“We have restored the momentum built prior to the pandemic through steadfast focus on what we can control and strong execution amid a highly volatile and unusual year. Important elements across our global franchise are starting to align and I’m excited about our growth outlook for the remainder of the year and into 2021.”

“Given the strength and sustainability of our execution over the past eight months, we have decided to pursue a ‘remote first’ philosophy and plan to reduce our office space globally. Technology has brought our team closer together and driven productivity gains while our funds continue to operate flawlessly with coordination from our third-party service providers. We are taking this action because we believe it is the right strategy to drive sustained momentum and future growth of the business and the cost savings could be meaningful.”

Consolidated Operating Highlights ($, in billions):

AUM

Net inflows/(outflows)

Average AUM

Average advisory fee

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

Operating revenues

Net (loss)/income

Diluted (loss)/earnings per share

Operating income margin

As Adjusted (Non-GAAP¹):

Gross margin

Net income, as adjusted

Diluted earnings per share, as adjusted

Operating income margin, as adjusted

Company News

•  In August 2020, we issued and sold an additional $25.0 million in aggregate principal amount of convertible senior notes due 2023 following our issuance in June 2020 of $150.0 million in aggregate principal amount of such notes.

•  In September 2020, we won two awards at the AJ Bell Fund & Investment Trust Awards 2020 for WisdomTree Physical Gold (PHAU) and WisdomTree Cloud Computing UCITS ETF (WCLD).

•  In October 2020, we were named “Best International Equity ETF Issuer ($1BN+)” by the ETF Express U.S. Awards 2020, which recognizes excellence among ETF issuers and service providers across a wide range of categories.

Product News

•  In August 2020, we announced an index change for WTI Crude Oil ETC (CRUD) following a vote by security holders; we announced that enhancements were made to the WisdomTree Growth Leaders Fund (PLAT) – previously the WisdomTree Modern Tech Platforms Fund – focusing on growth exposure of platform businesses with the addition of growth screen criteria and a fee reduction; and we cross-listed five funds in Mexico – four European products: SGBS, WCLD1, VOLT, WTAI and one U.S. ETF: WCLD.

•  In October 2020, we implemented a number of volatility proofing measures for three currency-hedged and six short-and-leveraged ETPs in Europe; we announced a forward share split of 2:1 on the WisdomTree China ex-State-Owned Enterprises Fund (CXSE); we applied an ESG screen and introduced the WisdomTree Composite Risk Score to the WisdomTree Global Quality Dividend Growth UCITS ETF (GGRA), the WisdomTree SmallCap Dividend UCITS ETF (DGSE) and the WisdomTree Emerging Markets Equity Income UCITS ETF (DEM); and we announced a collaboration with 55ip, a financial technology company, to deliver WisdomTree model portfolios utilizing 55ip’s automated tax-smart technology.

Operating Revenues:

Advisory fees

Other income

Total revenues

Operating Expenses:

Compensation and benefits

Fund management and administration

Marketing and advertising

Sales and business development

Contractual gold payments

Professional and consulting fees

Occupancy, communications and equipment

Depreciation and amortization

Third-party distribution fees

Acquisition and disposition- related costs

Other

Total operating expenses

Operating income

Other Income/(Expenses):

Interest expense

Loss on revaluation of deferred consideration – gold payments

Interest income

Impairments

Loss on extinguishment of debt

Other gains and losses, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net (loss)/income

(Loss)/earnings per share – basic

(Loss)/earnings per share – diluted

Weighted average common shares – basic

Weighted average common shares – diluted

As Adjusted (Non-GAAP¹)

Total operating expenses

Operating income

Income before income taxes

Income tax expense

Net income

Earnings per share – diluted

Operating revenues increased 11.2% from the second quarter of 2020 due to higher average global AUM arising from market appreciation, partly offset by net outflows. Also, our average global advisory fee increased 1 basis point due to AUM mix shift.

Operating revenues decreased 4.5% from the third quarter of 2019 due to a 2 basis point decline in our average global advisory fee arising from AUM mix shift, notwithstanding the increase in our average AUM.

Our average global advisory fee was 0.42%, 0.41% and 0.44% during the third quarter of 2020, the second quarter of 2020 and the third quarter of 2019, respectively.

Operating expenses increased 7.7% from the second quarter of 2020 due to higher incentive compensation accruals, marketing expenses, and higher fund management and administration costs due to higher average AUM and an increase in contractual gold payments due to higher average gold prices.

