said, “Technology and data investments made over the past several years are driving growing cost efficiencies across our organization and allowing us to better serve our existing clients and prospects, leading the firm towards our next wave of growth. Over the past several months we signed distribution agreements with notable third parties, pointing to the strength of our innovative product suite and differentiated technology and advisor solutions offerings, both in the U.S. and abroad.”

Steinberg continued, “The second quarter was a busy quarter for our international operations. Early in the quarter, we completed our acquisition of ETF Securities, transforming our European platform. We have achieved the cost savings we identified ahead of schedule and continue to work towards leveraging the expanded distribution reach and enhanced resources. Additionally, in Canada we continued to generate strong organic growth and further establish ourselves in that growing market. Lastly, we are restructuring our Japan distribution strategy which in addition to reducing our cost base, we believe will drive stronger growth in the region.”

 

     Three Months Ended     Change From  
     June 30,
2018
    Mar. 31,
2018
    June 30,
2017
    Mar. 31,
2018
    June 30,
2017
 

Consolidated Operating Highlights ($, in billions):

          

AUM

   $ 60.0     $ 45.0     $ 44.7       33.4     34.1

Assets acquired

   $ 17.6       n/a       n/a       n/a       n/a  

Net inflows/(outflows)

   $ (1.3   $ (2.2   $ 0.8       (43.2 %)      n/a  

Average AUM

   $ 61.3     $ 47.7     $ 44.4       28.4     38.0

Average advisory fee

     0.48     0.50     0.50     (0.02     (0.02

Consolidated Financial Highlights ($, in millions, except per share amounts):

          

Operating revenues

   $ 74.8     $ 58.9     $ 56.2       26.9     33.0

Net income

   $ 16.7     $ 9.4     $ 12.1       77.5     38.2

Diluted earnings per share

   $ 0.10     $ 0.07     $ 0.09     $ 0.03     $ 0.01  

Operating income margin

     19.4     22.4     26.7     -3.0       -7.3  

Non-GAAP1:

          

Net income, as adjusted

   $ 14.3     $ 11.3     $ 7.8       27.0     82.4

Diluted net income per share, as adjusted

   $ 0.09     $ 0.08     $ 0.06     $ 0.01     $ 0.03  

Operating income margin, as adjusted

     30.0     25.9     n/a       4.1       n/a  

Recent Business Developments

Company News

 

   

In June 2018, the Company announced the addition of Chris Gardner, author of “The Pursuit of Happyness,” as a Senior Advisor.

 

   

In July 2018, the Company announced that it entered into an ETF Program Agreement with Cetera Financial Group to be the only ETF sponsor with ETFs available through the no-transaction fee platform; Oranj announced that the Company’s model portfolios and products are now available on Oranj’s free end-to-end wealth management platform; and WisdomTree and AdvisorEngine were selected by a large independent broker-dealer to digitize and optimize their wealth management platform, with WisdomTree providing model portfolios.

 

1


U.S. Listed Product News

 

   

In July 2018, the Company announced that it expanded its offering on Schwab ETF OneSourceTM, a commission-free ETF program, with the addition of the WisdomTree Floating Rate Treasury Fund (USFR) and the WisdomTree Yield Enhanced U.S. Short-Term Aggregate Bond Fund (SHAG).

European Listed Product News

 

   

In May 2018, the Company announced the launch of two new funds. The WisdomTree AT1 CoCo Bond UCITS ETF is the first ETF globally to provide investors with access to the Additional Tier 1 (AT1) Contingent Convertible (CoCo) bond market while the WisdomTree Cboe S&P 500 PutWrite UCITS ETF replicates a strategy that is already successful for the Company in the U.S. Both funds were listed on the London Stock Exchange, Borsa Italiana and Deutsche Börse Xetra.

 

   

In July 2018, the Company announced the launch of two new smart beta fixed income ETFs which seek to provide enhanced yields on core European investment grade bonds and treasuries, without potentially riskier exposures. The WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF (WTDP) and the WisdomTree EUR Government Bond Enhanced Yield UCITS ETF (WTDR) are both listed on the Deutsche Börse Xetra and Borsa Italiana; and the Company announced the launch of two smart beta equity ETFs, offering multifactor exposure to U.S. equities and exposure to Japanese small cap equities. The WisdomTree US Multifactor UCITS ETF (USMF) and the WisdomTree Japan SmallCap Dividend UCITS ETF (DFJ) are both listed on the London Stock Exchange.

Canadian Listed Product News

 

   

In May 2018, the Company announced the launch of the Digital Portfolio Developer (DPD), an on-demand tool for Canadian advisors that focuses on providing deep data analytics to evaluate client and prospect portfolios.

