WisdomTree Announces First Quarter 2020 Results – Diluted Loss Per Share of ($0.06), or Earnings Per Share of $0.07, as adjusted
NEW YORK, May 01, 2020 (GLOBE NEWSWIRE) — WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the first quarter of 2020.
During the first quarter of 2020, market declines arising from the COVID-19 pandemic adversely impacted the market performance of most financial assets and sectors of the economy, including the AUM that we manage. While we have experienced a recent decline in revenue arising from this volatility, we continue to operate without disruption.$21.9 million of non-cash charges, including (i) a $19.7 million impairment charge related to our financial interests in AdvisorEngine in anticipation of our exit from this investment and (ii) a loss on revaluation of deferred consideration of $2.2 million.($8.6) million net loss, or $11.21 million net income, as adjusted, see “Non-GAAP Financial Measurements” for additional information. $50.3 billion of ending AUM, a decrease of 20.9% resulting from the market declines associated with the COVID-19 pandemic.$536 million of net outflows ($182 million of net inflows excluding HEDJ/DXJ), driven by outflows from our international developed market equity and U.S. equity products, partly offset by inflows into our commodity products.0.43% average global advisory fee, a decrease of 1.0 basis point due to AUM mix shift.$63.9 million of operating revenues, a decrease of 7.3% primarily due to lower average AUM and a lower average global advisory fee.77.3% gross margin1, unchanged from the prior quarter.24.5% operating income margin (25.1%1 as adjusted), a 3.0 point increase (3.1 point increase, as adjusted1) primarily due to reduced discretionary spending as a result of the COVID-19 pandemic.$5.0 million of available capital used to pay down debt, in connection with our capital management strategy.$0.03 quarterly dividend declared, payable on May 27, 2020 to stockholders of record as of the close of business May 13, 2020.Update from Jonathan Steinberg, WisdomTree CEOOPERATING AND FINANCIAL HIGHLIGHTSRECENT BUSINESS DEVELOPMENTS
QUARTERLY HIGHLIGHTSOperating RevenuesOperating revenues decreased 7.3% from the fourth quarter of 2019 primarily due to lower average AUM of our U.S. listed products arising from market depreciation and net outflows, as well as a 1 basis point decline in our average global advisory fee due to AUM mix shift.Operating revenues decreased 2.5% from the first quarter of 2019 primarily due to lower average AUM of our U.S. listed products arising from market depreciation and net outflows, as well as a 3 basis point decline in our average global advisory fee due to AUM mix shift. These declines were partly offset by higher average AUM of our International listed products. Our average global advisory fee was 0.43%, 0.44% and 0.46% during the first quarter of 2020, the fourth quarter of 2019 and the first quarter of 2019, respectively.Operating ExpensesOperating expenses decreased 10.8% from the fourth quarter of 2019 due to lower discretionary spending as a result of the COVID-19 pandemic, including lower sales and business development costs and marketing expenses. Fund management and administration costs were lower due to one-time costs recognized in the prior-period as we transitioned to new market making arrangements, as well as lower fund management and administration expenses resulting from the sale of our Canadian ETF business. Compensation expenses declined due to lower incentive compensation accruals, partly offset by seasonally higher payroll taxes associated with bonus payments made in the first quarter of 2020. Operating expenses decreased 12.0% from the first quarter of 2019 largely due to lower compensation resulting from lower incentive compensation accruals as well as $2.0 million of severance expense included in the prior period, lower third-party distribution fees and lower sales and business development expenses.Other Income/(Expenses)We recognized a non-cash loss on revaluation of deferred consideration of ($2.2) million and ($5.4) million during the first quarter of 2020 and fourth quarter of 2019, respectively, and a non-cash gain on revaluation of deferred consideration of $4.4 million during the first quarter of 2019. These (losses)/gains arose due to an increase/(decrease) in forward-looking gold prices when compared to the previous periods forward-looking gold curves. The magnitude of any gain or loss recognized is highly correlated to the magnitude of the change in the forward-looking price of gold.Interest expense decreased 7.2% from the fourth quarter of 2019 due to a lower level of debt outstanding. During the first quarter of 2020, we used $5.0 million of available capital to pay down our debt in connection with our capital management strategy.During the first quarter of 2020 and fourth quarter of 2019, we recognized a non-cash impairment charge of $19.7 million and $30.1 million, respectively, on our investment in AdvisorEngine.Other gains and losses, net, includes charges of $6.0 million and $4.3 million for the first quarter of 2020 and the first quarter of 2019, respectively, arising from a release of a tax-related indemnification asset upon the expiration of the statute of limitations. An equal and offsetting benefit has been recognized in income tax expense. In addition, during the first quarter of 2020, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business to CI Financial Corp.Income TaxesOur effective income tax rate for the first quarter of 2020 of 21.5% resulted in an income tax benefit of $2.4 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due a tax benefit of $6.0 million recognized in connection with the release of the tax-related indemnification asset described above, a $2.9 million non-taxable gain recognized upon sale of our Canadian ETF business and a lower tax rate on foreign earnings, partly offset by a valuation allowance on capital losses, tax shortfalls associated with the vesting and exercise of stock-based compensation awards and a non-deductible loss on revaluation of deferred consideration.
