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 23, 2019

 

 

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))

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.01 par value   WETF   The NASDAQ Stock Market LLC

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 26, 2019, WisdomTree Investments, Inc. (the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2019. 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 July 24, 2019, the Company announced that Alexis Marinof, the current Chief Operating Officer of WisdomTree Europe, will replace David Abner as Executive Vice President and Head of WisdomTree Europe, effective August 1, 2019, following the expiration of Mr. Abner’s employment term on July 31, 2019. In connection with the expiration of Mr. Abner’s employment term, the Company plans to engage an independent consulting firm formed by Mr. Abner for key projects related to the ETP market.

Mr. Marinof joined WisdomTree Europe in July 2017 as Head of European Distribution, a position he held until April 2018 when he was appointed Chief Operating Officer to oversee the integration of ETF Securities and build out WisdomTree’s multi-product European ETP business. Prior to that, Mr. Marinof held various positions at State Street Global Advisors, including as EMEA Head of SPDR ETFs (April 2013 - November 2016), EMEA Distribution Chief Operating Officer (October 2013 - September 2015), Head of Middle East and Africa (February 2008 - April 2013) and Head of the Nordic Region (January 2006 - January 2008). Mr. Marinof received a five-year degree in Finance and Business Management “Ingénieur Commercial et de Gestion” from the Université Catholique de Louvain-La-Neuve IAG Louvain School of Management in Belgium. Mr. Marinof is 44 years old.

A copy of the press release containing information about these executive officer changes is being furnished as Exhibit 99.2 to this Report on Form 8-K and is incorporated herein by reference.

 

Item 8.01.

Other Events

On July 23, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.03 per share of common stock, payable on August 21, 2019 to stockholders of record as of the close of business on August 7, 2019. 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 26, 2019
Exhibit 99.2    Press Release, dated July 24, 2019

 

1


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 26, 2019     By:  

/s/ Amit Muni

      Amit Muni
      Executive Vice President and Chief Financial Officer

 

2

EX-99.1

Exhibit 99.1

WisdomTree Announces Second Quarter 2019 Results

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

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

Declares $0.03 quarterly dividend

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

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

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

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

 

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

Consolidated Operating Highlights ($, in billions):

          

AUM

   $ 60.4     $ 59.1     $ 60.0       2.2     0.7

Net inflows/(outflows)

   $ 0.3     $ 0.6     $ (1.2     (39.6 %)      n/a  

Average AUM

   $ 58.6     $ 57.7     $ 61.3       1.5     (4.5 %) 

Average advisory fee

     0.45     0.46     0.48     -0.01       -0.03  

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

          

Operating revenues

   $ 66.3     $ 65.5     $ 74.8       1.2     (11.3 %) 

Net income

   $ 2.5     $ 8.8     $ 16.7       (71.9 %)      (85.2 %) 

Diluted earnings per share

   $ 0.01     $ 0.05     $ 0.10     $ (0.04   $ (0.09

Operating income margin

     18.0     16.3     19.4     1.7       -1.4  

Non-GAAP1:

          

Net income, as adjusted

   $ 7.8     $ 7.7     $ 14.3       0.1     (45.4 %) 

Diluted earnings per share, as adjusted

   $ 0.05     $ 0.05     $ 0.09     $ 0.00     $ (0.04

Operating income margin, as adjusted

     20.2     19.9     30.0     0.3       -9.8  

Recent Business Developments

Company News

 

   

In May 2019, LPL Financial LLC announced plans to reduce transaction charges from $9.00 to $4.95 for WisdomTree ETFs on the firm’s Strategic Asset Management (SAM) and Strategic Wealth Management (SWM) platforms.

 

   

In June 2019, Pershing announced that it expanded its FundVest® ETF no-transaction-fee platform adding 43 additional WisdomTree ETFs.

 

1


Product News

 

   

In May 2019, we launched the Modern Tech Platform Fund (PLAT) on the NYSE Arca, offering access to companies generating substantial revenue from platform business models.

 

   

In May 2019, we announced our partnership with Swissquote, Switzerland’s largest execution-only broker, and now offer ten equity ETFs with 28 asset classes on the Swissquote platform; and we announced our partnership with Moneymate, a financial data provider for financial advisors and institutions in Italy. The platform now hosts data on four WisdomTree model portfolios.

 

   

In June 2019, we announced the addition of 8 WisdomTree ETFs to the TD Ameritrade ETF Market Center commission-free menu.

 

   

In July 2019, we marked the 3-year anniversary of the launch of our first suite of ETFs in Canada.