Assets Under Management and Net Inflows

U.S. listed ETF assets under management (“AUM”) was $41.3 billion at June 30, 2018, down 3.6% from March 31, 2018 primarily due to net outflows. International listed ETPs’ AUM was $18.6 billion at June 30, 2018, up $16.6 billion from March 31, 2018 primarily due to the $17.6 billion of AUM acquired in connection with the completion of our acquisition on April 11, 2018 of the European exchange-traded commodity, currency and short-and-leveraged business (“ETFS”) of ETFS Capital Limited (“ETFS Capital,” formerly known as ETF Securities Limited) partly offset by market depreciation. We refer to the acquisition throughout this press release as the ETFS Acquisition.

Performance

In evaluating the performance of our U.S. listed equity, fixed income and alternative ETFs against actively managed and index based mutual funds and ETFs, 76.5% of the $40.7 billion invested in our ETFs and 62.9% (44 of 70) of our ETFs covered by Morningstar outperformed their comparable Morningstar average since inception as of June 30, 2018.

For more information about WisdomTree ETFs including standardized performance, please click here or visit www.wisdomtree.com.

Second Quarter Financial Discussion

On April 11, 2018, we completed the ETFS Acquisition. Our financial results for the second quarter of 2018 include the recognition of certain items directly associated with the acquisition, including contractual gold payments expense, a gain on revaluation of deferred consideration and interest expense, each of which are described in further detail below.

In addition, the presentation of our Consolidated Statements of Operations has changed to include operating revenues and operating expenses, as well as other income/(expenses) not included in operating income. Prior period amounts previously disclosed within our Consolidated Statements of Operations have been reclassified to conform with our current presentation. These reclassifications had no effect on previously reported net income.

The primary reason for the increase in our revenues, expenses and net income this quarter compared to prior periods is the inclusion of the ETFS Acquisition.

Operating Revenues

Advisory Fees

Advisory fees of $73.8 million increased 32.1% and 26.2% from the second quarter of 2017 and first quarter of 2018, respectively, due to an increase in our average global AUM. Our average global AUM increased from the second quarter of 2017 primarily due to the $17.6 billion of AUM acquired in connection with the ETFS Acquisition as well as market appreciation and net inflows into certain of our ETFs. These increases were partly offset by outflows from our two largest U.S. listed ETFs.

 

2


Our average global AUM increased from the first quarter of 2018 primarily due to the $17.6 billion of AUM acquired, partly offset by net outflows from our two largest U.S. listed ETFs and market depreciation.

Our average global advisory fee was 0.48% during the second quarter of 2018.

Other Income

Other income of $1.0 million increased 158.3% and 122.5% from the second quarter of 2017 and first quarter of 2018, respectively, primarily due to creation/redemption fees earned from the ETFS exchange-traded products.

Margins

Gross margin for our U.S. Business segment was 83.4%1 in the second quarter of 2018 as compared to 83.7%1 2 in the second quarter of 2017 and 83.9%1 2 in the first quarter of 2018. Gross margin for our International Business segment was 73.2%1 in the second quarter of 2018 as compared to 46.2%1 in the second quarter of 2017 and 40.1%1 in the first quarter of 2018. Gross margins of the International Business segment for prior quarters were not meaningful as the business was not scaled. The change in gross margin from the prior quarters is due to the ETFS Acquisition.

Operating income margin on a consolidated basis was 19.4% in the second quarter of 2018 (as adjusted 30.0%1) as compared to 26.7% in the second quarter of 2017 and 22.4% in the first quarter of 2018 (as adjusted 25.9%1).

Pre-tax margin on a consolidated basis was 29.7% in the second quarter of 2018 as compared to 39.5% in the second quarter of 2017 and 23.6% in the first quarter of 2018.

Operating Expenses

Total operating expenses were $60.2 million for the second quarter of 2018, up 46.2% and 31.9% from the second quarter of 2017 and the first quarter of 2018, respectively. Operating expenses increased primarily due to the ETFS Acquisition. In addition, included in the second quarter of 2018 and first quarter of 2018 were acquisition-related costs of $7.9 million and $2.1 million, respectively.

 

   

Compensation and benefits expense increased 4.8% from the second quarter of 2017 to $19.3 million due to the ETFS Acquisition, partly offset by lower accrued incentive compensation in our U.S. Business segment. Compensation and benefits expense increased 2.5% from the first quarter of 2018 due to the ETFS Acquisition, partly offset by lower payroll taxes and benefits expense. Payroll taxes and benefits expense in the first quarter of 2018 are seasonally higher due to bonus payments made during that period. Headcount of our U.S. Business segment was 155, 157 and 166 and our International Business segment was 76, 34 and 46 at June 30, 2018, March 31, 2018 and June 30, 2017, respectively.

