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WisdomTree Announces First Quarter 2022 Results - Diluted Loss Per Share of ($0.08) (Earnings Per Share of $0.09, as adjusted)
ソース: Nasdaq GlobeNewswire / 29 4 2022 06:00:01 America/Chicago
NEW YORK, N.Y., April 29, 2022 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the first quarter of 2022.
($10.3) million net loss ($14.1 (1) million net income, as adjusted), see “Non-GAAP Financial Measurements” for additional information.
$17.0 million non-cash charge associated with the revaluation of deferred consideration – gold payments.
$79.4 billion of ending AUM, an increase of 2.5% arising from net inflows and market appreciation.
$1.3 billion of net inflows, primarily driven by inflows into our fixed income and U.S. equity products, partly offset by outflows from our commodity products.
0.40% average advisory fee, unchanged from the previous quarter.
$78.4 million of operating revenues, a decrease of 1.0% due to two fewer revenue days in the quarter, partly offset by higher average AUM.
80.2% gross margin(1), essentially unchanged from the previous quarter.
22.6% operating income margin (25.7%(1) as adjusted), a 5.9 point decrease (2.8 point decrease, as adjusted(1)) primarily due to higher operating expenses. Our unadjusted operating income margin is impacted by $2.4 million of expenses incurred in responding to the activist campaign by ETFS Capital Limited and Lion Point Capital, LP (collectively, the “Investor Group”), as evidenced by their Schedule 13D, initially filed January 24, 2022, and thereafter amended (the “activist campaign”).
$0.03 quarterly dividend declared, payable on May 25, 2022 to stockholders of record as of the close of business on May 11, 2022.
Update from Jonathan Steinberg, WisdomTree CEO
“This quarter marked WisdomTree’s sixth consecutive quarter of organic growth, strong earnings results and record assets under management. It is important to note that the robust organic growth and sustainable momentum we are experiencing today did not happen overnight, but rather has been the result of executing on the vision and strategy we laid out over the course of many years of diversifying the business, developing world class tools for advisors and launching a solutions platform into the key driver of growth it is today. Just as our strong execution has yielded today’s robust business with $3 billion of net inflows year-to-date, our strong execution on future opportunities with large addressable markets such as managed models and digital assets will further accelerate WisdomTree’s growth in the years to come.”
Update from Jarrett Lilien, WisdomTree COO and President“Managed model portfolios have grown into a WisdomTree success story, with platform AUM at over $2 billion in only two years, and roughly 12% of US ETF inflows from managed model strategies, up from 10% in the second half of last year. Model flows are recurring in nature and stackable on top of our current inflow profile. We are excited about the trajectory of our models franchise and anticipate a long, lucrative growth runway ahead.
For WisdomTree, I see another major success story on the horizon: being a first mover in digital assets. The mission is simple: first, bring crypto exposures into the mainstream financial ecosystem through ETPs and separate accounts; and second, bring mainstream financial assets into the digital world through blockchain-enabled funds and tokenized assets. Viewed this way, digital assets are a natural extension of what we do – delivering our investors best structured access to various asset classes. We have the vision, we have the products, we have the new D2C channel with WisdomTree Prime™, and we are excited to execute on this massive opportunity.”