Assets Under Management and Net Flows

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

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

Second Quarter and Year to Date Financial Discussion

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

Operating Revenues

Advisory Fees

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

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

Other Income

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

Margins

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

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

Operating Expenses

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

 

2


 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

Other Income/(Expenses)

 

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

 

We recognized a (loss)/gain on revaluation of deferred consideration of ($4.0) million, $9.9 million and $4.4 million during the second quarter of 2019, second quarter of 2018 and first quarter of 2019, respectively. The loss arose in the current quarter due to an increase in the price of gold, partly offset by a flattening of the forward-looking gold curve when compared to the forward-looking gold curve on March 31, 2019, the date on which the deferred consideration was last measured. The magnitude of any gain or loss recognized is highly correlated to the magnitude of the change in the forward-looking price of gold.

 

Interest income increased 33.7% and 5.0% from the second quarter of 2018 and first quarter of 2019, respectively, to $0.8 million primarily due to higher paid-in-kind interest on notes receivable from AdvisorEngine Inc.

 

Other gains and losses, net were $0.3 million, ($0.5) million and ($4.6) million during the second quarter of 2019, second quarter of 2018 and first quarter of 2019, respectively. Included in the first quarter of 2019 is a charge of $4.3 million arising from a release of a tax-related indemnification asset upon the expiration of the statute of limitations. The indemnification arose from tax exposures assumed in the ETFS Acquisition. An equal and offsetting benefit has been recognized in income tax expense. In addition, gains and losses generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items.

 

3


Income Taxes

Our effective income tax rate for the quarter ended June 30, 2019 of 59.1% resulted in income tax expense of $3.6 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses, non-deductible executive compensation, a non-deductible loss on revaluation of deferred consideration and state and local taxes, partly offset by a lower tax rate on foreign earnings.

Our adjusted effective income tax rate was 32.7%1.

Six Month Results

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

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

Balance Sheet

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

Quarterly Dividend

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

Conference Call

WisdomTree will discuss its results and operational highlights during a conference call on Friday, July 26, 2019 at 9:00 a.m. ET. The call-in number will be (877) 303-7209. Anyone outside the U.S. or Canada should call (970) 315-0420. The slides used during the presentation will be available at http://ir.wisdomtree.com. For those unable to join the conference call at the scheduled time, an audio replay will be available on http://ir.wisdomtree.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, the risks described below. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this press release completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

 

4


In particular, forward-looking statements in this press release may include statements about:

 

 

anticipated trends, conditions and investor sentiment in the global markets and ETPs;

 

 

anticipated levels of inflows into and outflows out of our ETPs;

 

 

our ability to deliver favorable rates of return to investors;

 

 

competition in our business;

 

 

our ability to develop new products and services;

 

 

our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;

 

 

our ability to successfully operate and expand our business in non-U.S. markets; and

 

 

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

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

 

 

Declining prices of securities, precious metals and other commodities can adversely affect our business by reducing the market value of the assets we manage or causing WisdomTree ETP investors to sell their fund shares and trigger redemptions.

 

 

Fluctuations in the amount and mix of our AUM, whether caused by disruptions in the financial markets or otherwise, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity, increase the cost of borrowing or result in our debt being called prior to maturity.

 

 

Withdrawals or broad changes in investments in our ETPs by investors with significant positions may negatively impact revenues and operating margins.

 

 

Competitive pressures could reduce revenues and profit margins.

 

 

We derive a substantial portion of our revenues from a limited number of products, and as a result, our operating results are particularly exposed to investor sentiment toward investing in the products’ strategies and our ability to maintain the AUM of these products, as well as the performance of these products and market-specific and political and economic risk.

 

 

A significant portion of our AUM is held in ETFs that invest in foreign securities and we therefore have substantial exposure to foreign market conditions and are subject to currency exchange rate risks.

 

 

Net outflows in our two largest currency hedged ETFs – the WisdomTree Europe Hedged Equity Fund and the WisdomTree Japan Hedged Equity Fund – have had, and in the future could continue to have, a negative impact on our revenues.

 

 

Over the last few years, we have expanded our business globally. This expansion subjects us to increased operational, regulatory, financial and other risks.

 

 

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

 

 

We depend on third parties to provide many critical services to operate our business and our ETPs and ETFs. The failure of key vendors to adequately provide such services could materially affect our operating business and harm WisdomTree ETP investors.

Other factors, such as general economic conditions, including currency exchange rate fluctuations, also may have an effect on the results of our operations. For a more complete description of the risks noted above and other risks that could cause our actual results to differ from our current expectations, please see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

The forward-looking statements in this press release represent our views as of the date of this press release. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this press release.

