Form 10-Q
false2019Q3000088063112-31Represents payments during the period April 11, 2018 through September 30, 2018.Gains/(losses) arise due to (decreases)/increases in the forward-looking price of gold and the magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                
to
                
.
Commission File Number
001-10932
 
WisdomTree Investments, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
13-3487784
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
     
245 Park Avenue, 35
th
Floor
New York
,
New York
 
10167
(Address of principal executive offices)
 
(Zip Code)
212
-
801-2080
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 
405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).    
  
Yes
    
  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
 filer
 
 
Smaller reporting company
 
             
 
 
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    
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  
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
As of
O
ctober 28
, 2019, there were 155,212,821
 
shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
 
 
 

 
Table of Contents
WISDOMTREE INVESTMENTS, INC.
Form
10-Q
For the Quarterly Period Ended September 30, 2019
TABLE OF CONTENTS
         
 
Page
Number
 
         
   
4
 
         
   
4
 
         
   
36
 
         
   
56
 
         
   
57
 
         
   
57
 
         
   
57
 
         
   
57
 
         
   
57
 
         
   
58
 
         
   
58
 
         
   
58
 
         
   
59
 
 
 
 
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.
WisdomTree
®
and Modern Alpha
TM
are trademarks of WisdomTree Investments, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners.
 
2
 

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
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 our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2018. 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 Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, 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 Report may include statements about:
  anticipated trends, conditions and investor sentiment in the global markets and exchange traded products, or 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.
 
 
 
 
 
 
 
 
 
 
 
The forward-looking statements in this Report represent our views as of the date of this Report. 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 Report.
 
3
 

Table of Contents
PART I: FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
 
September 30,
2019
 
 
December 31,
2018
 
 
(Unaudited)
 
 
 
Assets
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
  $
88,575
 
 
 
  $
77,784
 
Securities owned, at fair value
   
3,376
     
8,873
 
Accounts receivable
   
24,381
     
25,834
 
Income taxes receivable
   
     
1,181
 
Prepaid expenses
   
5,297
     
4,441
 
Other current assets
   
1,134
     
163
 
                 
Total current assets
   
122,763
     
118,276
 
Fixed assets, net
   
8,354
     
9,122
 
Notes receivable, net (Note 8)
   
32,368
     
28,722
 
Indemnification receivable (Note 21)
   
29,985
     
34,876
 
Securities
held-to-maturity
   
17,796
     
20,180
 
Deferred tax assets, net
   
5,655
     
7,042
 
Investments, carried at cost (Note 9)
   
28,080
     
28,080
 
Right of use assets – operating leases (Note 14)
   
18,543
     
—  
 
Goodwill (Note 23)
   
85,856
     
85,856
 
Intangible assets (Note 23)
   
603,268
     
603,209
 
Other noncurrent assets
   
1,076
     
2,155
 
                 
Total assets
  $
953,744
    $
937,518
 
                 
Liabilities and stockholders’ equity
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Current liabilities:
   
     
 
Fund management and administration payable
  $
22,024
    $
22,508
 
Compensation and benefits payable
   
19,810
     
18,453
 
Deferred consideration – gold payments (Note 11)
   
13,403
     
11,765
 
Securities sold, but not yet purchased, at fair value
   
568
     
1,698
 
Operating lease liabilities (Note 14)
   
3,671
     
 
Income taxes payable
   
3,122
     
 
Accounts payable and other liabilities
   
8,879
     
8,377
 
                 
Total current liabilities
   
71,477
     
62,801
 
Long-term debt (Note 12)
   
181,359
     
194,592
 
Deferred consideration – gold payments (Note 11)
   
154,237
     
149,775
 
Operating lease liabilities (Note 14)
   
19,581
     
—  
 
Deferred rent payable
   
     
4,570
 
Other noncurrent liabilities (Note 21)
   
29,985
     
34,876
 
                 
Total liabilities
   
456,639
     
446,614
 
                 
Preferred stock – Series A
Non-Voting
Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding (Note 13)
   
132,569
     
132,569
 
                 
Contingencies
(Note
15
)
   
 
     
 
 
Stockholders’ equity
 
 
 
 
 
 
Preferred stock, par value $0.01; 2,000 shares authorized:
   
     
—  
 
Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 154,819 and 153,202 at September 30, 2019 and December 31, 2018, respectively
   
1,548
     
1,532
 
Additional
paid-in
capital
   
370,103
     
363,655
 
Accumulated other comprehensive income
   
35
     
467
 
Accumulated deficit
   
(7,150
)    
(7,319
)
                 
Total stockholders’ equity
   
364,536
     
358,335
 
                 
Total liabilities and stockholders’ equity
  $
953,744
    $
937,518
 
                 
The accompanying notes are an integral part of these consolidated financial statements
 
4
 

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Advisory fees
  $
67,006
    $
71,679
    $
197,473
    $
203,913
 