 

   

Fund management and administration expense increased 44.6% from the second quarter of 2017 and 34.0% from the first quarter of 2018 to $14.6 million due to higher average AUM of our International Business segment primarily associated with the ETFS Acquisition. We had 81 U.S. listed ETFs and 445 International listed ETPs at the end of the quarter.

 

   

Marketing and advertising expense was essentially unchanged from the second quarter of 2017. This expense increased 18.2% from the first quarter of 2018 to $3.8 million due to higher levels of spending globally.

 

   

Sales and business development expense increased 32.9% from the second quarter of 2017 to $4.5 million primarily due to higher spending on sales related activities globally. This expense increased 18.1% from the first quarter of 2018 primarily due to higher spending in our International Business segment.

 

   

Contractual gold payments expense represents an ongoing obligation of ETFS Capital that we assumed in connection with the ETFS Acquisition. This ongoing obligation requires us to pay 9,500 ounces of gold annually from the advisory fee income we earn for managing physically backed gold ETPs. During the second quarter of 2018, we recognized $2.7 million of contractual gold payments expense associated with the payment of 2,085 ounces of gold at an average daily spot price of $1,302 per ounce.

 

   

Professional and consulting fees increased 27.8% from the second quarter of 2017 to $1.6 million due to higher professional and corporate consulting-related expenses globally. These expenses were essentially unchanged from the first quarter of 2018.

 

   

Occupancy, communications and equipment expense increased 14.8% from the second quarter of 2017 and 15.5% from the first quarter of 2018 to $1.6 million primarily due to higher headcount associated with the ETFS Acquisition.

 

3


   

Third-party distribution fees increased 148.7% from the second quarter of 2017 to $1.7 million primarily due to a new distribution relationship announced in the fourth quarter of 2017 and higher fees paid to our third-party marketing agent in Latin America. These expenses were essentially unchanged from the first quarter of 2018.

 

   

Acquisition-related costs increased $5.9 million from the first quarter of 2018 to $7.9 million and included professional advisor fees payable upon completion of the ETFS Acquisition, a write-off of our office lease and compensation and other integration costs. Costs incurred in the prior quarter were principally severance, professional fees and other integration costs.

 

   

Other expenses increased 22.7% from the second quarter of 2017 and 26.3% from the first quarter of 2018 to $2.3 million primarily due to higher International Business segment office expenses associated with an increase in headcount from the ETFS Acquisition.

Other Income/(Expenses)

 

   

Interest expense for the second quarter of 2018 of $2.4 million was incurred principally in connection with a newly raised term loan to facilitate the ETFS Acquisition. Our effective interest rate during the period was 4.9% and includes our cost of borrowing and amortization of issuance costs.

 

   

Gain on revaluation of deferred consideration of $9.9 million arose from the ongoing contractual gold payment obligation described above that we assumed from ETFS Capital in connection with the ETFS Acquisition. The present value of the ongoing obligation to pay 9,500 ounces of gold until March 2058, which is then reduced to 6,333 ounces into perpetuity, is recorded on our Consolidated Balance Sheet as deferred consideration, which is re-measured each quarter based upon forward-looking gold prices. A gain was recognized during the second quarter of 2018 as the price of gold had declined when compared to the price on April 11, 2018, the date on which the deferred consideration was originally measured.

 

   

Interest income was essentially unchanged from the second quarter of 2017. Interest income decreased 36.4% from the first quarter of 2018 to $0.6 million due to lower interest income on our short-term investment grade bond portfolio which has matured, partly offset by paid-in-kind (“PIK”) interest on a note receivable from AdvisorEngine Inc.

 

   

Other net losses increased 37.6% from the second quarter of 2017 and 92.0% from the first quarter of 2018 to $0.5 million primarily due to realized losses arising from the sale of gold earned from management fees paid by physically-backed gold ETPs associated with the ETFS Acquisition, as well as miscellaneous foreign exchange losses.

Income Taxes

Our estimated effective income tax rate for the quarter ended June 30, 2018 of 24.6% (as adjusted 29.2%1) resulted in income tax expense of $5.5 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to non-deductible acquisition-related costs, a valuation allowance on foreign net operating losses and state and local income taxes, partly offset by the gain on revaluation of deferred consideration and a lower tax rate on foreign earnings. The gain on revaluation of deferred consideration is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a region where we are subject to a zero percent tax rate.

Six Month Results

Total operating revenues increased 22.0% to $133.7 million for the six months ended June 30, 2018 primarily due to higher average global AUM, including the $17.6 billion of AUM acquired in connection with the ETFS Acquisition. Total operating expenses increased 30.8% to $105.9 million primarily due to expenses associated with the ETFS acquired business. In addition, operating expenses for the six months ended June 30, 2018 include acquisition-related costs of $10.0 million.