OPERATING AND FINANCIAL HIGHLIGHTSThree Months Ended Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Consolidated Operating Highlights ($ in billions): AUM $ 79.4 $ 77.5 $ 72.8 $ 73.9 $ 69.5 Net inflows $ 1.3 $ 1.9 $ 0.5 $ 0.9 $ 1.3 Average AUM $ 77.8 $ 76.0 $ 74.5 $ 73.6 $ 69.6 Average advisory fee 0.40 % 0.40 % 0.41 % 0.40 % 0.41 % Consolidated Financial Highlights ($ in millions, except per share amounts): Operating revenues $ 78.4 $ 79.2 $ 78.1 $ 75.8 $ 71.3 Net (loss)/income $ (10.3 ) $ 11.2 $ 5.8 $ 17.6 $ 15.1 Diluted (loss)/earnings per share $ (0.08 ) $ 0.07 $ 0.04 $ 0.11 $ 0.09 Operating income margin 22.6 % 28.5 % 31.0 % 31.3 % 26.1 % As Adjusted (Non-GAAP(1)): Gross margin 80.2 % 80.5 % 80.6 % 81.0 % 80.4 % Net income, as adjusted $ 14.1 $ 15.7 $ 16.3 $ 16.8 $ 12.5 Diluted earnings per share, as adjusted $ 0.09 $ 0.10 $ 0.10 $ 0.10 $ 0.08 Operating income margin, as adjusted 25.7 % 28.5 % 31.0 % 31.3 % 26.1 %
RECENT BUSINESS DEVELOPMENTS
Company News
- In February 2022, our Board of Directors authorized an increase and extension to our existing stock repurchase program.
- In March 2022, our Board of Directors adopted a limited duration stockholder rights plan.
- Also in March 2022, we promoted Ben Wallach and Heather Reisner to strengthen our ESG focus with customer-focused product innovation in the U.S.; and we won three ETF Express European Awards 2022: Best Leveraged & Inverse ETF Issuer (Including ETNs), Best Thematic ETF Issuer ($100M+) and Best European Equity ETF Issuer ($100M-$1BN).
- In February 2022, we launched the WisdomTree Battery Value Chain and Innovation Fund (WBAT) on the CBOE; we launched the WisdomTree New Economy Real Estate UCITS ETF (WTRE) on the London Stock Exchange, Börse Xetra and Borsa Italiana; and we cross-listed the WisdomTree Crypto Market ETP (BLOC) and the WisdomTree Crypto Altcoins ETP (WALT) on Euronext exchanges in Paris, France and Amsterdam, the Netherlands.
- In March 2022, we executed a 1:2 reverse share split on the WisdomTree Floating Rate Treasury fund (USFR); we launched the WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE) on the CBOE; we launched the WisdomTree S&P 500 (WSPX), the WisdomTree EURO STOXX 50 (WS5X) and the WisdomTree FTSE MIB (WMIB) on Borsa Italiana and the WisdomTree STOXX Europe Travel & Leisure 2x Daily Leveraged (2TRV), the WisdomTree STOXX Europe Travel & Leisure 2x Daily Short (2STR), the WisdomTree STOXX Europe Automobiles 2x Daily Leveraged (2CAR) and the WisdomTree STOXX Europe Oil & Gas 2x Daily Short (2OIG) on the London Stock Exchange, Börse Xetra and Borsa Italiana; we listed Swiss Franc (CHF) trading lines for the WisdomTree Bitcoin ETP (BTCW) and the WisdomTree Ethereum ETP (ETHW) listed on SIX; we launched the WisdomTree Solana ETP (SOLW), the WisdomTree Cardano ETP (ADAW) and the WisdomTree Polkadot ETP (DOTW) on Börse Xetra, SIX and Euronext in Paris, France and Amsterdam, the Netherlands; and the WisdomTree Emerging Markets ex-State Owned Enterprises ESG Screened UCITS ETF (XSOE) won in the ‘Innovative Newcomer ETF’ category at the XENIX ETF awards 2022.
- In April 2022, the WisdomTree New Economy Real Estate Fund (WTRE) was restructured from the WisdomTree Global ex-U.S. Real Estate Fund (DRW); we launched our Portfolio and Growth Solutions to address the needs of RIAs and IBDs to help scale and grow their businesses; we launched a pair of thematic metals ETPs: the WisdomTree Battery Metals ETP (WATT) and the WisdomTree Energy Transition Metals ETP (WENT) on the London Stock Exchange, Börse Xetra and Borsa Italiana; we cross-listed the WisdomTree AT1 CoCo Bond UCITS ETF (COCB) and the WisdomTree Cybersecurity UCITS ETF (WCBR) in Mexico; we cross-listed the WisdomTree USD Floating Rate Treasury Bond UCITS ETF (TFRN) on Borsa Italiana; we cross-listed the WisdomTree Global Quality Dividend Growth UCITS ETF (GGRW) on Börse Xetra; and we launched the WisdomTree Recycling Decarbonisation UCITS ETF (WRCY) on the London Stock Exchange, Börse Xetra and Borsa Italiana.