Operating expenses decreased 3.3% from the third quarter of 2019 due to lower sales and business development costs, partly offset by higher contractual gold payments due to higher average gold prices.

We recognized a non-cash loss on revaluation of deferred consideration of ($8.9) million, ($23.4) million and ($6.3) million during the third quarter of 2020, second quarter of 2020 and third quarter of 2019, respectively. 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 increased 22.8% from the second quarter of 2020 to $2.5 million primarily due to higher effective interest rates. This expense decreased 11.3% from the third quarter of 2019 primarily due to a lower level of debt outstanding.

During the third quarter of 2020, we recognized a non-cash impairment charge of $3.1 million related to our investment in Thesys.

Other gains, net, were $0.7 million, $1.8 million and $0.8 million for the third quarter of 2020, second quarter of 2020 and third quarter of 2019, respectively. The third quarter of 2020 and second quarter of 2020 includes a gain of $0.2 million and $0.9 million, respectively, arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine Inc. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations, securities owned and other miscellaneous items.

Our effective income tax rate for the third quarter of 2020 of 123.7% resulted in income tax expense of $1.4 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. This loss was partly offset by a lower tax rate on foreign earnings.

Our adjusted effective income tax rate was 16.7%¹.

Operating revenues decreased 6.4% as compared to 2019 due to a 3 basis point decline in our average global advisory fee arising from AUM mix shift.

Operating expenses decreased 10.1% as compared to 2019 due to lower incentive compensation accruals as well as $3.5 million of severance expense included in the prior period, lower sales and business development costs, third party distribution costs, marketing expenses and other expenses, as well as lower fund management and administration costs primarily due to the sale of our Canadian ETF business. These declines were partly offset by higher contractual gold payments due to higher average gold prices.

Significant changes in items reported in other income/(expenses) include a decrease in interest expense of 19.2% due to a lower level of debt outstanding; non-cash loss on revaluation of deferred consideration of ($34.4) million and ($5.9) million in 2020 and 2019, respectively; non-cash impairment charges of $22.8 million recorded in 2020; a loss on extinguishment of debt of $2.4 million in 2020; non-cash charges of $6.0 million and $4.3 million in 2020 and 2019, respectively, arising from the release of tax-related indemnification assets upon the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense); and a gain of $1.1 million in 2020 arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine.

Our effective income tax rate for 2020 of 7.4% resulted in an income tax benefit of $1.8 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a valuation allowance on capital losses, a non-deductible loss on revaluation of deferred consideration and tax shortfalls associated with the vesting and exercise of stock-based compensation awards. These items were partly offset by 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 in the first quarter, a tax benefit of $2.8 million recognized in connection with the release of a deferred tax asset valuation allowance on interest carryforwards arising from our debt previously held in the United Kingdom and a lower tax rate on foreign earnings.

See “Non-GAAP Financial Measurements.”

Earnings/(loss) per share (“EPS”) is calculated pursuant to the two-class method as it results in a lower EPS amount as compared to the treasury stock method.

GLOBAL ETPs ($ in millions)

Beginning of period assets

Assets sold

Inflows/(outflows)

Market appreciation/(depreciation)

Fund closures

End of period assets

Average assets during the period

Average advisory fee during the period

Revenue days

Number of ETFs – end of the period

U.S. LISTED ETFs ($ in millions)

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

Fund closures

End of period assets

Average assets during the period

Average advisory fee during the period

Number of ETFs – end of the period

INTERNATIONAL LISTED ETPs ($ in millions)

Beginning of period assets

Assets sold

Inflows/(outflows)

Market appreciation/(depreciation)

Fund closures

End of period assets

Average assets during the period

Average advisory fee during the period

Number of ETPs – end of the period

PRODUCT CATEGORIES ($ in millions)

Commodity & Currency

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

U.S. Equity

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

International Developed Market Equity

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

Emerging Market Equity

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

Fixed Income

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

Leveraged & Inverse

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

Alternatives

Beginning of period assets

Inflows/(outflows)

Market appreciation/(depreciation)

End of period assets

Average assets during the period

Closed ETPs

Beginning of period assets

Assets sold

Inflows/(outflows)

Market appreciation/(depreciation)

Fund closures

End of period assets

Average assets during the period

Headcount

ASSETS

Current assets:

Cash and cash equivalents

Securities owned, at fair value

Accounts receivable

Income taxes receivable

Prepaid expenses

Other current assets

Total current assets

Fixed assets, net

Notes receivable

Securities held-to-maturity

Deferred tax assets, net

Investments

Right of use assets – operating leases

Goodwill

Intangible assets

Other noncurrent assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Current liabilities:

Fund management and administration payable

Compensation and benefits payable

Deferred consideration – gold payments

Securities sold, but not yet purchased, at fair value

Operating lease liabilities

Income taxes payable

Accounts payable and other liabilities

Total current liabilities

Convertible notes

Debt

Deferred consideration – gold payments

Operating lease liabilities

Total liabilities

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

STOCKHOLDERS’ EQUITY

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

Issued and outstanding: 148,782 and 155,264 at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Cash flows from operating activities:

Net (loss)/income

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

Advisory fees received in gold and other precious metals

Loss on revaluation of deferred consideration – gold payments

Impairments

Contractual gold payments

Stock-based compensation

Gain on sale –Canadian ETF business

Loss on extinguishment of debt

Amortization of right of use asset

Amortization of issuance costs - former credit facility

Deferred income taxes

Amortization of issuance costs - convertible notes

Depreciation and amortization

Paid-in-kind interest income

Other

Changes in operating assets and liabilities:

Securities owned, at fair value

Accounts receivable

Income taxes receivable/payable

Prepaid expenses

Gold and other precious metals

Other assets

Fund management and administration payable

Compensation and benefits payable

Securities sold, but not yet purchased, at fair value

Operating lease liabilities

Accounts payable and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Purchase of fixed assets

Funding of notes receivable

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

Proceeds from the sale of our financial interests in AdvisorEngine

Proceeds from sale of Canadian ETF business, net

Net cash provided by investing activities

Cash flows from financing activities:

Repayment of debt

Shares repurchased

Dividends paid

Convertible notes issuance costs

Proceeds from the issuance of convertible notes

Proceeds from exercise of stock options

Net cash used in financing activities

Decrease in cash flows due to changes in foreign exchange rate

(Decrease)/increase in cash and cash equivalents

Cash and cash equivalents – beginning of year

Cash and cash equivalents – end of period

Supplemental disclosure of cash flow information:

Cash paid for taxes

Cash paid for interest

Adjusted operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share. We disclose adjusted 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.

Interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the convertible notes: GAAP requires convertible instruments to be separated into their liability and equity components by allocating the issuance proceeds to each of these components. The liability component for convertible instruments that qualify for a derivative scope exception (applicable to our convertible notes) is allocated proceeds equal to the estimated fair value of similar debt without the conversion option. The difference between the gross proceeds received from the issuance of the convertible instrument and the proceeds allocated to the liability component represents the residual amount that is classified in equity. The discount arising from the recognition of the residual amount classified in equity is amortized as interest expense over the life of the instrument. We exclude this item when calculating our non-GAAP financial measurements as it is non-cash and distorts our actual cost of borrowing. In addition, in August 2020, the FASB issued Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options, Cash Conversion which includes the elimination of the requirement to bifurcate conversion options qualifying for a derivative scope exception. Once effective, this interest expense will no longer be recognized.

Other items: Loss on extinguishment of debt, the release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from our debt previously outstanding in the United Kingdom, a gain arising from an adjustment to the estimated fair value of consideration received from the exit of our investment in AdvisorEngine, impairment charges, a gain recognized upon sale of our Canadian ETF business 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.

Adjusted Net Income and Diluted Earnings per Share:

Net (loss)/income, as reported

Add back: Loss on revaluation of deferred consideration

Add back: Impairments, net of income taxes

Add back: Interest expense from the amortization of discount arising from the bifurcation of the conversion option embedded in the convertible notes, net of income taxes

Deduct: Gain arising from an adjustment to the estimated fair value of consideration received from the exit of investment in AdvisorEngine

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

Add back: Loss on extinguishment of debt, net of income taxes

Deduct: Release of a deferred tax asset valuation allowance recognized on interest carryforwards arising from debt previously outstanding in the United Kingdom

Deduct: Gain recognized upon sale of Canadian ETF business

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

Adjusted net income

Weighted average common shares - diluted

Adjusted earnings per share - diluted

Gross Margin and Gross Margin Percentage:

Operating revenues

Less: Fund management and administration

Gross margin

Gross margin percentage

Adjusted Operating Income and Adjusted Operating Income Margin:

Operating revenues

Operating income

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

Adjusted operating income

Adjusted operating income margin

Adjusted Total Operating Expenses:

Total operating expenses

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