Exhibit 99.1

 

LOGO

WisdomTree Announces First Quarter 2020 Results – Diluted Loss Per Share of ($0.06), or Earnings Per Share of $0.07, as adjusted

New York, NY – (GlobeNewswire) – May 1, 2020 – WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the first quarter of 2020.

During the first quarter of 2020, market declines arising from the COVID-19 pandemic adversely impacted the market performance of most financial assets and sectors of the economy, including the AUM that we manage. While we have experienced a recent decline in revenue arising from this volatility, we continue to operate without disruption.

$21.9 million of non-cash charges, including (i) a $19.7 million impairment charge related to our financial interests in AdvisorEngine in anticipation of our exit from this investment and (ii) a loss on revaluation of deferred consideration of $2.2 million.

($8.6) million net loss, or $11.21 million net income, as adjusted, see “Non-GAAP Financial Measurements” for additional information.

$50.3 billion of ending AUM, a decrease of 20.9% resulting from the market declines associated with the COVID-19 pandemic.

$536 million of net outflows ($182 million of net inflows excluding HEDJ/DXJ), driven by outflows from our international developed market equity and U.S. equity products, partly offset by inflows into our commodity products.

0.43% average global advisory fee, a decrease of 1.0 basis point due to AUM mix shift.

$63.9 million of operating revenues, a decrease of 7.3% primarily due to lower average AUM and a lower average global advisory fee.

77.3% gross margin1, unchanged from the prior quarter.

24.5% operating income margin (25.1%1 as adjusted), a 3.0 point increase (3.1 point increase, as adjusted1) primarily due to reduced discretionary spending as a result of the COVID-19 pandemic.

$5.0 million of available capital used to pay down debt, in connection with our capital management strategy.

$0.03 quarterly dividend declared, payable on May 27, 2020 to stockholders of record as of the close of business May 13, 2020.

Update from Jonathan Steinberg, WisdomTree CEO

 

 

“The combination of our investments in technology over the past several years and our resilient business model allowed us to seamlessly work through these unprecedented circumstances with no compromise to our high standards of operational excellence and client service. We remain committed to helping our clients navigate these markets, manage their businesses and better serve their customers while protecting our number one asset, our employees.”

 

“Like all asset managers, market declines have impacted our business, but we are responsibly managing costs and WisdomTree remains differentiated, confident and well positioned for the future. March disrupted the strong momentum we had built in the business, but the setback was only temporary, and we remain focused on our 2020 plan of growth, performance and innovation.”

 

 

1

OPERATING AND FINANCIAL HIGHLIGHTS

 

     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

Consolidated Operating Highlights ($, in billions):

           

AUM

    $ 50.3     $ 63.6     $ 60.0     $ 60.4     $ 59.1  

Net inflows/(outflows)

    $ (0.5 )    $ 0.4     $ (0.7 )    $ 0.3     $ 0.6  

Average AUM

    $ 59.8     $ 61.9     $ 60.3     $ 58.6     $ 57.7  

Average advisory fee

      0.43 %      0.44 %      0.44 %      0.45 %      0.46 % 

Consolidated Financial Highlights ($, in millions, except per share amounts):

           

Operating revenues

    $ 63.9     $ 68.9     $ 67.7     $ 66.3     $ 65.5  

Net (loss)/income

    $ (8.6 )    $ (25.9 )    $ 4.2     $ 2.5     $ 8.8  

Diluted (loss)/earnings per share

    $ (0.06 )    $ (0.17 )    $ 0.02     $ 0.01     $ 0.05  

Operating income margin

      24.5 %      21.5 %      23.8 %      18.0 %      16.3 % 

As Adjusted (Non-GAAP1):

           

Gross Margin

      77.3 %      77.3 %      77.7 %      76.5 %      76.8 % 

Net income, as adjusted

    $ 11.2     $ 10.1     $ 10.6     $ 7.8     $ 7.7  

Diluted earnings per share, as adjusted

    $ 0.07     $ 0.06     $ 0.06     $ 0.05     $ 0.05  

Operating income margin, as adjusted

      25.1 %      22.0 %      24.1 %      20.2 %      19.9 % 

RECENT BUSINESS DEVELOPMENTS

 

 

Company News

 

•  In February 2020, we completed the sale of our Canadian ETF business to CI Financial Corp.