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)Three Months Ended Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Operating Revenues: Advisory fees $ 76,517 $ 77,441 $ 76,400 $ 74,169 $ 70,042 Other income 1,851 1,734 1,712 1,606 1,214 Total revenues 78,368 79,175 78,112 75,775 71,256 Operating Expenses: Compensation and benefits 24,787 23,178 22,027 20,331 22,627 Fund management and administration 15,494 15,417 15,181 14,367 13,947 Marketing and advertising 4,023 4,565 2,925 3,594 3,006 Sales and business development 2,609 2,668 2,935 2,159 2,145 Contractual gold payments 4,450 4,262 4,250 4,314 4,270 Professional fees 4,459 2,099 1,583 1,921 2,013 Occupancy, communications and equipment 753 725 1,163 1,266 1,475 Depreciation and amortization 47 45 185 256 252 Third-party distribution fees 2,212 1,830 1,873 2,130 1,343 Other 1,845 1,823 1,787 1,752 1,571 Total operating expenses 60,679 56,612 53,909 52,090 52,649 Operating income 17,689 22,563 24,203 23,685 18,607 Other Income/(Expenses): Interest expense (3,732 ) (3,740 ) (3,729 ) (2,567 ) (2,296 ) (Loss)/gain on revaluation of deferred consideration—gold payments (17,018 ) (3,048 ) 1,737 497 2,832 Interest income 794 864 689 225 231 Impairments — — (15,853 ) — (303 ) Other losses and gains, net (24,707 ) (1,368 ) (714 ) 49 (5,893 ) (Loss)/income before income taxes (26,974 ) 15,271 6,333 21,889 13,178 Income tax (benefit)/expense (16,713 ) 4,084 500 4,259 (1,969 ) Net (loss)/income $ (10,261 ) $ 11,187 $ 5,833 $ 17,630 $ 15,147 (Loss)/earnings per share—basic $ (0.08 ) (2) $ 0.07 (2) $ 0.04 $ 0.11 (2) $ 0.09 (2) (Loss)/earnings per share—diluted $ (0.08 ) (2) $ 0.07 $ 0.04 $ 0.11 $ 0.09 Weighted average common shares–basic 142,782 142,070 142,070 145,542 145,649 Weighted average common shares—diluted 142,782 159,826 159,213 164,855 161,831 As Adjusted (Non-GAAP(1)) Total operating expenses $ 58,244 $ 56,612 $ 53,909 $ 52,090 $ 52,649 Operating income $ 20,124 $ 22,563 $ 24,203 $ 23,685 $ 18,607 Income before income taxes $ 17,674 $ 19,968 $ 20,991 $ 21,253 $ 15,583 Income tax expense $ 3,888 $ 4,232 $ 4,674 $ 4,458 $ 3,079 Net income $ 14,063 $ 15,736 $ 16,317 $ 16,795 $ 12,504 Earnings per share—diluted $ 0.09 $ 0.10 $ 0.10 $ 0.10 $ 0.08 QUARTERLY HIGHLIGHTS
Operating Revenues
- Operating revenues decreased 1.0% from the fourth quarter of 2021 due to two fewer revenue days in the quarter, partly offset by higher average AUM.
- Operating revenues increased 10.0% from the first quarter of 2021 due to higher average AUM, partly offset by a lower average advisory fee.
- Our average advisory fee was 0.40%, 0.40% and 0.41% during the first quarter of 2022, the fourth quarter of 2021 and the first quarter of 2021, respectively.
