Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

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, 35th Floor

New York, New York

  10167
(Address of principal executive officers)   (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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 31, 2015, there were 138,038,503 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding (voting shares).

 

 

 


Table of Contents

WISDOMTREE INVESTMENTS, INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2015

TABLE OF CONTENTS

 

     Page
Number
 

PART I: FINANCIAL INFORMATION

     4   

Item 1. Financial Statements

     4   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     29   

Item 4. Controls and Procedures

     29   

PART II: OTHER INFORMATION

     30   

Item 1. Legal Proceedings

     30   

Item 1A. Risk Factors

     30   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     30   

Item 3. Defaults Upon Senior Securities

     30   

Item 4. Mine Safety Disclosures

     30   

Item 5. Other Information

     30   

Item 6. Exhibits

     31   

 

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 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, 2014. 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 (“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, which include exchange traded funds, or ETFs;

 

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

 

    our ability to deliver favorable rates of return to investors;

 

    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 expand our business into non-U.S. markets;

 

    timing of payment of our cash income taxes;

 

    competition in our business; 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.

 

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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)

 

     June 30,
2015
    December 31,
2014
 
     (Unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 189,272      $ 165,284   

Accounts receivable

     28,652        18,176   

Deferred tax asset, net

     6,560        3,872   

Other current assets

     3,543        1,708   
  

 

 

   

 

 

 

Total current assets

     228,027        189,040   

Fixed assets, net

     10,274        10,356   

Investments

     21,247        13,990   

Deferred tax asset, net

     3,519        5,618   

Goodwill

     1,676        1,676   

Other noncurrent assets

     463        71   
  

 

 

   

 

 

 

Total assets

   $ 265,206      $ 220,751   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Liabilities:

    

Current liabilities:

    

Fund management and administration payable

   $ 13,263      $ 9,983   

Compensation and benefits payable

     21,725        14,333   

Accounts payable and other liabilities

     5,368        5,115   
  

 

 

   

 

 

 

Total current liabilities

     40,356        29,431   

Acquisition payable

     2,278        1,757   

Deferred rent payable

     5,183        5,278   
  

 

 

   

 

 

 

Total liabilities

     47,817        36,466   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Preferred stock, par value $0.01; 2,000 shares authorized

     —          —     

Common stock, par value $0.01; 250,000 shares authorized; issued: 137,770 and 134,959; outstanding: 136,313 and 133,445

     1,377        1,350   

Additional paid-in capital

     227,975        209,216   

Accumulated other comprehensive loss

     (175     (53

Accumulated deficit

     (11,788     (26,228
  

 

 

   

 

 

 

Total stockholders’ equity

     217,389        184,285   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 265,206      $ 220,751   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

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,  
     2015      2014      2015      2014  

Revenue:

           

Advisory fees

   $ 81,320       $ 43,938       $ 141,189       $ 86,547   

Other income

     239         190         511         501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     81,559         44,128         141,700         87,048   

Expenses:

           

Compensation and benefits

     18,669         7,551         38,270         16,906   

Fund management and administration

     11,208         7,818         21,376         16,986   

Marketing and advertising

     3,628         2,726         6,704         5,304   

Sales and business development

     2,076         1,727         3,976         3,028   

Professional and consulting fees

     1,604         1,840         3,067         3,635   

Occupancy, communications and equipment

     943         853         1,861         1,753   

Depreciation and amortization

     223         201         443         393   

Third party sharing arrangements

     497         115         780         125   

Acquisition contingent payment

     264         —           521         —     

Other

     1,509         1,164         2,744         2,306   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     40,621         23,995         79,742         50,436   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before taxes

     40,938         20,133         61,958         36,612   

Income tax expense/(benefit)

     16,766         9,531         25,724         (4,194
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 24,172       $ 10,602       $ 36,234       $ 40,806   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share—basic

   $ 0.18       $ 0.08       $ 0.27       $ 0.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share—diluted

   $ 0.18       $ 0.08       $ 0.26       $ 0.29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares—basic

     135,895         131,533         134,990         131,235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares—diluted

     137,951         138,258         137,620         138,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends declared per common share

   $ 0.08       $ —         $ 0.16       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

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Table of Contents

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In Thousands)

(Unaudited)

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2015     2014      2015     2014  

Comprehensive income

         

Net income

   $ 24,172      $ 10,602       $ 36,234      $ 40,806   

Other comprehensive loss

         

Foreign currency translation adjustment

     (69     —           (122     —     
  

 

 

   

 

 

    

 

 

   

Comprehensive income

   $ 24,103      $ 10,602       $ 36,112      $ 40,806   
  

 

 

   

 

 

    

 

 

   

The accompanying notes are an integral part of these consolidated financial statements

 

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Table of Contents

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2015     2014  

Cash flows from operating activities:

    

Net income

   $ 36,234      $ 40,806   

Non-cash items included in net income:

    

Income tax expense/(benefit)

     25,218        (4,194

Depreciation and amortization

     443        393   

Stock-based compensation

     4,952        4,045   

Deferred rent

     (70     1,286   

Accretion to interest income and other

     6        (79

Changes in operating assets and liabilities:

    

Accounts receivable

     (10,318     2,546   

Other assets

     (2,279     (1,230

Deferred acquisition contingent payment

     521        —     

Fund management and administration payable

     3,219        (473

Compensation and benefits payable

     7,290        (9,887

Accounts payable and other liabilities

     316        (553
  

 

 

   

 

 

 

Net cash provided by operating activities

     65,532        32,660   

Cash flows from investing activities:

    

Purchase of fixed assets

     (364     (3,741

Purchase of investments

     (8,449     (1,237

Cash acquired on acquisition

     —          1,349   

Proceeds from the redemption of investments

     1,187        803   
  

 

 

   

 

 

 

Net cash used in investing activities

     (7,626     (2,826

Cash flows from financing activities:

    

Dividends paid

     (21,794     —     

Shares repurchased

     (15,264     (5,426

Proceeds from exercise of stock options

     3,293        116   
  

 

 

   

 

 

 

Net cash used in financing activities

     (33,765     (5,310
  

 

 

   

 

 

 

(Decrease)/increase in cash flow due to changes in foreign exchange rate

     (153     7   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     23,988        24,531   

Cash and cash equivalents—beginning of period

     165,284        104,316   
  

 

 

   

 

 

 

Cash and cash equivalents—end of period

   $ 189,272      $ 128,847   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for taxes

   $ 356      $ 21   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

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Table of Contents

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 subsidiaries in the U.S., U.K., Jersey and Ireland (collectively, “WisdomTree” or the “Company”), is an ETP sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, fixed income, currency, alternative and commodity asset classes. The Company has the following operating subsidiaries:

 

    WisdomTree Asset Management, Inc. (“WTAM”) is a New York based investment adviser registered with the SEC providing investment advisory and other management services to WisdomTree Trust (“WTT”) and WisdomTree exchange traded funds (“ETFs”).

 

    Boost Management Limited (“BML” or “Boost”) is a Jersey based investment manager providing investment and other management services to Boost Issuer PLC (“BI”) and Boost ETPs.

 

    WisdomTree Europe Limited (“WisdomTree Europe”) is a U.K. based company registered with the Financial Conduct Authority providing management and other services to BML and WTML.

 

    WisdomTree Management Limited (“WTML”) is an Ireland based investment manager providing investment and other management services to WisdomTree Issuer plc (“WTI”) and WisdomTree UCITS ETFs.

 

    WisdomTree Japan K. K. (“WTJ”) is a Japan based company that is currently applying for requisite regulatory business registrations to offer WisdomTree ETPs in Japan.

The WisdomTree ETFs are issued in the U.S. by WTT. WTT, a 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. The Boost ETPs are issued by BI. BI, a non-consolidated third party, is a public limited company organized in Ireland. The WisdomTree UCITS ETFs are issued by WTI. WTI, a non-consolidated third party, is a public limited company organized in Ireland.

The Board of Trustees and Board of Directors of WTT, BI and WTI, respectively, are separate from the Board of Directors of the Company. The Trustees and Directors of WTT, BI and WTI respectively, are primarily responsible for overseeing the management and affairs of the WisdomTree ETFs, Boost ETPs and the WisdomTree UCITS ETFs for the benefit of the WisdomTree ETF, Boost ETP and the WisdomTree UCITS ETF shareholders, respectively, and have contracted with the Company to provide for general management and administration services. The Company, in turn, has contracted with third parties to provide the majority of these administration services. In addition, certain officers of the Company provide general management services for WTT, BI and WTI.