 

•  In March 2020, we were awarded ‘Best European Commodity ETF Provider’ at the ETF Express 2020 European Awards.

 

Product News

 

•  In February 2020, we launched two Siegel-WisdomTree Model Portfolios, in collaboration with Jeremy Siegel, WisdomTree’s Senior Investment Strategy Advisor and Professor of Finance at The Wharton School; and we launched the EURO trading line for the WisdomTree Bitcoin ETP. The WisdomTree Bitcoin ETP listed on Six, the Swiss stock exchange is now available in Euro (WBTC) and USD (BTCW) trading currencies.

 

•  In March 2020, we launched the WisdomTree Battery Solutions UCITS ETF (VOLT) on the London Stock Exchange, Borsa Italiana and Boerse Xetra. 

 

 

2

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

Operating Revenues:

           

Advisory fees

    $ 62,950     $ 68,179     $ 67,006     $ 65,627     $ 64,840  

Other income

      924       728       712       666       645  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total revenues

      63,874       68,907       67,718       66,293       65,485  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating Expenses:

           

Compensation and benefits

      17,295       19,280       18,880       21,300       21,301  

Fund management and administration

      14,485       15,650       15,110       15,576       15,166  

Marketing and advertising

      2,468       3,551       3,022       2,910       2,680  

Sales and business development

      3,417       5,329       4,354       4,171       4,422  

Contractual gold payments

      3,760       3,516       3,502       3,110       3,098  

Professional and consulting fees

      1,273       1,604       1,259       1,296       1,482  

Occupancy, communications and equipment

      1,551       1,587       1,549       1,548       1,618  

Depreciation and amortization

      256       253       259       264       269  

Third-party distribution fees

      1,355       1,146       1,503       1,919       2,400  

Acquisition and disposition-related costs

      383       366       190       33       313  

Other

      1,997       1,816       1,959       2,255       2,053  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

      48,240       54,098       51,587       54,382       54,802  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

      15,634       14,809       16,131       11,911       10,683  

Other Income/(Expenses):

           

Interest expense

      (2,419 )      (2,606 )      (2,832 )      (2,910 )      (2,892 ) 

(Loss)/gain on revaluation of deferred consideration – gold payments

      (2,208 )      (5,354 )      (6,306 )      (4,037 )      4,404  

Interest income

      163       936       799       818       779  

Impairments

      (19,672 )      (30,138 )      —         —         (572 ) 

Other gains and losses, net

      (2,507 )      (2 )      843       284       (4,627 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(Loss)/income before income taxes

      (11,009 )      (22,355 )      8,635       6,066       7,775  

Income tax (benefit)/expense

      (2,371 )      3,525       4,483       3,587       (1,049 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net (loss)/income

    $ (8,638 )    $ (25,880 )    $ 4,152     $ 2,479     $ 8,824  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(Loss)/earnings per share – basic

    ($ 0.06 )    ($ 0.17 )    $ 0.02     $ 0.01     $ 0.05  

(Loss)/earnings per share – diluted

    ($ 0.06 )    ($ 0.17 )    $ 0.02     $ 0.01     $ 0.05  

Weighted average common shares – basic

      152,519       151,948       151,897       151,818       151,625  

Weighted average common shares – diluted

      152,519       151,948       167,163       167,249       166,811  

As Adjusted (Non-GAAP1)

           

Compensation and benefits

    $ 17,295     $ 19,280     $ 18,880     $ 19,825     $ 19,281  

Operating expenses

    $ 47,857     $ 53,732     $ 51,397     $ 52,874     $ 52,469  

Operating income

    $ 16,017     $ 15,175     $ 16,321     $ 13,419     $ 13,016  

Income before income taxes

    $ 14,358     $ 13,503     $ 15,131     $ 11,611     $ 10,586  

Income tax expense

    $ 3,134     $ 3,396     $ 4,489     $ 3,798     $ 2,849  

Net income

    $ 11,224     $ 10,107     $ 10,642     $ 7,813     $ 7,737  

Earnings per share – diluted

    $ 0.07     $ 0.06     $ 0.06     $ 0.05     $ 0.05  

 

3

QUARTERLY HIGHLIGHTS

Operating Revenues

 

  •  

Operating revenues decreased 7.3% from the fourth quarter of 2019 primarily due to lower average AUM of our U.S. listed products arising from market depreciation and net outflows, as well as a 1 basis point decline in our average global advisory fee due to AUM mix shift.