Operating Expenses
- Operating expenses increased 7.2% from the fourth quarter of 2021 primarily due to $2.4 million of professional fees incurred in response to the activist campaign, higher compensation expense arising from seasonal payroll taxes and higher third-party distribution fees. These increases were partly offset by lower marketing expenses.
- Operating expenses increased 15.3% from the first quarter of 2021 primarily due to $2.4 million of professional fees incurred in response to the activist campaign, higher compensation arising from increased headcount, higher fund management and administration costs, as well as higher marketing expenses, third-party distribution fees and sales and business development expenses. These increases were partly offset by lower occupancy expenses.
Other Income/(Expenses)
- Interest expense was essentially unchanged from the fourth quarter of 2021. This expense increased 62.5% from the first quarter of 2021 due to a higher level of debt outstanding, partly offset by a lower effective interest rate.
- We recognized a non-cash loss on revaluation of deferred consideration of $17.0 million during the first quarter of 2022. The loss was due to higher forward-looking gold prices. 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 income decreased 8.1% from the fourth quarter of 2021 and increased 243.7% from first quarter of 2021 due to a change in our securities owned.
- Other net losses were $24.7 million for the first quarter of 2022. The quarter includes a non-cash charge of $19.9 million upon the release of tax-related indemnification assets arising from a favorable resolution of certain tax audits as well as the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense). This quarter also includes losses on our securities owned of $5.1 million. 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 and other miscellaneous items.
Income Taxes
- Our effective income tax rate for the first quarter of 2022 was 62.0% resulting in an income tax benefit of $16.7 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above, a lower tax rate on foreign earnings and tax windfalls associated with the vesting of stock-based compensation awards. These items were partly offset by a non-taxable loss on revaluation of deferred consideration and an increase in the deferred tax asset valuation allowance on losses recognized on securities owned.
- Our adjusted effective income tax rate was 20.4%(1).
CONFERENCE CALL
WisdomTree will discuss its results and operational highlights during a conference call on Friday, April 29, 2022 at 9:00 a.m. ET. The call-in number is (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, cryptocurrency and alternative strategies. WisdomTree currently has over $77.8 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/(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. (3) Cash flows from purchasing securities owned, at fair value of ($1,657) and selling securities owned, at fair value of $1,232 during the three months ended March 31, 2021 that were not acquired specifically for resale or associated with our business activities have been reclassified from operating activities to investing activities to conform to our current presentation in the Consolidated Statements of Cash Flows. Contact Information: Investor Relations Media Relations Jeremy Campbell Jessica Zaloom +1.646.522.2602 +1.917.267.3735 Jeremy.campbell@wisdomtree.com jzaloom@wisdomtree.com WisdomTree Investments, Inc.
