WisdomTree Investments, Inc. - FORM 8-K - EX-99.1

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Exhibit 99.1

WisdomTree Announces Fourth Quarter 2019 Results – Diluted EPS of $0.02 ($0.06as adjusted)

New York, NY – (GlobeNewswire) – January 31, 2020 – WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the fourth quarter of 2019.

$4.3 million net income ($10.1¹ million net income, as adjusted), see “Non-GAAP Financial Measurements” for additional information.

$63.6 billion of ending AUM, an increase of 6.1% resulting from market appreciation and net inflows for the quarter and an increase of 17.6% for the full year.

$368 million of net inflows ($560 million of net inflows excluding HEDJ/DXJ), driven by flows into our U.S. equity, fixed income and emerging markets products, partly offset by outflows from our commodity and international developed market equity products. For the full year, net inflows were $572 million or $3.3 billion excluding outflows from HEDJ/DXJ.

0.44% average global advisory fee, unchanged from the prior quarter.

$68.9 million of operating revenues, an increase of 1.8% primarily due to higher average AUM of our U.S. listed products.

81.2% gross margin¹ for our U.S. Business, a 0.4 point increase due to higher revenues.

70.7% gross margin¹ for our International Business, a 1.9 point decrease due to higher market making fees incurred in connection with transitioning to new arrangements as well as costs associated with preparing our products for Brexit.

21.5% operating income margin (22.0%¹ as adjusted), a 2.3 point decrease (2.1 point decrease, as adjusted¹) primarily due to higher non-compensation expenses, partly offset by higher revenues.

$6.0 million of available capital used to pay down debt, in connection with our capital management strategy.

$0.03 quarterly dividend declared, payable on February 26, 2020 to stockholders of record as of the close of business February 12, 2020.

We are currently pursuing an exit from our $58 million investment in AdvisorEngine Inc. While the process is not yet finalized, we estimate taking a non-cash impairment charge of $22.0 million to $30.0 million in the fourth quarter, which is not yet included in these unaudited financial results. The final impairment charge will be recognized and disclosed in our Form 10-K. We do not anticipate the exit of our investment will drive any asset attrition or change our organic growth outlook.

Update from Jonathan Steinberg, WisdomTree CEO

“WisdomTree exited 2019 with momentum building across our business. The performance track records of our funds remain excellent with thirty-five 4- or 5-star Morningstar rated funds across our ETF and UCITS product range. We’ve generated positive net flows in four of the past five quarters, adoption of our model portfolios by advisors is accelerating and we are excited by the recent launch of the Siegel-WisdomTree models.”

“As we look toward 2020, we are focused on capitalizing on the tailwinds that exist in our business, continuing to drive operating efficiencies and prudently investing to remain at the forefront of industry innovation. For example, in January we announced a strategic investment in Securrency, Inc., a blockchain-based financial services infrastructure company. Blockchain has the potential to be revolutionary in financial services and we believe we have the right vision and the right partner to be a global leader in digital assets. There are reasons to be optimistic, and I believe WisdomTree has reached an inflection point with top line and bottom line growth set to emerge.”

OPERATING AND FINANCIAL HIGHLIGHTS


	Three Months Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Consolidated Operating Highlights ($, in billions):
AUM	$	63.6		$	60.0		$	60.4		$	59.1		$	54.1
Net inflows/(outflows)	$	0.4		$	(0.7	)	$	0.3		$	0.6		$	0.2
Average AUM	$	61.9		$	60.3		$	58.6		$	57.7		$	56.4
Average advisory fee		0.44	%		0.44	%		0.45	%		0.46	%		0.47	%
Consolidated Financial Highlights ($, in millions, except per share amounts):
Operating revenues	$	68.9		$	67.7		$	66.3		$	65.5		$	67.9
Net income/(loss)	$	4.3		$	4.2		$	2.5		$	8.8		$	(11.6)
Diluted earnings/(loss) per share	$	0.02		$	0.02		$	0.01		$	0.05		$	(0.08)
Operating income margin		21.5	%		23.8	%		18.0	%		16.3	%		17.4	%
As Adjusted (Non-GAAP¹):
Gross Margin – U.S. Business		81.2	%		80.8	%		80.3	%		80.4	%		80.2	%
Gross Margin – International Business		70.7	%		72.6	%		69.5	%		70.1	%		69.1	%
Net income, as adjusted	$	10.1		$	10.6		$	7.8		$	7.7		$	9.8
Diluted earnings per share, as adjusted	$	0.06		$	0.06		$	0.05		$	0.05		$	0.06
Operating income margin, as adjusted		22.0	%		24.1	%		20.2	%		19.9	%		21.9	%

RECENT BUSINESS DEVELOPMENTS


Company News

• In November 2019, we entered into an agreement to sell our Canadian asset management business to CI Financial Corp. (TSX: CIX); and we were named as European Smart Beta Provider of the Year at the Funds Europe Awards 2019.