 

  •  

Operating revenues decreased 2.5% from the first quarter of 2019 primarily due to lower average AUM of our U.S. listed products arising from market depreciation and net outflows, as well as a 3 basis point decline in our average global advisory fee due to AUM mix shift. These declines were partly offset by higher average AUM of our International listed products.

 

  •  

Our average global advisory fee was 0.43%, 0.44% and 0.46% during the first quarter of 2020, the fourth quarter of 2019 and the first quarter of 2019, respectively.

Operating Expenses

 

  •  

Operating expenses decreased 10.8% from the fourth quarter of 2019 due to lower discretionary spending as a result of the COVID-19 pandemic, including lower sales and business development costs and marketing expenses. Fund management and administration costs were lower due to one-time costs recognized in the prior-period as we transitioned to new market making arrangements, as well as lower fund management and administration expenses resulting from the sale of our Canadian ETF business. Compensation expenses declined due to lower incentive compensation accruals, partly offset by seasonally higher payroll taxes associated with bonus payments made in the first quarter of 2020.

 

  •  

Operating expenses decreased 12.0% from the first quarter of 2019 largely due to lower compensation resulting from lower incentive compensation accruals as well as $2.0 million of severance expense included in the prior period, lower third-party distribution fees and lower sales and business development expenses.

Other Income/(Expenses)

 

  •  

We recognized a non-cash loss on revaluation of deferred consideration of ($2.2) million and ($5.4) million during the first quarter of 2020 and fourth quarter of 2019, respectively, and a non-cash gain on revaluation of deferred consideration of $4.4 million during the first quarter of 2019. These (losses)/gains arose due to an increase/(decrease) in forward-looking gold prices when compared to the previous periods forward-looking gold curves. The magnitude of any gain or loss recognized is highly correlated to the magnitude of the change in the forward-looking price of gold.

 

  •  

Interest expense decreased 7.2% from the fourth quarter of 2019 due to a lower level of debt outstanding. During the first quarter of 2020, we used $5.0 million of available capital to pay down our debt in connection with our capital management strategy.

 

  •  

During the first quarter of 2020 and fourth quarter of 2019, we recognized a non-cash impairment charge of $19.7 million and $30.1 million, respectively, on our investment in AdvisorEngine.

 

  •  

Other gains and losses, net, includes charges of $6.0 million and $4.3 million for the first quarter of 2020 and the first quarter of 2019, respectively, arising from a release of a tax-related indemnification asset upon the expiration of the statute of limitations. An equal and offsetting benefit has been recognized in income tax expense. In addition, during the first quarter of 2020, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business to CI Financial Corp.

Income Taxes

 

  •  

Our effective income tax rate for the first quarter of 2020 of 21.5% resulted in an income tax benefit of $2.4 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due a tax benefit of $6.0 million recognized in connection with the release of the tax-related indemnification asset described above, a $2.9 million non-taxable gain recognized upon sale of our Canadian ETF business and a lower tax rate on foreign earnings, partly offset by a valuation allowance on capital losses, tax shortfalls associated with the vesting and exercise of stock-based compensation awards and a non-deductible loss on revaluation of deferred consideration.

 

  •  

Our adjusted effective income tax rate was 21.8%1.

CONFERENCE CALL

WisdomTree will discuss its results and operational highlights during a conference call on Friday, May 1, 2020 at 9:00 a.m. ET. The call-in number will be (877) 303-7209. Anyone outside the U.S. or Canada should call (970) 315-0420. The slides used during the presentation will be available at http://ir.wisdomtree.com. For those unable to join the conference call at the scheduled time, an audio replay will be available on http://ir.wisdomtree.com.

 

4

ABOUT WISDOMTREE

WisdomTree Investments, Inc., through its subsidiaries in the U.S. and Europe (collectively, “WisdomTree”), is an ETF and ETP sponsor and asset manager headquartered in New York. WisdomTree offers products covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. WisdomTree currently has approximately $55.2 billion in assets under management globally.

WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.

 

1

See “Non-GAAP Financial Measurements.”