Key Operating Statistics (Unaudited) Three Months Ended Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021GLOBAL ETPs ($ in millions) Beginning of period assets $ 77,471 $ 72,774 $ 73,935 $ 69,527 $ 67,383 Inflows/(outflows) 1,314 1,908 547 932 1,268 Market appreciation/(depreciation) 618 2,804 (1,708 ) 3,480 876 Fund closures — (15 ) — (4 ) — End of period assets $ 79,403 $ 77,471 $ 72,774 $ 73,935 $ 69,527 Average assets during the period $ 77,813 $ 75,986 $ 74,544 $ 73,615 $ 69,570 Average advisory fee during the period 0.40 % 0.40 % 0.41 % 0.40 % 0.41 % Revenue days 90 92 92 91 90 Number of ETFs—end of the period 341 329 322 318 313 U.S. LISTED ETFs ($ in millions) Beginning of period assets $ 48,210 $ 44,742 $ 45,129 $ 42,163 $ 38,517 Inflows/(outflows) 2,250 1,865 612 1,130 1,343 Market appreciation/(depreciation) (1,838 ) 1,618 (999 ) 1,836 2,303 Fund closures — (15 ) — — — End of period assets $ 48,622 $ 48,210 $ 44,742 $ 45,129 $ 42,163 Average assets during the period $ 47,506 $ 46,944 $ 45,506 $ 44,183 $ 40,706 Number of ETFs—end of the period 77 75 73 73 68 EUROPEAN LISTED ETPs ($ in millions) Beginning of period assets $ 29,261 $ 28,032 $ 28,806 $ 27,364 $ 28,866 Inflows/(outflows) (936 ) 43 (65 ) (198 ) (75 ) Market appreciation/(depreciation) 2,456 1,186 (709 ) 1,644 (1,427 ) Fund closures — — — (4 ) — End of period assets $ 30,781 $ 29,261 $ 28,032 $ 28,806 $ 27,364 Average assets during the period $ 30,307 $ 29,042 $ 29,038 $ 29,432 $ 28,864 Number of ETPs—end of the period 264 254 249 245 245 PRODUCT CATEGORIES ($ in millions) Commodity & Currency Beginning of period assets $ 24,598 $ 23,825 $ 24,772 $ 23,656 $ 25,880 Inflows/(outflows) (1,058 ) (246 ) (249 ) (318 ) (672 ) Market appreciation/(depreciation) 2,761 1,019 (698 ) 1,434 (1,552 ) End of period assets $ 26,301 $ 24,598 $ 23,825 $ 24,772 $ 23,656 Average assets during the period $ 25,893 $ 24,423 $ 24,850 $ 25,550 $ 25,290 U.S. Equity Beginning of period assets $ 23,860 $ 21,383 $ 21,285 $ 20,019 $ 18,367 Inflows/(outflows) 779 784 351 191 218 Market appreciation/(depreciation) (901 ) 1,693 (253 ) 1,075 1,434 End of period assets $ 23,738 $ 23,860 $ 21,383 $ 21,285 $ 20,019 Average assets during the period $ 23,141 $ 22,964 $ 21,791 $ 20,982 $ 19,320 International Developed Market Equity Beginning of period assets $ 11,888 $ 11,174 $ 10,785 $ 9,984 $ 9,406 Inflows/(outflows) 97 440 403 399 17 Market appreciation/(depreciation) (566 ) 274 (14 ) 402 561 End of period assets $ 11,419 $ 11,888 $ 11,174 $ 10,785 $ 9,984 Average assets during the period $ 11,539 $ 11,518 $ 11,140 $ 10,520 $ 9,786 Three Months Ended Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Emerging Market Equity Beginning of period assets $ 10,375 $ 10,666 $ 11,519 $ 10,477 $ 8,539 Inflows/(outflows) 189 (3 ) (149 ) 530 1,663 Market appreciation/(depreciation) (573 ) (288 ) (704 ) 512 275 End of period assets $ 9,991 $ 10,375 $ 10,666 $ 11,519 $ 10,477 Average assets during the period $ 10,116 $ 10,550 $ 11,038 $ 11,012 $ 9,875 Fixed Income Beginning of period assets $ 4,354 $ 3,528 $ 3,439 $ 3,244 $ 3,308 Inflows/(outflows) 1,242 837 115 168 10 Market appreciation/(depreciation) (178 ) (11 ) (26 ) 27 (74 ) End of period assets $ 5,418 $ 4,354 $ 3,528 $ 3,439 $ 3,244 Average assets during the period $ 4,690 $ 4,117 $ 3,500 $ 3,335 $ 3,234 Leveraged & Inverse Beginning of period assets $ 1,775 $ 1,663 $ 1,691 $ 1,519 $ 1,477 Inflows/(outflows) (2 ) 11 41 (2 ) (4 ) Market appreciation/(depreciation) 83 101 (69 ) 174 46 End of period assets $ 1,856 $ 1,775 $ 1,663 $ 1,691 $ 1,519 Average assets during the period $ 1,830 $ 1,761 $ 1,715 $ 1,664 $ 1,554 Cryptocurrency Beginning of period assets $ 357 $ 295 $ 229 $ 377 $ 167 Inflows/(outflows) 37 28 12 8 36 Market appreciation/(depreciation) (11 ) 34 54 (156 ) 174 End of period assets $ 383 $ 357 $ 295 $ 229 $ 377 Average assets during the period $ 324 $ 406 $ 277 $ 300 $ 264 Alternatives Beginning of period assets $ 261 $ 222 $ 198 $ 227 $ 215 Inflows/(outflows) 29 56 22 (39 ) — Market appreciation/(depreciation) 3 (17 ) 2 10 12 End of period assets $ 293 $ 261 $ 222 $ 198 $ 227 Average assets during the period $ 275 $ 229 $ 214 $ 231 $ 223 Closed ETPs Beginning of period assets $ 3 $ 18 $ 17 $ 24 $ 24 Inflows/(outflows) 1 1 1 (5 ) — Market appreciation/(depreciation) — (1 ) — 2 — Fund closures — (15 ) — (4 ) — End of period assets $ 4 $ 3 $ 18 $ 17 $ 24 Average assets during the period $ 5 $ 18 $ 19 $ 21 $ 24 Headcount 253 241 235 227 227 Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTreeWISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)Mar. 31,