• In January 2020, we announced a strategic investment in Securrency, Inc. with plans to pursue the integration of blockchain technology into the ETF ecosystem; we announced the appointment of Ravinder Azad as Head of UK and Nordic Sales; and we announced the collaboration with Professor Jeremy Siegel to design and launch two model portfolios – The Siegel-WisdomTree Global Equity Model and the Siegel-WisdomTree Longevity Model.
Product News

• In November 2019, we launched the Mortgage Plus Bond Fund (MTGP) in the U.S. on the NYSE Arca; the WisdomTree Artificial Intelligence UCITS ETF (WTAI) reached its one-year anniversary, and the WisdomTree Emerging Markets Equity Income UCITS ETF (DEM) and WisdomTree Emerging Markets Small Cap Dividend UCITS ETF (DGSG) reached their five-year anniversaries.

• In December 2019, we declared final capital gains distributions for our U.S. ETFs; we announced the closing and liquidation of three ETFs in January 2020 – DYB, WBAL and RPUT; and we announced the launch of the WisdomTree Bitcoin ETP (BTCW) on the Swiss stock exchange (SIX).

• In January 2020, we announced the unitholders’ approval of proposed change in manager for our Canadian ETFs.

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended															Years Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018			Dec. 31, 2019			Dec. 31, 2018
Operating Revenues:
Advisory fees	$	68,179		$	67,006		$	65,627		$	64,840		$	67,191		$	265,652		$	271,104
Other income		728			712			666			645			676			2,751			3,012

Total revenues		68,907			67,718			66,293			65,485			67,867			268,403			274,116

Operating Expenses:
Compensation and benefits		19,280			18,880			21,300			21,301			18,838			80,761			74,515
Fund management and administration		15,650			15,110			15,576			15,166			15,861			61,502			56,686
Marketing and advertising		3,551			3,022			2,910			2,680			3,672			12,163			13,884
Sales and business development		5,329			4,354			4,171			4,422			5,036			18,276			17,153
Contractual gold payments		3,516			3,502			3,110			3,098			2,917			13,226			8,512
Professional and consulting fees		1,604			1,259			1,296			1,482			2,854			5,641			7,984
Occupancy, communications and equipment		1,587			1,549			1,548			1,618			1,544			6,302			6,203
Depreciation and amortization		253			259			264			269			303			1,045			1,301
Third-party distribution fees		1,146			1,503			1,919			2,400			1,813			6,968			6,611
Acquisition and disposition-related costs		366			190			33			313			1,008			902			11,454
Other		1,816			1,959			2,255			2,053			2,202			8,083			8,534

Total expenses		54,098			51,587			54,382			54,802			56,048			214,869			212,837

Operating income		14,809			16,131			11,911			10,683			11,819			53,534			61,279
Other Income/(Expenses):
Interest expense		(2,606	)		(2,832	)		(2,910	)		(2,892	)		(2,859	)		(11,240	)		(7,962	)
(Loss)/gain on revaluation of deferred consideration – gold payments		(5,354	)		(6,306	)		(4,037	)		4,404			(5,410	)		(11,293	)		12,220
Interest income		936			799			818			779			800			3,332			3,093
Impairments		—			—			—			(572	)		(17,386	)		(572	)		(17,386	)
Other gains and losses, net		(2	)		843			284			(4,627	)		439			(3,502	)		(205	)

Income/(loss) before income taxes		7,783			8,635			6,066			7,775			(12,597	)		30,259			51,039
Income tax expense/(benefit)		3,525			4,483			3,587			(1,049	)		(1,033	)		10,546			14,406

Net income/(loss)	$	4,258		$	4,152		$	2,479		$	8,824		$	(11,564	)	$	19,713		$	36,633

Earnings/(loss) per share – basic	$	0.02		$	0.02		$	0.01		$	0.05		$	(0.08	)	$	0.12		$	0.23
Earnings/(loss) per share – diluted	$	0.02	²	$	0.02		$	0.01		$	0.05		$	(0.08	)	$	0.12		$	0.23
Weighted average common shares – basic		151,948			151,897			151,818			151,625			151,083			151,823			146,645
Weighted average common shares – diluted		167,203			167,163			167,249			166,811			151,083			166,977			158,415
As Adjusted (Non-GAAP¹)
Compensation and benefits	$	19,280		$	18,880		$	19,825		$	19,281		$	16,824
Total expenses	$	53,732		$	51,397		$	52,874		$	52,469		$	53,026
Operating income	$	15,175		$	16,321		$	13,419		$	13,016		$	14,841
Income before income taxes	$	13,503		$	15,131		$	11,611		$	10,586		$	13,221
Income tax expense	$	3,396		$	4,489		$	3,798		$	2,849		$	3,392
Net income	$	10,107		$	10,642		$	7,813		$	7,737		$	9,829
Earnings per share – diluted	$	0.06		$	0.06		$	0.05		$	0.05		$	0.06

