NEW YORK, May 01, 2020 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. 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.
$0.03 quarterly dividend declared, payable on May 27, 2020 to stockholders of record as of the close of business May 13, 2020.
Update from Jonathan Steinberg, WisdomTree CEO
"The combination of our investments in technology over the past several years and our resilient business model allowed us to seamlessly work through these unprecedented circumstances with no compromise to our high standards of operational excellence and client service. We remain committed to helping our clients navigate these markets, manage their businesses and better serve their customers while protecting our number one asset, our employees." "Like all asset managers, market declines have impacted our business, but we are responsibly managing costs and WisdomTree remains differentiated, confident and well positioned for the future. March disrupted the strong momentum we had built in the business, but the setback was only temporary, and we remain focused on our 2020 plan of growth, performance and innovation." |
OPERATING AND FINANCIAL HIGHLIGHTS
| Three Months Ended | |||||||||||||||
| Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | |||||||||||
| Consolidated Operating Highlights ($, 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
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| 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 | ||||||||||||
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.
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 $55.2 billion in assets under management globally.
WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.
________________________
1 See "Non-GAAP Financial Measurements."
| Contact Information: | |
| Investor Relations | Media Relations |
| Jason Weyeneth, CFA | Jessica Zaloom |
| +1.917.267.3858 | +1.917.267.3735 |
| jweyeneth@wisdomtree.com | jzaloom@wisdomtree.com |
| WisdomTree Investments, Inc. | |||||||||||||||||||
| Key Operating Statistics (Unaudited) | |||||||||||||||||||
| Three Months Ended | |||||||||||||||||||
| Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | |||||||||||||||
| GLOBAL ETPs ($ 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 | |||||||||
| 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 | |||||||||||||||||||
| 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 | |||
| 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 | |||
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.
- 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.
- 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.
| WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES | |||||||||||||||||||
| GAAP to NON-GAAP RECONCILIATION (CONSOLIDATED) | |||||||||||||||||||
| (in thousands) | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| Three Months Ended | |||||||||||||||||||
| Adjusted Net Income and Diluted Earnings per Share: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | ||||||||||||||
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 | |||||||||||||||||||
| Gross Margin and Gross Margin Percentage: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | ||||||||||||||
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 | |||||||||||||||||||
| Adjusted Operating Income and Adjusted Operating Income Margin: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | ||||||||||||||
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 | |||||||||||||||||
| Adjusted Compensation: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June. 30, 2019 | Mar. 31, 2019 | ||||||||||||
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 | |||||||
| Three Months Ended | |||||||||||||||||||
| Adjusted Total Operating Expenses: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | ||||||||||||||
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 | |||||||||||||||||
| Adjusted Income Before Income Taxes: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | ||||||||||||
(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 | |||||||||||||||||||
| Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate: | Mar. 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2019 | Mar. 31, 2019 | ||||||||||||||
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 | % | |||||||||
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.
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