Our adjusted effective income tax rate was 21.8%1.CONFERENCE CALLWisdomTree will discuss its results and operational highlights during a conference call on Friday, May 1, 2020 at 9:00 a.m. ET. The call-in number will be (877) 303-7209. Anyone outside the U.S. or Canada should call (970) 315-0420. The slides used during the presentation will be available at http://ir.wisdomtree.com. For those unable to join the conference call at the scheduled time, an audio replay will be available on http://ir.wisdomtree.com.ABOUT WISDOMTREEWisdomTree Investments, Inc., through its subsidiaries in the U.S. and Europe (collectively, “WisdomTree”), is an ETF and ETP sponsor and asset manager headquartered in New York. WisdomTree offers products covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. WisdomTree currently has approximately $55.2 billion in assets under management globally.WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.
1 See “Non-GAAP Financial Measurements.”
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 release include:Adjusted compensation, operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share. We disclose adjusted compensation, operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance. These non-GAAP financial measures exclude the following:Unrealized gains or losses on the revaluation of deferred consideration: Deferred consideration is an obligation we assumed in connection with the ETFS acquisition that is carried at fair value. This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices. Changes in the forward-looking price of gold may have a material impact on the carrying value of the deferred consideration and our reported financial results. We exclude this item when calculating our non-GAAP financial measurements as it is not core to our operating business. The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.Other items: Impairment charges, gain recognized upon sale of our Canadian ETF business, severance expense and acquisition and disposition-related costs are excluded when calculating our non-GAAP financial measurements.Adjusted effective income tax rate. We disclose our adjusted effective income tax rate as a non-GAAP financial measurement in order to report our effective income tax rate exclusive of items that are non-recurring or not core to our operating business. We believe reporting our adjusted effective income tax rate provides investors with a consistent way to analyze our income taxes. Our adjusted effective income tax rate is calculated by dividing adjusted income tax expense by adjusted income before income taxes. See above for information regarding the items that are excluded. Gross margin and gross margin percentage. We disclose our gross margin and gross margin percentage as non-GAAP financial measurements because we believe they provide investors with a consistent way to analyze the amount we retain after paying third-party service providers to operate our ETPs. These measures also assist us in analyzing the profitability of our products. We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues. Adjusted operating income margin. We disclose adjusted operating income margin as a non-GAAP financial measurement in order to report our operating income margin exclusive of items that are non-recurring or not core to our operating business.
Cautionary Statement Regarding Forward-Looking StatementsThis 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 aboutthe COVID-19 pandemic; anticipated trends, conditions and investor sentiment in the global markets and ETPs;anticipated levels of inflows into and outflows out of our ETPs;our ability to deliver favorable rates of return to investors;competition in our business;our ability to develop new products and services;our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;our ability to successfully operate and expand our business in non-U.S. markets; andthe effect of laws and regulations that apply to our business.Our business is subject to many risks and uncertainties, including without limitation:declining prices of securities, gold and other precious metals and other commodities can adversely affect our business by reducing the market value of the assets we manage or causing WisdomTree ETP investors to sell their fund shares and trigger redemptions;fluctuations in the amount and mix of our AUM, whether caused by disruptions in the financial markets or otherwise, including but not limited to a pandemic event such as COVID-19, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity, increase the cost of borrowing or result in our debt being called prior to maturity;competitive pressures could reduce revenues and profit margins;we derive a substantial portion of our revenues from a limited number of products, and as a result, our operating results are particularly exposed to investor sentiment toward investing in the products’ strategies and our ability to maintain the AUM of these products, as well as the performance of these products and market-specific and political and economic risk;a significant portion of our AUM is held in products with exposure to U.S. and international developed markets and we therefore have exposure to domestic and foreign market conditions and are subject to currency exchange rate risks;withdrawals or broad changes in investments in our ETPs by investors with significant positions may negatively impact revenues and operating margins;over the last few years, we have expanded our business globally. This expansion subjects us to increased operational, regulatory, financial and other risks;many of our ETPs have a limited track record, and poor investment performance could cause our revenues to decline; andwe depend on third parties to provide many critical services to operate our business and our ETPs. The failure of key vendors to adequately provide such services could materially affect our operating business and harm WisdomTree ETP investors.Other factors, such as general economic conditions, including currency exchange rate fluctuations, also may have an effect on the results of our operations. For a more complete description of the risks noted above and other risks that could cause our actual results to differ from our current expectations, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.The forward-looking statements in this press release represent our views as of the date of this press release. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this press release.