QUARTERLY HIGHLIGHTS

Operating Revenues

•

Operating revenues increased 1.8% from the third quarter of 2019 primarily due to higher average AUM of our U.S. listed products arising from market appreciation and net inflows.

•

Operating revenues increased 1.5% from the fourth quarter of 2018 primarily due to higher average AUM of our International listed products arising from market appreciation and net inflows, partly offset by a 3 basis point decline in our average global advisory fee due to AUM mix shift.

•

Our average global advisory fee was 0.44% during the third and fourth quarters of 2019 and 0.47% during the fourth quarter of 2018.

Operating Expenses

•

Operating expenses increased 4.9% from the third quarter of 2019 due to higher sales and business development expenses inclusive of costs associated with the launch of our Bitcoin ETP; higher fund management and administration costs due to higher market making fees in connection with transitioning to new arrangements, as well as costs associated with preparing our products for Brexit; and higher marketing and advertising expenses, compensation, and professional fees.

•

Operating expenses decreased 3.5% from the fourth quarter of 2018 largely due to lower professional fees, acquisition and disposition-related costs and third-party distribution fees.

Other Income/(Expenses)

•

We recognized a non-cash loss on revaluation of deferred consideration of ($5.4) million and ($6.3) million during the fourth and third quarters of 2019, and ($5.4) million during the fourth quarter of 2018. These losses arose due to an increase 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 8.0% from the third quarter of 2019 due to a lower level of debt outstanding. During the third and fourth quarters of 2019, we used $21.0 million of available capital to pay down our debt in connection with our capital management strategy.

Income Taxes

•

Our effective income tax rate for the fourth quarter of 45.3% resulted in income tax expense of $3.5 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due to a non-deductible loss on revaluation of deferred consideration, a valuation allowance on foreign net operating losses, state and local taxes and non-deductible executive compensation, partly offset by a lower tax rate on foreign earnings.

Our adjusted effective income tax rate was 25.1%¹.

ANNUAL HIGHLIGHTS

Our operating results for the current year are not directly comparable to the prior year due to our acquisition of ETFS, which was completed on April 11, 2018.

•

Operating revenues decreased 2.1% as compared to 2018 to a 3 basis point decline in our average global advisory fee and lower average AUM of our U.S. listed products due to AUM mix shift, partly offset by higher revenues earned from the ETFS acquired business, which were recognized for the entire year of 2019.

•

Operating expenses increased 1.0% as compared to 2018 due to expenses associated with the ETFS acquired business, which were recognized for the entire year of 2019, and higher compensation expenses. These items were partly offset by lower acquisition and disposition-related costs, professional fees, marketing and advertising expenses and fund management and administration costs associated with our U.S. listed products.

•

Significant changes in items reported in other income/(expenses) include a non-cash loss on revaluation of deferred consideration of ($11.3) million in 2019 as compared to a gain of $12.2 million in 2018; a 41.2% increase in interest expense as borrowing under our term loan commenced on April 11, 2018 and a $4.3 million non-cash charge arising from the release of a tax-related indemnification asset which arose from tax exposures assumed from the ETFS acquisition. This item was recognized upon the expiration of the statute of limitations which occurred in the first quarter of 2019 and an equal and offsetting benefit was recognized in income tax expense.

•

Our effective income tax rate for 2019 of 34.9% resulted in income tax expense of $10.5 million. Our effective income tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on foreign net operating losses, a non-deductible loss on revaluation of deferred consideration, non-deductible executive compensation, state and local income taxes and tax shortfalls associated with the vesting and exercise of stock-based compensation awards, partly offset by a $4.3 million reduction in unrecognized tax benefits and a lower tax rate on foreign earnings.

CONFERENCE CALL

WisdomTree will discuss its results and operational highlights during a conference call on Friday, January 31, 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., Europe and Canada (collectively, “WisdomTree”), is an ETF and ETP sponsor and asset manager headquartered in New York. WisdomTree offers products covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. WisdomTree currently has approximately $63.2 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.”

²	Earnings per share calculated pursuant to the two-class method.

