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): October 23, 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 October 26, 2018, WisdomTree Investments, Inc. (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 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 5.02.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On October 23, 2018, the Company’s Board of Directors approved a revised compensation program for the non-employee directors as follows, retroactive to July 1, 2018:

NON-EMPLOYEE DIRECTOR COMPENSATION

 

ANNUAL RETAINER FOR

SERVING AS

   COMPENSATION
AS OF 6/30/18
     COMPENSATION
EFFECTIVE AFTER 6/30/18
 

Board member

     

Equity award value (1)

   $ 100,000      $ 100,000  

Base retainer

   $ 80,000      $ 100,000  

Committee Member

     

Audit

   $ 12,500      $ 12,500  

Compensation

   $ 15,000      $ 15,000  

Nominating

   $ 5,000      $ 7,500  

Committee Chairperson

     

Audit

   $ 10,000      $ 12,500  

Compensation

   $ 20,000      $ 25,000  

Nominating

     —          —    

Lead Director

   $ 60,000      $ 80,000  

 

(1)

Represents the value of the annual restricted stock award to non-employee directors under the Company’s 2016 Equity Plan in connection with their election to the Board of Directors based on the closing price of the Company’s common stock on the date of grant. These restricted shares vest on the first anniversary of the grant date, subject to certain exceptions. A director who is appointed to the Board of Directors outside of the Annual Meeting of Stockholders will receive a prorated amount of the annual award.

 

Item 8.01.

Other Events

On October 23, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.03 per share of common stock, payable on November 21, 2018 to stockholders of record as of the close of business on November 7, 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 October 26, 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: October 26, 2018

   

By: 

 

/s/ Amit Muni

       

Amit Muni

       

Chief Financial Officer

 

2

EX-99.1

Exhibit 99.1

WisdomTree Announces Third Quarter 2018 Results

$22.0 million net income, or $14.7 million as adjusted

$0.13 diluted EPS for the quarter, or $0.09 as adjusted

Declares $0.03 quarterly dividend

New York, NY – (GlobeNewswire) – October 26, 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 $22.0 million or $0.13 diluted EPS in the third quarter. Adjusted net income (a non-GAAP measure1) was $14.7 million1 or $0.09 diluted EPS1. This compares to net income of $8.0 million or $0.06 diluted EPS in the third quarter of last year and net income of $16.7 million or $0.10 diluted EPS (as adjusted, $14.3 million1 or $0.09 diluted EPS1) in the second quarter of 2018.

WisdomTree CEO and President Jonathan Steinberg said, “The asset and wealth management industry continues to evolve with increasing pressure being exerted on legacy product structures and business models. WisdomTree has always operated with an eye towards the future and is well positioned to navigate this environment. Our Modern AlphaTM approach combines the promise of active management with the benefits of the ETF structure to deliver a better investing experience while preserving attractive and sustainable economics for our shareholders. The marriage of our differentiated and strong performing product set, modern distribution approach and technology-driven, award winning solutions program positions WisdomTree for the next wave of growth.”

“One highlight stems from product innovations in 2013/2014 when WisdomTree launched a suite of fixed income ETFs in the U.S., designed for a rising interest rate environment. These products found the perfect market environment in 2018, performing exactly as designed and attracting significant inflows. This same fixed income product suite has since taken in nearly $700 million of flows through the first three quarters of the year and remains very well positioned for further growth.” Steinberg continued.

 

     Three Months Ended     Change From  
     Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
    June 30,
2018
    Sept. 30,
2017
 

Consolidated Operating Highlights ($, in billions):

          

AUM

   $ 59.1     $ 60.0     $ 46.4       (1.4 %)      27.5

Assets acquired

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

Net inflows/(outflows)

   $ (1.3   $ (1.3   $ (0.3     (0.3 %)      337.8

Average AUM

   $ 59.5     $ 61.3     $ 45.2       (3.0 %)      31.5

Average advisory fee

     0.48     0.48     0.50     —         (0.02

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

          

Operating revenues

   $ 72.6     $ 74.8     $ 57.7       -2.9     25.7

Net income

   $ 22.0     $ 16.7     $ 8.0       31.8     176.4

Diluted earnings per share

   $ 0.13     $ 0.10     $ 0.06     $ 0.03     $ 0.07  

Operating income margin

     29.9     19.4     26.4     10.5       3.5  

Non-GAAP1:

          

Net income, as adjusted

   $ 14.7     $ 14.3       n/a       2.5     n/a  

Diluted earnings per share, as adjusted

   $ 0.09     $ 0.09       n/a     $ 0.00       n/a  

Operating income margin, as adjusted

     30.5     30.0     n/a       0.5       n/a  

Recent Business Developments

Company News

 

   

In August 2018, Ally Invest announced the addition of commission-free ETFs to its online trading platform, including WisdomTree’s full range of ETFs.

