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, July 26, 2019 (GLOBE NEWSWIRE) -- 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.

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.

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.   

• 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.

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.

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.

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.

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¹    See “Non-GAAP Financial Measurements.”

Contact Information:

Investor Relations                                               
WisdomTree Investments, Inc.                         
Jason Weyeneth, CFA                                        
+1.917.267.3858                                                                 
jweyeneth@wisdomtree.com                           

Media Relations
WisdomTree Investments, Inc.
Jessica Zaloom
+1.917.267.3735
jzaloom@wisdomtree.com

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.

Released July 26, 2019