CONTACT INFORMATION:

Investor Relations

Jason Weyeneth, CFA

+1.917.267.3858

jweyeneth@wisdomtree.com

Media Relations

Jessica Zaloom

+1.917.267.3735

jzaloom@wisdomtree.com

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(in thousands)

(Unaudited)

The following tables set forth the pre-tax operating results for our U.S. Business and International Business segments.

U.S. BUSINESS SEGMENT


	Three Months Ended															Years Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018			Dec. 31, 2019			Dec. 31, 2018
Operating Revenues:
Advisory fees	$	42,952		$	41,950		$	43,070		$	42,517		$	45,633		$	170,489		$	204,298
Other income		76			81			76			106			126			339			608

Total revenues		43,028			42,031			43,146			42,623			45,759			170,828			204,906

Operating Expenses:
Compensation and benefits		14,947			14,531			16,696			16,779			14,370			62,953			58,307
Fund management and administration		8,070			8,072			8,505			8,340			9,038			32,987			35,728
Marketing and advertising		2,745			2,411			2,336			2,162			2,704			9,654			11,003
Sales and business development		3,144			3,124			2,867			3,359			3,747			12,494			13,426
Professional and consulting fees		1,144			908			1,055			1,072			2,166			4,179			6,169
Occupancy, communications and equipment		1,235			1,215			1,211			1,283			1,205			4,944			5,162
Depreciation and amortization		235			238			242			246			280			961			1,215
Third-party distribution fees		914			1,404			1,867			2,338			1,789			6,523			6,457
Acquisition and disposition-related costs		170			—			—			11			72			181			8,289
Other		1,403			1,574			1,628			1,586			1,617			6,191			6,674

Total expenses		34,007			33,477			36,407			37,176			36,988			141,067			152,430

Operating income		9,021			8,554			6,739			5,447			8,771			29,761			52,476
Other Income/(Expenses):
Interest expense		(197	)		(197	)		(194	)		(192	)		(197	)		(780	)		(566	)
Interest income		936			793			818			779			800			3,326			3,093
Impairments		—			—			—			(572	)		(17,386	)		(572	)		(17,386	)
Other gains and losses, net		(54	)		235			(54	)		145			266			272			292

Income/(loss) before income taxes	$	9,706		$	9,385		$	7,309		$	5,607		$	(7,746	)	$	32,007		$	37,909

Operating income margin		21.0	%		20.4	%		15.6	%		12.8	%		19.2	%		17.4	%		25.6	%

INTERNATIONAL BUSINESS SEGMENT


	Three Months Ended															Years Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018			Dec. 31, 2019			Dec. 31, 2018
Operating Revenues:
Advisory fees	$	25,227		$	25,056		$	22,557		$	22,323		$	21,558		$	95,163		$	66,806
Other income		652			631			590			539			550			2,412			2,404

Total revenues		25,879			25,687			23,147			22,862			22,108			97,575			69,210

Operating Expenses:
Compensation and benefits		4,333			4,349			4,604			4,522			4,468			17,808			16,208
Fund management and administration		7,580			7,038			7,071			6,826			6,823			28,515			20,958
Marketing and advertising		806			611			574			518			968			2,509			2,881
Sales and business development		2,185			1,230			1,304			1,063			1,289			5,782			3,727
Contractual gold payments		3,516			3,502			3,110			3,098			2,917			13,226			8,512
Professional and consulting fees		460			351			241			410			688			1,462			1,815
Occupancy, communications and equipment		352			334			337			335			339			1,358			1,041
Depreciation and amortization		18			21			22			23			23			84			86
Third-party distribution fees		232			99			52			62			24			445			154
Acquisition and disposition-related costs		196			190			33			302			936			721			3,165
Other		413			385			627			467			585			1,892			1,860

Total expenses		20,091			18,110			17,975			17,626			19,060			73,802			60,407

Operating income		5,788			7,577			5,172			5,236			3,048			23,773			8,803
Other Income/(Expenses):
Interest expense		(2,409	)		(2,635	)		(2,716	)		(2,700	)		(2,662	)		(10,460	)		(7,396	)
(Loss)/gain on revaluation of deferred consideration – gold payments		(5,354	)		(6,306	)		(4,037	)		4,404			(5,410	)		(11,293	)		12,220
Interest income		—			6			—			—			—			6			—
Other gains and losses, net		52			608			338			(4,772	)		173			(3,774	)		(497	)

(Loss)/income before income taxes	$	(1,923	)	$	(750	)	$	(1,243	)	$	2,168		$	(4,851	)	$	(1,748	)	$	13,130

Operating income margin		22.4	%		29.5	%		22.3	%		22.9	%		13.8	%		24.4	%		12.7	%

WisdomTree Investments, Inc.