 

   

In September 2018, the Company announced that the WisdomTree Digital Portfolio Developer (DPD) won the 2018 WealthManagement.com Industry Award for “Thought Leadership Initiative” of the Year; and TCA by E*Trade announced the expansion of its ETF trading platform to include WisdomTree ETFs.

 

1


   

In October 2018, the Company announced it collaborated with PIMCO on three ETF Model Portfolios in which PIMCO’s fixed income ETFs will be added; and AdvisorEngine announced that the Company’s Digital Portfolio Developer is now available as a free add-on for Junxure, AdvisorEngine’s wholly-owned subsidiary.

U.S. Listed Product News

 

   

In August 2018, the Company announced the launch of the WisdomTree 90/60 U.S. Balanced Fund (NTSX); and the Company announced the launch of two transparent actively managed multifactor funds – the WisdomTree Emerging Markets Multifactor Fund (EMMF) and the WisdomTree International Multifactor Fund (DWMF).

 

   

In October 2018, the Company announced the restructuring of the WisdomTree Emerging Markets Consumer Growth Fund (EMCG) and the WisdomTree Emerging Markets Quality Dividend Growth Fund (DGRE) from index-based to transparent active funds.

European Listed Product News

 

   

In August 2018, the Company announced the launch of three new currency hedged share classes for the WisdomTree AT1 CoCo Bond UCITS ETF. Investors can now access USD and GBP hedged options on the London Stock Exchange and EUR hedged options on the Borsa Italiana and the Deutsche Börse Xetra; and the Company announced the launch of two new currency hedged share classes of the WisdomTree Enhanced Commodity UCITS ETF, making EUR hedged options available on the Borsa Italiana and Deutsche Börse Xetra, and GBP hedged options available on the London Stock Exchange.

 

   

In October 2018, following the acquisition of ETF Securities in April, the Company successfully completed the migration of all content relating to legacy-ETFS products to the WisdomTree website.

Canadian Listed Product News

 

   

In August 2018, the Company announced the launch of the WisdomTree Japan Equity Index ETF – hedged (JAPN) and non-hedged (JAPN.B) – and the WisdomTree ICBCCS S&P China 500 Index ETF – non-hedged (CHNA.B) – on the Toronto Stock Exchange.

 

   

In October 2018, the Company announced the launch of the ONE North American Core Plus Bond ETF (ONEB) on the Toronto Stock Exchange.

Assets Under Management and Net Flows

U.S. listed ETF assets under management (“AUM”) was $41.6 billion at September 30, 2018, up 0.5% from June 30, 2018 due to market appreciation, largely offset by net outflows. International listed ETPs’ AUM was $17.6 billion at September 30, 2018, down 5.6% from June 30, 2018 due to market depreciation and net outflows.

Third Quarter Financial Discussion

The primary reason for the increase in our revenues, expenses and net income this quarter as compared to the third quarter of 2017 is due to our acquisition of the European exchange-traded commodity, currency and short-and-leveraged business (“ETFS”) of ETFS Capital Limited, which was completed on April 11, 2018. We refer to the acquisition throughout this press release as the ETFS Acquisition.

Previously disclosed results for the third quarter of 2017 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.

Operating Revenues

Advisory Fees

Advisory fees of $71.7 million increased 25.1% from the third quarter of 2017 primarily due to the ETFS Acquisition, partly offset by lower average AUM of our U.S. Business segment. Advisory fees decreased 2.8% from the second quarter of 2018 primarily due to lower average AUM of our U.S. Business segment, partly offset by the recognition of a full quarter of advisory fees from the ETFS Acquisition which was completed on April 11, 2018.

Our average global advisory fee was 0.48%, 0.48% and 0.50% during the third quarter of 2018, second quarter of 2018 and third quarter of 2017, respectively. The change as compared to the third quarter of 2017 was due to the ETFS Acquisition and a change in product mix.

Other Income

Other income of $0.9 million increased 111.6% from the third quarter of 2017 primarily due to creation/redemption fees earned from the ETFS exchange-traded products. Other income was essentially unchanged from the second quarter of 2018.