 

5


About WisdomTree

WisdomTree Investments, Inc., through its subsidiaries in the U.S., Europe and Canada (collectively, “WisdomTree”), is an ETF and ETP sponsor and asset manager headquartered in New York. WisdomTree offers products covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. WisdomTree currently has approximately $61.2 billion in assets under management globally.

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

 

1

See “Non-GAAP Financial Measurements.”

Contact Information:

 

Investor Relations    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     Six Months Ended  
    

June 30,

2019

   

Mar. 31,

2019

   

June 30,

2018

   

Mar. 31,

2019

   

June 30,

2018

   

June 30,

2019

   

June 30,

2018

   

%

Change

 

Operating Revenues:

                

Advisory fees

   $ 65,627     $ 64,840     $ 73,778       1.2     -11.0   $ 130,467     $ 132,234       -1.3

Other income

     666       645       997       3.3     -33.2     1,311       1,445       -9.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     66,293       65,485       74,775       1.2     -11.3     131,778       133,679       -1.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     21,300       21,301       19,301       0.0     10.4     42,601       38,133       11.7

Fund management and administration

     15,576       15,166       14,621       2.7     6.5     30,742       25,533       20.4

Marketing and advertising

     2,910       2,680       3,778       8.6     -23.0     5,590       6,973       -19.8

Sales and business development

     4,171       4,422       4,503       -5.7     -7.4     8,593       8,316       3.3

Contractual gold payments

     3,110       3,098       2,715       0.4     14.5     6,208       2,715       128.7

Professional and consulting fees

     1,296       1,482       1,560       -12.6     -16.9     2,778       3,196       -13.1

Occupancy, communications and equipment

     1,548       1,618       1,574       -4.3     -1.7     3,166       2,937       7.8

Depreciation and amortization

     264       269       337       -1.9     -21.7     533       692       -23.0

Third-party distribution fees

     1,919       2,400       1,666       -20.0     15.2     4,319       3,391       27.4

Acquisition-related costs

     33       313       7,928       -89.5     -99.6     346       9,990       -96.5

Other

     2,255       2,053       2,261       9.8     -0.3     4,308       4,051       6.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     54,382       54,802       60,244       -0.8     -9.7     109,184       105,927       3.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     11,911       10,683       14,531       11.5     -18.0     22,594       27,752       -18.6

Other Income/(Expenses):

                

Interest expense

     (2,910     (2,892     (2,356     0.6     23.5     (5,802     (2,356     146.3

(Loss)/gain on revaluation of deferred consideration – gold payments

     (4,037     4,404       9,898       n/a       n/a       367       9,898       -96.5

Interest income

     818       779       612       5.0     33.7     1,597       1,574       1.5

Impairment

     —         (572     —         n/a       n/a       (572     —         n/a  

Other gains and losses, net

     284       (4,627     (501     n/a       n/a       (4,343     (762     469.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     6,066       7,775       22,184       -22.0     -72.7     13,841       36,106       -61.7

Income tax expense/(benefit)

     3,587       (1,049     5,460       n/a       -34.3     2,538       9,958       -74.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 2,479     $ 8,824     $ 16,724       -71.9     -85.2   $ 11,303     $ 26,148       -56.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share – basic

   $ 0.01     $ 0.05     $ 0.10         $ 0.07     $ 0.17    

Earnings per share – diluted

   $ 0.01     $ 0.05     $ 0.10         $ 0.07     $ 0.17    

Weighted average common shares – basic

     151,818       151,625       149,056           151,722       142,230    

Weighted average common shares – diluted

     167,249       166,811       163,346           166,855       149,979    

 

7


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(in thousands)

(Unaudited)

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

U.S. Business Segment

 

     Three Months Ended     % Change From     Six Months Ended  
    

June 30,

2019

   

Mar. 31,

2019

   

June 30,

2018

   

Mar. 31,

2019

   

June 30,

2018

   

June 30,

2019

   

June 30,

2018

   

%

Change

 

Operating Revenues:

                

Advisory fees

   $ 43,070     $ 42,517     $ 52,931       1.3     -18.6   $ 85,587     $ 108,449       -21.1

Other income

     76       106       162       -28.3     -53.1     182       309       -41.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     43,146       42,623       53,093       1.2     -18.7     85,769       108,758       -21.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     16,696       16,779       14,526       -0.5     14.9     33,475       30,897       8.3

Fund management and administration

     8,505       8,340       8,802       2.0     -3.4     16,845       17,775       -5.2