Key Operating Statistics (Unaudited)


	Three Months Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
GLOBAL ETPs (in millions)
Beginning of period assets	$	59,981		$	60,389		$	59,112		$	54,094		$	59,140
Inflows/(outflows)		368			(694	)		337			561			245
Market appreciation/(depreciation)		3,269			467			940			4,544			(5,291	)
Fund closures		(3	)		(181	)		—			(87	)		—

End of period assets	$	63,615		$	59,981		$	60,389		$	59,112		$	54,094

Average assets during the period	$	61,858		$	60,306		$	58,575		$	57,683		$	56,423
Average advisory fee during the period		0.44	%		0.44	%		0.45	%		0.46	%		0.47	%
Revenue days		92			92			91			90			92
Number of ETFs – end of the period		367			366			536			534			537
U.S. LISTED ETFs (in millions)
Beginning of period assets	$	37,592		$	39,220		$	39,366		$	35,486		$	41,556
Inflows/(outflows)		563			(1,198	)		(166	)		147			(894	)
Market appreciation/(depreciation)		2,448			(430	)		20			3,820			(5,176	)
Fund closures		(3	)		—			—			(87	)		—

End of period assets	$	40,600		$	37,592		$	39,220		$	39,366		$	35,486

Average assets during the period	$	39,094		$	37,857		$	38,945		$	38,061		$	38,246
Average advisory fee during the period		0.44	%		0.44	%		0.44	%		0.45	%		0.47	%
Number of ETFs – end of the period		80			80			79			77			85
INTERNATIONAL LISTED ETPs (in millions)
Beginning of period assets	$	22,389		$	21,169		$	19,746		$	18,608		$	17,584
Inflows/(outflows)		(195	)		504			503			414			1,139
Market appreciation/(depreciation)		821			897			920			724			(115	)
Fund closures		—			(181	)		—			—			—

End of period assets	$	23,015		$	22,389		$	21,169		$	19,746		$	18,608

Average assets during the period	$	22,764		$	22,449		$	19,630		$	19,622		$	18,177
Average advisory fee during the period		0.44	%		0.44	%		0.46	%		0.47	%		0.47	%
Number of ETPs – end of the period		287			286			457			457			452
PRODUCT CATEGORIES (in millions)
Commodity & Currency
Beginning of period assets	$	19,954		$	18,446		$	16,978		$	16,213		$	14,998
Inflows/(outflows)		(267	)		534			563			227			988
Market appreciation/(depreciation)		639			974			905			538			227

End of period assets	$	20,326		$	19,954		$	18,446		$	16,978		$	16,213

Average assets during the period	$	20,146		$	19,796		$	16,912		$	16,995		$	15,620
U.S. Equity
Beginning of period assets	$	16,416		$	16,021		$	15,880		$	13,335		$	15,186
Inflows/(outflows)		468			242			103			632			393
Market appreciation/(depreciation)		1,002			153			38			1,913			(2,244	)

End of period assets	$	17,886		$	16,416		$	16,021		$	15,880		$	13,335

Average assets during the period	$	17,112		$	16,004		$	15,808		$	14,947		$	14,291
International Developed Market Equity
Beginning of period assets	$	12,541		$	13,687		$	14,414		$	14,508		$	19,385
Inflows/(outflows)		(122	)		(1,001	)		(729	)		(1,530	)		(2,216	)
Market appreciation/(depreciation)		1,006			(145	)		2			1,436			(2,661	)

End of period assets	$	13,425		$	12,541		$	13,687		$	14,414		$	14,508

Average assets during the period	$	13,001		$	12,747		$	13,957		$	14,506		$	16,869


	Three Months Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Emerging Market Equity
Beginning of period assets	$	5,814		$	6,090		$	5,730		$	5,278		$	5,346
Inflows/(outflows)		193			173			367			(84	)		232
Market appreciation/(depreciation)		516			(449	)		(7	)		536			(300	)

End of period assets	$	6,523		$	5,814		$	6,090		$	5,730		$	5,278

Average assets during the period	$	6,111		$	5,851		$	5,785		$	5,502		$	5,148
Fixed Income
Beginning of period assets	$	3,655		$	4,258		$	4,023		$	2,570		$	1,720
Inflows/(outflows)		220			(582	)		208			1,418			880
Market appreciation/(depreciation)		34			(21	)		27			35			(30	)

End of period assets	$	3,909		$	3,655		$	4,258		$	4,023		$	2,570

Average assets during the period	$	3,856		$	4,050		$	4,119		$	3,511		$	2,140
Leveraged & Inverse
Beginning of period assets	$	1,130		$	1,149		$	1,226		$	1,083		$	1,250
Inflows/(outflows)		(55	)		11			(63	)		83			(18	)
Market appreciation/(depreciation)		71			(30	)		(14	)		60			(149	)