Other income
   
712
     
891
     
2,023
     
2,336
 
                                 
Total revenues
   
67,718
     
72,570
     
199,496
     
206,249
 
                                 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
   
18,880
     
17,544
     
61,481
     
55,677
 
Fund management and administration
   
15,110
     
15,292
     
45,852
     
40,825
 
Marketing and advertising
   
3,022
     
3,239
     
8,612
     
10,212
 
Sales and business development
   
4,354
     
3,801
     
12,947
     
12,117
 
Contractual gold payments (Note 11)
   
3,502
     
2,880
     
9,710
     
5,595
 
Professional and consulting fees
   
1,259
     
1,934
     
4,037
     
5,130
 
Occupancy, communications and equipment
   
1,549
     
1,722
     
4,715
     
4,659
 
Depreciation and amortization
   
259
     
306
     
792
     
998
 
Third-party distribution fees
   
1,503
     
1,407
     
5,822
     
4,798
 
Acquisition-related costs (Note 3)
   
190
     
456
     
536
     
10,446
 
Other
   
1,959
     
2,281
     
6,267
     
6,332
 
                                 
Total expenses
   
51,587
     
50,862
     
160,771
     
156,789
 
                                 
Operating income
   
16,131
     
21,708
     
38,725
     
49,460
 
Other Income/(Expenses):
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
   
(2,832
)    
(2,747
)    
(8,634
)    
(5,103
)
(Loss)/gain on revaluation of deferred consideration – gold payments (Note 11)
   
(6,306
)    
7,732
     
(5,939
)    
17,630
 
Interest income
   
799
     
719
     
2,396
     
2,293
 
Impairment (Note 1
4
)
   
     
—  
     
(572
)    
—  
 
Other gains and losses, net
   
843
     
118
     
(3,500
)    
(644
)
                                 
Income before income taxes
   
8,635
     
27,530
     
22,476
     
63,636
 
Income tax expense
   
4,483
     
5,481
     
7,021
     
15,439
 
                                 
Net income
  $
4,152
    $
22,049
    $
15,455
    $
48,197
 
                                 
Earnings per share—basic
  $
0.02
    $
0.13
    $
0.09
    $
0.31
 
                                 
Earnings per share—diluted
  $
0.02
    $
0.13
    $
0.09
    $
0.31
 
                                 
Weighted-average common shares—basic
   
151,897
     
150,892
     
151,782
     
145,149
 
                                 
Weighted-average common shares—diluted
   
167,163
     
166,622
     
166,944
     
155,584
 
                                 
Cash dividends declared per common share
  $
0.03
    $
0.03
    $
0.09
    $
0.09
 
                                 
The accompanying notes are an integral part of these consolidated financial statements
 
5
 

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Net income
  $
 
4,152
    $
 
 
22,049
    $
 
 
15,455
    $
 
 
48,197
 
Other comprehensive (loss)/income
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains on
available-for-sale
debt securities, net of tax
   
     
—  
     
     
477
 
Foreign currency translation adjustment
   
(293
)    
(88
)    
(35
)    
(395
)
Reclassification of foreign currency translation adjustment to other gains and losses, net, upon the
liquidation of WisdomTree Japan Inc. (Note 1)
   
(397
)    
—  
     
(397
)    
—  
 
                                 
Other comprehensive (loss)/income
   
(690
)    
(88
)    
(432
)    
82
 
                                 
Comprehensive income
  $
3,462
    $
21,961
    $
15,023
    $
48,279
 
                                 
The accompanying notes are an integral part of these consolidated financial statements
 
6
 

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
 
For the Three Months Ended September 30, 2019
 
 
Common Stock
   
Additional
Paid-In

Capital
 
 
Accumulated
Other
 
 
Retained
Earnings/
(Accumulated
Deficit)
 
 
Total
 
 
Shares
Issued
 
 
Par
Value
 
Comprehensive
Income
 
Balance—July 1, 2019
   
155,108
    $
 
 
1,551
    $
367,750
    $
725
    $
(6,207
)   $
 
 
363,819
 
Restricted stock issued and vesting of restricted stock units,
net
   
(301
)    
(3
)    
3
     
     
     
 
Shares repurchased
   
(13
)    
     
(80
)    
     
     
(80
)
Exercise of stock options, net
   
25
     
     
56
     
     
     
56
 
Stock-based compensation
   
     
     
2,374
     
     
     
2,374
 
Other comprehensive loss
   
     
     
     
(690
)    
     
(690
)
Dividends
   
     
     
     
     
(5,095
)    
(5,095
)
Net income
   
     
     
     
     
4,152
     
4,152
 
                                                 
Balance—September 30, 2019
   
154,819
    $
1,548
    $
370,103
    $
35
    $
(7,150
)   $
364,536
 
                                                 
       
 
For the Three Months Ended September 30, 2018
 
 
Common Stock
   
Additional
Paid-In

Capital
 
 
Accumulated
Other
 
 
Retained
Earnings/
(Accumulated
Deficit)
 