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. Certain accounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year’s consolidated financial statements presentation. These reclassifications had no effect on the previously reported operating results.

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.

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.

 

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Table of Contents

Revenue Recognition

The Company earns investment advisory fees as well as licensing fees from third parties. Advisory fees are based on a percentage of the ETPs’ average daily net assets and recognized over the period the related service is provided. Licensing fees are based on a percentage of the average monthly net assets and recognized over the period the related service is provided.

Depreciation and Amortization

Depreciation is provided for using the straight-line method over the estimated useful lives of the related assets as follows:

 

Equipment

     5 years   

Furniture and fixtures

     15 years   

Leasehold improvements are amortized over the term of their respective leases or service lives of the improvements, whichever is shorter. Fixed assets are stated at cost less accumulated depreciation and amortization.

Marketing and Advertising

Advertising costs, including media advertising and production costs, are expensed when incurred.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents. Cash and cash equivalents are held primarily with one large financial institution.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer and other obligations due under normal trade terms. An allowance for doubtful accounts is not provided since, in the opinion of management, all accounts receivable recorded are deemed collectible.

Impairment of Long-Lived Assets

On a periodic basis, the Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.

Earnings per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the reduction in earnings per share assuming options or other contracts to issue common stock were exercised or converted into common stock.

Investments

The Company accounts for all of its investments as held-to-maturity, which are recorded at amortized cost. For held-to-maturity investments, the Company has the intent and ability to hold investments to maturity and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.

On a periodic basis, the Company reviews its portfolio of investments for impairment. If a decline in fair value is deemed to be other-than-temporary, the security is written down to its fair value through earnings.

Goodwill

Goodwill is the excess of the fair value of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests its goodwill for impairment at least annually. An impairment loss is triggered if the estimated fair value of the operating reporting unit is less than the estimated net book value. Such loss is calculated as the difference between the estimated fair value of goodwill and its carrying value.

 

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Table of Contents

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. The Company accounts for stock-based compensation for its employees based on the cost of employee services received in exchange for a stock-based award. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period.

Income Taxes

The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are adjusted by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

In order to recognize and measure any unrecognized tax benefits, management evaluates and determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The Company records interest expense and penalties related to tax expenses as income tax expense.

Related Party Transactions

The Company’s revenues are derived primarily from investment advisory agreements with WTT and WisdomTree ETFs. Under these agreements, 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. The Trustees are primarily responsible for overseeing the management and affairs of the WisdomTree ETFs and the Trust for the benefit of the WisdomTree ETF shareholders and WTT has contracted with the Company to provide for general management and administration of WTT and the WisdomTree ETFs. The Company is also responsible for certain expenses of WTT, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, and other non-distribution services, excluding extraordinary expenses, taxes and certain other expenses. In exchange, the Company receives fees based on a percentage of the ETF average daily net assets. The advisory agreements may be terminated by WTT upon notice. Certain officers of the Company also provide general management oversight of WTT; however, these officers have no material decision making responsibilities and primarily implement the decisions of the Trustees. At June 30, 2015 and December 31, 2014, the balance of accounts receivable from WTT was approximately $27,127 and $17,288, respectively, which is included as a component of accounts receivable on the Company’s Consolidated Balance Sheets. Revenue from advisory services provided to WTT for the three months ended June 30, 2015 and 2014 was approximately $80,409 and $43,753, respectively, and for the six months ended June 30, 2015 and 2014 was approximately $139,755 and $86,362, respectively.

At June 30, 2015 and December 31, 2014, the balance of accounts receivable from BI and WTI was approximately $722 and $157, respectively, which is included as a component of accounts receivable on the Company’s Consolidated Balance Sheets. Revenue from advisory fee services provided to BI and WTI for the three months ended June 30, 2015 and 2014 was approximately $911 and $185, respectively, and for the six months ended June 30, 2015 and 2014 was approximately $1,434 and $185, respectively.

Third-Party Sharing Arrangements

The Company pays a percentage of its advisory fee revenue based on incremental growth in AUM, subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third party customer platforms.

Segment, Geographic and Customer Information

The Company operates as a single business segment as an ETP sponsor and asset manager providing investment advisory services. Substantially all of the Company’s revenues, pretax income and assets are derived or located in the U.S. The Company maintains operations in Europe through its acquisition of Boost, now known as WisdomTree Europe (Note 11).

Recently Issued Accounting Pronouncements

In February 2015, the FASB issued Accounting Standards Update 2015-02 (ASU 2015-02) Amendments to the Consolidation Analysis, which amends the consolidation guidance in ASC 810. The standard eliminates the deferral of FAS 167, per ASC 810-10-65-2(a), which has allowed certain investment funds to follow the previous consolidation guidance in FIN 46 (R). The standard changes whether (1) fees paid to a decision maker or service provider represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies, and early adoption is permitted. The Company is currently assessing the potential impact of the adoption of this guidance on its consolidated financial statements.

 

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In May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU 2014-09) Revenue from Contracts with Customers, which is a new comprehensive revenue recognition standard on the financial reporting requirements for revenue from contracts entered into with customers. In July 2015, the FASB deferred this ASU’s effective date by one year, to interim and annual periods beginning after December 15, 2017. The deferral allows early adoption at the original effective date. The Company is currently assessing the potential impact of the adoption of this guidance on its consolidated financial statements.

Business Combinations

The Company includes the results of operations of the businesses that it acquires from the respective dates of acquisition. The fair values of the purchase price of the acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Subsequent Events

The Company has evaluated subsequent events after the date of the consolidated financial statements to consider whether or not the impact of such events needed to be reflected or disclosed in the consolidated financial statements. Such evaluation was performed through the issuance date of the consolidated financial statements.

3. Investments and Fair Value Measurements

The following table is a summary of the Company’s investments:

 

     June 30, 2015      December 31, 2014  
     Held-to-
Maturity
     Held-to-
Maturity
 

Federal agency debt instruments

   $ 21,247       $ 13,990   
  

 

 

    

 

 

 

The following table summarizes unrealized gains, losses and fair value of investments:

 

     June 30, 2015      December 31, 2014  
     Held-to-
Maturity
     Held-to-
Maturity
 

Cost/amortized cost

   $ 21,247       $ 13,990   

Gross unrealized gains

     83         112   

Gross unrealized losses

     (573      (386
  

 

 

    

 

 

 

Fair value

   $ 20,757       $ 13,716   
  

 

 

    

 

 

 

The following table sets forth the maturity profile of investments; however these investments may be called prior to maturity date:

 

     June 30, 2015      December 31, 2014  
     Held-to-
Maturity
     Held-to-
Maturity
 

Due within one year

   $ —        $ —    

Due one year through five years

     9,376         1,409   

Due five years through ten years

     825         350   

Due over ten years

     11,046         12,231   
  

 

 

    

 

 

 

Total

   $ 21,247       $ 13,990   
  

 

 

    

 

 

 

 

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Fair Value Measurement

Under the accounting for fair value measurements and disclosures, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.

These three types of inputs create the following fair value hierarchy:

Level 1—Quoted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Instruments whose significant value drivers are unobservable.

This hierarchy requires the use of observable market data when available. The Company’s held-to-maturity securities are categorized as Level 1.

The majority of the Company’s acquisition payable of $2,278 is measured at fair value and is categorized as Level 3. Fair value is determined based on a predefined formula which includes observable and unobservable inputs and is subject in part to a minimum payout. Inputs to the predefined formula include the contractual minimum payment obligation, European AUM, the Company’s enterprise value over global AUM, and profitability of the European business (Note 11). During the three and six months ended June 30, 2015, the Company recorded an acquisition contingent payment expense of $264 and $521, respectively, which represents the expense accrual for expected payments due to the former Boost shareholders primarily driven by increased AUM from the Company’s European business.

Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature.

4. Fixed Assets

The following table summarizes fixed assets:

 

     June 30, 2015      December 31, 2014  

Equipment

   $ 1,004       $ 913   

Furniture and fixtures

     1,789         1,620   

Leasehold improvements

     8,896         8,795   

Less accumulated depreciation and amortization

     (1,415      (972
  

 

 

    

 

 

 

Total

   $ 10,274       $ 10,356   
  

 

 

    

 

 

 

5. Commitments and Contingencies

Contractual Obligations

The Company has entered into obligations under operating leases with initial non-cancelable terms in excess of one year for office space, telephone and data services. Expenses recorded under these agreements for the three months ended June 30, 2015 and 2014 were approximately $829 and $768, and for the six months ended June 30, 2015 and 2014 were approximately $1,623 and $1,594.

