WisdomTree Announces Third Quarter 2008 Results
Improved operating results from Q2 32 out of 41 equity funds outperformed benchmarks in Q3
NEW YORK--(BUSINESS WIRE)--
WisdomTree (Pink Sheets: WSDT), an industry leading index developer and exchange-traded fund ("ETF") sponsor, today reported it reduced its net loss by 29.2% to $5.6 million in the third quarter of 2008, compared to $8.0 million in the second quarter of 2008. Proforma operating net loss, which excludes stock-based compensation, depreciation and amortization, and interest and investment income, decreased 19.8% in the quarter to $3.9 million from $4.8 million in the second quarter.
"Overall assets under management have decreased as a result of unprecedented market declines, which has continued in October," said WisdomTree CEO, Jonathan Steinberg. "When the market eventually finds equilibrium and investors look at the relative outperformance of our funds, we believe that the ETF industry, and WisdomTree, will be the beneficiary of money coming back into the market."
Mr. Steinberg commented further, "We have taken the necessary actions to manage our expense base in view of adverse market conditions. When we last communicated with our investors, we made a commitment to reduce our operating loss and our management team has delivered in this difficult operating environment."
Assets Under Management and Performance
As of September 30, 2008, assets under management ("AUM") tied to the WisdomTree Indexes was $4.7 billion, down 5.3% since June 30, 2008. At the end of the third quarter, ETF AUM was $4.1 billion, down 14.1% from June 30, 2008. The sharp decrease in the global equity markets and the strengthening U.S. dollar contributed to $658 million of net market depreciation of the WisdomTree ETFs. Despite domestic markets declining nearly 10% and international markets nearly 20%, net outflows from WisdomTree ETFs was only $13 million. As mentioned above, assets under management continued to decline in October primarily as a result of adverse market movement. As of October 29, 2008, assets under management tied to WisdomTree Indexes was approximately $3.7 billion. Assets under management is reported each day under the investor relations section of WisdomTree's website.
WisdomTree's fundamentally weighted ETFs experienced strong relative investment performance during this highly volatile period. Approximately 75% of the $3.7 billion invested in WisdomTree's 41 equity ETFs on September 30, 2008 were in funds that, since their respective inceptions, have outperformed their benchmarks through that date. 32 of WisdomTree's 41 equity ETFs outperformed their comparable benchmarks in the third quarter. For complete performance information on all WisdomTree ETFs, please click here or visit www.wisdomtree.com.
Recent Business Activity
-- On July 16, the Company launched the WisdomTree Middle East
Dividend Fund (GULF).
-- On July 21, the Company announced that the New York City
Employees' Retirement System and the New York City Police
Pension Fund awarded two institutional account mandates to
WisdomTree for large-cap dividend strategies.
-- On July 30, the Company announced a collaboration with Mellon
Capital to bring WisdomTree's fundamentally weighted indexing
methodology to the institutional market. Mellon Capital will
be the sole licensee for all fundamentally weighted WisdomTree
Indexes marketed to pension funds, governments, endowments,
foundations and other similar fiduciaries.
-- On October 2, the Company announced a partnership with RSM
McGladrey's Retirement Resources unit, a national retirement
plan administrator, to add the WisdomTree ETF 401(k) Platform
to RSM McGladrey's existing retirement plan offerings across
its offices nationally.
-- On October 27, the SEC issued an order allowing WisdomTree to
expand its existing line of actively managed currency ETFs to
include actively managed equity and fixed income ETFs.
Third Quarter Financial Highlights
Comparison to the second quarter of 2008
Revenues
Total revenues for the third quarter were $6.2 million, essentially flat in comparison to the second quarter. While total ETF AUM decreased 14.1%, average AUM decreased only 3.8%. The average advisory fee earned during the third quarter was 0.52%, compared to 0.50% in the second quarter. Because of a sell off in global markets, WisdomTree's asset levels have declined in October which will have a negative affect on the Company's fourth quarter results.
Expenses
Total expenses decreased 16.3% to $12.2 million, from $14.6 million in the second quarter. Excluding stock-based compensation and depreciation and amortization charges, proforma operating expenses decreased 9.2% to $10.1 million, from $11.1 million in the second quarter.
-- Compensation and benefits expense decreased 10.9% to $4.9
million from the second quarter. Excluding stock-based
compensation, compensation and benefits expense increased 7.4%
to $3.6 million from $3.3 million. This increase was primarily
due to severance charges as well as additions to the Company's
sales force. Partly offsetting these increases were lower
levels of incentive compensation.
