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 June 30, 2020
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
(Exact name of registrant as specified in its charter)
| Delaware |
| |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| th Floor |
| |
| (Address of principal executive offices) |
(Zip Code) |
(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 Yes
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). ☒
☐
NoIndicate 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.| |
☒ |
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 | ||
| |
|
The |
As of July 145,875,749 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
27
, 2020, there were WISDOMTREE INVESTMENTS, INC.
Form
10-Q
For the Quarterly Period Ended June 30, 2020
TABLE OF CONTENTS
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Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.
WisdomTree
®
and Modern Alpha®
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
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 this Report and in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q
for the quarter ended March 31, 2020. 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:
| • | the ultimate duration of the COVID-19 pandemic and its short-term and long-term impact on our business and the global economy; |
| • | 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
PART I: FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL STATEMENTS |
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
| June 30, 2020 |
December 31, 2019 |
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| (Unaudited) |
||||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | |
$ | |
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| Securities owned, at fair value (including $ |
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| Accounts receivable (including $ |
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| Prepaid expenses |
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| Other current assets |
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| Total current assets |
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| Fixed assets, net |
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| Notes receivable, net (Note 8) |
— |
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| Indemnification receivable (Note 22) |
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| Securities held-to-maturity |
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| Deferred tax assets, net |
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| Investments (Note 9) |
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| Right of use assets – operating leases (Note 15) |
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| Goodwill (Note 24) |
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| Intangible assets (Note 24) |
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| Other noncurrent assets |
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| Total assets |
$ | |
$ | |
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| Liabilities and stockholders’ equity |
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| Liabilities |
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| Current liabilities: |
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| Fund management and administration payable |
$ | |
$ | |
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| Compensation and benefits payable |
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| Deferred consideration – gold payments (Note 11) |
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| Securities sold, but not yet purchased, at fair value |
— |
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| Operating lease liabilities (Note 15) |
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| Income taxes payable |
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| Accounts payable and other liabilities |
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| Total current liabilities |
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| Convertible notes (Note 13) |
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— |
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| Debt (Note 12) |
— |
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| Deferred consideration – gold payments (Note 11) |
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| Operating lease liabilities (Note 15) |
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| Other noncurrent liabilities (Note 22) |
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| Total liabilities |
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| Preferred stock – Series A Non-Voting Convertible, par value $ |
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| Contingencies (Note ) |
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| Stockholders’ equity |
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| Preferred stock, par value $ |
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| Common stock, par value $ |
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| Additional paid-in capital |
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| Accumulated other comprehensive income |
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| Accumulated deficit |
( |
) | ( |
) | ||||
| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ | |
$ | |
||||
The accompanying notes are an integral part of these consolidated financial statements
4
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Operating Revenues: |
||||||||||||||||
| Advisory fees |
$ | |
$ | |
$ | |
$ | |
||||||||
| Other income |
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| Total revenues |
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| Operating Expenses: |
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| Compensation and benefits |
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| Fund management and administration |
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| Marketing and advertising |
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| Sales and business development |