Contact Information:

 

Investor Relations    Media Relations     
Jason Weyeneth, CFA    Jessica Zaloom   
+1.917.267.3858    +1.917.267.3735   
jweyeneth@wisdomtree.com    jzaloom@wisdomtree.com   

 

5

WisdomTree Investments, Inc.

Key Operating Statistics (Unaudited)

     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

GLOBAL ETPs ($ in millions)

           

Beginning of period assets

    $ 63,615     $ 59,981     $ 60,389     $ 59,112     $ 54,094  

Assets sold

      (778 )      —          —          —          —     

Inflows/(outflows)

      (536 )      390       (698 )      343       561  

Market appreciation/(depreciation)

      (11,958 )      3,247       471       934       4,544  

Fund closures

      (20 )      (3 )      (181 )      —          (87 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 50,323     $ 63,615     $ 59,981     $ 60,389     $ 59,112  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 59,819     $ 61,858     $ 60,306     $ 58,575     $ 57,683  

Average advisory fee during the period

      0.43 %      0.44 %      0.44 %      0.45 %      0.46 % 

Revenue days

      91       92       92       91       90  

Number of ETFs – end of the period

      331       349       348       536       534  

U.S. LISTED ETFs ($ in millions)

           

Beginning of period assets

    $ 40,600     $ 37,592     $ 39,220     $ 39,366     $ 35,486  

Inflows/(outflows)

      (1,273 )      563       (1,198 )      (166 )      147  

Market appreciation/(depreciation)

      (10,424 )      2,448       (430 )      20       3,820  

Fund closures

      (10 )      (3 )      —          —          (87 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 28,893     $ 40,600     $ 37,592     $ 39,220     $ 39,366  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 36,936     $ 39,094     $ 37,857     $ 38,945     $ 38,061  

Average advisory fee during the period

      0.43 %      0.44 %      0.44 %      0.44 %      0.45 % 

Number of ETFs – end of the period

      77       80       80       79       77  

INTERNATIONAL LISTED ETPs ($ in millions)

           

Beginning of period assets

    $ 23,015     $ 22,389     $ 21,169     $ 19,746     $ 18,608  

Assets sold

      (778 )      —          —          —          —     

Inflows/(outflows)

      737       (173 )      500       509       414  

Market appreciation/(depreciation)

      (1,534 )      799       901       914       724  

Fund closures

      (10 )      —          (181 )      —          —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 21,430     $ 23,015     $ 22,389     $ 21,169     $ 19,746  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 22,883     $ 22,764     $ 22,449     $ 19,630     $ 19,622  

Average advisory fee during the period

      0.43 %      0.44 %      0.44 %      0.46 %      0.47 % 

Number of ETPs – end of the period

      254       269       268       457       457  

PRODUCT CATEGORIES ($ in millions)

           

Commodity & Currency

           

Beginning of period assets

    $ 20,326     $ 19,954     $ 18,445     $ 16,979     $ 16,212  

Inflows/(outflows)

      780       (266 )      532       564       228  

Market appreciation/(depreciation)

      (1,018 )      638       977       902       539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 20,088     $ 20,326     $ 19,954     $ 18,445     $ 16,979  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 20,643     $ 20,146     $ 19,796     $ 16,912     $ 16,994  

U.S. Equity

           

Beginning of period assets

    $ 17,746     $ 16,296     $ 15,903     $ 15,759     $ 13,222  

Inflows/(outflows)

      (285 )      458       241       108       639  

Market appreciation/(depreciation)

      (5,302 )      992       152       36       1,898  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 12,159     $ 17,746     $ 16,296     $ 15,903     $ 15,759  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 16,022     $ 16,983     $ 15,885     $ 15,690     $ 14,823  

International Developed Market Equity

           

Beginning of period assets

    $ 13,089     $ 12,243     $ 13,391     $ 14,141     $ 14,309  

Inflows/(outflows)

      (1,107 )      (139 )      (1,011 )      (741 )      (1,575 ) 

Market appreciation/(depreciation)

      (3,300 )      985       (137 )      (9 )      1,407  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 8,682     $ 13,089     $ 12,243     $ 13,391     $ 14,141  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 11,515     $ 12,684     $ 12,453     $ 13,675     $ 14,280  

 

6

     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

Emerging Market Equity

           

Beginning of period assets

    $ 6,494     $ 5,787     $ 6,062     $ 5,714     $ 5,275  

Inflows/(outflows)