Marketing and advertising

     2,336       2,162       2,987       8.0     -21.8     4,498       5,830       -22.8

Sales and business development

     2,867       3,359       3,446       -14.6     -16.8     6,226       6,901       -9.8

Professional and consulting fees

     1,055       1,072       1,134       -1.6     -7.0     2,127       2,459       -13.5

Occupancy, communications and equipment

     1,211       1,283       1,309       -5.6     -7.5     2,494       2,534       -1.6

Depreciation and amortization

     242       246       314       -1.6     -22.9     488       653       -25.3

Third-party distribution fees

     1,867       2,338       1,621       -20.1     15.2     4,205       3,270       28.6

Acquisition-related costs

     —         11       6,773       n/a       n/a       11       7,970       -99.9

Other

     1,628       1,586       1,726       2.6     -5.7     3,214       3,379       -4.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     36,407       37,176       42,638       -2.1     -14.6     73,583       81,668       -9.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     6,739       5,447       10,455       23.7     -35.5     12,186       27,090       -55.0

Other Income/(Expenses):

                

Interest expense

     (194     (192     (173     1.0     12.1     (386     (173     123.1

Interest income

     818       779       612       5.0     33.7     1,597       1,574       1.5

Impairment

     —         (572     —         n/a       n/a       (572     —         n/a  

Other gains and losses, net

     (54     145       (66     n/a       -18.2     91       (292     n/a  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 7,309     $ 5,607     $ 10,828       30.4     -32.5   $ 12,916     $ 28,199       -54.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income margin

     15.6     12.8     19.7         14.2     24.9  

 

8


International Business Segment

 

     Three Months Ended     % Change From     Six Months Ended  
    

June 30,

2019

   

Mar. 31,

2019

   

June 30,

2018

   

Mar. 31,

2019

   

June 30,

2018

   

June 30,

2019

   

June 30,

2018

   

%

Change

 

Operating Revenues:

                

Advisory fees

   $ 22,557     $ 22,323     $ 20,847       1.0     8.2   $ 44,880     $ 23,785       88.7

Other income

     590       539       835       9.5     -29.3     1,129       1,136       -0.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     23,147       22,862       21,682       1.2     6.8     46,009       24,921       84.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

                

Compensation and benefits

     4,604       4,522       4,775       1.8     -3.6     9,126       7,236       26.1

Fund management and administration

     7,071       6,826       5,819       3.6     21.5     13,897       7,758       79.1

Marketing and advertising

     574       518       791       10.8     -27.4     1,092       1,143       -4.5

Sales and business development

     1,304       1,063       1,057       22.7     23.4     2,367       1,415       67.3

Contractual gold payments

     3,110       3,098       2,715       0.4     14.5     6,208       2,715       128.7

Professional and consulting fees

     241       410       426       -41.2     -43.4     651       737       -11.7

Occupancy, communications and equipment

     337       335       265       0.6     27.2     672       403       66.7

Depreciation and amortization

     22       23       23       -4.3     -4.3     45       39       15.4

Third-party distribution fees

     52       62       45       -16.1     15.6     114       121       -5.8

Acquisition-related costs

     33       302       1,155       -89.1     -97.1     335       2,020       -83.4

Other

     627       467       535       34.3     17.2     1,094       672       62.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     17,975       17,626       17,606       2.0     2.1     35,601       24,259       46.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     5,172       5,236       4,076       -1.2     26.9     10,408       662       1,472.2

Other Income/(Expenses):

                

Interest expense

     (2,716     (2,700     (2,183     0.6     24.4     (5,416     (2,183     148.1

(Loss)/gain on revaluation of deferred consideration – gold payments

     (4,037     4,404       9,898       n/a       n/a       367       9,898       -96.3

Other gains and losses, net

     338       (4,772     (435     n/a       n/a       (4,434     (470     843.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/income before income taxes

   $ (1,243   $ 2,168     $ 11,356       n/a       n/a     $ 925     $ 7,907       -88.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income margin

     22.3     22.9     18.8         22.6     2.7  

 

9


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     June 30,
2019
    December 31,
2018
 
     (Unaudited)        

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 79,611     $ 77,784  

Securities owned, at fair value

     9,095       8,873  

Accounts receivable

     24,442       25,834  

Income taxes receivable

     1,235       1,181  

Prepaid expenses

     6,192       4,441  

Other current assets

     1,017       163  
  

 

 

   

 

 

 