End of period assets	$	1,146		$	1,130		$	1,149		$	1,226		$	1,083

Average assets during the period	$	1,186		$	1,154		$	1,199		$	1,213		$	1,193
Alternatives
Beginning of period assets	$	468		$	514		$	628		$	755		$	674
Inflows/(outflows)		(69	)		(48	)		(108	)		(141	)		178
Market appreciation/(depreciation)		1			2			(6	)		14			(97	)

End of period assets	$	400		$	468		$	514		$	628		$	755

Average assets during the period	$	443		$	490		$	574		$	666		$	712
Closed ETPs
Beginning of period assets	$	3		$	224		$	233		$	352		$	581
Inflows/(outflows)		—			(23	)		(4	)		(44	)		(192	)
Market appreciation/(depreciation)		—			(17	)		(5	)		12			(37	)
Fund closures		(3	)		(181	)		—			(87	)		—

End of period assets	$	—		$	3		$	224		$	233		$	352

Average assets during the period	$	3		$	214		$	221		$	343		$	450

Headcount – U.S. Business segment		137			142			143			141			153
Headcount – International Business segment		71			70			71			75			75

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)


	Dec. 31, 2019			Dec. 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	74,972		$	77,784
Securities owned, at fair value		17,319			8,873
Accounts receivable		26,838			25,834
Income taxes receivable		—			1,181
Prepaid expenses		3,724			4,441
Other current assets		207			163

Total current assets		123,060			118,276
Fixed assets, net		8,127			9,122
Notes receivable		33,310			28,722
Securities held-to-maturity		16,863			20,180
Deferred tax assets, net		7,398			7,042
Investments, carried at cost		36,192			28,080
Right of use assets – operating leases		18,161			—
Goodwill		85,856			85,856
Intangible assets		603,294			603,209
Other noncurrent assets		983			2,155

Total assets	$	933,244		$	902,642

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Fund management and administration payable	$	22,021		$	22,508
Compensation and benefits payable		26,501			18,453
Deferred consideration – gold payments		13,953			11,765
Securities sold, but not yet purchased, at fair value		582			1,698
Operating lease liabilities		3,682			—
Income taxes payable		3,372			—
Accounts payable and other liabilities		8,930			8,377

Total current liabilities		79,041			62,801
Debt		175,956			194,592
Deferred consideration – gold payments		159,071			149,775
Operating lease liabilities		19,057			—
Deferred rent payable		—			4,570

Total liabilities		433,125			411,738
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: 155,264 and 153,202 at December 31, 2019 and December 31, 2018, respectively		1,553			1,532
Additional paid-in capital		373,043			363,655
Accumulated other comprehensive income		945			467
Accumulated deficit		(7,991	)		(7,319	)

Total stockholders’ equity		367,550			358,335

Total liabilities and stockholders’ equity	$	933,244		$	902,642

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Years Ended
	Dec. 31, 2019			Dec. 31, 2018
Cash flows from operating activities:
Net income	$	19,713		$	36,633
Adjustments to reconcile net income to net cash provided by operating activities:
Advisory fees received in gold and other precious metals		(49,887	)		(32,238	)
Contractual gold payments		13,226			8,512
Stock-based compensation		11,590			13,255
Loss/(gain) on revaluation of deferred consideration – gold payments		11,293			(12,220	)
Amortization of right of use asset		3,174			—
Amortization of credit facility issuance costs		2,888			2,087
Paid-in-kind interest income		(2,498	)		(1,974	)
Depreciation and amortization		1,045			1,301
Impairments		572			17,386
Deferred income taxes		(349	)		(6,083	)
Other		(173	)		798
Changes in operating assets and liabilities:
Securities owned, at fair value		(8,446	)		(7,182	)
Accounts receivable		(19	)		3,804
Income taxes receivable/payable		4,524			5,706
Prepaid expenses		738			427
Gold and other precious metals		35,886			25,604
Other assets		172			984
Fund management and administration payable		(476	)		221
Compensation and benefits payable		7,885			(16,050	)
Securities sold, but not yet purchased, at fair value		(1,116	)		748
Operating lease liabilities		(3,587	)		—
Accounts payable and other liabilities		677			(4,251	)

Net cash provided by operating activities		46,832			37,468

Cash flows from investing activities:
Purchase of fixed assets		(47	)		(71	)
Purchase of investments		(8,112	)		—
Funding of notes receivable		(2,090	)		(8,000	)
Proceeds from held-to-maturity securities maturing or called prior to maturity		3,244			1,107
Proceeds from sales and maturities of debt securities available-for-sale		—			64,498
Cash paid for acquisition, net of cash acquired		—			(239,313	)