      59       193       173       355       (94 ) 

Market appreciation/(depreciation)

      (1,887 )      514       (448 )      (7 )      533  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 4,666     $ 6,494     $ 5,787     $ 6,062     $ 5,714  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 6,002     $ 6,082     $ 5,824     $ 5,767     $ 5,492  

Fixed Income

           

Beginning of period assets

    $ 3,633     $ 3,390     $ 4,009     $ 3,772     $ 2,345  

Inflows/(outflows)

      17       212       (601 )      219       1,403  

Market appreciation/(depreciation)

      (86 )      31       (18 )      18       24  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 3,564     $ 3,633     $ 3,390     $ 4,009     $ 3,772  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 3,697     $ 3,589     $ 3,792     $ 3,867     $ 3,268  

Leveraged & Inverse

           

Beginning of period assets

    $ 1,058     $ 1,046     $ 1,019     $ 1,085     $ 981  

Inflows/(outflows)

      (81 )      14       (1 )      (59 )      147  

Market appreciation/(depreciation)

      (78 )      (2 )      28       (7 )      (43 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 899     $ 1,058     $ 1,046     $ 1,019     $ 1,085  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 1,043     $ 1,078     $ 1,053     $ 1,075     $ 1,074  

Alternatives

           

Beginning of period assets

    $ 394     $ 461     $ 505     $ 616     $ 739  

Inflows/(outflows)

      (77 )      (68 )      (45 )      (106 )      (138 ) 

Market appreciation/(depreciation)

      (55 )      1       1       (5 )      15  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 262     $ 394     $ 461     $ 505     $ 616  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 358     $ 437     $ 483     $ 563     $ 653  

Closed ETPs

           

Beginning of period assets

    $ 875     $ 804     $ 1,055     $ 1,046     $ 1,011  

Assets sold

      (778 )      —         —         —         —    

Inflows/(outflows)

      158       (14 )      14       3       (49 ) 

Market appreciation/(depreciation)

      (232 )      88       (84 )      6       171  

Fund closures

      (20 )      (3 )      (181 )      —         (87 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

End of period assets

    $ 3     $ 875     $ 804     $ 1,055     $ 1,046  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Average assets during the period

    $ 539     $ 859     $ 1,020     $ 1,026     $ 1,099  

Headcount

      210       208       212       214       216  

Note: Previously issued statistics may be restated due to fund closures and trade adjustments

Source: WisdomTree

 

7

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     Mar. 31,
2020		     Dec. 31,
2019		  
     (Unaudited)        

ASSETS

     

Current assets:

     

Cash and cash equivalents

    $ 68,429     $ 74,972  

Securities owned, at fair value

      20,261       17,319  

Accounts receivable

      22,728       26,838  

Prepaid expenses

      4,221       3,724  

Other current assets

      171       207  
  

 

 

    

 

 

  

Total current assets

      115,810       123,060  

Fixed assets, net

      7,914       8,127  

Notes receivable

      8,500       28,172  

Securities held-to-maturity

      10,864       16,863  

Deferred tax assets, net

      2,863       7,398  

Investments

      11,192       11,192  

Right of use assets – operating leases

      17,680       18,161  

Goodwill

      85,856       85,856  

Intangible assets

      601,247       603,294  

Other noncurrent assets

      750       983  
  

 

 

    

 

 

  

Total assets

    $ 862,676     $ 903,106  
  

 

 

    

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

LIABILITIES

     

Current liabilities:

     

Fund management and administration payable

    $ 22,053     $ 22,021  

Compensation and benefits payable

      3,424       26,501  

Deferred consideration – gold payments

      14,500       13,953  

Securities sold, but not yet purchased, at fair value

      469       582  

Operating lease liabilities

      3,470       3,682  

Income taxes payable

      1,284       3,372  

Accounts payable and other liabilities

      9,129       8,930  
  

 

 

    

 

 

  

Total current liabilities

      54,329       79,041  

Debt

      171,548       175,956  

Deferred consideration – gold payments

      160,800       159,071  

Operating lease liabilities

      18,661       19,057  
  

 

 

    

 

 

  

Total liabilities

      405,338       433,125  

Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding

      132,569       132,569  
  

 

 

    

 

 

  

STOCKHOLDERS’ EQUITY

     

Common stock, par value $0.01; 250,000 shares authorized:

     

Issued and outstanding: 156,424 and 155,264 at March 31, 2020 and December 31, 2019, respectively

      1,564       1,553  

Additional paid-in capital

      349,495       352,658  

Accumulated other comprehensive income

      92       945  

Accumulated deficit

      (26,382 )      (17,744 ) 
  

 

 

    

 

 

  

Total stockholders’ equity

      324,769       337,412  
  

 

 

    

 

 

  

Total liabilities and stockholders’ equity

    $ 862,676     $ 903,106  
  

 

 

    

 

 

  

 

8

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

     Three Months Ended  
     Mar. 31,
2020		     Mar. 31,
2019		  

Cash flows from operating activities:

     

Net (loss)/income

    $ (8,638 )    $ 8,824  

Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:

     

Impairments

      19,672       572  

Advisory fees received in gold and other precious metals

      (13,860 )      (11,389 ) 

Deferred income taxes

      4,526       3,048  

Contractual gold payments

      3,760       3,098  

Stock-based compensation

      3,239       3,072  

Gain on sale –Canadian ETF business

      (2,877 )      —    

Loss/(gain) on revaluation of deferred consideration – gold payments

      2,208       (4,404 ) 

Amortization of right of use asset

      798       798  

Amortization of credit facility issuance costs

      723       711  

Paid-in-kind interest income

      —         (595 ) 

Depreciation and amortization

      256       269  

Other

      (31 )      3  

Changes in operating assets and liabilities:

     

Securities owned, at fair value

      (2,942 )      2,454  

Accounts receivable

      5,850       (1,939 ) 

Income taxes payable

      (2,032 )      (604 ) 

Prepaid expenses

      (616 )      419  

Gold and other precious metals

      9,838       7,975  

Other assets

      139       182  

Fund management and administration payable

      537       4,274  

Compensation and benefits payable

      (22,688 )      (9,250 ) 

Securities sold, but not yet purchased, at fair value

      (112 )      (360 ) 

Operating lease liabilities

      (926 )      (881 ) 

Accounts payable and other liabilities

      542       1,575  
  

 

 

    

 

 

  

Net cash (used in)/provided by operating activities

      (2,634 )      7,852  
  

 

 

    

 

 

  

Cash flows from investing activities:

     

Purchase of fixed assets

      (50 )      (7 ) 

Proceeds from held-to-maturity securities maturing or called prior to maturity

      6,030       18  

Proceeds from sale of Canadian ETF business, net

      2,774       —    
  

 

 

    

 

 

  

Net cash provided by investing activities

      8,754       11  
  

 

 

    

 

 

  

Cash flows from financing activities:

     

Dividends paid

      (5,136 )      (5,097 ) 

Repayment of debt

      (5,000 )      —    

Shares repurchased

      (1,495 )      (2,005 ) 

Proceeds from exercise of stock options

      240       14  
  

 

 

    

 

 

  

Net cash used in financing activities

      (11,391 )      (7,088 ) 
  

 

 

    

 

 

  

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

      (1,272 )      383  
  

 

 

    

 

 

  

(Decrease)/increase in cash and cash equivalents

      (6,543 )      1,158  

Cash and cash equivalents – beginning of year

      74,972       77,784  
  

 

 

    

 

 

  

Cash and cash equivalents – year

    $ 68,429     $ 78,942  
  

 

 

    

 

 

  

Supplemental disclosure of cash flow information:

     

Cash paid for taxes

    $ 1,147     $ 707  
  

 

 

    

 

 

  

Cash paid for interest

    $ 2,312     $ 2,224  
  

 

 

    

 

 

  

 

9

Non-GAAP Financial Measurements

In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews these non-GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measurements should be considered in the context with our GAAP results. The non-GAAP financial measurements contained in this release include:

 

•  

Adjusted compensation, operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share. We disclose adjusted compensation, operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance. These non-GAAP financial measures exclude the following:

 

  •  

Unrealized gains or losses on the revaluation of deferred consideration: Deferred consideration is an obligation we assumed in connection with the ETFS acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold may have a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when calculating our non-GAAP financial measurements as it is not core to our operating business. The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

 

  •  

Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.

 

  •  

Other items: Impairment charges, gain recognized upon sale of our Canadian ETF business, severance expense and acquisition and disposition-related costs are excluded when calculating our non-GAAP financial measurements.