Other income/(expenses) for the six months ended June 30, 2018 includes $2.4 million of interest expense incurred principally in connection with a newly raised term loan to facilitate the ETFS Acquisition, as well as a gain on revaluation of deferred consideration of $9.9 million associated with the ETFS Acquisition. Interest income increased 28.5% to $1.6 million, primarily due to PIK interest on a note receivable from AdvisorEngine, Inc., partly offset by lower interest income on our short-term investment grade bond portfolio which has matured. In addition, the prior year period includes a settlement gain of $6.9 million as well as a reimbursement of fund-related costs of $0.8 million classified within other gains and losses, net.

Balance Sheet

In connection with the ETFS Acquisition, at April 11, 2018 we recognized goodwill of $84.1 million, intangible assets of $601.2 million, deferred consideration of $172.7 million, long-term debt, net of issuance costs of $192.9 million, preferred stock of $132.6 million and common stock of $137.2 million.

 

4


As of June 30, 2018, we had total assets of $902.1 million which consisted primarily of intangible assets of $613.2 million, goodwill of $85.9 million, cash and cash equivalents of $70.7 million, investments of $35.2 million, securities held-to-maturity of $20.2 million, accounts receivable of $27.3 million and a note receivable of $24.6 million. There were approximately 153.1 million shares of our common stock outstanding as of June 30, 2018. Fully diluted weighted average shares outstanding were 163.3 million for the quarter.

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 22, 2018 to stockholders of record as of the close of business on August 8, 2018.

Conference Call

WisdomTree will discuss its results and operational highlights during a conference call on Friday, July 27, 2018 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;

 

   

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 expand our business into non-U.S. markets;

 

   

competition in our business; and

 

   

the effect of laws and regulations that apply to our business.

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

 

   

Net outflows in our two largest 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.

 

5


   

The ETFS Acquisition is significant in size relative to our assets and operations and may result in significant changes in our business. Our failure to integrate and manage ETFS successfully could materially and adversely affect our business, results of operations and financial condition.

 

   

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 customers 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.

 

   

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 the performance of these products and our ability to maintain the AUM of these products, as well as investor sentiment toward investing in the funds’ strategies and market-specific and political and economic risk.

 

   

Much of our AUM is held in our U.S. listed ETFs that invest in foreign securities and we therefore have substantial exposure to foreign market conditions and are subject to foreign currency exchange rate 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 our customers.

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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Quarterly Report on Form 10-Q for the quarter ended March 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, Canada and Japan (collectively, “WisdomTree”), is an exchange-traded fund (“ETF”) and exchange-traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers products covering equities, fixed income, currencies, commodities and alternative strategies. WisdomTree currently has approximately $60.2 billion in assets under management globally.

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

 

1

See “Non-GAAP Financial Measurements.”

 

2

Gross margin is now calculated as total operating revenues, less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. See “Non-GAAP Financial Measurements” below for additional information. Amounts previously reported as gross margin for the U.S. Business segment have been restated to conform with our current presentation.

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

 

6


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,
2018
    Mar. 31,
2018
    June 30,
2017
    Mar. 31,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
     %
Change
 

Operating Revenues:

                 

Advisory fees

   $ 73,778     $ 58,456     $ 55,856       26.2     32.1   $ 132,234     $ 108,884        21.4

Other income

     997       448       386       122.5     158.3     1,445       725        99.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     74,775       58,904       56,242       26.9     33.0     133,679       109,609        22.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating Expenses:

                 

Compensation and benefits

     19,301       18,832       18,421       2.5     4.8     38,133       36,295        5.1

Fund management and administration

     14,621       10,912       10,112       34.0     44.6     25,533       19,712        29.5

Marketing and advertising

     3,778       3,195       3,825       18.2     -1.2     6,973       7,362        -5.3

Sales and business development

     4,503       3,813       3,389       18.1     32.9     8,316       6,351        30.9

Contractual gold payments

     2,715                   n/a       n/a       2,715              n/a  

Professional and consulting fees

     1,560       1,636       1,221       -4.6     27.8     3,196       2,779        15.0

Occupancy, communications and equipment

     1,574       1,363       1,371       15.5     14.8     2,937       2,724        7.8

Depreciation and amortization

     337       355       352       -5.1     -4.3     692       689        0.4

Third-party distribution fees

     1,666       1,725       670       -3.4     148.7     3,391       1,602        111.7

Acquisition-related costs

     7,928       2,062             284.5     n/a       9,990              n/a  

Other

     2,261       1,790       1,842       26.3     22.7     4,051       3,466        16.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total expenses

     60,244       45,683       41,203       31.9     46.2     105,927       80,980        30.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating income

     14,531       13,221       15,039       9.9     -3.4     27,752       28,629        -3.1