Future minimum lease payments with respect to non-cancelable operating leases at June 30, 2015 are approximately as follows:

 

Remainder of 2015

   $ 1,938   

2016

     3,645   

2017

     3,389   

2018 and thereafter

     33,082   
  

 

 

 

Total

   $ 42,054   
  

 

 

 

 

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The Company’s prior U.S. office lease expired in January 2014. In August 2013, the Company entered into a new 16 year lease agreement. Pursuant to the new lease agreement, the Company received lease incentives which include a deferred rent period and a leasehold improvement allowance equal to $3,223. At that time, the Company recorded a receivable of $3,223 due from the lessor of its new office space related to its leasehold improvement allowance. The balance at June 30, 2015 and December 31, 2014 was $509, which was included in accounts receivable on the Company’s Consolidated Balance Sheets.

In May 2015, the Company entered into a new three-year lease agreement for office space in Japan. Pursuant to the new lease agreement, the Company received a lease incentive of a deferred rent period equal to ¥10,440, or $85.

In July 2015, the Company entered into a new five-year lease agreement for office space in the U.K. Pursuant to the new lease agreement, the Company received a lease incentive of a deferred rent period equal to £26, or $41.

Letter of Credit

The Company collateralized its U.S. office lease through a standby letter of credit totaling $1,384. The collateral is included in investments on the Company’s Consolidated Balance Sheets.

Contingencies

The Company is subject to various routine reviews and inspections by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company is not currently party to any litigation or other legal proceedings that are expected to have a material impact on its business, financial position or results of operations.

6. Stock-Based Awards

The Company grants equity awards to employees and directors. Options are issued for terms of ten years and vest between two to four years. Options are issued with an exercise price equal to the fair value of the Company on the date of grant. The Company estimated the fair value for options using the Black-Scholes option pricing model. All restricted stock and option awards require future service as a condition of vesting with certain awards subject to acceleration under certain conditions. Restricted stock awards generally vest over three years.

A summary of options and restricted stock activity is as follows:

 

     Options      Weighted
Average
Exercise Price
of Options
     Restricted
Stock
Awards
 

Balance at January 1, 2015

     5,330,070       $ 1.61         1,513,939   

Granted

     —        $ —          598,244   

Exercised/vested

     (3,052,358    $ 1.08         (650,331

Forfeitures

     —        $ —          (4,523
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

     2,277,712       $ 2.32         1,457,329   
  

 

 

    

 

 

    

 

 

 

A summary of stock-based compensation expense is as follows:

 

Three Months Ended June 30,      Six Months Ended June 30,  
2015      2014      2015      2014  
$ 2,608       $ 2,030       $ 4,952       $ 4,045   

 

 

    

 

 

    

 

 

    

 

 

 

A summary of unrecognized stock-based compensation expense and average remaining vesting period is as follows:

 

     June 30, 2015  
     Unrecognized Stock-Based
Compensation
     Average
Remaining
Vesting Period
 

Employees and directors option awards

   $ 206         0.50   

Employees and directors restricted stock awards

   $ 16,651         1.73   

 

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7. Employee Benefit Plans

The Company has a 401(k) savings plan covering all eligible employees in which the Company can make discretionary contributions from its profits.

A summary of the Company made discretionary contributions is as follows:

 

Three Months Ended June 30,      Six Months Ended June 30,  
2015      2014      2015      2014  
$ 106       $ 108       $ 497       $ 393   

 

 

    

 

 

    

 

 

    

 

 

 

8. Earnings Per Share

The following is a reconciliation of the basic and diluted earnings per share computation:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  
     (shares in thousands)      (shares in thousands)  

Net income

   $ 24,172       $ 10,602       $ 36,234       $ 40,806   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares of common stock and common stock equivalents:

           

Weighted averages shares used in basic computation

     135,895         131,533         134,990         131,235   

Dilutive effect of stock options and unvested restricted stock

     2,056         6,725         2,630         7,266   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted averages shares used in dilutive computation

     137,951         138,258         137,620         138,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.18       $ 0.08       $ 0.27       $ 0.31   

Dilutive earnings per share

   $ 0.18       $ 0.08       $ 0.26       $ 0.29   

Diluted earnings per share reflects the reduction in earnings per share assuming options or other contracts to issue common stock were exercised or converted into common stock under the treasury stock method. The dilutive effect of options to purchase shares of common stock and restricted shares were included in the diluted earnings per share in the three and six months ended June 30, 2015, and 2014, respectively. 84 and 585 restricted shares were determined to be anti-dilutive and were not included in the calculation of diluted earnings per share for the three months ended June 30, 2015 and 2014, respectively. 548 and 986 restricted shares were determined to be anti-dilutive and were not included in the calculation of diluted earnings per share for the six months ended June 30, 2015 and 2014, respectively.

9. Income Taxes

Net operating losses – U.S.

The Company has generated net operating losses in the U.S. (“NOLs”). The following table summarizes the activity for NOLs for the six months ended June 30, 2015:

 

December 31, 2014

   $ (109,839

U.S. GAAP pretax income

     65,548   

State income taxes

     (506

Income tax differences:

  

Temporary

     2,583   

Permanent

     (58,207
  

 

 

 

June 30, 2015

   $ (100,421
  

 

 

 

During the first quarter of 2014, management determined that although realization is not assured, it believed that it is more likely than not that its gross deferred tax asset would be realized. Therefore, it released the valuation allowance previously recorded, resulting in an income tax benefit of $13,725 on the Company’s Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2014 and a corresponding deferred tax asset on the Company’s Consolidated Balance Sheets at March 31, 2014. The balance of the deferred tax asset at June 30, 2015 and December 31, 2014 was $10,079 and $9,490, respectively.

 

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At June 30, 2015 and December 31, 2014, $92,214 and $101,108 of the NOLs were generated from stock-based compensation amounts recognized for tax purposes at the time options are exercised (at the intrinsic value) or restricted stock is vested (at fair value of the share price) in excess of amounts previously expensed at the date of grant for U.S. GAAP purposes. These amounts cannot be recognized as a deferred tax asset under U.S. GAAP. In addition, $3,487 of the NOLs are deemed worthless. Therefore, at June 30, 2015, the Company has no recognized deferred tax assets related to these NOLs.

During the three and six months ended June 30, 2015, the Company recognized tax expense of $16,766 and $25,724. During the six months ended June 30, 2015, the Company’s deferred tax asset increased by $589 and the Company recorded a credit to additional paid-in capital of $25,807 for the amount of NOLs from stock-based compensation utilized to reduce taxes payable during the period. In addition, during the three and six months ended June 30, 2015, the Company recorded $156 and $506 of state income taxes.

During the three and six months ended June 30, 2014, the Company recognized a tax expense of $9,531 and a tax benefit of $4,194. During the six months ended June 30, 2014, the Company utilized $4,238 of its deferred tax asset and recorded a credit to additional paid-in capital of $5,293 for the amount of NOLs from stock-based compensation utilized to reduce taxes payable during the period.

In the third quarter of 2014, the Company completed a state tax study which resulted in a reduction of its current baseline operating tax rate in the U.S. from 45% to approximately 38%. The Company reduced the carrying value of its deferred tax asset which had previously been recorded using the higher rate.

A summary of the components of the gross and tax affected deferred tax asset as of June 30, 2015 is as follows:

 

Stock-based compensation

   $ 9,124   

Deferred rent liability

     5,557   

NOLs

     4,720   

Accrued expenses

     20,645   

Incentive compensation

     (8,884

Fixed assets

     (5,119

Other

     217   
  

 

 

 

Total deferred components

     26,260   

Income tax rate

     38.38
  

 

 

 

Tax affected

   $ 10,079   
  

 

 

 

Net operating losses – Non-U.S.

The Company’s foreign subsidiaries generated net operating losses outside the U.S. The following table summarizes the activity for NOLs for the six months ended June 30, 2015:

 

December 31, 2014

   $ (4,061

Foreign subsidiaries loss

     (3,095
  

 

 

 

June 30, 2015

   $ (7,156
  

 

 

 

At June 30, 2015 and December 31, 2014, a deferred tax asset related to these NOLs has been fully offset by a valuation allowance of $1,423 and $816, respectively.