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| Contractual gold payments (Note 11) |
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| Professional and consulting fees |
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| Occupancy, communications and equipment |
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| Depreciation and amortization |
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| Third-party distribution fees |
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| Acquisition and disposition-related costs |
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| Other |
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| Total operating expenses |
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| Operating income |
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| Other Income/(Expenses): |
||||||||||||||||
| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| (Loss)/gain on revaluation of deferred consideration – gold payments (Note 11) |
( |
) | ( |
) | ( |
) | |
|||||||||
| Interest income |
|
|
|
|
||||||||||||
| Impairments (Note 7 and 25) |
— |
— |
( |
) | ( |
) | ||||||||||
| Loss on extinguishment of debt (Note 12) |
( |
) | — |
( |
) | — |
||||||||||
| Other gains and losses, net |
|
|
( |
) | ( |
) | ||||||||||
| (Loss)/income before income taxes |
( |
) | |
( |
) | |
||||||||||
| |
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|
|
| Income tax (benefit)/expense |
( |
) | |
( |
) | |
||||||||||
| Net (loss)/income |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||
| (Loss)/earnings per share – basic |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||
| (Loss)/earnings per share – diluted |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||
| Weighted-average common shares – basic |
|
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|
||||||||||||
| Weighted-average common shares – diluted |
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|
||||||||||||
| Cash dividends declared per common share |
$ | |
$ | |
$ | |
$ | |
||||||||
The accompanying notes are an integral part of these consolidated financial statements
5
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss)/Income
(In Thousands)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Net (loss)/income |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||
| Other comprehensive income/(loss) |
||||||||||||||||
| Reclassification of foreign currency translation adjustment to other gains and losses, net, upon the sale of WisdomTree Asset Management Canada, Inc. (“WTAMC” or “Canadian ETF business”) (Note 25) |
— |
— |
( |
) | — |
|||||||||||
| Foreign currency translation adjustment |
|
( |
) | ( |
) | |
||||||||||
| Other comprehensive income/(loss) |
|
( |
) | ( |
) | |
||||||||||
| Comprehensive (loss)/income |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||
The accompanying notes are an integral part of these consolidated financial statements
6
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited)
| For the Three Months Ended June 30, 2020 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance – April 1, 2020 |
|
$ | |
$ | |
$ | |
$ | ( |
$ | |
|||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
|
|
( |
) | — |
— |
— |
|||||||||||||||||
| Shares repurchased |
( |
) | ( |
) | ( |
) | — |
— |
( |
|||||||||||||||
| Stock-based compensation |
— |
— |
|
— |
— |
|
||||||||||||||||||
| Allocation of equity component related to convertible notes, net of issuance costs of $ |
— |
— |
|
— |
— |
|
||||||||||||||||||
| Other comprehensive income |
— |
— |
— |
|
— |
|
||||||||||||||||||
| Dividends |
— |
— |
( |
) | — |
— |
( |
) | ||||||||||||||||
| Net loss |
— |
— |
— |
— |
( |
) | ( |
) | ||||||||||||||||
| Balance – June 30, 2020 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
| For the Three Months Ended June 30, 2019 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance – April 1, 2019 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
|
— |
— |
— |
— |
— |
||||||||||||||||||
| Shares repurchased |
( |
) | — |
( |
) | — |
— |
( |
) | |||||||||||||||
| Stock-based compensation |
— |
— |
|
— |
— |
|
||||||||||||||||||
| Other comprehensive loss |
— |
— |
— |
( |
) | — |
( |
) | ||||||||||||||||
| Dividends |
— |
— |
— |
— |
( |
) | ( |
) | ||||||||||||||||
| Net income |
— |
— |
— |
— |
|
|
||||||||||||||||||
| Balance – June 30, 2019 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
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 Six Months Ended June 30, 2020 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance – January 1, 2020 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
|
|
( |
) | — |
— |
— |
|||||||||||||||||
| Shares repurchased |
( |
) | ( |
) | ( |
) | — |
— |
( |
) | ||||||||||||||
| Exercise of stock options, net |
|
— |
|
— |
— |
|
||||||||||||||||||
| Stock-based compensation |
— |
— |
|
— |
— |
|
||||||||||||||||||
| Allocation of equity component related to convertible notes, net of issuance costs of $ |
— |
— |
|
— |
— |
|
||||||||||||||||||
| Other comprehensive loss |
— |
— |
— |
( |
) | — |
( |
) | ||||||||||||||||
| Dividends |
— |
— |
( |
) | — |
— |
( |
) | ||||||||||||||||
| Net loss |
— |
— |
— |
— |
( |
) | ( |
) | ||||||||||||||||
| Balance – June 30, 2020 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
For the Six Months Ended June 30, 2019 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other |
Accumulated Deficit |
Total |
||||||||||||||||||||
Shares Issued |
Par Value |
Comprehensive Income |
||||||||||||||||||||||
| Balance – January 1, 2019 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
| Restricted stock issued and vesting of restricted stock units, net |
|
|
( |
) | — |
— |
— |
|||||||||||||||||
| Shares repurchased |
( |
) | ( |
) | ( |
) | — |
— |
( |
) | ||||||||||||||
| Exercise of stock options, net |
|
— |
|
— |
— |
|
||||||||||||||||||
| Stock-based compensation |
— |
— |
|
— |
— |
|
||||||||||||||||||
| Other comprehensive income |
— |
— |
— |
|
— |
|
||||||||||||||||||
| Dividends |
— |
— |
— |
— |
( |
) | ( |
) | ||||||||||||||||
| Net income |
— |
— |
— |
— |
|
|
||||||||||||||||||
| Balance – June 30, 2019 |
|
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
