WisdomTree Announces Second Quarter 2023 Results - Record Quarter-End AUM of $93.7 Billion; Diluted Earnings Per Share of $0.32 ($0.09, as Adjusted)

Eleven consecutive quarters of net inflows
Annualized inflow rate of 21% across all products
Termination of contractual gold payments and operating leverage expands margin

WisdomTree, Inc. (NYSE: WT), a global financial innovator,today reported financial results for the second quarter of 2023.

$54.3 million net income ($14.9(1) million net income, as adjusted);including a non-cash gain of $41.4 million associated with the revaluation and termination of our deferred consideration—gold payments obligation.

$93.7 billion of ending AUM, an increase of 3.3% from the previous quarter arising from net inflows and market appreciation.

$2.3 billion of net inflows, primarily driven by inflows into our international equity and fixed income products, partly offset by outflows from our commodity products.

0.36% average advisory fee, unchanged from last quarter.

$85.7 million of operating revenues, an increase of 4.5% from the previous quarter primarily due to higher average AUM.

79.3% gross margin(1), a 0.2 point increase from the previous quarter due to higher revenues.

21.2% operating income margin (26.9%(1) as adjusted), a 1 point increase (5.5 point increase, as adjusted(1)) compared to our operating margin of 20.2% in the prior quarter due to higher revenues and lower contractual gold payments (upon the termination of our deferred consideration—gold payments obligation on May 10, 2023), partly offset by higher expenses incurred in response to an activist campaign.

$60.0 million of cash paid and 1,037,288 shares of common stock issued in connection with the maturity of $60.0 million aggregate principal amount of 4.25% Convertible Senior Notes.

$50.0 million cash consideration paid and 13,087 shares of Series C Non-Voting Convertible Preferred Stock, convertible into 13,087,000 shares of common stock, issued to terminate our deferred consideration—gold payments obligation.

$0.03 quarterly dividenddeclared, payable on August 23, 2023 to stockholders of record as of the close of business on August 9, 2023.

Update from Jonathan Steinberg, WisdomTree CEO

Update from Jarrett Lilien, WisdomTree COO and President

OPERATING AND FINANCIAL HIGHLIGHTS

RECENT BUSINESS DEVELOPMENTS

QUARTERLY HIGHLIGHTS

Operating Revenues

• Operating revenues increased 4.5% and 11.0% from the first quarter of 2023 and the second quarter of 2022, respectively, primarily due to higher average AUM.
• Our average advisory fee was 0.36%, 0.36% and 0.39% during the second quarter of 2023, the first quarter of 2023 and the second quarter of 2022, respectively.

Operating Expenses

• Operating expenses increased 3.2% from the first quarter of 2023 primarily due to higher professional fees incurred in connection with an activist campaign. This increase was partly offset by lower contractual gold payments, as well as lower compensation due to seasonal items occurring in the prior quarter.
• Operating expenses increased 9.9% from the second quarter of 2022 primarily due to higher professional fees incurred in connection with an activist campaign, incentive compensation and headcount, and fund management and administration costs. These increases were partly offset by lower contractual gold payments.

Other Income/(Expenses)

• Interest expense was essentially unchanged from the first quarter of 2023 and increased 7.7% from the second quarter of 2022 due to a higher average level of debt outstanding and a higher effective interest rate.
• We recognized a non-cash gain on revaluation/termination of deferred consideration of $41.4 million during the second quarter of 2023. This obligation was terminated on May 10, 2023 for aggregate consideration totaling approximately $137.0 million, including $50.0 million in cash and the issuance of 13,087 shares of Series C Non-Voting Convertible Preferred Stock (valued at $86.9 million) which are convertible into 13,087,000 shares of the Company’s common stock.
• Interest income was essentially unchanged from the first quarter of 2023 and increased 29.9% from the second quarter of 2022, respectively, due to rising interest rates.
• Other gains and losses, net was $1.3 million for the second quarter of 2023. This quarter includes gains on our investments of $3.1 million, partly offset by losses on our financial instruments owned of $1.0 million. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold exchange-traded products (“ETPs”), foreign exchange fluctuations and other miscellaneous items.