 

2


Margins

Gross margin for our U.S. Business segment was 82.3%1 in the third quarter of 2018 as compared to 83.3%1 2 in the third quarter of 2017 and 83.4%1 in the second quarter of 2018. The decline as compared to the prior periods was primarily due to lower AUM levels, coupled with new regulatory expenses and costs associated with recent product launches. Gross margin for our International Business segment was 71.3%1 in the third quarter of 2018 as compared to 40.0%1 in the third quarter of 2017 and 73.2%1 in the second quarter of 2018. The change in gross margin for our International Business segment from the third quarter of 2017 was due to the ETFS Acquisition. The decline from the second quarter of 2018 was primarily due to expenses associated with recent product launches.

Operating income margin on a consolidated basis was 29.9% in the third quarter of 2018 (as adjusted 30.5%1) as compared to 26.4% in the third quarter of 2017 and 19.4% in the second quarter of 2018 (as adjusted 30.0%1).

Pre-tax margin on a consolidated basis was 37.9% in the third quarter of 2018 as compared to 26.8% in the third quarter of 2017 and 29.7% in the second quarter of 2018.

Operating Expenses

Total operating expenses were $50.9 million for the third quarter of 2018, up 19.7% from the third quarter of 2017 and down 15.6% from the second quarter of 2018. Operating expenses increased from the third quarter of 2017 primarily due to the ETFS Acquisition. The decline from the second quarter of 2018 was primarily due to lower acquisition-related costs which were $0.5 million in the third quarter of 2018 and $7.9 million in the second quarter of 2018, respectively.

 

   

Compensation and benefits expense decreased 10.0% from the third quarter of 2017 to $17.5 million due to lower incentive compensation within our U.S. Business segment, partly offset by higher compensation of our International Business segment due to the ETFS Acquisition. These expenses decreased 9.1% from the second quarter of 2018 primarily due to lower incentive compensation within our U.S. Business segment. Headcount of our U.S. Business segment was 151, 155 and 165 and our International Business segment was 76, 76 and 43 at September 30, 2018, June 30, 2018 and September 30, 2017, respectively.

 

   

Fund management and administration expense increased 40.8% from the third quarter of 2017 to $15.3 million due to higher average AUM of our International Business segment primarily associated with the ETFS Acquisition. These expenses increased 4.6% from the second quarter of 2018 primarily due to the recognition of a full quarter of expense from the ETFS Acquisition which was completed on April, 11, 2018. We had 84 U.S. listed ETFs and 451 International listed ETPs at the end of the quarter.

 

   

Marketing and advertising expense was essentially unchanged from the third quarter of 2017. These expenses decreased 14.3% from the second quarter of 2018 to $3.2 million due to lower levels of spending in our U.S. Business segment, as previously disclosed.

 

   

Sales and business development expense was essentially unchanged from the third quarter of 2017. These expenses decreased 15.6% from the second quarter of 2018 to $3.8 million primarily due to lower spending on sales related activities in our U.S. Business segment, as previously disclosed.

 

   

Contractual gold payments expense was $2.9 million during the third quarter of 2018, which was associated with the payment of 2,375 ounces of gold at an average daily spot price of $1,213 per ounce. For the period April 11 through June 30, 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 86.9% and 24.0% from the third quarter of 2017 and second quarter of 2018, respectively, to $1.9 million due to higher professional and corporate consulting-related expenses in our U.S. Business segment.

 

   

Occupancy, communications and equipment expense increased 25.0% from the third quarter of 2017 to $1.7 million due to office space associated with the ETFS Acquisition, as well as higher real estate taxes. These expenses increased 9.4% from the second quarter of 2018 due to higher real estate taxes.

 

   

Third-party distribution fees increased 98.2% from the third quarter of 2017 to $1.4 million primarily due to a new distribution relationship announced in the fourth quarter of 2017. These expenses decreased 15.5% from the second quarter of 2018 primarily due to lower fees paid to our third-party marketing agent in Latin America.

 

   

Acquisition-related costs decreased 94.2% from the second quarter of 2018 to $0.5 million and primarily included costs associated with the integration of ETFS. Costs incurred in the prior quarter included professional advisor fees payable upon completion of the ETFS Acquisition, a write-off of our office lease and compensation and other integration costs.

 

3


   

Other expenses increased 31.9% from the third quarter of 2017 to $2.3 million primarily due to higher International Business segment office expenses associated with an increase in headcount from the ETFS Acquisition. These expenses were essentially unchanged from the second quarter of 2018.

Other Income/(Expenses)

 

   

Interest expense increased 16.6% from the second quarter of 2018 to $2.7 million primarily due to the recognition of a full quarter of expense as borrowing under our term loan commenced on April 11, 2018.