8
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended June 30, |
||||||||
2020 |
2019 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net (loss)/income |
$ | ( |
) | $ | |
|||
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: |
||||||||
| Advisory fees received in gold and other precious metals |
( |
) | ( |
) | ||||
| Loss/(gain) on revaluation of deferred consideration – gold payments |
|
( |
) | |||||
| Impairments |
|
|
||||||
| Contractual gold payments |
|
|
||||||
| Stock-based compensation |
|
|
||||||
| Gain on sale – Canadian ETF business |
( |
) | — |
|||||
| Loss on extinguishment of debt |
|
— |
||||||
| Amortization of right of use asset |
|
|
||||||
| Amortization of issuance costs – former credit facility |
|
|
||||||
| Deferred income taxes |
|
|
||||||
| Depreciation and amortization |
|
|
||||||
| Amortization of issuance costs – convertible notes |
|
— |
||||||
| Paid-in-kind interest income |
— |
( |
) | |||||
| Other |
( |
) | |
|||||
| Changes in operating assets and liabilities: |
|
|
|
| ||||
| Securities owned, at fair value |
|
( |
) | |||||
| Accounts receivable |
|
|
||||||
| Income taxes payable |
( |
) | ( |
) | ||||
| Prepaid expenses |
( |
) | ( |
) | ||||
| Gold and other precious metals |
|
|
||||||
| Other assets |
( |
) | ( |
) | ||||
| Fund management and administration payable |
|
|
||||||
| Compensation and benefits payable |
( |
) | ( |
) | ||||
| Securities sold, but not yet purchased, at fair value |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Accounts payable and other liabilities |
|
( |
) | |||||
| Net cash provided by operating activities |
|
|
||||||
| |
||||||||
| Cash flows from investing activities: |
||||||||
| Purchase of fixed assets |
( |
) | ( |
) | ||||
| Funding of notes receivable |
— |
( |
) | |||||
| Proceeds from held-to-maturity securities maturing or called prior to maturity |
|
|
||||||
| Proceeds from the sale of the Company’s financial interests in AdvisorEngine Inc. |
|
— |
||||||
Proceeds from sale of Canadian ETF business, net |
|
|
|
— |
| |||
| Net cash provided by/(used in) investing activities |
|
( |
) | |||||
| Cash flows from financing activities: |
||||||||
| Repayment of debt |
( |
) | — |
|||||
| Shares repurchased |
( |
) | ( |
) | ||||
| Dividends paid |
( |
) | ( |
) | ||||
| Convertible notes issuance costs |
( |
) | — |
|||||
| Proceeds from the issuance of convertible notes (Note 13) |
|
— |
||||||
| Proceeds from exercise of stock options |
|
|
||||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| (Decrease)/increase in cash flow due to changes in foreign exchange rate |
( |
) | |
|||||
| (Decrease)/increase in cash and cash equivalents |
( |
) | |
|||||
| Cash and cash equivalents – beginning of period |
|
|
||||||
| Cash and cash equivalents – end of period |
$ | |
$ | |
||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for taxes |
$ | |
$ | |
||||
| Cash paid for interest |
$ | |
$ | |
||||
The accompanying notes are an integral part of these consolidated financial statements
9
WisdomTree Investments, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
1. Organization and Description of Business
WisdomTree Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. The Company has the following wholly-owned operating subsidiaries:
• |
WisdomTree Asset Management, Inc. non-consolidated third party, is a Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. |
• |
WisdomTree Management Jersey Limited leveraged-and-inverse |
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WisdomTree Multi Asset Management Limited non-consolidated third party, is a public limited company domiciled in Ireland. |
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WisdomTree Management Limited non-consolidated third party, is a public limited company domiciled in Ireland. |
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WisdomTree UK Limited |
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WisdomTree Europe Limited |
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WisdomTree Ireland Limited |
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WisdomTree Commodity Services, LLC |
Sale of Canadian ETF Business
On February 19, 2020, the Company completed the sale of WTAMC to CI Financial Corp. (Note 25).
2. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
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The Company reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur.
Segment and Geographic Information
Effective January 1, 2020, the Company, through its subsidiaries in the U.S. and Europe, conducts business as a single operating segment as an ETP sponsor and asset manager which is based upon the Company’s current organizational and management structure, as well as information used by the chief operating decision maker to allocate resources and other factors. Previously, the Company’s financial results were reported in its U.S. Business and International Business reportable segments.
Foreign Currency Translation
Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive (Loss)/Income as a component of other comprehensive income/(loss).
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.
Revenue Recognition
The Company earns substantially all of its revenue in the form of advisory fees from its ETPs and recognizes this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Contractual Gold Payments
Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 11).
Marketing and Advertising
Advertising costs, including media advertising and production costs, are expensed when incurred.
Depreciation and Amortization
Depreciation is provided for using the straight-line method over the estimated useful lives of the related assets as follows:
Equipment |
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Furniture and fixtures |
Leasehold improvements are amortized over the term of their respective leases or service lives of the improvements, whichever is shorter. Fixed assets are recorded at cost less accumulated depreciation and amortization.
Stock-Based Awards
Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period. Forfeitures are recognized when they occur.
Third-Party Distribution Fees