10. Shares Repurchased

On October 29, 2014, the Company’s Board of Directors authorized a three-year share repurchase program of up to $100 million. During the three months ended June 30, 2015, the Company repurchased 62 shares of its common stock under this program for an aggregate cost of $1,194. During the six months ended June 30, 2015, the Company repurchased 835 shares of its common stock under this program for an aggregate cost of $15,264. Of these shares, 259 were repurchased to offset tax withholding obligations that occur upon vesting and release of restricted shares for an aggregate cost of $4,385, and 576 shares were repurchased in the open market to offset new shares issued in connection with employee equity grants for an aggregate cost of $10,879. $84,736 remains under this program for future purchases.

During the three and six months ended June 30, 2014, the Company repurchased 312 shares of its common stock to offset tax withholding obligations that occur upon vesting and release of restricted shares for an aggregate cost of $5,426.

 

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11. Acquisition and Goodwill

On April 15, 2014, the Company completed its acquisition of Boost, a U.K. and Jersey based ETP sponsor, now known as WisdomTree Europe, as part of the Company’s strategy to expand internationally. Under the terms of the agreement, the Company owns 75% of WisdomTree Europe and the former Boost shareholders own 25%. The Company will acquire the remaining 25% ownership interest on or about March 31, 2018 using a predefined formula based on the 180-day average of European AUM at December 31, 2017 and will be tied to the Company’s enterprise value over the 180-day average of global AUM at December 31, 2017, and affected by profitability of the European business. No consideration was transferred on the acquisition date. The ultimate payout will be made in cash over two years.

Two shareholders of Boost, who owned 88% of Boost prior to the acquisition, became co-CEOs of WisdomTree Europe and are guaranteed a minimum payment of $1,757 for their interest if they terminate their employment without good reason or they are terminated for cause. The Company determined that this minimum payment represents consideration transferred and was recognized and measured at acquisition-date fair value to determine the purchase price. Any future payments made to the co-CEOs in excess of the minimum payments is accounted for separately from the business combination as acquisition contingent payment on the Company’s Consolidated Statements of Operations and Comprehensive Income and represents compensation for post-acquisition services. The obligation to mandatorily redeem the remaining 12% minority shareholders’ interest in Boost is measured at the fair value of the amount of cash that would be paid under the conditions specified in the agreement. Any change in the carrying amount of the liability will be recognized as an expense.

During the three and six months ended June 30, 2015, the Company incurred $110 and $116 of compensation expense and $154 and $405 of interest expense, which represents contingent consideration due to the co-CEOs and non-employee shareholders, respectively. These amounts have both been recorded in acquisition contingent payment on the Company’s Consolidated Statements of Operations and Comprehensive Income.

Because the Company is required to redeem the shares from the former Boost shareholders on or about March 31, 2018 using a predefined formula, under U.S. GAAP, the Company does not reflect the 25% interest held by the former Boost shareholders in WisdomTree Europe as non-controlling interest.

The Company recorded goodwill of $1,676 in connection with this acquisition. Goodwill represents the excess value of the purchase price over the $81 fair value of the net assets acquired, consisting primarily of accounts receivable, accounts payable and fixed assets. While the Company paid no consideration up front to the former Boost shareholders, under the terms of the acquisition agreement, $1,757 was deemed to represent the purchase price. Goodwill is not expected to be tax deductible.

The following table summarizes the goodwill activity for the six months ended June 30, 2015:

 

Balance at January 1, 2015

   $ 1,676   

Goodwill acquired during the period

     —    
  

 

 

 

Balance at June 30, 2015

   $ 1,676   
  

 

 

 

 

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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Executive Summary

Introduction

We were the sixth largest ETP sponsor in the world based on assets under management (“AUM”), with AUM of $61.9 billion globally as of June 30, 2015. An ETP is a pooled investment vehicle that holds a basket of securities, financial instruments or other assets and generally seeks to track (index-based) or outperform (actively managed) the performance of a broad or specific equity, fixed income or alternatives market segment, commodity or currency (or an inverse or multiple thereof). ETPs are listed on an exchange with their shares traded in the secondary market at market prices, generally at approximately the same price as the net asset value of their underlying components. ETP is an umbrella term that includes ETFs, exchange-traded notes and exchange-traded commodities.

Through our operating subsidiaries, we provide investment advisory and other management services to the WisdomTree ETFs, WisdomTree UCITS ETFs and Boost ETPs, collectively offering ETPs covering equity, fixed income, currency, alternatives and commodity asset classes. In exchange for providing these services, we receive advisory fee revenues based on a percentage of the ETPs’ average daily AUM. Our expenses are predominantly related to selling, operating and marketing our ETPs. We have contracted with third parties to provide certain operational services for the ETPs. We distribute our ETPs through all major channels within the asset management industry, including brokerage firms, registered investment advisers, institutional investors, private wealth managers and discount brokers primarily through our sales force. Our sales efforts are not directed towards the retail segment but rather are directed towards financial or investment advisers that act as intermediaries between the end-client and us.

$61.3 billion of our AUM are from our U.S. listed WisdomTree ETFs. As of June 30, 2015, we were the fifth largest sponsor of ETFs in the United States based on AUM. As the pie chart below reflects, 62% of our U.S. AUM is concentrated in European and Japanese equity exposures which hedge the Euro (trading under the symbol HEDJ) or Yen (trading under the symbol DXJ) against the U.S. dollar. The weakening of the U.S. dollar against the Euro or Yen or negative sentiment towards these two markets may have an adverse effect on our results.

 

LOGO

 

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Market Environment

The following charts reflect the U.S. ETF industry flows in total and by broad category:

 

LOGO

Source: Investment Company Institute, WisdomTree

As the charts above reflect, industry flows were $42.3 billion, which declined from the first quarter of 2015. International unhedged equity ETFs gathered the majority of the flows followed by hedged international equities. Fixed income flows were at the lowest levels as compared to the last several quarters.

Industry Developments

The ETF industry continues to be extremely competitive and competition is increasing in the currency hedged category. For example, both Deutsche Bank and iShares have expanded their currency hedged equity product lines, at fees generally equivalent with our comparable ETFs, and several other sponsors have listed currency hedged products at lower price points. We do not know what effect, if any, the launch of these ETFs may have on our business. Within the ETF industry, being first or one of the first providers of ETFs in a particular asset class can be a significant advantage, as the first ETF in a category to attract scale in AUM and trading liquidity is generally viewed as the most attractive ETF. We believe that our early launch of ETFs in a number of asset classes or strategies positions us well to maintain our place as an ETF industry leader.

In June 2015, the SEC issued a request for public comment on topics related to the listing and trading of exchange-traded products on national securities exchanges and sales of these products by broker-dealers. We believe such a request for comments from industry experts and participants represents an effort by the SEC to help inform itself on matters of importance as the ETP market grows in size, number of product types and number of product issuers and industry participants, although this could lead to increased scrutiny and/or additional obligations.

One area of particular interest to the SEC and other regulators has been the question of liquidity in the fixed income market generally, as well as the role played by fixed income ETFs. Although WisdomTree currently has only a small percentage of our AUM in fixed income ETFs, we believe the structural benefits of the ETFs make ETFs a competitive product structure for many types of fixed income investments.

In December 2014, the SEC granted Eaton Vance and related parties an exemption from certain provisions of the Investment Company Act to permit the offering of a form of non-transparent exchange traded managed funds. In July 2015, the SEC approved the listing and trading of 18 Eaton Vance NextShares on the NASDAQ Stock Market. Some industry observers believe that non-transparent exchange traded products may allow traditional actively managed mutual fund sponsors to compete more effectively against ETFs. We believe one of the benefits of the ETF structure, particularly with WisdomTree ETFs, is its daily transparency of ETF portfolio holdings, which these proposed non-transparent products will not provide. We offer fully transparent actively managed ETFs as well as passive ETFs.

In April 2015, the Department of Labor proposed a rule that would require financial professionals to abide by a “fiduciary” standard and act in the best interest of their clients with respect to investments governed by the Employee Retirement Income Security Act (ERISA), such as 401(k) plans and IRAs. Investment advisers registered with the SEC already are held to this standard. However, brokers are primarily held to a standard of “suitability,” which requires them to reasonably believe that any investment recommendation they give is suitable for an investor’s objectives, means and age. When financial professionals are governed by a suitability standard in recommending investments to their clients, we believe that ETFs are competitive with traditional investment products. If the fiduciary standard were to replace the suitability standard, we believe that ETFs’ competitiveness generally would increase due to the inherent benefits of ETFs – transparency, liquidity and tax efficiency.