 

   

We recognized a gain on revaluation of deferred consideration of $7.7 million during the third quarter of 2018 as compared to a gain of $9.9 million recognized in the second quarter of 2018. The gain arose in the current quarter as the price of gold decreased when compared to the price on June 30, 2018, 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 price of gold.

 

   

Interest income was essentially unchanged from the third quarter of 2017. This item increased 17.5% from the second quarter of 2018 to $0.7 million due to higher paid-in-kind (“PIK”) interest on a note receivable from AdvisorEngine Inc.

 

   

Other net gains of $0.1 million recognized in the third quarter of 2018 arose from the recognition of an insurance claim reimbursement, partly offset by miscellaneous foreign exchange losses. We reported other net losses of $0.5 million in the third quarter of 2017 which were primarily associated with our short-term investment grade bond portfolio and miscellaneous foreign exchange losses. Other net losses of $0.5 million reported in the second quarter of 2018 were primarily due to the sale of gold earned from management fees paid by physically-backed gold ETPs, as well as miscellaneous foreign exchange losses.

Income Taxes

Our estimated effective income tax rate for the quarter ended September 30, 2018 of 19.9% (as adjusted 27.6%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 the non-taxable gain on revaluation of deferred consideration and a lower tax rate on foreign earnings, partly offset by a valuation allowance on foreign net operating losses and state and local income taxes.

Nine Month Results

Total operating revenues increased 23.3% to $206.2 million for the nine months ended September 30, 2018 primarily due to the ETFS Acquisition. Total operating expenses increased 27.0% to $156.8 million primarily due to expenses associated with the ETFS acquired business. In addition, operating expenses for the nine months ended September 30, 2018 include acquisition-related costs of $10.4 million.

Other income/(expenses) for the nine months ended September 30, 2018 includes $5.1 million of interest expense, a gain on revaluation of deferred consideration of $17.6 million, interest income of $2.3 million and other net losses of $0.6 million. Other net losses arose from our short-term investment grade bond portfolio, the sale of gold earned from advisory fees paid by physically-backed gold ETPs and miscellaneous foreign exchange losses. These losses were partly offset by an insurance claim reimbursement. In addition, the prior year period includes a settlement gain of $6.9 million.

Balance Sheet

As of September 30, 2018, we had total assets of $909.8 million which consisted primarily of intangible assets of $613.3 million, goodwill of $85.9 million, cash and cash equivalents of $77.1 million, investments, carried at cost of $35.2 million, note receivable of $28.1 million, accounts receivable of $25.5 million and securities held-to-maturity of $20.1 million. There were approximately 153.1 million shares of our common stock outstanding as of September 30, 2018. Fully diluted weighted average shares outstanding were 166.6 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 November 21, 2018 to stockholders of record as of the close of business on November 7, 2018.

Conference Call

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

 

4


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.

 

   

The ETFS Acquisition was significant in size relative to our assets and operations and has resulted 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.

 

5


   

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 and Canada (collectively, “WisdomTree”), is an ETF and 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 $56.3 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    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

 

6


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,
2018
    June 30,
2018
    Sept. 30,
2017
    June 30,
2018
    Sept. 30,
2017
    Sept. 30,
2018
    Sept. 30,
2017
    %
Change
 

Operating Revenues:

                

Advisory fees

   $ 71,679     $ 73,778     $ 57,293       -2.8     25.1   $ 203,913     $ 166,177       22.7

Other income

     891       997       421       -10.6     111.6     2,336       1,145       104.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     72,570       74,775       57,714       -2.9     25.7     206,249       167,322       23.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     17,544       19,301       19,492       -9.1     -10.0     55,677       55,787       -0.2

Fund management and administration

     15,292       14,621       10,862       4.6     40.8     40,825       30,574       33.5

Marketing and advertising

     3,239       3,778       3,314       -14.3     -2.3     10,212       10,676       -4.3

Sales and business development

     3,801       4,503       3,617       -15.6     5.1     12,117       9,968       21.6

Contractual gold payments

     2,880       2,715       —         6.1     n/a       5,595       —         n/a  

Professional and consulting fees

     1,934       1,560       1,035       24.0     86.9     5,130       3,814       34.5

Occupancy, communications and equipment

     1,722       1,574       1,378       9.4     25.0     4,659       4,102       13.6

Depreciation and amortization

     306       337       353       -9.2     -13.3     998       1,042       -4.2

Third-party distribution fees

     1,407       1,666       710       -15.5     98.2     4,798       2,312       107.5