Other Income/(Expenses):

                 

Interest expense

     (2,356                 n/a       n/a       (2,356            n/a  

Gain on revaluation of deferred consideration – gold payments

     9,898                   n/a       n/a       9,898              n/a  

Interest income

     612       962       641       -36.4     -4.5     1,574       1,225        28.5

Settlement gain

                 6,909       n/a       n/a             6,909        n/a  

Other gains and losses, net

     (501     (261     (364     92.0     37.6     (762     284        n/a  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before taxes

     22,184       13,922       22,225       59.3     -0.2     36,106       37,047        -2.5

Income tax expense

     5,460       4,498       10,120       21.4     -46.0     9,958       18,062        -44.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 16,724     $ 9,424     $ 12,105       77.5     38.2   $ 26,148     $ 18,985        37.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income per share – basic

   $ 0.10     $ 0.07     $ 0.09         $ 0.17     $ 0.14     

Net income per share – diluted

   $ 0.10     $ 0.07     $ 0.09         $ 0.17     $ 0.14     

Weighted average common shares – basic

     149,056       135,329       134,557           142,230       134,472     

Weighted average common shares – diluted

     163,346       136,468       135,574           149,979       135,613     

 

7


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(in thousands)

(Unaudited)

The following table sets forth the pre-tax operating results for the Company’s U.S. Business and International Business segments. The U.S. Business segment represents the results of the Company’s U.S. operations and Japan sales office. The results of the Company’s European and Canadian operations are reported as the International Business segment.

U.S. Business Segment

 

     Three Months Ended     % Change From     Six Months Ended  
     June 30,
2018
    Mar. 31,
2018
    June 30,
2017
    Mar. 31,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
    %
Change
 

Operating Revenues:

                

Advisory fees

   $ 52,931     $ 55,518     $ 53,641       -4.7     -1.3   $ 108,449     $ 104,667       3.6

Other income

     162       147       128       10.2     26.6     309       231       33.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     53,093       55,665       53,769       -4.6     -1.3     108,758       104,898       3.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     14,526       16,371       15,910       -11.3     -8.7     30,897       30,980       -0.3

Fund management and administration

     8,802       8,973       8,782       -1.9     0.2     17,775       17,109       3.9

Marketing and advertising

     2,987       2,843       3,253       5.1     -8.2     5,830       6,322       -7.8

Sales and business development

     3,446       3,455       2,824       -0.3     22.0     6,901       5,434       27.0

Professional and consulting fees

     1,134       1,325       1,013       -14.4     11.9     2,459       2,335       5.3

Occupancy, communications and equipment

     1,309       1,225       1,232       6.9     6.3     2,534       2,460       3.0

Depreciation and amortization

     314       339       339       -7.4     -7.4     653       670       -2.5

Third-party distribution fees

     1,621       1,649       670       -1.7     141.9     3,270       1,597       104.8

Acquisition-related costs

     6,773       1,197             465.8     n/a       7,970             n/a  

Other

     1,726       1,653       1,725       4.4     0.1     3,379       3,271       3.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     42,638       39,030       35,748       9.2     19.3     81,668       70,178       16.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     10,455       16,635       18,021       -37.2     -42.0     27,090       34,720       -22.0

Other Income/(Expenses):

                

Interest expense

     (173                 n/a       n/a       (173           n/a  

Interest income

     612       962       641       -36.4     -4.5     1,574       1,225       28.5

Settlement gain

                 6,909       n/a       n/a             6,909       n/a  

Other gains and losses, net

     (66     (226     (261     -70.8     -74.7     (292     364       n/a  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

   $ 10,828     $ 17,371     $ 25,310       -37.7     -57.2   $ 28,199     $ 43,218       -34.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income margin

     19.7     29.9     33.5         24.9     33.1  

 

8


International Business Segment

 

     Three Months Ended     % Change From     Six Months Ended  
     June 30,
2018
    Mar. 31,
2018
    June 30,
2017
    Mar. 31,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
    %
Change
 

Operating Revenues:

                

Advisory fees

   $ 20,847     $ 2,938     $ 2,215       609.6     841.2   $ 23,785     $ 4,217       464.0

Other income

     835       301       258       177.4     223.6     1,136       494       130.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     21,682       3,239       2,473       569.4     776.7     24,921       4,711       429.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     4,775       2,461       2,511       94.0     90.2     7,236       5,315       36.1

Fund management and administration

     5,819       1,939       1,330       200.1     337.5     7,758       2,603       198.0