2022Dec. 31,
2021(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 110,395 $ 140,709 Securities owned, at fair value 133,846 127,166 Accounts receivable 35,191 31,864 Prepaid expenses 6,177 3,952 Income taxes receivable 244 — Other current assets 327 276 Total current assets 286,180 303,967 Fixed assets, net 559 557 Indemnification receivable 1,452 21,925 Securities held-to-maturity 290 308 Deferred tax assets, net 3,734 8,881 Investments 20,938 14,238 Right of use assets—operating leases 424 520 Goodwill 85,856 85,856 Intangible assets 601,247 601,247 Other noncurrent assets 357 361 Total assets $ 1,001,037 $ 1,037,860 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Current liabilities: Fund management and administration payable $ 23,795 $ 20,661 Compensation and benefits payable 8,986 32,782 Deferred consideration—gold payments 17,882 16,739 Operating lease liabilities 244 209 Income taxes payable — 3,979 Accounts payable and other liabilities 15,979 9,297 Total current liabilities 66,886 83,667 Convertible notes 319,269 318,624 Deferred consideration—gold payments 227,295 211,323 Operating lease liabilities 189 328 Other noncurrent liabilities 1,452 21,925 Total liabilities 615,091 635,867 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: 146,560 and 145,107 at March 31, 2022 and December 31, 2021, respectively 1,466 1,451 Additional paid-in capital 284,421 289,736 Accumulated other comprehensive income 196 682 Accumulated deficit (32,706 ) (22,445 ) Total stockholders’ equity 253,377 269,424 Total liabilities and stockholders’ equity $ 1,001,037 $ 1,037,860 WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)Three Months Ended Mar. 31,
2022Mar. 31,
2021(3)Cash flows from operating activities: Net (loss)/income $ (10,261 ) $ 15,147 Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities: Loss/(gain) on revaluation of deferred consideration—gold payments 17,018 (2,832 ) Advisory and license fees paid in gold, other precious metals and cryptocurrency (16,052 ) (19,757 ) Deferred income taxes 5,273 2,904 Losses on securities owned, at fair value 5,142 549 Contractual gold payments 4,450 4,270 Stock-based compensation 2,936 3,143 Amortization of issuance costs—convertible notes 645 429 Amortization of right of use asset 89 697 Depreciation and amortization 47 252 Impairments — 303 Other 163 (235 ) Changes in operating assets and liabilities: Accounts receivable (3,710 ) 290 Prepaid expenses (2,264 ) (362 ) Gold and other precious metals 11,959 14,166 Other assets (52 ) 5 Fund management and administration payable 3,199 (1,470 ) Compensation and benefits payable (23,690 ) (14,245 ) Income taxes receivable/payable (4,228 ) (1,028 ) Operating lease liabilities (97 ) (918 ) Accounts payable and other liabilities 6,741 982 Net cash (used in)/provided by operating activities (2,692 ) 2,290 Cash flows from investing activities: Purchase of securities owned, at fair value (25,461 ) (1,657 ) Purchase of investments (6,863 ) (5,500 ) Purchase of fixed assets (54 ) (103 ) Proceeds from the sale of securities owned, at fair value 13,639 1,232 Proceeds from held-to-maturity securities maturing or called prior to maturity 18 38 Net cash used in investing activities (18,721 ) (5,990 ) Cash flows from financing activities: Dividends paid (4,842 ) (4,937 ) Shares repurchased (3,394 ) (2,630 ) Proceeds from exercise of stock options — 379 Net cash used in financing activities (8,236 ) (7,188 ) Decrease in cash flow due to changes in foreign exchange rate (665 ) (235 ) Net decrease in cash and cash equivalents (30,314 ) (11,123 ) Cash and cash equivalents—beginning of period 140,709 73,425 Cash and cash equivalents—end of period $ 110,395 $ 62,302 Supplemental disclosure of cash flow information: Cash paid for taxes $ 2,123 $ 1,278 Cash paid for interest $ — $ —