 
Total
 
 
Shares
Issued
 
 
Par
Value
 
Comprehensive
Income
 
Balance—July 1, 2018
   
153,142
    $
1,531
    $
359,066
    $
461
    $
(7,735
)   $
353,323
 
Restricted stock issued and vesting of restricted stock units, net
   
(36
)    
—  
     
—  
     
—  
     
—  
     
—  
 
Shares repurchased
   
(48
)    
(1
)    
(423
)    
—  
     
—  
     
(424
)
Exercise of stock options, net
   
25
     
1
     
17
     
—  
     
—  
     
18
 
Stock-based compensation
   
—  
     
—  
     
3,240
     
—  
     
—  
     
3,240
 
Other comprehensive loss
   
—  
     
—  
     
—  
     
(88
)    
—  
     
(88
)
Dividends
   
—  
     
—  
     
—  
     
—  
     
(5,035
)    
(5,035
)
Net income
   
—  
     
—  
     
—  
     
—  
     
22,049
     
22,049
 
                                                 
Balance—September 30, 2018
   
153,083
    $
1,531
    $
361,900
    $
373
    $
9,279
    $
373,083
 
                                                 
The accompanying notes are an integral part of these consolidated financial statements
 
7
 

WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
(In Thousands)
(Unaudited)
 
For the Nine Months Ended September 30, 2019
 
 
Common Stock
   
Additional
Paid-In

Capital
 
 
Accumulated
Other
 
 
Retained
Earnings/
(Accumulated
 Deficit)
 
 
Total
 
 
Shares
Issued
 
 
Par
Value
 
Comprehensive
Income
 
Balance—January 1, 2019
   
153,202
    $
 
 
 
1,532
    $
 
 
 
363,655
    $
467
    $
(7,319
)   $
 
 
 358,335
 
Restricted stock issued and vesting of restricted stock units,
net
   
1,910
     
18
     
(18
)    
     
     
 
Shares repurchased
   
(338
)    
(2
)    
(2,185
)    
     
     
(2,187
)
Exercise of stock options, net
   
45
     
     
70
     
     
     
70
 
Stock-based compensation
   
     
     
8,581
     
     
     
8,581
 
Other comprehensive loss
   
     
     
     
(432
)    
     
(432
)
Dividends
   
     
     
     
     
(15,286
)    
(15,286
)
Net income
   
     
     
     
     
15,455
     
15,455
 
                                                 
Balance—September 30, 2019
   
154,819
    $
1,548
    $
370,103
    $
35
    $
(7,150
)   $
364,536
 
                                                 
       
 
For the Nine Months Ended September 30, 2018
 
 
Common Stock
   
Additional
Paid-In

Capital
 
 
Accumulated
Other
 
 
Retained
Earnings/
(Accumulated
Deficit)
 
 
Total
 
 
Shares
Issued
 
 
Par
Value
 
Comprehensive
Income
 
Balance—January 1, 2018
   
136,996
    $
1,370
    $
216,006
    $
291
    $
(24,716
)   $
192,951
 
Common stock issued (Note 3)
   
15,250
     
153
     
137,097
     
—  
     
—  
     
137,250
 
Restricted stock issued and vesting of restricted stock units,
net
   
789
     
7
     
(7
)    
—  
     
—  
     
—  
 
Shares repurchased
   
(135
)    
(1
)    
(1,429
)    
—  
     
—  
     
(1,430
)
Exercise of stock options, net
   
183
     
2
     
155
     
—  
     
—  
     
157
 
Stock-based compensation
   
—  
     
—  
     
10,078
     
—  
     
—  
     
10,078
 
Other comprehensive income
   
—  
     
—  
     
—  
     
82
     
—  
     
82
 
Dividends
   
—  
     
—  
     
—  
     
—  
     
(14,202
)    
(14,202
)
Net income
   
—  
     
—  
     
—  
     
—  
     
48,197
     
48,197
 
                                                 
Balance—September 30, 2018
   
153,083
    $
1,531
    $
361,900
    $
373
    $
9,279
    $
373,083
 
                                                 
The accompanying notes are an integral part of these consolidated financial statements
 
8
 

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
Nine Months Ended
September 30,
 
 
2019
 
 
2018
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income
  $
15,455
    $
48,197
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Advisory fees received in gold and other precious metals
   
(36,306
)    
(21,998
)
Contractual gold payments (Note 11)
   
9,710
     
5,595
 
Stock-based compensation
   
8,581
     
10,078
 
Loss/(gain) on revaluation of deferred consideration – gold payments (Note 11)
   
5,939
     
(17,630
)
Amortization of right of use asset
   
2,379
     
—  
 
Amortization of credit facility issuance costs
   
2,159
     
1,360
 
Paid-in-kind
interest income (Note 8)
   
(1,856
)    
(1,373
)
Deferred income taxes
   
1,383
     
(1,251
)
Depreciation and amortization
   
792
     
998
 
Impairment (Note 1
4
)
   
572
     
—  
 
Other
   
(330
)    
810
 
Changes in operating assets and liabilities:
   
     
 
Securities owned, at fair value
   
5,497
     
(2,735
)
Accounts receivable
   
2,358
     
3,771
 
Income taxes receivable/payable
   
4,350
     
7,654
 
Prepaid expenses
   
(888
)    
(621
)
Gold and other precious metals
   
25,751
     
18,472
 
Other assets
   
(571
)    
954
 
Fund management and administration payable
   
(366
)    
1,998
 
Compensation and benefits payable
   
1,476
     
(21,025
)