-- Fund management and administration expenses increased 6.8% to
$4.0 million from the second quarter due to costs related to
rebalancing WisdomTree's international ETFs and higher
portfolio management fees, partly offset by lower legal fees
related to the launch of the Company's currency ETFs in the
second quarter.
-- Marketing and business development decreased 53.9% to $1.5
million from the second quarter due to lower advertising
spending in the seasonally slow summer months as well as
adjustments to the Company's marketing program due to the
current market environment.
-- Professional fees decreased 12.9% to $1.0 million from the
second quarter due to lower management consulting fees.
-- Occupancy, communications and equipment expense decreased 3.6%
to $0.4 million from the second quarter due to lower
communication charges.
-- Other expenses decreased $0.1 million to $0.4 million from the
second quarter. Excluding stock-based compensation, other
expenses increased $0.4 million to $0.4 million from $(0.06)
million. Included in other expenses are the net results from
the Company's revenue-sharing arrangement with The Bank of New
York-Mellon ("BNY-Mellon") for WisdomTree's Currency Income
ETFs. Under this arrangement, both parties equally share the
revenues and costs from this product. The Currency Income ETFs
earned net revenues in the third quarter compared to a net
loss in the second quarter, thereby increasing this expense
for BNY-Mellon's share of net revenues this quarter. Partly
offsetting this increase were decreases in WisdomTree's
administrative costs.
Year-to-Date Results
Total revenues increased 43.8% to $17.9 million during the first nine months of 2008 from $12.4 million in the comparable period in 2007 primarily due to higher average assets under management.
Total expenses increased 26.6% to $42.4 million during the first nine months of 2008 from $33.5 million in the same period of last year. Excluding stock-based compensation and depreciation and amortization charges, proforma operating expenses increased 31.3% to $33.2 million from $25.3 million over the comparable period. This increase was primarily due to higher fund-related costs due to higher assets under management and the number of funds, higher marketing costs to support new ETF launches in 2008 and higher compensation and benefits expense due to staff increases to support the Company's growth.
Balance Sheet
As of September 30, 2008, WisdomTree had total assets of $39.9 million which consisted primarily of cash and cash equivalents of $15.3 million, and investments in U.S. agency debt instruments of $19.8 million. WisdomTree has no debt. There were approximately 104.8 million shares outstanding as of September 30, 2008. Fully diluted shares outstanding were approximately 123.4 million as of September 30, 2008.
Third Quarter 2008 Earnings Call Information
WisdomTree will discuss its results and operational highlights during a conference call on Friday, October 31 at 8:30 a.m. EDT. The call-in number will be (888) 713-4215, passcode 57218962. Anyone outside the U.S. or Canada should call (617) 213-4867, passcode 57218962. The slides used during the presentation will be at www.wisdomtree.com/ir. For those unable to join the conference call at the scheduled time, an audio replay will be available on www.wisdomtree.com/ir.
About WisdomTree
WisdomTree(R) is a leading ETF sponsor and innovative index developer using its own fundamentally weighted index methodology. WisdomTree also licenses its indexes to third parties for proprietary products and offers a platform to promote the use of WisdomTree ETFs in 401(k) plans. Approximately $3.7 billion in assets currently are managed against the WisdomTree Indexes by WisdomTree and third parties under license from WisdomTree. For more information, please visit www.wisdomtree.com or www.wisdomtree401k.com.
WisdomTree is the marketing name for WisdomTree Investments, Inc. and its wholly owned subsidiaries WisdomTree Asset Management, Inc. and WisdomTree Retirement Services, Inc. WisdomTree Asset Management, Inc. is a registered investment advisor and is the investment advisor to the WisdomTree Trust and the WisdomTree ETFs. The WisdomTree Trust is a registered open-end investment company. Each WisdomTree ETF is a series of the WisdomTree Trust. WisdomTree Retirement Services, Inc. supports the use of the WisdomTree ETFs in retirement plans by financial professionals.
Forward Looking Statements
Statements in this Press Release regarding WisdomTree Investments, Inc. that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made. We have no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect unanticipated events or circumstances occurring after the date of such statements. Forward-looking statements are subject to known and unknown risks, uncertainties and other important factors, some of which are listed below, that could cause actual results or outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements. In assessing the forward-looking statements contained herein, readers are urged to carefully read the following risks and considerations:
-- We have a limited operating history in our investment
management business upon which you may evaluate us and we have
experienced significant losses to date.