 

•  

Adjusted effective income tax rate. We disclose our adjusted effective income tax rate as a non-GAAP financial measurement in order to report our effective income tax rate exclusive of items that are non-recurring or not core to our operating business. We believe reporting our adjusted effective income tax rate provides investors with a consistent way to analyze our income taxes. Our adjusted effective income tax rate is calculated by dividing adjusted income tax expense by adjusted income before income taxes. See above for information regarding the items that are excluded.

 

•  

Gross margin and gross margin percentage. We disclose our gross margin and gross margin percentage as non-GAAP financial measurements because we believe they provide investors with a consistent way to analyze the amount we retain after paying third-party service providers to operate our ETPs. These measures also assist us in analyzing the profitability of our products. We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues.

 

•  

Adjusted operating income margin. We disclose adjusted operating income margin as a non-GAAP financial measurement in order to report our operating income margin exclusive of items that are non-recurring or not core to our operating business.

 

10

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION (CONSOLIDATED)

(in thousands)

(Unaudited)

 

     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  
Adjusted Net Income and Diluted Earnings per Share:           

Net (loss)/income, as reported

    $ (8,638 )    $ (25,880 )    $ 4,152     $ 2,479     $ 8,824  

Add back/(deduct): Loss/(gain) on revaluation of deferred consideration

      2,208       5,354       6,306       4,037       (4,404 ) 

Add back: Impairments, net of income taxes

      19,672       30,138       —         —         572  

Deduct: Gain recognized upon sale of our Canadian ETF business

      (2,877 )      —         —         —         —    

Add back: Severance expense, net of income taxes

      —         —         —         1,194       1,521  

Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards

      501       142       30       76       971  

Add back: Acquisition and disposition-related costs, net of income taxes

      358       353       154       27       253  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted net income

    $ 11,224     $ 10,107     $ 10,642     $ 7,813     $ 7,737  

Weighted average common shares - diluted

      167,561       167,203       167,163       167,249       166,811  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted earnings per share - diluted

    $ 0.07     $ 0.06     $ 0.06     $ 0.05     $ 0.05  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  
Gross Margin and Gross Margin Percentage:           

Operating revenues

    $ 63,874     $ 68,907     $ 67,718     $ 66,293     $ 65,485  

Less: Fund management and administration

      (14,485 )      (15,650 )      (15,110 )      (15,576 )      (15,166 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross margin

    $ 49,389     $ 53,257     $ 52,608     $ 50,717     $ 50,319  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Gross margin percentage

      77.3 %      77.3 %      77.7 %      76.5 %      76.8 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  
Adjusted Operating Income and Adjusted Operating Income Margin:           

Operating revenues

    $ 63,874     $ 68,907     $ 67,718     $ 66,293     $ 65,485  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income

    $ 15,634     $ 14,809     $ 16,131     $ 11,911     $ 10,683  

Add back: Severance expense, before income taxes

      —         —         —         1,475       2,020  

Add back: Acquisition and disposition-related costs, before income taxes

      383       366       190       33       313  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted operating income

    $ 16,017     $ 15,175     $ 16,321     $ 13,419     $ 13,016  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted operating income margin

      25.1 %      22.0 %      24.1 %      20.2 %      19.9 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June. 30,
2019		     Mar. 31,
2019		  

Adjusted Compensation:

           

Compensation expense

    $ 17,295     $ 19,280     $ 18,880     $ 21,300     $ 21,301  

Deduct: Severance expense, before income taxes

      —         —         —         (1,475 )      (2,020 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted compensation expense

    $ 17,295     $ 19,280     $ 18,880     $ 19,825     $ 19,281  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

11

     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

Adjusted Total Operating Expenses:

           

Total operating expenses

    $ 48,240     $ 54,098     $ 51,587     $ 54,382     $ 54,802  

Deduct: Severance expense, before income taxes

      —         —         —         (1,475 )      (2,020 ) 

Deduct: Acquisition and disposition-related costs, before income taxes

      (383 )      (366 )      (190 )      (33 )      (313 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted operating expenses

    $ 47,857     $ 53,732     $ 51,397     $ 52,874     $ 52,469  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

Adjusted Income Before Income Taxes:

           

