NEW YORK, Oct. 30, 2020 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the third quarter of 2020.

$12.0 million of non-cash charges, including (i) a loss on revaluation of deferred consideration of $8.9 million and (ii) a $3.1 million impairment charge related to our investment in Thesys Group, Inc.

($0.3) million net loss ($11.0¹ million net income, as adjusted), see “Non-GAAP Financial Measurements” for additional information.

$60.7 billion of ending AUM, an increase of 5.3% arising primarily from market appreciation, partly offset by net outflows.

$468 million of net outflows, driven by outflows from our commodity and international developed market equity products, partly offset by inflows into our U.S. equity and emerging market equity products.

0.42% average global advisory fee, an increase of 1 basis point due to AUM mix shift.

$64.6 million of operating revenues, an increase of 11.2% primarily due to higher average AUM and a higher average global advisory fee.

76.5% gross margin¹, a 1.4 point increase primarily due to higher revenues.

22.8% operating income margin, a 2.5 point increase primarily due to higher revenues, partly offset by higher operating expenses.

$25.0 million issuance of convertible senior notes due 2023, which were issued on the same terms as the notes previously issued.

$4.5 million repurchase of 1.1 million shares of our common stock, principally in connection with the issuance of the convertible notes.

$0.03 quarterly dividend declared, payable on November 25, 2020 to stockholders of record as of the close of business on November 11, 2020.

Update from Jonathan Steinberg, WisdomTree CEO

“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.”

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.

QUARTERLY HIGHLIGHTS

Operating Revenues

• 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

• 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.

Other Income/(Expenses)

• 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.

Income Taxes

• 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.

NINE MONTH HIGHLIGHTS

• 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.

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 and alternative strategies. WisdomTree currently has approximately $62.5 billion in assets under management globally.