 

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Table of Contents

Our Operating and Financial Results

The following charts reflect the flows into our U.S. listed ETFs:

 

LOGO

In the second quarter of 2015, we experienced $6.6 billion of net inflows predominantly into two of our currency hedged equity products, HEDJ and DXJ, as well as $1.0 billion in our other ETFs.

Our operating results translated into solid financial results as reflected in the below chart:

 

LOGO

 

    Revenues – We recorded record revenues of $81.6 million in the second quarter of 2015, an increase of 84.8% from $44.1 million in the second quarter of last year primarily due to higher average AUM from new inflows.

 

    Expenses – Total expenses increased 69.3% compared to the second quarter of last year primarily due to higher incentive compensation due to our record setting inflow levels and increased headcount to support our growth. Also included in the second quarter of 2015 were $2.9 million of expenses related to our European listed ETPs.

 

    Net tax income – Net income reached $24.2 million in the second quarter of 2015, an increase of 128.0% from $10.6 million in the second quarter of last year.

Non-GAAP Financial Measurements

Gross margin is a non-GAAP financial measurement which we believe provides useful and meaningful information as it is a financial measurement management reviews when evaluating the Company’s operating results. We define gross margin as total revenues less fund management and administration expenses and third-party sharing arrangements. We believe this financial measurement provides investors with a consistent way to analyze the amount we retain after paying third party service providers to operate our ETPs and third party marketing agents whose fees are associated with our AUM level. The following table reflects the calculation of our gross margin and gross margin percentage:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
(in thousands)    2015     2014     2015     2014  

GAAP total revenue

   $ 81,559      $ 44,128      $ 141,700      $ 87,048   

Fund management and administration

     (11,208     (7,818     (21,376     (16,986

Third-party sharing arrangements

     (497     (115     (780     (125
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

   $ 69,854      $ 36,195      $ 119,544      $ 69,937   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin percentage

     85.6     82.0     84.4     80.3
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Key Operating Statistics

The following table presents key operating statistics that serve as indicators for the performance of our business:

 

     Three Months Ended     Six Months Ended  
     June 30,     March 31,     June 30,     June 30,  
     2015     2015     2014     2015     2014  

U.S. Listed ETFs

        

Total ETFs (in millions)

        

Beginning of period assets

   $ 55,758      $ 39,281      $ 33,884      $ 39,281      $ 34,884   

Inflows/(outflows)

     6,598        13,520        334        20,118        (168

Market appreciation/(depreciation)

     (1,057     2,957        1,282        1,900        784   
  

 

 

   

 

 

   

 

 

   

 

 

   

End of period assets

   $ 61,299      $ 55,758      $ 35,500      $ 61,299      $ 35,500   
  

 

 

   

 

 

   

 

 

   

 

 

   

Average assets during the period

   $ 61,153      $ 46,391      $ 34,141      $ 53,772      $ 34,000   

ETF Industry and Market Share (in billions)

        

ETF industry net inflows

   $ 42.3      $ 55.5      $ 57.7      $ 97.8      $ 72.2   

WisdomTree market share of industry inflows

     15.6     24.4     0.6     20.6     0.0

International Hedged Equity ETFs (in millions)

        

Beginning of period assets

   $ 33,925      $ 17,760      $ 12,612      $ 17,760      $ 13,348   

Inflows/(outflows)

     6,083        13,440        (502     19,523        (514

Market appreciation/(depreciation)

     (786     2,725        447        1,939        (277
  

 

 

   

 

 

   

 

 

   

 

 

   

End of period assets

   $ 39,222      $ 33,925      $ 12,557      $ 39,222      $ 12,557   
  

 

 

   

 

 

   

 

 

   

 

 

   

Average assets during the period

   $ 38,548      $ 24,559      $ 12,189      $ 31,553      $ 12,620   

U.S. Equity ETFs (in millions)

        

Beginning of period assets

   $ 9,748      $ 9,390      $ 7,505      $ 9,390      $ 7,181   

Inflows/(outflows)

     (320     294        221        (26     410   

Market appreciation/(depreciation)

     (183     64        326        (119     461   
  

 

 

   

 

 

   

 

 

   

 

 

   

End of period assets

   $ 9,245      $ 9,748      $ 8,052      $ 9,245      $ 8,052   
  

 

 

   

 

 

   

 

 

   

 

 

   

Average assets during the period

   $ 9,664      $ 9,770      $ 7,721      $ 9,717      $ 7,448   

Emerging Markets Equity ETFs (in millions)

        

Beginning of period assets

   $ 6,068      $ 6,187      $ 6,753      $ 6,187      $ 7,448   

Inflows/(outflows)

     250        (165     388        85        (244

Market appreciation/(depreciation)

     (74     46        465        (28     402   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 6,244      $ 6,068      $ 7,606      $ 6,244      $ 7,606   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 6,336      $ 6,147      $ 7,088      $ 6,242      $ 6,932   

International Developed Equity ETFs (in millions)

        

Beginning of period assets

   $ 4,323      $ 3,988      $ 4,830      $ 3,988      $ 3,864   

Inflows

     497        188        518        685        1,330   

Market appreciation/(depreciation)

     9        147        (8     156        146   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 4,829      $ 4,323      $ 5,340      $ 4,829      $ 5,340   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 4,790      $ 4,111      $ 5,135      $ 4,450      $ 4,741   

Fixed Income ETFs (in millions)

        

Beginning of period assets

   $ 904      $ 1,152      $ 1,610      $ 1,152      $ 1,906   

Inflows/(outflows)

     67        (210     (278     (143     (584

Market appreciation/(depreciation)

     (15     (38     44        (53     54   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 956      $ 904      $ 1,376      $ 956      $ 1,376   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 929      $ 1,018      $ 1,435      $ 974      $ 1,591   

Currency ETFs (in millions)

        

Beginning of period assets

   $ 565      $ 599      $ 422      $ 599      $ 979   

Inflows/(outflows)

     7        (44     (21     (37     (570

Market appreciation/(depreciation)

     1        10        5        11        (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 573      $ 565      $ 406      $ 573      $ 406   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 651      $ 571      $ 413      $ 611      $ 512   

 

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Table of Contents
     Three Months Ended     Six Months Ended  
     June 30,     March 31,     June 30,     June 30,  
     2015     2015     2014     2015     2014  

Alternative Strategy ETFs (in millions)

        

Beginning of period assets

   $ 225      $ 205      $ 152      $ 205      $ 158   

Inflows

     14        17        8        31        4   

Market appreciation/(depreciation)

     (9     3        3        (6     1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 230      $ 225      $ 163      $ 230      $ 163   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 235      $ 215      $ 160      $ 225      $ 156   

Average ETF assets during the period

          

International hedged equity ETFs

     63     53     36     59     37

U.S. equity ETFs

     16     21     23     18     22

Emerging markets equity ETFs

     10     14     21     12     20

International developed equity ETFs

     8     9     15     8     14

Fixed income ETFs

     2     2     4     2     5

Currency ETFs

     1     1     1     1     2

Alternative strategy ETFs

     0     0     0     0     0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average ETF advisory fee during the period

          

Alternative strategy ETFs

     0.95     0.95     0.94     0.95     0.94

Emerging markets equity ETFs

     0.71     0.71     0.67     0.71     0.67

International developed equity ETFs

     0.56     0.56     0.57     0.56     0.56

International hedged equity ETFs

     0.54     0.53     0.50     0.53     0.49

Fixed income ETFs

     0.52     0.52     0.55     0.52     0.55

Currency ETFs

     0.50     0.50     0.49     0.50     0.49

U.S. equity ETFs

     0.35     0.35     0.35     0.35     0.35
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Blended total

     0.53     0.52     0.51     0.52     0.51
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Number of ETFs—end of the period

          

International developed equity ETFs

     18        17        17        18        17   

International hedged equity ETFs

     16        13        12        16        12   

U.S. equity ETFs

     13        13        13        13        13   

Fixed income ETFs

     12        11        12        12        12   

Emerging markets equity ETFs

     8        8        7        8        7   

Currency ETFs

     6        6        6        6        6   

Alternative strategy ETFs

     2        2        2        2        2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     75        70        69        75        69   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Three Months Ended     Six Months Ended  
     June 30,     March 31,     June 30,     June 30,  
     2015     2015     2014     2015     2014  

European Listed ETPs

          

Total ETPs (in thousands)

    

Beginning of period assets***

   $ 288,222      $ 165,018      $ 96,817      $ 165,018        —     

Inflows

     50,331        145,381        17,658        195,712        —     

Market appreciation/(depreciation)

     44,776        (22,177     (1,231     22,599        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 383,329      $ 288,222      $ 113,244      $ 383,329        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average ETP advisory fee during the period

     0.82     0.81     0.82     0.82     —     

Number of ETPs – end of period

     57        57        38        57        —     

Total UCITS ETFS (in thousands)

          

Beginning of period assets****

   $ 45,846      $ 16,179        —        $ 16,179        —     

Inflows

     144,234        28,851        —          173,085        —     

Market appreciation

     38,508        816        —          39,324        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period assets

   $ 228,588      $ 45,846        —        $ 228,588        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average ETP advisory fee during the period

     0.44     0.40     —          0.42     —     

Number of ETPs – end of period

     10        6        —          10        —     

U.S. headcount

     117        109        92        117        —     

European headcount

     28        27        11        28        —     

Note: Previously issued statistics may be restated due to trade adjustments.