Acquisition-related costs

     456       7,928       —         -94.2     n/a       10,446       —         n/a  

Other

     2,281       2,261       1,729       0.9     31.9     6,332       5,195       21.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     50,862       60,244       42,490       -15.6     19.7     156,789       123,470       27.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     21,708       14,531       15,224       49.4     42.6     49,460       43,852       12.8

Other Income/(Expenses):

                

Interest expense

     (2,747     (2,356     —         16.6     n/a       (5,103     —         n/a  

Gain on revaluation of deferred consideration – gold payments

     7,732       9,898       —         -21.9     n/a       17,630       —         n/a  

Interest income

     719       612       772       17.5     -6.9     2,293       1,999       14.7

Settlement gain

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

Other gains and losses, net

     118       (501     (500     n/a       n/a       (644     (217     196.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

     27,530       22,184       15,496       24.1     77.7     63,636       52,543       21.1

Income tax expense

     5,481       5,460       7,520       0.4     -27.1     15,439       25,582       -39.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 22,049     $ 16,724     $ 7,976       31.8     176.4   $ 48,197     $ 26,961       78.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share – basic

   $ 0.13     $ 0.10     $ 0.06         $ 0.31     $ 0.20    

Net income per share – diluted

   $ 0.13     $ 0.10     $ 0.06         $ 0.31     $ 0.20    

Weighted average common shares – basic

     150,892       149,056       134,709           145,149       134,552    

Weighted average common shares – diluted

     166,622       163,346       135,933           155,584       135,768    

 

7


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(in thousands)

(Unaudited)

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

U.S. Business Segment

 

     Three Months Ended     % Change From     Nine Months Ended  
     Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
    June 30,
2018
    Sept. 30,
2017
    Sept. 30,
2018
    Sept. 30,
2017
    %
Change
 

Operating Revenues:

                

Advisory fees

   $ 50,216     $ 52,931     $ 54,749       -5.1     -8.3   $ 158,665     $ 159,417       -0.5

Other income

     173       162       140       6.8     23.6     482       371       29.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     50,389       53,093       54,889       -5.1     -8.2     159,147       159,788       -0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     13,040       14,526       16,967       -10.2     -23.1     43,937       47,947       -8.4

Fund management and administration

     8,915       8,802       9,168       1.3     -2.8     26,690       26,277       1.6

Marketing and advertising

     2,469       2,987       2,795       -17.3     -11.7     8,299       9,117       -9.0

Sales and business development

     2,778       3,446       3,218       -19.4     -13.7     9,679       8,652       11.9

Professional and consulting fees

     1,544       1,134       796       36.2     94.0     4,003       3,131       27.9

Occupancy, communications and equipment

     1,423       1,309       1,257       8.7     13.2     3,957       3,717       6.5

Depreciation and amortization

     282       314       340       -10.2     -17.1     935       1,009       -7.3

Third-party distribution fees

     1,398       1,621       705       -13.8     98.3     4,668       2,302       102.8

Acquisition-related costs

     247       6,773       —         -96.4     n/a       8,217       —         n/a  

Other

     1,678       1,726       1,600       -2.8     4.9     5,057       4,871       3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     33,774       42,638       36,846       -20.8     -8.3     115,442       107,023       7.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     16,615       10,455       18,043       58.9     -7.9     43,705       52,765       -17.2

Other Income/(Expenses):

                

Interest expense

     (196     (173           13.3     n/a       (369     —         n/a  

Interest income

     719       612       772       17.5     -6.9     2,293       1,999       14.7

Settlement gain

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

Other gains and losses, net

     318       (66     (322     n/a       n/a       26       39       -33.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

   $ 17,456     $ 10,828     $ 18,493       61.2     -5.6   $ 45,655     $ 61,712       -26.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income margin

     33.0     19.7     32.9         27.5     33.0  

 

8


International Business Segment

 

     Three Months Ended     % Change From     Nine Months Ended  
     Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
    June 30,
2018
    Sept. 30,
2017
    Sept. 30,
2018
    Sept. 30,
2017
    %
Change
 

Operating Revenues:

                

Advisory fees

   $ 21,463     $ 20,847     $ 2,544       3.0     743.7   $ 45,248     $ 6,760       569.3

Other income

     718       835       281       -14.0     155.5     1,854       774       139.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     22,181       21,682       2,825       2.3     685.2     47,102       7,534       525.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     4,504       4,775       2,525       -5.7     78.4     11,740       7,840       49.7