Non-GAAP Financial MeasurementsIn 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 press release include:
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 measurements provides investors with a consistent way to analyze our performance. These non-GAAP financial measurements 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 and changes in the discount rate used to compute the present value of the annual payment obligations 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.
Gains or losses on securities owned: We account for our securities owned as trading securities which requires these instruments to be measured at fair value with gains and losses reported in net income. In the third quarter of 2021, we began excluding these items when calculating our non-GAAP financial measurements as these securities have become a more meaningful percentage of total assets and the gains and losses introduce volatility in earnings and are not core to our operating business.
Tax windfalls and shortfalls 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: Unrealized gains and losses recognized on our investments, changes in the deferred tax asset valuation allowance on securities owned, expenses incurred in response to the activist campaign, impairment charges and the remeasurement of contingent consideration payable to us from the sale of our Canadian ETF business.
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.
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,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Net (loss)/income, as reported $ (10,261 ) $ 11,187 $ 5,833 $ 17,630 $ 15,147 Add back/Deduct: Loss/(gain) on revaluation of deferred consideration 17,018 3,048 (1,737 ) (497 ) (2,832 ) Add back: Increase in deferred tax asset valuation allowance on securities owned 2,010 — — — — Add back: Losses on securities owned, net of income taxes 3,893 1,501 1,006 — — Add back: Expenses incurred in response to the activist campaign, net of income taxes 1,844 — — — — Deduct/Add back: Tax (windfalls)/shortfalls upon vesting and exercise of stock-based compensation awards (565 ) — — (233 ) 123 Add back/Deduct: Unrealized loss/(gain) recognized on our investments, net of income taxes 124 — — (105 ) (179 ) Add back: Impairments, net of income taxes (where applicable) — — 12,002 — 245 Deduct: Remeasurement of contingent consideration – sale of Canadian ETF business — — (787 ) — — Adjusted net income $ 14,063 $ 15,736 $ 16,317 $ 16,795 $ 12,504 Weighted average common shares - diluted 158,335 159,826 159,213 164,855 161,831 Adjusted earnings per share - diluted $ 0.09 $ 0.10 $ 0.10 $ 0.10 $ 0.08 Three Months Ended Gross Margin and Gross Margin Percentage: Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Operating revenues $ 78,368 $ 79,175 $ 78,112 $ 75,775 $ 71,256 Less: Fund management and administration (15,494 ) (15,417 ) (15,181 ) (14,367 ) (13,947 ) Gross margin $ 62,874 $ 63,758 $ 62,931 $ 61,408 $ 57,309 Gross margin percentage 80.2 % 80.5 % 80.6 % 81.0 % 80.4 % Three Months Ended Adjusted Operating Income and Adjusted Operating Income Margin: Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Operating revenues $ 78,368 $ 79,175 $ 78,112 $ 75,775 $ 71,256 Operating income $ 17,689 $ 22,563 $ 24,203 $ 23,685 $ 18,607 Add back: Expenses incurred in response to the activist campaign 2,435 — — — — Adjusted operating income $ 20,124 $ 22,563 $ 24,203 $ 23,685 $ 18,607 Adjusted operating income margin 25.7 % 28.5 % 31.0 % 31.3 % 26.1 % Three Months Ended Adjusted Total Operating Expenses: Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021Total operating expenses $ 60,679 $ 56,612 $ 53,909 $ 52,090 $ 52,649 Deduct: Expenses incurred in response to the activist campaign (2,435 ) — — — — Adjusted total operating expenses $ 58,244 $ 56,612 $ 53,909 $ 52,090 $ 52,649 Three Months Ended Adjusted Income Before Income Taxes: Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar. 31,