Source: Investment Company Institute, Bloomberg, WisdomTree

 

*** European listed ETPs acquired April 15, 2014
**** UCITS first launched October 24, 2014

 

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Table of Contents

Three Months Ended June 30, 2015 Compared to June 30, 2014

Revenues

 

     Three Months Ended
June 30,
    Change      Percent
Change
 
     2015     2014       

U.S. listed-Average assets under management (in millions)

   $ 61,153      $ 34,141      $ 27,012         79.1

U.S. listed-Average ETF advisory fee

     0.53     0.51     0.02      

Advisory fees (in thousands)

   $ 81,320      $ 43,938      $ 37,382         85.1

Other income (in thousands)

     239        190        49         25.8
  

 

 

   

 

 

   

 

 

    

Total revenues (in thousands)

   $ 81,559      $ 44,128      $ 37,431         84.8
  

 

 

   

 

 

   

 

 

    

Advisory fees

Advisory fees revenue increased 85.1% from $43.9 million in the three months ended June 30, 2014 to $81.3 million in the comparable period in 2015. This increase was primarily due to higher average AUM from our net inflow levels and higher average fee capture. Our average advisory fee for our U.S. listed ETFs was 0.53% as compared to 0.51% for the same period last year due to inflows into our higher priced ETFs, primarily HEDJ. Included in the second quarter of 2015 was $0.9 million in advisory fees revenue from our European listed ETPs.

Other income

Other income increased 25.8% from $0.19 million in the three months ended June 30, 2014 to $0.24 million in the comparable period in 2015. This increase was due primarily to higher interest income due to increasing cash balances.

Expenses

 

     Three Months Ended
June 30,
     Change      Percent
Change
 
(in thousands)    2015      2014        

Compensation and benefits

   $ 18,669       $ 7,551       $ 11,118         147.2

Fund management and administration

     11,208         7,818         3,390         43.4

Marketing and advertising

     3,628         2,726         902         33.1

Sales and business development

     2,076         1,727         349         20.2

Professional and consulting fees

     1,604         1,840         (236      (12.8 %) 

Occupancy, communications and equipment

     943         853         90         10.6

Depreciation and amortization

     223         201         22         10.9

Third-party sharing arrangements

     497         115         382         332.2

Acquisition contingent payment

     264         —           264         n/a   

Other

     1,509         1,164         345         29.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

   $ 40,621       $ 23,995       $ 16,626         69.3
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
June 30,
 

As a Percent of Revenues:

   2015     2014  

Compensation and benefits

     22.9     17.1

Fund management and administration

     13.7     17.7

Marketing and advertising

     4.4     6.2

Sales and business development

     2.5     3.9

Professional and consulting fees

     2.0     4.2

Occupancy, communications and equipment

     1.2     1.9

Depreciation and amortization

     0.3     0.5

Third-party sharing arrangements

     0.6     0.3

Acquisition contingent payment

     0.3     0.0

Other

     1.9     2.6
  

 

 

   

 

 

 

Total expenses

     49.8     54.4
  

 

 

   

 

 

 

 

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Table of Contents

Compensation and benefits

Compensation and benefits expense increased 147.2% from $7.6 million in the three months ended June 30, 2014 to $18.7 million in the comparable period in 2015. This increase was primarily due to higher accrued incentive compensation due to our inflow levels, increased headcount related expenses to support our growth and higher stock-based compensation due to equity granted as part of incentive compensation. Included in the current quarter were $1.2 million in compensation costs for employees associated with our European listed ETPs. Our U.S. headcount was 117 and our European headcount was 28 at June 30, 2015.

Fund management and administration

Fund management and administration expense increased 43.4% from $7.8 million in the three months ended June 30, 2014 to $11.2 million in the comparable period in 2015 primarily due to fees associated with higher inflow levels, higher average AUM and an increased number of ETFs. We also incurred additional costs for our European listed ETPs as a result of launching our WisdomTree UCITS ETFs in the fourth quarter of 2014. We had 75 U.S. listed ETFs, 57 European listed ETPs and 10 UCITS ETFs at June 30, 2015 compared to 69 U.S. listed ETFs and 38 European listed ETPs at June 30, 2014.

Marketing and advertising

Marketing and advertising expense increased 33.1% from $2.7 million in the three months ended June 30, 2014 to $3.6 million in the comparable period in 2015 primarily due to higher levels of advertising related activities to support our growth.

Sales and business development

Sales and business development expense increased 20.2% from $1.7 million in the three months ended June 30, 2014 to $2.1 million in the comparable period in 2015 primarily due to higher spending for sales related activities for both our U.S. and European listed ETPs.

Professional and consulting fees

Professional and consulting fees decreased 12.8% from $1.8 million in the three months ended June 30, 2014 to $1.6 million in the comparable period in 2015. In the second quarter of last year, we incurred advisory fees in connection with closing our acquisition of Boost.

Occupancy, communications and equipment

Occupancy, communications and equipment expense was essentially unchanged at $0.9 million as compared to the three months ended June 30, 2014.

Depreciation and amortization

Depreciation and amortization expense was also relatively unchanged at $0.2 million as compared to the three months ended June 30, 2014.

Third-party sharing arrangements

Third-party sharing arrangements increased to $0.5 million in the three months ended June 30, 2015 primarily due to higher fees to our marketing agent in Latin America and for including our ETFs on third party customer platforms.

Acquisition contingent payment

Acquisition contingent payment expense was $0.3 million in the three months ended June 30, 2015. This represents the expense accrual for expected payments due to the former Boost shareholders related to our acquisition in April 2014 primarily driven by increased AUM from our European business.

Other

Other expenses increased 29.6% from $1.2 million in the three months ended June 30, 2014 to $1.5 million in the comparable period in 2015 primarily due to higher general and administrative expenses.

Income tax

Income tax expense was $16.8 million in the three months ended June 30, 2015. The effective tax rate on our U.S. listed ETF business was 39.1% in the second quarter. Our overall effective tax rate was 41.0% due to the non-deductibility of losses in our European ETP business. These losses may be recognized in the future after the European business is profitable.

 

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Table of Contents

Six Months Ended June 30, 2015 Compared to June 30, 2014

Revenues

 

     Six Months Ended
June 30,
    Change      Percent
Change
 
     2015     2014       

U.S. listed-Average assets under management (in millions)

   $ 53,772      $ 34,000      $ 19,772         58.2

U.S. listed-Average ETF advisory fee

     0.52     0.51     0.01      

Advisory fees (in thousands)

   $ 141,189      $ 86,547      $ 54,642         63.1

Other income (in thousands)

     511        501        10         2.0
  

 

 

   

 

 

   

 

 

    

Total revenues (in thousands)

   $ 141,700      $ 87,048      $ 54,652         62.8
  

 

 

   

 

 

   

 

 

    

Advisory fees

Advisory fees revenue increased 63.1% from $86.5 million in the six months ended June 30, 2014 to $141.2 million in the comparable period in 2015. This increase was primarily due to higher average AUM from our net inflow levels and higher average fee capture. Our average advisory fee for our U.S. listed ETFs was 0.52% as compared to 0.51% for the same period last year due to inflows into our higher priced ETFs, primarily HEDJ. Included in the six months ended June 30, 2015 was $1.4 million in advisory fees revenue from our European listed ETPs, which were acquired in April 2014.