Total current assets

     121,592       118,276  

Fixed assets, net

     8,604       9,122  

Notes receivable

     31,485       28,722  

Securities held-to-maturity

     20,136       20,180  

Deferred tax assets, net

     4,599       7,042  

Investments, carried at cost

     28,080       28,080  

Right of use assets – operating leases

     18,997       —    

Goodwill

     85,856       85,856  

Intangible assets

     603,291       603,209  

Other noncurrent assets

     1,258       2,155  
  

 

 

   

 

 

 

Total assets

   $ 923,898     $ 902,642  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

LIABILITIES

    

Current liabilities:

    

Fund management and administration payable

   $ 23,753     $ 22,508  

Compensation and benefits payable

     14,619       18,453  

Deferred consideration – gold payments

     12,857       11,765  

Securities sold, but not yet purchased, at fair value

     543       1,698  

Operating lease liabilities

     3,632       —    

Accounts payable and other liabilities

     7,738       8,377  
  

 

 

   

 

 

 

Total current liabilities

     63,142       62,801  

Long-term debt

     195,762       194,592  

Deferred consideration – gold payments

     148,416       149,775  

Operating lease liabilities

     20,190       —    

Deferred rent payable

     —         4,570  
  

 

 

   

 

 

 

Total liabilities

     427,510       411,738  

Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding

     132,569       132,569  
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY

    

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

    

Issued and outstanding: 155,108 and 153,202 at June 30, 2019 and December 31, 2018, respectively

     1,551       1,532  

Additional paid-in capital

     367,750       363,655  

Accumulated other comprehensive income

     725       467  

Accumulated deficit

     (6,207     (7,319
  

 

 

   

 

 

 

Total stockholders’ equity

     363,819       358,335  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 923,898     $ 902,642  
  

 

 

   

 

 

 

 

10


WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

     Six Months Ended  
     June 30,
2019
    June 30,
2018
 

Cash flows from operating activities:

    

Net income

   $ 11,303     $ 26,148  

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

    

Advisory fees received in gold and other precious metals

     (22,872     (11,033

Contractual gold payments

     6,208       2,715  

Stock-based compensation

     6,207       6,838  

Deferred income taxes

     2,443       (1,055

Amortization of right of use asset

     1,590        

Amortization of credit facility issuance costs

     1,430       637  

Paid-in-kind interest income

     (1,223     (840

Impairment

     572        

Depreciation and amortization

     533       692  

Gain on revaluation of deferred consideration – gold payments

     (367     (9,898

Other

     5       834  

Changes in operating assets and liabilities:

    

Securities owned, at fair value

     (222     (2,028

Accounts receivable

     1,833       2,871  

Income taxes receivable/payable

     (44     8,109  

Prepaid expenses

     (1,746     (1,669

Gold and other precious metals

     16,318       8,930  

Other assets

     (552     975  

Fund management and administration payable

     1,231       (380

Compensation and benefits payable

     (3,938     (21,170

Securities sold, but not yet purchased, at fair value

     (1,155     1,077  

Payable to ETFS Capital Limited

     —         222  

Operating lease liabilities

     (1,760     —    

Accounts payable and other liabilities

     (435     (2,961
  

 

 

   

 

 

 

Net cash provided by operating activities

     15,359       9,014  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of fixed assets

     (15     (34

Funding of AdvisorEngine note receivable

     (1,540     (5,000

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

     39       1,063  

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

     —         64,498  

Cash paid – ETFS Acquisition, net of cash acquired

     —         (233,172
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,516     (172,645
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Dividends paid

     (10,191     (9,167

Shares repurchased

     (2,107     (1,006

Credit facility issuance costs

     —         (8,690

Preferred stock issuance costs

     —         (181

Proceeds from the issuance of long-term debt

     —         200,000  

Proceeds from exercise of stock options

     14       139  
  

 

 

   

 

 

 

Net cash (used in)/provided by financing activities

     (12,284     181,095  
  

 

 

   

 

 

 

Increase/(decrease) in cash flows due to changes in foreign exchange rate

     268       (913
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,827       16,551  

Cash and cash equivalents – beginning of period

     77,784       54,193  
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 79,611     $ 70,744  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for taxes

   $ 4,403     $ 2,841  
  

 

 

   

 

 

 

Cash paid for interest

   $ 4,559     $ 1,241  
  

 

 

   

 

 

 

 

11


WisdomTree Investments, Inc.