-- Our ability to become profitable is dependent upon our ability
to increase our assets under management and to control our
expenses.
-- Changes in the equity markets have a direct impact on our
assets under management. A downturn in the equity markets can
result in a significant reduction in assets under management,
which, in turn, directly reduces our revenues.
-- The mix of our assets under management could be subject to
significant fluctuations and could adversely affect our
revenues.
-- Poor investment performance of our ETFs is likely to lead to a
reduction in our assets under management and a reduction in
our revenues.
-- If our reputation is harmed we could suffer losses in revenue.
-- The asset management industry is highly competitive and most
of our competitors are larger companies with greater
resources.
-- We rely very heavily on third-party vendors, such as BNY
Mellon, Standard & Poor's, and Bloomberg, to provide us with
services that are very important to our business. If any of
those vendors decided to terminate their relationship with us,
we might experience a disruption in our ability to do business
while we retain an alternative vendor.
-- A failure in our operational systems or infrastructure, or
those of the third-party vendors, could disrupt our
operations, damage our reputation, and reduce our revenues.
-- Our business is subject to extensive regulation, and
compliance failures and changes in regulation could adversely
affect us.
-- We depend on key personnel and the loss of such personnel
could disrupt our ability to do develop new product and
conduct our business.
-- Our principal stockholders, including our directors and
officers, control a large percentage of our shares of common
stock and can control our corporate actions.
Past performance is no indication of future results.
WISDOMTREE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
For the Nine Months
For the Three Months Ended Ended
September September
30, June 30, 30, September 30,
---------------------------- -------------------
2008 2008 2007 2008 2007
--------- -------- --------- --------- ---------
Revenues $ 6,183 $ 6,249 $ 5,247 $ 17,854 $ 12,415
Expenses:
Compensation and
benefits 4,880 5,478 5,618 17,307 16,718
Fund management and
administration 3,995 3,739 3,196 11,257 7,941
Marketing and
business
development 1,501 3,253 1,602 7,796 5,604
Professional fees 957 1,099 994 3,043 2,034
Occupancy,
communication and
equipment 375 389 197 1,199 553
Depreciation and
amortization 88 84 20 585 56
Other 393 519 30 1,236 591
--------- -------- --------- --------- ---------
Total expenses 12,189 14,561 11,657 42,423 33,497
--------- -------- --------- --------- ---------
Operating loss (6,006) (8,312) (6,410) (24,569) (21,082)
Interest and
investment income 367 352 620 1,292 1,944
--------- -------- --------- --------- ---------
Net loss $ (5,639) $(7,960) $ (5,790) $(23,277) $(19,138)
========= ======== ========= ========= =========
Net loss per share -
basic and diluted $ (0.06) $ (0.08) $ (0.06) $ (0.23) $ (0.20)
========= ======== ========= ========= =========
Weighted average
common shares - basic
and diluted 100,444 99,995 98,990 99,994 98,273
========= ======== ========= ========= =========
WISDOMTREE INVESTMENTS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
----------------------------------------------------------------------
September 30, December 31,
2008 2007
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,348 $ 15,138
Investments 2,130 12,960
Accounts receivable 2,035 1,998
Other current assets 1,152 1,415
------------- ------------
Total current assets 20,665 31,511
Fixed assets, net 1,344 900
Investments 17,695 19,389
Other long-term assets 212 503
------------- ------------
Total assets $ 39,916 $ 52,303
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Fund management and administration
payable $ 9,105 $ 6,616
Compensation and benefits payable 3,751 3,543
Other accounts payable 1,619 2,271
------------- ------------
Total current liabilities 14,475 12,430
Other liabilities 554 569
------------- ------------
Total liabilities 15,029 12,999
Stockholders' equity 24,887 39,304
------------- ------------
Total liabilities and stockholders' equity $ 39,916 $ 52,303
============= ============
WISDOMTREE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
----------------------------------------------------------------------
For the Nine Months Ended
September 30,
2008 2007
-------------------------
Cash flows from operating activities