Fund management and administration

     6,377       5,819       1,694       9.6     276.4     14,135       4,297       229.0

Marketing and advertising

     770       791       519       -2.7     48.4     1,913       1,559       22.7

Sales and business development

     1,023       1,057       399       -3.2     156.4     2,438       1,316       85.3

Contractual gold payments

     2,880       2,715       —         6.1     n/a       5,595       —         n/a  

Professional and consulting fees

     390       426       239       -8.5     63.2     1,127       683       65.0

Occupancy, communications and equipment

     299       265       121       12.8     147.1     702       385       82.3

Depreciation and amortization

     24       23       13       4.3     84.6     63       33       90.9

Third-party distribution fees

     9       45       5       -80.0     80.0     130       10       1200.0

Acquisition-related costs

     209       1,155       —         -81.9     n/a       2,229       —         n/a  

Other

     603       535       129       12.7     367.4     1,275       324       293.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     17,088       17,606       5,644       -2.9     202.8     41,347       16,447       151.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income/(loss)

     5,093       4,076       (2,819     25.0     n/a       5,755       (8,913     n/a  

Other Income/(Expenses):

                

Interest expense

     (2,551     (2,183     —         16.9     n/a       (4,734     —         n/a  

Gain on revaluation of deferred consideration – gold payments

     7,732       9,898       —         -21.9     n/a       17,630       —         n/a  

Other gains and losses, net

     (200     (435     (178     -54.0     12.4     (670     (256     161.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) before taxes

   $ 10,074     $ 11,356     $ (2,997     -11.3     n/a     $ 17,981     $ (9,169     n/a  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income margin

     23.0     18.8     n/a           12.2     n/a    

 

9


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     Sept. 30,
2018
     December 31,
2017
 
     (Unaudited)         

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 77,125      $ 54,193  

Securities owned, at fair value

     4,426        66,294  

Securities held-to-maturity

     —          1,000  

Accounts receivable

     25,528        21,309  

Income taxes receivable

     —          6,978  

Prepaid expenses

     5,505        3,550  

Other current assets

     303        1,007  
  

 

 

    

 

 

 

Total current assets

     112,887        154,331  

Fixed assets, net

     9,723        10,693  

Note receivable

     28,121        18,748  

Securities held-to-maturity

     20,199        20,299  

Deferred tax assets, net

     2,213        1,050  

Investments, carried at cost

     35,187        35,187  

Goodwill

     85,856        1,799  

Intangible assets

     613,274        12,085  

Other noncurrent assets

     2,304        793  
  

 

 

    

 

 

 

Total assets

   $ 909,764      $ 254,985  
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

LIABILITIES

     

Current liabilities:

     

Fund management and administration payable

   $ 24,383      $ 20,099  

Compensation and benefits payable

     13,728        28,053  

Deferred consideration – gold payments

     11,788        —    

Income taxes payable

     799        —    

Securities sold, but not yet purchased, at fair value

     2,018        950  

Accounts payable and other liabilities

     8,668        8,246  
  

 

 

    

 

 

 

Total current liabilities

     61,384        57,348  

Long-term debt

     193,999        —    

Deferred consideration – gold payments

     144,267        —    

Deferred rent payable

     4,462        4,686  
  

 

 

    

 

 

 

Total liabilities

     404,112        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: 153,083 and 136,996 at September 30, 2018 and December 31, 2017, respectively

     1,531        1,370  

Additional paid-in capital

     361,900        216,006  

Accumulated other comprehensive income

     373        291  

Retained earnings/(Accumulated deficit)

     9,279        (24,716
  

 

 

    

 

 

 

Total stockholders’ equity

     373,083        192,951  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 909,764      $ 254,985  
  

 

 

    

 

 

 

 

10


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

     Nine Months Ended  
     Sept. 30,
2018
    Sept. 30,
2017
 

Cash flows from operating activities:

    

Net income

   $ 48,197     $ 26,961  

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

    

Advisory fees paid in gold and other precious metals

     (21,998     —    

Contractual gold payments

     5,595       —    

Gain on revaluation of deferred consideration – gold payments

     (17,630     —    

Stock-based compensation

     10,078       10,558  

Deferred income taxes

     (1,251     3,823  

Paid-in-kind interest income

     (1,373     —    

Settlement gain

     —         (6,909

Amortization of credit facility issuance costs

     1,360       —    

Depreciation and amortization

     998       1,042  

Other

     810       524  

Changes in operating assets and liabilities, net of the effects of the ETFS Acquisition:

    