Income Taxes

• Our effective income tax rate for the second quarter of 2023 was 6.1%, resulting in income tax expense of $3.6 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to a non-taxable gain on revaluation/termination of deferred consideration and a decrease in the deferred tax asset valuation allowance on losses recognized on our investments. These items were partly offset by non-deductible executive compensation.
• Our adjusted effective income tax rate was 24.5%(1).

SIX MONTH HIGHLIGHTS

• Operating revenues increased 7.8% as compared to 2022 due to higher average AUM and higher other income from large flows into some of our European products, partly offset by a lower average advisory fee.
• Operating expenses increased 8.9% as compared to 2022 primarily due to higher incentive compensation and headcount, fund management and administration costs and professional fees incurred in connection with an activist campaign. These increases were partly offset by lower contractual gold payments.
• Significant items reported in other income/(expense) in 2023 include: an increase in interest expense of 7.5% due to a higher level of debt outstanding; an increase in interest income of 33.2% due to an increase in our financial instruments owned; a non-cash charge of $1.4 million 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); gains on our financial instruments owned of $0.9 million and losses on our investments of $0.8 million. Gains and losses also generally arise from the sale of gold earned on management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.
• Our effective income tax rate for 2023 was 6.5%, resulting in an income tax expense of $4.9 million. Our tax rate differs from the federal statutory rate of 21% primarily due to a non-taxable gain on revaluation/termination of deferred consideration, a reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above and a lower tax rate on foreign earnings. These items were partly offset by a non-deductible loss on extinguishment of our convertible notes during the first quarter of 2023, non-deductible executive compensation and an increase in the deferred tax asset valuation allowance on losses recognized on our investments.

CONFERENCE CALL DIAL-IN AND WEBCAST DETAILS

WisdomTree will discuss its results and operational highlights during a live webcast on Friday, July 28, 2023 at 11:00 a.m. ET, which can be accessed using the following link: https://event.choruscall.com/mediaframe/webcast.html?webcastid=G7ogAmF2.

Participants also can dial in using the following numbers: (877) 407-9210 or (201) 689-8049. Click here to access the Participant international toll-free access numbers. To avoid delays, we encourage participants to log in or dial into the conference call 10 minutes ahead of the scheduled start time. All earnings materials and the webcast can be accessed through WisdomTree’s investor relations website at https://ir.wisdomtree.com. A replay of the webcast will also be available shortly after the call.

ABOUT WISDOMTREE

WisdomTree is a global financial innovator, offering a well-diversified suite of exchange-traded products (ETPs), models and solutions. We empower investors to shape their future and support financial professionals to better serve their clients and grow their businesses. WisdomTree is leveraging the latest financial infrastructure to create products that provide access, transparency and an enhanced user experience. Building on our heritage of innovation, we are also developing next-generation digital products and structures, including digital funds and tokenized assets, as well as our blockchain-native digital wallet, WisdomTree Prime™.

WisdomTree currently has approximately $97.2 billion in assets under management globally.

For more information about WisdomTree and WisdomTree PrimeTM, visit: https://www.wisdomtree.com.

Please visit us on Twitter at @WisdomTreeNews.

WisdomTree® is the marketing name for WisdomTree, Inc. and its subsidiaries worldwide.

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 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 revaluation/termination of deferred consideration: Deferred consideration was an obligation we assumed in connection with the ETFS acquisition that was carried at fair value. This item represented 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 have had 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 was not core to our operating business. The item was 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.

During the second quarter of 2023, we terminated this obligation for aggregate consideration totaling approximately $137.0 million.

Gains or losses on financial instruments owned: We account for our financial instruments owned as trading securities, which requires these instruments to be measured at fair value with gains and losses reported in net income. We exclude these items when calculating our non-GAAP financial measurements as 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: Loss on extinguishment of our convertible notes, impairments, remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business, unrealized gains and losses recognized on our investments, changes in deferred tax asset valuation allowance, expenses incurred in response to an activist campaign and litigation expenses associated with certain provisions of our Stockholder Rights Agreement dated as of March 17, 2023, as amended with Continental Stock Transfer & Trust Company, as Rights Agent, 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.