Key Operating Statistics (Unaudited)

 

     Three Months Ended  
     June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

GLOBAL ETPs (in millions)

      

Beginning of period assets

   $ 59,112     $ 54,094     $ 44,962  

Assets acquired

     —         —         17,641  

Inflows/(outflows)

     337       561       (1,223

Market appreciation/(depreciation)

     938       4,544       (1,402

Fund closures

     —         (87     (9
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 60,387     $ 59,112     $ 59,969  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 58,569     $ 57,683     $ 61,301  

Average ETF advisory fee during the period

     0.45     0.46     0.48

Revenue days

     91       90       91  

Number of ETFs – end of the period

     536       534       526  

U.S. LISTED ETFs (in millions)

      

Beginning of period assets

   $ 39,366     $ 35,486     $ 42,886  

Inflows/(outflows)

     (166     147       (1,231

Market appreciation/(depreciation)

     20       3,820       (306

Fund closures

     —         (87     (9
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 39,220     $ 39,366     $ 41,340  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 38,945     $ 38,061     $ 43,464  

Average ETF advisory fee during the period

     0.44     0.45     0.49

Number of ETFs – end of the period

     79       77       81  

INTERNATIONAL LISTED ETPs (in millions)

      

Beginning of period assets

   $ 19,746     $ 18,608     $ 2,076  

Assets acquired

     —         —         17,641  

Inflows/(outflows)

     503       414       8  

Market appreciation/(depreciation)

     918       724       (1,096
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 21,167     $ 19,746     $ 18,629  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 19,624     $ 19,622     $ 17,837  

Average ETP advisory fee during the period

     0.46     0.47     0.47

Number of ETPs – end of the period

     457       457       445  

PRODUCT CATEGORIES (in millions)

      

Commodity & Currency

      

Beginning of period assets

   $ 17,015     $ 16,251     $ 399  

Assets acquired

     —         —         16,778  

Inflows/(outflows)

     558       227       (77

Market appreciation/(depreciation)

     905       537       (945
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 18,478     $ 17,015     $ 16,155  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 16,940     $ 17,033     $ 15,301  

U.S. Equity

      

Beginning of period assets

   $ 15,880     $ 13,334     $ 13,359  

Inflows/(outflows)

     103       632       114  

Market appreciation/(depreciation)

     38       1,914       828  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 16,021     $ 15,880     $ 14,301  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 15,807     $ 14,947     $ 14,021  

International Developed Market Equity

      

Beginning of period assets

   $ 14,417     $ 14,532     $ 22,287  

Inflows/(outflows)

     (729     (1,553     (1,466

Market appreciation/(depreciation)

     1       1,438       (604
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 13,689     $ 14,417     $ 20,217  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 13,960     $ 14,521     $ 22,319  

 

12


Key Operating Statistics (Unaudited)

 

     Three Months Ended  
     June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Emerging Market Equity

      

Beginning of period assets

   $ 5,730     $ 5,278     $ 6,289  

Inflows/(outflows)

     367       (84     (119

Market appreciation/(depreciation)

     (7     536       (527
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 6,090     $ 5,730     $ 5,643  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 5,785     $ 5,502     $ 6,116  

Fixed Income

      

Beginning of period assets

   $ 4,023     $ 2,570     $ 1,083  

Inflows/(outflows)

     208       1,418       349  

Market appreciation/(depreciation)

     26       35       (32
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 4,257     $ 4,023     $ 1,400  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 4,119     $ 3,511     $ 1,219  

Leveraged & Inverse

      

Beginning of period assets

   $ 1,419     $ 1,282     $ 872  

Assets acquired

     —         —         863  

Inflows/(outflows)

     (62     67       (62

Market appreciation/(depreciation)

     (19     70       (142
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 1,338     $ 1,419     $ 1,531  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 1,384     $ 1,408     $ 1,593  

Alternatives

      

Beginning of period assets

   $ 628     $ 755     $ 492  

Inflows/(outflows)

     (108     (141     66  

Market appreciation/(depreciation)

     (6     14       20  
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 514     $ 628     $ 578  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 574     $ 666     $ 564  

Closed ETPs

      

Beginning of period assets

   $ —       $ 92     $ 181  

Inflows/(outflows)

     —         (5     (28

Market appreciation/(depreciation)

     —         —         —    

Fund closures

     —         (87     (9
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ —       $ —       $ 144  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ —       $ 95     $ 168  

Headcount – U.S. Business segment

     143       141       155  

Headcount – International Business segment

     71       75       76  

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

Source: WisdomTree

 

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. We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance. These non-GAAP financial measures exclude the following:

 

   

Unrealized gains or losses on the revaluation of deferred consideration: Deferred consideration is an obligation we assumed in connection with the ETFS Acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold may have a material impact on the carrying value of the deferred consideration and our reported net income. We exclude this item when arriving at adjusted net income and adjusted diluted earnings per share as it is not core to our operating business. The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

 

   

Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when determining adjusted net income and adjusted diluted earnings per share as they introduce volatility in earnings and are not core to our operating business.