Marketing and advertising

     791       352       572       124.7     38.3     1,143       1,040       9.9

Sales and business development

     1,057       358       565       195.3     87.1     1,415       917       54.3

Contractual gold payments

     2,715                   n/a       n/a       2,715             n/a  

Professional and consulting fees

     426       311       208       37.0     104.8     737       444       66.0

Occupancy, communications and equipment

     265       138       139       92.0     90.6     403       264       52.7

Depreciation and amortization

     23       16       13       43.8     76.9     39       19       105.3

Third-party distribution fees

     45       76             -40.8     n/a       121       5       n/a  

Acquisition-related costs

     1,155       865             33.5     n/a       2,020             n/a  

Other

     535       137       117       290.5     357.3     672       195       244.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     17,606       6,653       5,455       164.6     222.7     24,259       10,802       124.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income/(loss)

     4,076       (3,414     (2,982     n/a       n/a       662       (6,091     n/a  

Other Income/(Expenses):

                

Interest expense

     (2,183                 n/a       n/a       (2,183           n/a  

Gain on revaluation of deferred consideration – gold payments

     9,898                   n/a       n/a       9,898             n/a  

Other gains and losses, net

     (435     (35     (103     n/a       322.3     (470     (80     487.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) before taxes

   $ 11,356     $ (3,449   $ (3,085     n/a       n/a     $ 7,907     $ (6,171     n/a  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income margin

     18.8     n/a       n/a           2.7     n/a    

 

9


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     June 30,
2018
    December 31,
2017
 
     (Unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 70,744     $ 54,193  

Securities owned, at fair value

     3,719       66,294  

Securities held-to-maturity

           1,000  

Accounts receivable

     27,329       21,309  

Income taxes receivable

           6,978  

Prepaid expenses

     6,545       3,550  

Other current assets

     194       1,007  
  

 

 

   

 

 

 

Total current assets

     108,531       154,331  

Fixed assets, net

     10,028       10,693  

Note receivable

     24,588       18,748  

Securities held-to-maturity

     20,229       20,299  

Deferred tax assets, net

     2,024       1,050  

Investments, carried at cost

     35,187       35,187  

Goodwill

     85,856       1,799  

Intangible assets

     613,227       12,085  

Other noncurrent assets

     2,428       793  
  

 

 

   

 

 

 

Total assets

   $ 902,098     $ 254,985  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

LIABILITIES

    

Current liabilities:

    

Fund management and administration payable

   $ 22,002     $ 20,099  

Compensation and benefits payable

     13,664       28,053  

Deferred consideration – gold payments

     11,378        

Income taxes payable

     1,252        

Securities sold, but not yet purchased, at fair value

     2,026       950  

Payable to ETFS Capital

     7,033        

Accounts payable and other liabilities

     9,366       8,246  
  

 

 

   

 

 

 

Total current liabilities

     66,721       57,348  

Long-term debt

     193,407        

Deferred consideration – gold payments

     151,470        

Deferred rent payable

     4,608       4,686  
  

 

 

   

 

 

 

Total liabilities

     416,206       62,034  
  

 

 

   

 

 

 

Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14,750 shares authorized, issued and outstanding

     132,569        
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY

    

Common stock, par value $0.01; 250,000 shares authorized:

    

Issued and outstanding: 153,142 and 136,996 at June 30, 2018 and December 31, 2017, respectively

     1,531       1,370  

Additional paid-in capital

     359,066       216,006  

Accumulated other comprehensive income

     461       291  

Accumulated deficit

     (7,735     (24,716
  

 

 

   

 

 

 

Total stockholders’ equity

     353,323       192,951  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 902,098     $ 254,985  
  

 

 

   

 

 

 

 

10


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

     Six Months Ended  
     June 30,
2018
    June 30,
2017
 

Cash flows from operating activities:

    

Net income

   $ 26,148     $ 18,985  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Advisory fees paid in gold and other precious metals

     (11,033      

Contractual gold payments

     2,715        

Gain on revaluation of deferred consideration – gold payments

     (9,898      

Stock-based compensation

     6,838       6,951  

Deferred income taxes

     (1,055     5,890  

Paid-in-kind interest income

     (839      

Settlement gain

           (6,909

Amortization of credit facility issuance costs

     637        

Depreciation and amortization

     692       689  

Other

     834       301  

Changes in operating assets and liabilities:

    

Securities owned, at fair value

     (2,028     1,148  

Accounts receivable

     2,871       (1,671

Income taxes receivable/payable

     8,109       2,217  

Prepaid expenses

     (1,669     (1,405

Gold and other precious metals

     8,930        

Other assets

     975       143  

Acquisition payable

           (3,542

Fund management and administration payable

     (380     (729

Compensation and benefits payable

     (21,170     (3,958

Securities sold, but not yet purchased, at fair value

     1,077       (1,222

Payable to ETFS Capital

     222        

Accounts payable and other liabilities

     (2,962     395  
  

 

 

   

 

 

 