Securities owned, at fair value

     (2,735     1,146  

Accounts receivable

     3,771       (1,969

Income taxes receivable/payable

     7,654       (628

Prepaid expenses

     (621     (361

Gold and other precious metals

     18,472       —    

Other assets

     954       (31

Acquisition payable

     —         (3,545

Fund management and administration payable

     1,998       561  

Compensation and benefits payable

     (21,025     115  

Securities sold, but not yet purchased, at fair value

     1,068       (1,249

Accounts payable and other liabilities

     (4,122     1,041  
  

 

 

   

 

 

 

Net cash provided by operating activities

     30,200       31,079  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of fixed assets

     (45     (253

Purchase of securities held-to-maturity

     —         (3,009

Purchase of debt securities available-for-sale

     —         (76,776

Purchase of investments

     —         (5,000

Funding of AdvisorEngine note receivable

     (8,000     —    

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

     1,096       2,162  

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

     64,498       65,067  

Cash paid – ETFS Acquisition, net of cash acquired

     (239,313     —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (181,764     (17,809
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Dividends paid

     (14,202     (32,825

Shares repurchased

     (1,430     (4,178

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

     157       53  
  

 

 

   

 

 

 

Net cash provided by/(used in) financing activities

     175,654       (36,950
  

 

 

   

 

 

 

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

     (1,158     1,179  
  

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     22,932       (22,501

Cash and cash equivalents – beginning of period

     54,193       92,722  
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 77,125     $ 70,221  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for taxes

   $ 8,759     $ 22,130  
  

 

 

   

 

 

 

Cash paid for interest

   $ 3,351     $ —    
  

 

 

   

 

 

 

 

11


WisdomTree Investments, Inc.

Key Operating Statistics (Unaudited)

 

     Three Months Ended  
     Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

U.S. LISTED ETFs (in millions)

      

Beginning of period assets

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

Inflows/(outflows)

     (878     (1,231     (619

Market appreciation/(depreciation)

     1,094       (315     1,834  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 41,556     $ 41,340     $ 44,398  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 41,555     $ 43,464     $ 43,523  

Average ETF advisory fee during the period

     0.48     0.49     0.50

Revenue days

     92       91       92  

Number of ETFs – end of the period

     84       81       87  

INTERNATIONAL LISTED ETPs (in millions)

      

Beginning of period assets

   $ 18,629     $ 2,075     $ 1,547  

Assets acquired

     —         17,641       —    

Inflows/(outflows)

     (374     (25     333  

Market appreciation/(depreciation)

     (668     (1,062     91  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 17,587     $ 18,629     $ 1,971  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 17,905     $ 17,837     $ 1,693  

Average ETP advisory fee during the period

     0.48     0.47     0.60

Revenue days

     92       91       92  

Number of ETPs – end of the period

     451       445       96  

PRODUCT CATEGORIES (in millions)

      

International Developed Market Equity

      

Beginning of period assets

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

Inflows/(outflows)

     (1,289     (1,502     (550

Market appreciation/(depreciation)

     660       (599     1,177  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 19,702     $ 20,331     $ 25,274  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 19,907     $ 22,455     $ 24,704  

Commodity & Currency

      

Beginning of period assets

   $ 16,167     $ 416     $ 464  

Assets acquired

     —         16,778       —    

Inflows/(outflows)

     (434     (99     (1

Market appreciation/(depreciation)

     (682     (928     2  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 15,051     $ 16,167     $ 465  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 15,384     $ 15,316     $ 468  

U.S. Equity

      

Beginning of period assets

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

Inflows/(outflows)

     347       114       (227

Market appreciation/(depreciation)

     539       828       500  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 15,187     $ 14,301     $ 13,161  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 14,950     $ 14,021     $ 12,882  

Emerging Market Equity

      

Beginning of period assets

   $ 5,643     $ 6,289     $ 4,828  

Inflows/(outflows)

     (216     (120     241  

Market appreciation/(depreciation)

     (81     (526     205  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 5,346     $ 5,643     $ 5,274  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 5,548     $ 6,116     $ 5,141  

Leveraged & Inverse

      

Beginning of period assets

   $ 1,531     $ 872     $ 809  

Assets acquired

     —         863       —    

Inflows/(outflows)

     (61     (71     130  

 

12


Key Operating Statistics (Unaudited)

 

     Three Months Ended  
     Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Market appreciation/(depreciation)

     (25     (133     37  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 1,445     $ 1,531     $ 976  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 1,489     $ 1,592     $ 867  

Fixed Income

      