 

   

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

 

Adjusted effective income tax rate. We disclose our adjusted effective income tax rate as a non-GAAP financial measurement in order to report our effective income tax rate exclusive of items that are non-recurring or not core to our operating business. We believe reporting our adjusted effective income tax rate provides investors with a consistent way to analyze our income taxes. Our adjusted effective income tax rate is calculated by dividing adjusted income tax expense by adjusted income before income taxes. During the first quarter of 2019, income tax expense and income before income taxes has been adjusted for the $4.3 million reduction in unrecognized tax benefits and offsetting reduction of a tax-related indemnification asset. In addition, see “adjusted net income and adjusted diluted earnings per share” above for information regarding the other items that are excluded.

 

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

 

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

 

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:

   June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Net income, as reported

   $ 2,479     $ 8,824     $ 16,724  

Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration

     4,037       (4,404     (9,898

Add back: Severance expense, net of income taxes

     1,194       1,521       —    

Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards

     76       971       3  

Add back: Impairment, net of income taxes

     —         572       —    

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

     27       253       7,489  
  

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 7,813     $ 7,737     $ 14,318  

Weighted average common shares - diluted

     167,249       166,811       163,346  
  

 

 

   

 

 

   

 

 

 

Adjusted earnings per share - diluted

   $ 0.05     $ 0.05     $ 0.09  
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Operating revenues

   $ 66,293     $ 65,485     $ 74,775  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 11,911     $ 10,683     $ 14,531  

Add back: Severance expense, before income taxes

     1,475       2,020       —    

Add back: Acquisition-related costs, before income taxes

     33       313       7,928  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 13,419     $ 13,016     $ 22,459  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     20.2     19.9     30.0
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Effective Income Tax Rate:

   June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Income before income taxes

   $ 6,066     $ 7,775     $ 22,184  

Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration

     4,037       (4,404     (9,898

Add back: Loss recognized upon reduction of a tax-related indemnification asset

     —         4,310       —    

Add back: Severance expense, before income taxes

     1,475       2,020       —    

Add back: Impairment, before income taxes

     —         572       —    

Add back: Acquisition-related costs, before income taxes

     33       313       7,928  
  

 

 

   

 

 

   

 

 

 

Adjusted income before income taxes

   $ 11,611     $ 10,586     $ 20,214  
  

 

 

   

 

 

   

 

 

 

Income tax expense/(benefit)

   $ 3,587     $ (1,049   $ 5,460  

Add back: Tax benefit arising from severance expense

     281       499       —    

Deduct: Tax shortfalls upon vesting and exercise of stock-based compensation awards

     (76     (971     —    

Add back: Tax benefit arising from acquisition-related costs

     6       60       439  

Add back: Tax benefit arising from reduction in unrecognized tax benefits

     —         4,310       —    

Add back: Tax benefit arising from impairment

     —         —         —    
  

 

 

   

 

 

   

 

 

 

Adjusted income tax expense

   $ 3,798     $ 2,849     $ 5,899  
  

 

 

   

 

 

   

 

 

 

Adjusted effective income tax rate

     32.7     26.9     29.2
  

 

 

   

 

 

   

 

 

 

 

15


U.S. Business Segment

 

     Three Months Ended  

Gross Margin and Gross Margin Percentage:

   June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Operating revenues

   $ 43,146     $ 42,623     $ 53,093  

Less: Fund management and administration

     (8,505     (8,340     (8,802
  

 

 

   

 

 

   

 

 

 

Gross margin

   $ 34,641     $ 34,283     $ 44,291  
  

 

 

   

 

 

   

 

 

 

Gross margin percentage

     80.3     80.4     83.4
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Operating revenues

   $ 43,146     $ 42,623     $ 53,093  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 6,739     $ 5,447     $ 10,455  

Add back: Severance expense, before income taxes

     1,366       2,020       —    

Add back: Acquisition-related costs, before income taxes

     —         11       6,773  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 8,105     $ 7,478     $ 17,228  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     18.8     17.5     32.4
  

 

 

   

 

 

   

 

 

 

International Business Segment

 

     Three Months Ended  

Gross Margin and Gross Margin Percentage:

   June 30,
2019
    Mar. 31,
2019
    June 30,
2018
 

Operating revenues

   $ 23,147     $ 22,862     $ 21,682  

Less: Fund management and administration

     (7,071     (6,826     (5,819
  

 

 

   

 

 

   

 