Net cash provided by operating activities

     9,014       17,283  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of fixed assets

     (34     (220

Purchase of securities held-to-maturity

           (759

Purchase of debt securities available-for-sale

           (38,680

Purchase of investments

           (5,000

Funding of AdvisorEngine note receivable

     (5,000      

Proceeds from held-to-maturity securities maturing or called prior to maturity

     1,063       2,102  

Proceeds from sales and maturities of debt securities available-for-sale

     64,498       46,065  

Cash paid – ETFS Acquisition, net of cash acquired

     (233,172      
  

 

 

   

 

 

 

Net cash (used in)/provided by investing activities

     (172,645     3,508  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Dividends paid

     (9,167     (21,872

Shares repurchased

     (1,006     (3,693

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

     139       42  
  

 

 

   

 

 

 

Net cash provided by/(used in) financing activities

     181,095       (25,523
  

 

 

   

 

 

 

(Decrease)/increase in cash flows due to changes in foreign exchange rate

     (913     624  
  

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     16,551       (4,108

Cash and cash equivalents – beginning of period

     54,193       92,722  
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 70,744     $ 88,614  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for taxes

   $ 2,841     $ 9,708  
  

 

 

   

 

 

 

Cash paid for interest

   $ 1,241     $
  

 

 

   

 

 

 

 

11


WisdomTree Investments, Inc.

Key Operating Statistics (Unaudited)

 

     Three Months Ended  
     June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

U.S. LISTED ETFs (in millions)

      

Beginning of period assets

   $ 42,886     $ 46,827     $ 41,940  

Inflows/(outflows)

     (1,231     (2,167     605  

Market appreciation/(depreciation)

     (315     (1,774     638  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 41,340     $ 42,886     $ 43,183  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 43,464     $ 45,618     $ 42,961  

Average ETF advisory fee during the period

     0.49     0.49     0.50

Revenue days

     91       90       91  

Number of ETFs – end of the period

     81       81       90  

INTERNATIONAL LISTED ETPs (in millions)

      

Beginning of period assets

   $ 2,075     $ 2,110     $ 1,424  

Assets acquired

     17,641              

Inflows/(outflows)

     (25     (45     163  

Market appreciation/(depreciation)

     (1,062     10       (40
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 18,629     $ 2,075     $ 1,547  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 17,837     $ 2,106     $ 1,446  

Average ETP advisory fee during the period

     0.47     0.57     0.61

Revenue days

     91       90       91  

Number of ETPs – end of the period

     445       99       93  

PRODUCT CATEGORIES (in millions)

      

International Developed Market Equity

      

Beginning of period assets

   $ 22,432     $ 25,950     $ 24,057  

Inflows/(outflows)

     (1,502     (2,705     125  

Market appreciation/(depreciation)

     (599     (813     465  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 20,331     $ 22,432     $ 24,647  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 22,455     $ 24,435     $ 24,794  

Commodity & Currency

      

Beginning of period assets

   $ 416     $ 445     $ 519  

Assets acquired

     16,778              

Inflows/(outflows)

     (99     (28     (44

Market appreciation/(depreciation)

     (928     (1     (11
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 16,167     $ 416     $ 464  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 15,316     $ 426     $ 488  

U.S. Equity

      

Beginning of period assets

   $ 13,359     $ 14,234     $ 12,516  

Inflows/(outflows)

     114       48       248  

Market appreciation/(depreciation)

     828       (923     124  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 14,301     $ 13,359     $ 12,888  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 14,021     $ 14,122     $ 12,629  

Emerging Market Equity

      

Beginning of period assets

   $ 6,289     $ 5,887     $ 4,563  

Inflows/(outflows)

     (120     425       191  

Market appreciation/(depreciation)

     (526     (23     74  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 5,643     $ 6,289     $ 4,828  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 6,116     $ 6,259     $ 4,742  

Leveraged & Inverse

      

Beginning of period assets

   $ 872     $ 930     $ 773  

Assets acquired

     863              

Inflows/(outflows)

     (71     (133     101  

 

12


Key Operating Statistics (Unaudited)

 

     Three Months Ended  
     June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Market appreciation/(depreciation)

     (133     75       (65
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 1,531     $ 872     $ 809  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 1,592     $ 877     $ 733  

Fixed Income

      

Beginning of period assets

   $ 1,101     $ 862     $ 572  

Inflows/(outflows)

     349       253       43  

Market appreciation/(depreciation)

     (39     (14     5  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 1,411     $ 1,101     $ 620  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 1,230     $ 1,014     $ 604  

Alternatives

      

Beginning of period assets

   $ 492     $ 582     $ 276  

Inflows/(outflows)

     66       (70     122  

Market appreciation/(depreciation)

     20       (20     6  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 578     $ 492     $ 404  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 564     $ 547     $ 348  

Closed ETPs

      

Beginning of period assets

   $   $ 47     $ 88  

Inflows/(outflows)

     7       (2     (18

Market appreciation/(depreciation)

           (45      
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 7     $   $ 70  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 7     $ 44     $ 69  

Headcount – U.S. Business segment

     155       157       166  

Headcount – International Business segment

     76       34       46  

Note: Previously issued statistics may be restated due to trade adjustments

Source: WisdomTree

 

13


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 net income per share. We disclose adjusted net income and adjusted diluted net income 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. 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 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 net income 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.