(Loss)/income before income taxes

    $ (11,009 )    $ (22,355 )    $ 8,635     $ 6,066     $ 7,775  

Add back/(deduct): Loss/(gain) on revaluation of deferred consideration

      2,208       5,354       6,306       4,037       (4,404 ) 

Add back: Impairments, before income taxes

      19,672       30,138       —         —         572  

Add back: Loss recognized upon reduction of a tax-related indemnification asset

      5,981       —         —         —         4,310  

Deduct: Gain recognized upon sale of our Canadian ETF business

      (2,877 )      —         —       —         —    

Add back: Acquisition and disposition-related costs, before income taxes

      383       366       190       33       313  

Add back: Severance expense, before income taxes

      —         —         —         1,475       2,020  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted income before income taxes

    $ 14,358     $ 13,503     $ 15,131     $ 11,611     $ 10,586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     Three Months Ended  
     Mar. 31,
2020		     Dec. 31,
2019		     Sept. 30,
2019		     June 30,
2019		     Mar. 31,
2019		  

Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate:

           

Adjusted income before income taxes (above)

    $ 14,358     $ 13,503     $ 15,131     $ 11,611     $ 10,586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income tax (benefit)/expense

    $ (2,371 )    $ 3,525     $ 4,483     $ 3,587     $ (1,049 ) 

Add back: Tax benefit arising from reduction of a tax-related indemnification asset

      5,981       —         —         —         4,310  

Deduct: Tax shortfalls upon vesting and exercise of stock-based compensation awards

      (501 )      (142 )      (30 )      (76 )      (971 ) 

Add back: Tax benefit arising from acquisition and disposition-related costs

      25       13       36       6       60  

Add back: Tax benefit arising from severance expense

      —         —         —         281       499  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted income tax expense

    $ 3,134     $ 3,396     $ 4,489     $ 3,798     $ 2,849  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted effective income tax rate

      21.8 %      25.1 %      29.7 %      32.7 %      26.9 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

12

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, the risks described below. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this press release completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

In particular, forward-looking statements in this press release may include statements about

 

  •  

the COVID-19 pandemic;

 

  •  

anticipated trends, conditions and investor sentiment in the global markets and ETPs;

 

  •  

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

 

  •  

our ability to deliver favorable rates of return to investors;

 

  •  

competition in our business;

 

  •  

our ability to develop new products and services;

 

  •  

our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;

 

  •  

our ability to successfully operate and expand our business in non-U.S. markets; and

 

  •  

the effect of laws and regulations that apply to our business.

Our business is subject to many risks and uncertainties, including without limitation:

 

  •  

declining prices of securities, gold and other precious metals and other commodities can adversely affect our business by reducing the market value of the assets we manage or causing WisdomTree ETP investors to sell their fund shares and trigger redemptions;

 

  •  

fluctuations in the amount and mix of our AUM, whether caused by disruptions in the financial markets or otherwise, including but not limited to a pandemic event such as COVID-19, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity, increase the cost of borrowing or result in our debt being called prior to maturity;

 

  •  

competitive pressures could reduce revenues and profit margins;

 

  •  

we derive a substantial portion of our revenues from a limited number of products, and as a result, our operating results are particularly exposed to investor sentiment toward investing in the products’ strategies and our ability to maintain the AUM of these products, as well as the performance of these products and market-specific and political and economic risk;

 

  •  

a significant portion of our AUM is held in products with exposure to U.S. and international developed markets and we therefore have exposure to domestic and foreign market conditions and are subject to currency exchange rate risks;

 

  •  

withdrawals or broad changes in investments in our ETPs by investors with significant positions may negatively impact revenues and operating margins;

 

  •  

over the last few years, we have expanded our business globally. This expansion subjects us to increased operational, regulatory, financial and other risks;

 

  •  

many of our ETPs have a limited track record, and poor investment performance could cause our revenues to decline; and

 

  •  

we depend on third parties to provide many critical services to operate our business and our ETPs. The failure of key vendors to adequately provide such services could materially affect our operating business and harm WisdomTree ETP investors.

Other factors, such as general economic conditions, including currency exchange rate fluctuations, also may have an effect on the results of our operations. For a more complete description of the risks noted above and other risks that could cause our actual results to differ from our current expectations, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

The forward-looking statements in this press release represent our views as of the date of this press release. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this press release.

 

13