Net loss $ (23,277) $ (19,138)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 247 56
Stock-based compensation 8,605 8,127
Write-down of intangible asset 338 --
Accretion to interest income 129 (247)
(Increase) / Decreases in operating assets
and liabilities:
Accounts receivable (37) (1,223)
Other assets 467 (1,540)
Fund management and administration
payable 2,489 2,939
Compensation and benefits payable 208 1,259
Other accounts payable (667) 225
-------------------------
Net cash used in operating activities (11,498) (9,542)
-------------------------
Cash flows from investing activities
Purchase of fixed assets (691) (163)
Purchase of investments (10,368) (51,587)
Proceeds from sale of investments 22,763 9,405
-------------------------
Net cash provided by / (used in)
investing activities 11,704 (42,345)
-------------------------
Cash flows from financing activities
Proceeds from exercise of stock options and
warrants 4 3
-------------------------
Net cash provided by financing
activities 4 3
-------------------------
Net increase / (decrease) in cash and
cash equivalents 210 (51,884)
Cash and cash equivalents - beginning of
period 15,138 57,734
-------------------------
Cash and cash equivalents - end of period $ 15,348 $ 5,850
=========================
Supplemental disclosure of cash flow
information
Cash paid for income taxes $ 4 $ 40
=========================
Non-cash investing and financing
activities:
Issuance of common stock $ 250 $ 21
=========================
Intangible asset purchased $ -- $ 250
=========================
---------------------------------------------------------------------- GAAP to Non-GAAP Reconciliation 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 this non-GAAP financial measurement 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 and are therefore unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measures should be considered in the context with our GAAP results. We have disclosed our results excluding certain non-operating items. We consider stock-based compensation, depreciation and amortization and interest and investment income as non-operating items. Management excludes these costs when measuring our financial performance as they are non-cash charges or not directly related to our business of being an index developer and ETF sponsor. As the company is currently incurring net losses, management focuses on its cash related expenses of being an index developer and ETF sponsor in measuring the financial health of its business and making related decisions. There are a number of limitations related to the use of this non-GAAP measurement versus the related measurement calculated in accordance with GAAP. First, our non-GAAP measurement excludes costs that are recurring. Stock-based compensation has been and will continue to be for the foreseeable future, a significant recurring expense in our business and stock-based compensation is an important part of our employees' compensation and impacts their performance. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP. ----------------------------------------------------------------------
WISDOMTREE INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
GAAP to NON-GAAP RECONCILIATION
(in thousands)
(Unaudited)
For the Nine Months
For the Three Months Ended Ended
September September
30, June 30, 30, September 30,
---------------------------- -------------------
2008 2008 2007 2008 2007
--------- -------- --------- --------- ---------
GAAP expenses as
reported $12,189 $14,561 $11,657 $ 42,423 $ 33,497
Less Stock-Based
Compensation included
in:
Compensation and
benefits (1,326) (2,169) (2,330) (5,945) (7,042)
Professional fees (679) (637) (469) (1,983) (857)
Other (25) (576) (76) (677) (228)
-------- -------- --------- --------- ---------
Total stock-based
compensation
expenses (2,030) (3,382) (2,875) (8,605) (8,127)
Less depreciation and
amortization (88) (84) (20) (585) (56)
-------- -------- --------- --------- ---------
Proforma operating
expenses $10,071 $11,095 $ 8,762 $ 33,233 $ 25,314
======== ======== ========= ========= =========
GAAP net loss, as
reported $(5,639) $(7,960) $(5,790) $(23,277) $(19,138)
Add back stock-based
compensation 2,030 3,382 2,875 8,605 8,127
Add back depreciation
and amortization 88 84 20 585 56
Less interest and
investment income (367) (352) (620) (1,292) (1,944)
-------- -------- --------- --------- ---------
Proforma net loss $(3,888) $(4,846) $(3,515) $(15,379) $(12,899)
======== ======== ========= ========= =========
WisdomTree Investments, Inc.