 

 

Non-recurring items: The following non-recurring items are excluded when arriving at adjusted net income and adjusted earnings per share (i) acquisition-related costs of $7.9 million (or $7.5 million after-tax) and $2.1 million (or $1.9 million after-tax) for the second quarter and first quarter of 2018, respectively and (ii) a settlement gain of $6.9 million (or $4.3 million after-tax) for the second quarter of 2017.

 

   

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 net income 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.

 

14


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION

(in thousands)

(Unaudited)

Consolidated

 

     Three Months Ended  

Adjusted Net Income and Diluted Net Income per Share:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Net income, as reported

   $ 16,724     $ 9,424     $ 12,105  

Add back: Acquisition-related costs, net of income taxes

     7,489       1,851        

Less: Unrealized gain on revaluation of deferred consideration

     (9,898            

Less: Settlement gain, net of income taxes

                 (4,256
  

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 14,315     $ 11,275     $ 7,849  

Weighted average common shares—diluted

     163,346       136,468       135,574  
  

 

 

   

 

 

   

 

 

 

Adjusted net income per share—diluted

   $ 0.09     $ 0.08     $ 0.06  
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Operating revenues

   $ 74,775     $ 58,904       n/a  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 14,531     $ 13,221       n/a  

Add back: Acquisition-related costs, before income taxes

     7,928       2,062       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 22,459     $ 15,283       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     30.0     25.9     n/a  
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Effective Income Tax Rate:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Income before income taxes

   $ 22,184     $ 13,922     $ 22,225  

Add back: Acquisition-related costs, before income taxes

     7,928       2,062        

Less: Unrealized gain on revaluation of deferred consideration

     (9,898            

Less: Settlement gain, before income taxes

                 (6,909
  

 

 

   

 

 

   

 

 

 

Adjusted income before income taxes

   $ 20,214     $ 15,984     $ 15,316  
  

 

 

   

 

 

   

 

 

 

Income tax expense

   $ 5,460     $ 4,498     $ 10,120  

Add back: Tax benefit arising from acquisition-related costs

     439       211        

Less: Tax expense arising from revaluation of deferred consideration

                  

Less: Tax expense arising from settlement gain

                 (2,653
  

 

 

   

 

 

   

 

 

 

Adjusted income tax expense

   $ 5,899     $ 4,709     $ 7,467  
  

 

 

   

 

 

   

 

 

 

Adjusted effective income tax rate

     29.2     29.5     48.8
  

 

 

   

 

 

   

 

 

 

 

15


U.S. Business Segment       
     Three Months Ended  

Gross Margin and Gross Margin Percentage:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Operating revenues

   $ 53,093     $ 55,665     $ 53,769  

Less: Fund management and administration

     (8,802     (8,973     (8,782
  

 

 

   

 

 

   

 

 

 

Gross margin

   $ 44,291     $ 46,692     $ 44,987  
  

 

 

   

 

 

   

 

 

 

Gross margin percentage

     83.4     83.9     83.7
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Operating revenues

   $ 53,093     $ 55,665       n/a  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 10,455     $ 16,635       n/a  

Add back: Acquisition-related costs, before income taxes

     6,773       1,197       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 17,228     $ 17,832       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     32.4     32.0     n/a  
  

 

 

   

 

 

   

 

 

 
International Business Segment       
     Three Months Ended  

Gross Margin and Gross Margin Percentage:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Operating revenues

   $ 21,682     $ 3,239     $ 2,473  

Less: Fund management and administration

     (5,819     (1,939     (1,330
  

 

 

   

 

 

   

 

 

 

Gross margin

   $ 15,863     $ 1,300     $ 1,143  
  

 

 

   

 

 

   

 

 

 

Gross margin percentage

     73.2     40.1     46.2
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   June 30,
2018
    Mar. 31,
2018
    June 30,
2017
 

Operating revenues

   $ 21,682       n/a       n/a  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 4,076       n/a       n/a  

Add back: Acquisition-related costs, before income taxes

     1,155       n/a       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 5,231       n/a       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     24.1     n/a       n/a  
  

 

 

   

 

 

   

 

 

 

 

16