2021(Loss)/income before income taxes $ (26,974 ) $ 15,271 $ 6,333 $ 21,889 $ 13,178 Add back/ Deduct: Loss/(gain) on revaluation of deferred consideration 17,018 3,048 (1,737 ) (497 ) (2,832 ) Add back: Loss recognized upon reduction of a tax-related indemnification asset 19,890 — — — 5,171 Add back: Losses on securities owned 5,142 1,649 1,329 — — Add back: Expenses incurred in response to the activist campaign 2,435 — — — — Add back/(Deduct): Unrealized loss/(gain) recognized on investments 163 — — (139 ) (237 ) Add back: Impairments — — 15,853 — 303 Deduct: Remeasurement of contingent consideration – sale of Canadian ETF business — — (787 ) — — Adjusted income before income taxes $ 17,674 $ 19,968 $ 20,991 $ 21,253 $ 15,583 Three Months Ended Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate: Mar. 31,
2022Dec. 31,
2021Sept. 30,
2021June 30,
2021Mar 31,
2021Adjusted income before income taxes (above) $ 17,674 $ 19,968 $ 20,991 $ 21,253 $ 15,583 Income tax (benefit)/expense $ (16,713 ) $ 4,084 $ 500 $ 4,259 $ (1,969 ) Add back: Tax benefit arising from reduction of a tax-related indemnification asset 19,890 — — — 5,171 Deduct: Increase in deferred tax asset valuation allowance on securities owned (2,010 ) — — — — Add back: Tax benefit arising from losses on securities owned 1,249 148 323 — — Add back: Tax benefit arising from expenses incurred in response to the activist campaign 591 — — — — Add back/(Deduct): Tax benefit/(expense) on unrealized losses and gains on investments 39 — — (34 ) (58 ) Add back: Tax benefit arising from impairments — — 3,851 — 58 Add back/(Deduct): Tax windfalls/(shortfalls) upon vesting and exercise of stock-based compensation awards 565 — — 233 (123 ) Adjusted income tax expense $ 3,611 $ 4,232 $ 4,674 $ 4,458 $ 3,079 Adjusted effective income tax rate 20.4 % 21.2 % 22.3 % 21.0 % 19.8 % 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 ultimate duration of the COVID-19 pandemic, or the war in Ukraine, and its short-term and long-term impact on our business and the global economy;
- 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;
- whether we will experience future growth;
- our ability to develop new products and services and their success;
- our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;
- our ability to successfully implement our digital assets strategy, including WisdomTree Prime™, and achieve its objectives;
- 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:
- adverse market developments arising from the COVID-19 pandemic could negatively impact our assets under management, resulting in a decline in our revenues and other potential operational challenges;
- 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, or the war in Ukraine, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity or, increase the cost of borrowing upon a refinancing;
- 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 internationally. 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;
- 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; and
- actions of activist stockholders, such as the Investor Group, against us have been costly and may be disruptive and cause uncertainty about the strategic direction of our business.
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, 2021.
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.