Key Operating Statistics
For the Three Months Ended
September 30, June 30, September 30,
--------------------------------------
2008 2008 2007
--------------------------------------
Total assets under management
associated with WisdomTree
indexes (in thousands)
ETFs 4,074,954 4,745,628 4,446,440
Non-ETFs 581,048 171,166 33,765
--------------------------------------
End of period assets 4,656,002 4,916,794 4,480,205
--------------------------------------
Total ETFs (in thousands)
Beginning of period assets 4,745,628 4,296,257 4,000,704
Inflows/(Outflows) (12,570) 745,939 400,605
Market
appreciation/(depreciation) (658,104) (296,568) 45,131
--------------------------------------
End of period assets 4,074,954 4,745,628 4,446,440
--------------------------------------
Average assets during the
period 4,615,359 4,796,753 4,183,330
International ETFs (in
thousands)
Beginning of period assets 2,834,451 2,759,400 2,496,757
Inflows/(Outflows) (18,891) 259,252 246,710
Market
appreciation/(depreciation) (514,558) (184,201) 32,406
--------------------------------------
End of period assets 2,301,002 2,834,451 2,775,873
--------------------------------------
Average assets during the
period 2,675,443 2,986,072 2,583,673
Sector ETFs (in thousands)
Beginning of period assets 538,372 514,398 294,656
Inflows/(Outflows) (61,806) 33,251 98,325
Market
appreciation/(depreciation) (115,130) (9,277) 15,014
--------------------------------------
End of period assets 361,436 538,372 407,995
--------------------------------------
Average assets during the
period 464,982 550,526 361,241
US ETFs (in thousands)
Beginning of period assets 972,077 1,022,459 1,209,291
Inflows/(Outflows) 20,168 57,725 55,570
Market
appreciation/(depreciation) (8,810) (108,107) (2,290)
--------------------------------------
End of period assets 983,435 972,077 1,262,571
--------------------------------------
Average assets during the
period 1,003,329 1,078,954 1,238,416
Currency ETFs (in thousands)
Beginning of period assets 400,728 - -
Inflows/(Outflows) 47,959 395,711 -
Market
appreciation/(depreciation) (19,606) 5,017 -
--------------------------------------
End of period assets 429,081 400,728 -
--------------------------------------
Average assets during the
period 471,605 181,201 -
Average advisory fee - during
the period
International ETFs 0.59% 0.59% 0.56%
Sector ETFs 0.58% 0.58% 0.58%
US ETFs 0.34% 0.34% 0.34%
Currency ETFs 0.43% 0.41%
--------------------------------------
Blended Total 0.52% 0.52% 0.50%
--------------------------------------
Number of ETFs
International ETFs 18 17 15
Sector ETFs 11 11 11
US ETFs 12 12 12
Currency 8 8 -
--------------------------------------
Total 49 48 38
--------------------------------------
For the Nine Months Ended
September 30,
-------------------------
2008 2007
-------------------------
Total assets under management associated
with WisdomTree indexes (in thousands)
ETFs 4,074,954 4,446,440
Non-ETFs 581,048 33,765
------------ ------------
End of period assets 4,656,002 4,480,205
------------ ------------
Total ETFs (in thousands)
Beginning of period assets 4,558,796 1,523,225
Inflows/(Outflows) 868,572 2,608,899
Market appreciation/(depreciation) (1,352,414) 314,316
------------ ------------
End of period assets 4,074,954 4,446,440
------------ ------------
Average assets during the period 4,704,468 3,401,189
International ETFs (in thousands)
Beginning of period assets 2,985,605 767,340
Inflows/(Outflows) 273,704 1,764,813
Market appreciation/(depreciation) (958,307) 243,720
------------ ------------
End of period assets 2,301,002 2,775,873
------------ ------------
Average assets during the period 2,809,136 2,038,148
Sector ETFs (in thousands)
Beginning of period assets 546,565 120,899
Inflows/(Outflows) (15,004) 240,073
Market appreciation/(depreciation) (170,125) 47,023
------------ ------------
End of period assets 361,436 407,995
------------ ------------
Average assets during the period 516,391 245,299
US ETFs (in thousands)
Beginning of period assets 1,026,626 634,986
Inflows/(Outflows) 166,201 604,013
Market appreciation/(depreciation) (209,392) 23,572
------------ ------------
End of period assets 983,435 1,262,571
------------ ------------
Average assets during the period 1,023,498 1,117,742
Currency ETFs (in thousands)
Beginning of period assets - -
Inflows/(Outflows) 443,671 -
Market appreciation/(depreciation) (14,590) -
------------ ------------
End of period assets 429,081 -
------------ ------------
Average assets during the period 355,443 -
Average advisory fee - during the period
International ETFs 0.59% 0.57%
Sector ETFs 0.58% 0.58%
US ETFs 0.34% 0.35%
Currency ETFs 0.43%
------------ ------------
Blended Total 0.52% 0.50%
------------ ------------
Number of ETFs
International ETFs 18 15
Sector ETFs 11 11
US ETFs 12 12
Currency 8 -
------------ ------------
Total 49 38
------------ ------------
Source: WisdomTree
Released October 30, 2008