Other income

Other income remained relatively unchanged at $0.5 million as compared to the six months ended June 30, 2014.

Expenses

 

     Six Months Ended
June 30,
     Change      Percent
Change
 
(in thousands)    2015      2014        

Compensation and benefits

   $ 38,270       $ 16,906       $ 21,364         126.4

Fund management and administration

     21,376         16,986         4,390         25.8

Marketing and advertising

     6,704         5,304         1,400         26.4

Sales and business development

     3,976         3,028         948         31.3

Professional and consulting fees

     3,067         3,635         (568      (15.6 %) 

Occupancy, communications and equipment

     1,861         1,753         108         6.2

Depreciation and amortization

     443         393         50         12.7

Third-party sharing arrangements

     780         125         655         524.0

Acquisition contingent payment

     521         —          521         n/a   

Other

     2,744         2,306         438         19.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

   $ 79,742       $ 50,436       $ 29,306         58.1
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended
June 30,
 

As a Percent of Revenues:

   2015     2014  

Compensation and benefits

     27.0     19.4

Fund management and administration

     15.1     19.5

Marketing and advertising

     4.7     6.1

Sales and business development

     2.8     3.5

Professional and consulting fees

     2.2     4.2

Occupancy, communications and equipment

     1.3     2.0

Depreciation and amortization

     0.3     0.5

Third-party sharing arrangements

     0.6     0.1

Acquisition contingent payment

     0.4     0.0

Other

     1.9     2.6
  

 

 

   

 

 

 

Total expenses

     56.3     57.9
  

 

 

   

 

 

 

 

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Table of Contents

Compensation and benefits

Compensation and benefits expense increased 126.4% from $16.9 million in the six months ended June 30, 2014 to $38.3 million in the comparable period in 2015. This increase was primarily due to higher accrued incentive compensation due to our record setting inflow levels, increased headcount related expenses to support our growth and higher stock-based compensation due to equity granted as part of incentive compensation. Included in the six months ended June 30, 2015 was $2.4 million in compensation costs for employees associated with our European listed ETPs. Our U.S. headcount was 117 and our European headcount was 28 at June 30, 2015.

Fund management and administration

Fund management and administration expense increased 25.8% from $17.0 million in the six months ended June 30, 2014 to $21.4 million in the comparable period in 2015 primarily due to fees associated with higher inflow levels, higher average AUM and an increased number of ETFs, and were partially offset by lower fees as a result of changing our fund accounting, administration and custody service provider in April 2014. We also incurred additional costs for our European listed ETPs as a result of launching our WisdomTree branded ETFs in the fourth quarter of 2014. We had 75 U.S. listed ETFs, 57 European listed ETPs and 10 UCITS ETFs at June 30, 2015 compared to 69 U.S. listed ETFs and 38 European listed ETPs at June 30, 2014.

Marketing and advertising

Marketing and advertising expense increased 26.4% from $5.3 million in the six months ended June 30, 2014 to $6.7 million in the comparable period in 2015 primarily due to higher levels of advertising related activities to support our growth.

Sales and business development

Sales and business development expense increased 31.3% from $3.0 million in the six months ended June 30, 2014 to $4.0 million in the comparable period in 2015 primarily due to higher spending for sales related activities for both our U.S. and European listed ETPs.

Professional and consulting fees

Professional and consulting fees decreased 15.6% from $3.6 million in the six months ended June 30, 2014 to $3.1 million in the comparable period in 2015. In the first half of last year, we incurred advisory fees in connection with our acquisition of Boost as well as higher technology consulting fees related to moving our office space.

Occupancy, communications and equipment

Occupancy, communications and equipment expense increased 6.2% from $1.8 million in the six months ended June 30, 2014 to $1.9 million primarily due to office space for our European operations.

Depreciation and amortization

Depreciation and amortization expense was essentially unchanged at $0.4 million as compared to the six months ended June 30, 2014.

Third-party sharing arrangements

Third-party sharing arrangements increased from $0.1 million in the six months ended June 30, 2014 to $0.8 million in the comparable period in 2015 primarily due to higher fees to our marketing agent in Latin America and for including our ETFs on third party customer platforms.

Acquisition contingent payment

Acquisition contingent payment expense was $0.5 million in the six months ended June 30, 2015. This represents the expense accrual for expected payments due to the former Boost shareholders related to our acquisition in April 2014 and is primarily driven by increased AUM from our European business.

Other

Other expenses increased 19.0% from $2.3 million in the six months ended June 30, 2014 to $2.7 million in the comparable period in 2015 primarily due to higher general and administrative expenses.

 

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Table of Contents

Income tax

Income tax expense was $25.7 million in the six months ended June 30, 2015. The effective tax rate on our U.S. listed ETF business was approximately 39%. Our overall effective tax rate was 41.5% due to the non-deductibility of losses in our European ETP business. These losses may be recognized in the future after the European business is profitable. During the six months ended June 30, 2014, we recognized a tax benefit of $4,194 primarily due to the release of our valuation allowance on our deferred U.S. tax asset.

Liquidity and Capital Resources

The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:

 

     June 30,
2015
     December 31,
2014
 

Balance Sheet Data (in thousands):

     

Cash and cash equivalents

   $ 189,272       $ 165,284   

Investments

   $ 21,247       $ 13,990   

Accounts receivable

   $ 28,652       $ 18,176   

Total liabilities

   $ 47,817       $ 36,466   

 

     Six Months Ended
June 30,
 
     2015      2014  

Cash Flow Data (in thousands):

     

Operating cash flows

   $ 65,532       $ 32,660   

Investing cash flows

     (7,626      (2,826

Financing cash flows

     (33,765      (5,310

Foreign exchange rate effect

     (153      7  
  

 

 

    

 

 

 

Increase in cash and cash equivalents

   $ 23,988       $ 24,531   
  

 

 

    

 

 

 

Liquidity

We consider our available liquidity to be our liquid assets less our liabilities. Liquid assets consist of cash and cash equivalents, accounts receivable and investments. We account for investments as held to maturity securities and have the intention and ability to hold to maturity. However, if needed, such investments could be redeemed for liquidity. Cash and cash equivalents include cash on hand and non-interest-bearing and interest-bearing deposits with financial institutions. Accounts receivable primarily represents advisory fees we earn from our ETPs. Investments represent debt instruments of U.S. government and agency securities. Our liabilities consist primarily of payments owed to vendors and third parties in the normal course of business as well as accrued year end incentive compensation for employees.

Cash and cash equivalents increased by $24.0 million in the first six months of 2015 to $189.3 million at June 30, 2015 primarily due to $65.5 million of cash flow from operations due to our business results, partly offset by $15.3 million used to repurchase shares of our common stock, $21.8 million used for our quarterly dividends and $8.4 million used to purchase investments.

Capital Resources

Our principal source of financing is our operating cash flows. We believe that current cash flows generated by our operating activities should be sufficient for us to fund our operations for at least the next 12 months.

Use of Capital

Our business does not require us to maintain a significant cash position. As a result, we expect that our main uses of cash will be to fund the ongoing operations of our business, invest in strategic growth initiatives, expand our business through strategic acquisitions and fund our capital return program. In the fourth quarter of 2014, we announced a capital return program which includes a $0.08 per share quarterly cash dividend and authority to purchase up to $100 million of our common stock over three years, including purchases to offset future equity grants made under our equity plans. During the six months ended June 30, 2015, we repurchased 835 shares of our common stock under the repurchase program for an aggregate cost of $15.3 million.

 

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Table of Contents

Contractual Obligations

The following table summarizes our future cash payments associated with contractual obligations as of June 30, 2015.

 

     Total      Payments Due by Period
(in thousands)
 
        Less than 1
year
     1 to 3 years      3 to 5 years      More than 5
years
 

Operating leases

   $ 42,054       $ 1,938       $ 7,034       $ 9,003       $ 24,079   

Acquisition payable

   $ 2,278       $ —         $ —         $ 2,278       $ —     

The Company is required to redeem the acquisition payable, which represents the remaining 25% non-controlling interest held by the former Boost shareholders in WisdomTree Europe on or about March 31, 2018. The ultimate price for the remaining interest will be determined by a predefined formula based on the 180-day average of European AUM at December 31, 2017 and will be tied to our enterprise value over the 180-day average of global AUM at December 31, 2017, and affected by profitability of the European business. The payout will be in cash over two years.