Net cash used in investing activities		(7,005	)		(181,779	)

Cash flows from financing activities:
Dividends paid		(20,385	)		(19,236	)
Repayment of debt		(21,000	)		—
Shares repurchased		(2,341	)		(2,885	)
Credit facility issuance costs		—			(8,690	)
Preferred stock issuance costs		—			(181	)
Proceeds from the issuance of debt		—			200,000
Proceeds from exercise of stock options		160			191

Net cash (used in)/provided by financing activities		(43,566	)		169,199

Increase/(decrease) in cash flows due to changes in foreign exchange rate		927			(1,297	)

(Decrease)/increase in cash and cash equivalents		(2,812	)		23,591
Cash and cash equivalents – beginning of year		77,784			54,193

Cash and cash equivalents – year	$	74,972		$	77,784

Supplemental disclosure of cash flow information:
Cash paid for taxes	$	10,060		$	14,398

Cash paid for interest	$	8,037		$	5,577

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, total expenses, income before income taxes, income tax expense, net income and diluted earnings per share. We disclose adjusted compensation, operating income, total 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, 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 for our U.S. Business segment and International Business segment because we believe they provide investors with a consistent way to analyze the amount we retain after paying third-party service providers to operate our ETPs. These ratios also assist us in analyzing the profitability of our products. We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues.

•

Adjusted operating income margin. We disclose adjusted operating income margin as a non-GAAP financial measurement on a consolidated basis, as well as for our U.S. Business segment and International Business segment in order to report our operating income margin exclusive of items that are non-recurring or not core to our operating business.

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:	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Net income/(loss), as reported	$	4,258		$	4,152		$	2,479		$	8,824		$	(11,564	)
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration		5,354			6,306			4,037			(4,404	)		5,410
Add back: Severance expense, net of income taxes		—			—			1,194			1,521			1,526
Add back/(deduct): Tax shortfalls/(windfalls) upon vesting and exercise of stock-based compensation awards		142			30			76			971			(403	)
Add back: Impairments, net of income taxes		—			—			—			572			14,048
Add back: Acquisition and disposition-related costs, net of income taxes		353			154			27			253			812

Adjusted net income	$	10,107		$	10,642		$	7,813		$	7,737		$	9,829
Weighted average common shares—diluted		167,203			167,163			167,249			166,811			166,686

Adjusted earnings per share—diluted	$	0.06		$	0.06		$	0.05		$	0.05		$	0.06


	Three Months Ended
Adjusted Operating Income and Adjusted Operating Income Margin:	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Operating revenues	$	68,907		$	67,718		$	66,293		$	65,485		$	67,867

Operating income	$	14,809		$	16,131		$	11,911		$	10,683		$	11,819
Add back: Severance expense, before income taxes		—			—			1,475			2,020			2,014
Add back: Acquisition and disposition-related costs, before income taxes		366			190			33			313			1,008

Adjusted operating income	$	15,175		$	16,321		$	13,419		$	13,016		$	14,841

Adjusted operating income margin		22.0	%		24.1	%		20.2	%		19.9	%		21.9	%


	Three Months Ended
Adjusted Compensation:	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Compensation expense	$	19,280		$	18,880		$	21,300		$	21,301		$	18,838
Deduct: Severance expense, before income taxes		—			—			(1,475	)		(2,020	)		(2,014	)

Adjusted compensation expense	$	19,280		$	18,880		$	19,825		$	19,281		$	16,824



	Three Months Ended
Adjusted Total Operating Expenses:	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Total operating expenses	$	54,098		$	51,587		$	54,382		$	54,802		$	56,048
Deduct: Severance expense, before income taxes		—			—			(1,475	)		(2,020	)		(2,014	)
Deduct: Acquisition and disposition-related costs, before income taxes		(366	)		(190	)		(33	)		(313	)		(1,008	)

Adjusted operating expenses	$	53,732		$	51,397		$	52,874		$	52,469		$	53,026


	Three Months Ended
Adjusted Income Before Income Taxes:	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Income/(loss) before income taxes	$	7,783		$	8,635		$	6,066		$	7,775		$	(12,597	)
Add back/(deduct): Unrealized loss/(gain) on revaluation of deferred consideration		5,354			6,306			4,037			(4,404	)		5,410
Add back: Loss recognized upon reduction of a tax-related indemnification asset		—			—			—			4,310			—
Add back: Severance expense, before income taxes		—			—			1,475			2,020			2,014
Add back: Impairments, before income taxes		—			—			—			572			17,386
Add back: Acquisition and disposition-related costs, before income taxes		366			190			33			313			1,008