Beginning of period assets

   $ 1,411     $ 1,101     $ 620  

Inflows/(outflows)

     329       349       86  

Market appreciation/(depreciation)

     (2     (39     16  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 1,738     $ 1,411     $ 722  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 1,554     $ 1,230     $ 659  

Alternatives

      

Beginning of period assets

   $ 578     $ 492     $ 404  

Inflows/(outflows)

     72       66       40  

Market appreciation/(depreciation)

     24       20       4  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 674     $ 578     $ 448  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 628     $ 564     $ 427  

Closed ETPs

      

Beginning of period assets

   $ 7     $ —     $ 70  

Inflows/(outflows)

     —         7       (5

Market appreciation/(depreciation)

     (7     —         (16
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ —       $ 7     $ 49  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ —       $ 7     $ 68  

Headcount – U.S. Business segment

     151       155       165  

Headcount – International Business segment

     76       76       43  

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 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. 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 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.

 

   

Non-recurring items: Acquisition-related costs of $0.5 million (or $0.4 million after-tax) for the third quarter of 2018 and $7.9 million (or $7.5 million after-tax) for the second quarter of 2018 are excluded when arriving at 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.

 

14


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION

(in thousands)

(Unaudited)

Consolidated

 

     Three Months Ended  

Adjusted Net Income and Diluted Earnings per Share:

   Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Net income, as reported

   $ 22,049     $ 16,724       n/a  

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

     356       7,489       n/a  

Less: Unrealized gain on revaluation of deferred consideration

     (7,732     (9,898     n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 14,673     $ 14,315       n/a  

Weighted average common shares—diluted

     166,622       163,346       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted net income per share—diluted

   $ 0.09     $ 0.09       n/a  
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Operating revenues

   $ 72,570     $ 74,775       n/a  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 21,708     $ 14,531       n/a  

Add back: Acquisition-related costs, before income taxes

     456       7,928       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 22,164     $ 22,459       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     30.5     30.0     n/a  
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Effective Income Tax Rate:

   Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Income before income taxes

   $ 27,530     $ 22,184       n/a  

Add back: Acquisition-related costs, before income taxes

     456       7,928       n/a  

Less: Unrealized gain on revaluation of deferred consideration

     (7,732     (9,898     n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted income before income taxes

   $ 20,254     $ 20,214       n/a  
  

 

 

   

 

 

   

 

 

 

Income tax expense

   $ 5,481     $ 5,460       n/a  

Add back: Tax benefit arising from acquisition-related costs

     100       439       n/a  

Less: Tax expense arising from revaluation of deferred consideration

     —         —         n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted income tax expense

   $ 5,581     $ 5,899       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted effective income tax rate

     27.6     29.2     n/a  
  

 

 

   

 

 

   

 

 

 

 

15


U.S. Business Segment

 

     Three Months Ended  

Gross Margin and Gross Margin Percentage:

   Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Operating revenues

   $ 50,389     $ 53,093     $ 54,889  

Less: Fund management and administration

     (8,915     (8,802     (9,168
  

 

 

   

 

 

   

 

 

 

Gross margin

   $ 41,474     $ 44,291     $ 45,721  
  

 

 

   

 

 

   

 

 

 

Gross margin percentage

     82.3     83.4     83.3
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Operating revenues

   $ 50,389     $ 53,093       n/a  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 16,615     $ 10,455       n/a  

Add back: Acquisition-related costs, before income taxes

     247       6,773       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 16,862     $ 17,228       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     33.5     32.4     n/a  
  

 

 

   

 

 

   

 

 

 

International Business Segment

 

     Three Months Ended  

Gross Margin and Gross Margin Percentage:

   Sept. 30,
2018
    June 30,
2018
    Sept. 30,
2017
 

Operating revenues

   $ 22,181     $ 21,682     $ 2,825  

Less: Fund management and administration

     (6,377     (5,819     (1,694
  

 

 

   

 

 

   

 

 

 

Gross margin

   $ 15,804     $ 15,863     $ 1,131  
  

 

 

   

 

 

   

 

 

 

Gross margin percentage

     71.3     73.2     40.0
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   Sept. 30,
2018
    June 30,
2018
    June 30,
2017
 

Operating revenues

   $ 22,181     $ 21,682       n/a  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 5,093     $ 4,076       n/a  

Add back: Acquisition-related costs, before income taxes

     209       1,155       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 5,302     $ 5,231       n/a  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     23.9     24.1     n/a  
  

 

 

   

 

 

   

 

 

 

 

16