Off-Balance Sheet Arrangements

Other than operating leases, which are included in the table above, we do not have any off-balance sheet financing or other arrangements. We have neither created nor are party to any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business.

Critical Accounting Policies

Stock-Based Compensation

Stock-based compensation expense reflects the fair value of stock-based awards measured at grant date and is recognized over the relevant service period. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model includes the input of certain variables that are dependent on future expectations, including the expected lives of our options from grant date to exercise date, the volatility of our underlying common shares in the market over that time period, the rate of dividends that we may pay during that time and an appropriate risk-free interest rate. Many of these assumptions require management’s judgment. If actual experience differs significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

Revenue Recognition

The Company earns investment advisory fees for ETPs as well as licensing fees from third parties. ETP advisory fees are based on a percentage of the ETPs’ average daily net assets and recognized over the period the related service is provided. Fees for separately managed accounts and licensing are based on a percentage of the average monthly net assets and recognized over the period the related service is provided.

Recently Issued Accounting Pronouncements

In February 2015, the FASB issued Accounting Standards Update 2015-02 (ASU 2015-02) Amendments to the Consolidation Analysis, which amends the consolidation guidance in ASC 810. The standard eliminates the deferral of FAS 167, per ASC 810-10-65-2(a), which has allowed certain investment funds to follow the previous consolidation guidance in FIN 46 (R). The standard changes whether (1) fees paid to a decision maker or service provider represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies, and early adoption is permitted. The Company is currently assessing the potential impact of the adoption of this guidance on its consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU 2014-09) Revenue from Contracts with Customers, which is a new comprehensive revenue recognition standard on the financial reporting requirements for revenue from contracts entered into with customers. In July 2015, the FASB deferred this ASU’s effective date by one year, to interim and annual periods beginning after December 15, 2017. The deferral allows early adoption at the original effective date. The Company is currently assessing the potential impact of the adoption of this guidance on its consolidated financial statements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following information, together with information included in other parts of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, describes key aspects of the market risk to the Company.

Market Risk

Market risk to us generally represents the risk of changes in the value of financial instruments held in the portfolios of the WisdomTree ETPs that generally result from fluctuations in securities prices, foreign currency exchange rates against the U.S. dollar, and interest rates. Nearly all of our revenue is derived from advisory agreements for the WisdomTree ETFs. Under these agreements, the advisory fee we receive is based on the market value of the assets in the WisdomTree ETF portfolios we manage.

Fluctuations in the value of these securities are common and are generated by numerous factors such as market volatility, the overall economy, inflation, changes in investor strategies, availability of alternative investment vehicles, government regulations and others. Accordingly, changes in any one or a combination of these factors may reduce the value of investment securities and, in turn, the underlying assets under management on which our revenues are earned. These declines may cause investors to withdraw funds from our ETPs in favor of investments that they perceive as offering greater opportunity or lower risk, thereby compounding the impact on our revenues. We believe challenging and volatile market conditions will continue to be present in the foreseeable future.

Interest Rate Risk

In order to maximize yields, we invest our corporate cash in short-term interest earning assets, primarily money market instruments at a commercial bank and U.S. government and agency debt instruments which totaled $210.5 million and $179.3 million as of June 30, 2015 and December 31, 2014, respectively. We do not anticipate that changes in interest rates will have a material impact on our financial condition, operating results or cash flows.

Exchange Rate Risk

As a result of our acquisition of Boost, we now operate globally and are subject to currency translation exposure on the results of our non-U.S. operations. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. Dollar) for consolidation purposes. We generate the vast majority of our revenue and expenses in the U.S. dollar and expect to do so for some time. We do not anticipate that changes in exchange rates, predominantly the British pound or Euro, will have a material impact on our financial condition, operating results or cash flows. Currently, we do not enter into derivative financial instruments aimed at offsetting certain exposures in the statement of operations or the balance sheet but may look to do so in the future.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2015, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2015, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2015, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II: OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

None.

 

ITEM 1A. RISK FACTORS

You should carefully consider the information set forth in this Report, as well as the information set forth in Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent sales of Unregistered Securities

None.

Use of Proceeds

Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” of shares of the Company’s common stock.

 

     Total Number
of Shares
Purchased
     Average Price
Paid Per Share
     Total Number of
Shares Purchased
as
Part of Publicly
Announced Plans
or
Programs(1)
     Approximate
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
 

Period

                        (in thousands)  

April 1, 2015 to April 30, 2015

     —         $ —           —        

May 1, 2015 to May 31, 2015

     62,470       $ 19.13         62,470      

June 1, 2015 to June 30, 2015

     —         $ —           —        
  

 

 

       

 

 

    

Total

     62,470       $ 19.13         62,470       $ 84,736   
  

 

 

       

 

 

    

 

 

 

 

(1) On October 29, 2014, our Board of Directors authorized a three-year share repurchase program of up to $100 million. During the three months ended June 30, 2015, we repurchased 62,470 shares of our common stock under this program for an aggregate cost of $1.2 million. These shares were repurchased in the open market to offset new shares issued in connection with employee equity grants. $84.7 million remains under this program for future purchases.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

Exhibit No.

 

Description

   Reference
Exhibit No.
 
    3.1 (1)   Amended and Restated Certificate of Incorporation.      3.1   
    3.2 (1)   Amended and Restated Bylaws.      3.2   
    4.1 (1)   Specimen Common Stock Certificate.      4.1   
    4.2 (1)   Amended and Restated Stockholders Agreement among Registrant and certain investors dated December 21, 2006.      4.2   
    4.3 (1)   Securities Purchase Agreement among Registrant and certain investors dated December 21, 2006.      4.3   
    4.4 (1)   Securities Purchase Agreement among Registrant and certain investors dated October 15, 2009.      4.4   
    4.5 (1)   Third Amended and Restated Registration Rights Agreement dated October 15, 2009.      4.5   
  31.1 (2)   Certification of Chief Executive Officer and Principal Executive Officer pursuant to Rule 13a-14 of the Exchange Act.   
  31.2 (2)   Certification of Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14 of the Exchange Act.   
  32 (2)   Section 1350 Certification.   
101 (2)   Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2015, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income (Unaudited); (iii) Consolidated Statements of Cash Flows (Unaudited); and (iv) Notes to Consolidated Financial Statements, as blocks of text and in detail.   
101.INS (2)   XBRL Instance Document   
101.SCH (2)   XBRL Taxonomy Extension Schema Document   
101.CAL (2)   XBRL Taxonomy Extension Calculation Linkbase Document   
101.DEF (2)   XBRL Taxonomy Extension Definition Linkbase Document   
101.LAB (2)   XBRL Taxonomy Extension Label Linkbase Document   
101.PRE (2)   XBRL Taxonomy Extension Presentation Linkbase Document   

 

(1) Incorporated by reference from the Registrant’s Registration Statement on Form 10, filed with the SEC on June 30, 2011.
(2) Filed herewith.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized on this 10th day of August 2015.

 

WISDOMTREE INVESTMENTS, INC.
By:  

/s/ Jonathan Steinberg

  Jonathan Steinberg
  Chief Executive Officer and President
  (Authorized Officer and Principal Executive Officer)
WISDOMTREE INVESTMENTS, INC.
By:  

/s/ Amit Muni

  Amit Muni
  Executive Vice President—Finance and Chief Financial Officer (Authorized Officer and Principal Financial and Accounting Officer)

 

32

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jonathan Steinberg, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of WisdomTree Investments, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:  

/s/ Jonathan Steinberg

  Jonathan Steinberg
  Chief Executive Officer
  (Principal Executive Officer)

Date: August 10, 2015

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Amit Muni, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of WisdomTree Investments, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:  

/s/ Amit Muni

  Amit Muni
  Chief Financial Officer (Principal Financial Officer)

Date: August 10, 2015

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of WisdomTree Investments, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2015 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), we, Jonathan Steinberg, Chief Executive Officer of the Company, and Amit Muni, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being furnished and not filed, and shall not be incorporated into any documents for any purpose, under the Exchange Act of 1934, as amended. A signed original of this written statement require by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

 

By:  

/s/ Jonathan Steinberg

  Jonathan Steinberg
  Chief Executive Officer
  (Principal Executive Officer)
By:  

/s/ Amit Muni

  Amit Muni
 

Chief Financial Officer

(Principal Financial Officer)

Date: August 10, 2015