Adjusted income before income taxes	$	13,503		$	15,131		$	11,611		$	10,586		$	13,221


	Three Months Ended
Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate:	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Adjusted income before income taxes (above)	$	13,503		$	15,131		$	11,611		$	10,586		$	13,221

Income tax expense/(benefit)	$	3,525		$	4,483		$	3,587		$	(1,049	)	$	(1,033	)
Add back: Tax benefit arising from reduction of a tax-related indemnification asset		—			—			—			4,310			—
Add back: Tax benefit arising from severance expense		—			—			281			499			488
Add back: Tax benefit arising from impairments		—			—			—			—			3,338
Add back/(deduct): Tax windfalls/(shortfalls) upon vesting and exercise of stock-based compensation awards		(142	)		(30	)		(76	)		(971	)		403
Add back: Tax benefit arising from acquisition and disposition-related costs		13			36			6			60			196

Adjusted income tax expense	$	3,396		$	4,489		$	3,798		$	2,849		$	3,392

Adjusted effective income tax rate		25.1	%		29.7	%		32.7	%		26.9	%		25.7	%

WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES

GAAP to NON-GAAP RECONCILIATION (SEGMENTS)

(in thousands)

(Unaudited)


	Three Months Ended
Gross Margin and Gross Margin Percentage (U.S. Business):	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Operating revenues	$	43,028		$	42,031		$	43,146		$	42,623		$	45,759
Less: Fund management and administration		(8,070	)		(8,072	)		(8,505	)		(8,340	)		(9,038	)

Gross margin	$	34,958		$	33,959		$	34,641		$	34,283		$	36,721

Gross margin percentage (U.S. Business)		81.2	%		80.8	%		80.3	%		80.4	%		80.2	%


	Three Months Ended
Adjusted Operating Income Margin (U.S. Business):	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Operating revenues	$	43,028		$	42,031		$	43,146		$	42,623		$	45,759

Operating income	$	9,021		$	8,554		$	6,739		$	5,447		$	8,771
Add back: Severance expense, before income taxes		—			—			1,366			2,020			2,014
Add back: Acquisition and disposition-related costs, before income taxes		170			—			—			11			72

Adjusted operating income	$	9,191		$	8,554		$	8,105		$	7,478		$	10,857

Adjusted operating income margin (U.S. Business)		21.4	%		20.4	%		18.8	%		17.5	%		23.7	%


	Three Months Ended
Gross Margin and Gross Margin Percentage (International):	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Operating revenues	$	25,879		$	25,687		$	23,147		$	22,862		$	22,108
Less: Fund management and administration		(7,580	)		(7,038	)		(7,071	)		(6,826	)		(6,823	)

Gross margin	$	18,299		$	18,649		$	16,076		$	16,036		$	15,285

Gross margin percentage (International)		70.7	%		72.6	%		69.5	%		70.1	%		69.1	%


	Three Months Ended
Adjusted Operating Income Margin (International):	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018
Operating revenues	$	25,879		$	25,687		$	23,147		$	22,862		$	22,108

Operating income	$	5,788		$	7,577		$	5,172		$	5,236		$	3,048
Add back: Severance expense, before income taxes		—			—			109			—			—
Add back: Acquisition and disposition-related costs, before income taxes		196			190			33			302			936

Adjusted operating income	$	5,984		$	7,767		$	5,314		$	5,538		$	3,984

Adjusted operating income margin (International)		23.1	%		30.2	%		23.0	%		24.2	%		18.0	%

Cautionary Statement Regarding Forward-Looking Statements

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

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

•

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

•

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

•

our ability to deliver favorable rates of return to investors;

•

competition in our business;

•

our ability to develop new products and services;

•

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

•

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

•

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

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

•

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

•

fluctuations in the amount and mix of our AUM, whether caused by disruptions in the financial markets or otherwise, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity, increase the cost of borrowing or result in our debt being called prior to maturity;

•

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

•

competitive pressures could reduce revenues and profit margins;

•

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

•

a significant portion of our AUM is held in ETPs that invest in foreign securities and we therefore have substantial exposure to foreign market conditions and are subject to currency exchange rate risks;

•

net outflows in our two largest currency hedged ETPs – the WisdomTree Europe Hedged Equity Fund and the WisdomTree Japan Hedged Equity Fund – have had, and in the future could continue to have, a negative impact on our revenues;

•

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

•

many of our ETPs 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, 2018.

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

WisdomTree Investments, Inc. - FORM 8-K - EX-99.1 - January 31, 2020

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