 

 

Gross margin

   $ 16,076     $ 16,036     $ 15,863  
  

 

 

   

 

 

   

 

 

 

Gross margin percentage

     69.5     70.1     73.2
  

 

 

   

 

 

   

 

 

 
     Three Months Ended  

Adjusted Operating Income Margin:

   June 30,
2019
    Dec. 31,
2018
    June 30,
2018
 

Operating revenues

   $ 23,147     $ 22,862     $ 21,682  
  

 

 

   

 

 

   

 

 

 

Operating income

   $ 5,172     $ 5,236     $ 4,076  

Add back: Severance expense, before income taxes

     109       —         —    

Add back: Acquisition-related costs, before income taxes

     33       302       1,155  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income

   $ 5,314     $ 5,538     $ 5,231  
  

 

 

   

 

 

   

 

 

 

Adjusted operating income margin

     23.0     24.2     24.1
  

 

 

   

 

 

   

 

 

 

 

16

EX-99.2

Exhibit 99.2

 

 

LOGO

WisdomTree Announces Changes in European Leadership

Alexis Marinof Appointed as EVP and Head of WisdomTree Europe

David Abner Establishes Consulting Firm Focused on ETPs and Digital Assets

London, 24 July 2019: WisdomTree, an exchange traded fund (“ETF”) and exchange traded product (“ETP”) sponsor, today announced the appointment of Alexis Marinof as Executive Vice President and Head of WisdomTree Europe, and to WisdomTree’s Executive Committee, effective as of 1 August 2019.

Marinof brings over 20 years of experience in the asset management industry to the role. He joined WisdomTree in July 2017 as Head of European Distribution and most recently served as Chief Operating Officer, Europe, helping to guide the company through the acquisition of ETF Securities in 2018. Prior to this, he was EMEA Head of SPDR ETFs and Managing Director at State Street Global Advisors in London.

Marinof is now responsible for leading the next stage of WisdomTree’s expansion in Europe, which has already seen tremendous growth since it established its European arm in 2014.

Marinof commented, “I am delighted to have the opportunity to lead the team in Europe at this exciting juncture. The growth potential for ETPs in Europe remains vast. We already boast one of the most comprehensive suites of ETPs in Europe, and I believe that we are well-positioned to build on this momentum.”

Jonathan Steinberg, CEO of WisdomTree, commented, “It’s with much pleasure that we appoint Alexis as the Head of WisdomTree Europe. He has a strong understanding of the business and company culture, combined with many years of industry experience. I am confident Alexis will successfully lead the team, continue to strengthen investor relationships, and overall, generate growth for the European business in the coming years.”

Outgoing EVP and Head of WisdomTree Europe, David Abner, is forming an independent consulting firm focused on the convergence between traditional and digital financial assets. The new business will count WisdomTree among its primary clients on key projects related to the ETP market.

Steinberg added, “Dave has played an integral role in developing and fortifying our team in Europe for the past five years. Overall, he has established a unique presence in the ETP industry with relationships spanning from the largest institutional investors to the regulatory bodies, developing the frameworks for the future growth of the industry. His work on ETF liquidity through the development of the ETF Implied Liquidity function and his books have helped strengthen WisdomTree’s position as a premier solutions provider to ETP investors, and I’m glad that we will be continuing a strong relationship with him into the future.”

About WisdomTree

WisdomTree Investments, Inc., through its subsidiaries in the US, Europe and Canada (collectively, “WisdomTree”), is an exchange traded fund (“ETF”) and exchange traded product (“ETP”) sponsor. WisdomTree offers products covering equities, fixed income, currencies, commodities and alternative strategies. Through WisdomTree UK Limited, it sponsors WisdomTree UCITS ETFs and ETPs from ETF Securities and Boost, in a wide range of asset classes, including short and leveraged ETPs. WisdomTree currently has approximately $60.9 billion (as of 19 July 2019) in assets under management globally. For more information, please visit www.wisdomtree.com.


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

Important Information

Communications issued in the European Economic Area (“EEA”): This document has been issued and approved by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.

Communications issued in jurisdictions outside of the EEA: This document has been issued and approved by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.

WisdomTree Ireland Limited and WisdomTree UK Limited are each referred to as “WisdomTree” (as applicable). Our Conflicts of Interest Policy and Inventory are available on request.

For professional clients only. The information contained in this document is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities or shares. This document should not be used as the basis for any investment decision. Investments may go up or down in value and you may lose some or all of the amount invested. Past performance is not necessarily a guide to future performance. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice.

This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares or securities in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.

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Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. However, back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.