☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2020
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware 13-3487784
245 Park Avenue, 35 th FloorNew York, New York | 10167 | |
(Address of principal executive offices) | (Zip Code) |
☒ (§☒ Yes No Non-accelerated filer ☐ 26, 2019,2155,053,303156,424,840 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
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ITEM 1. | FINANCIAL STATEMENTS |
March 31, 2019 | December 31, 2018 | |||||||
Assets | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 78,942 | $ | 77,784 | ||||
Securities owned, at fair value | 6,419 | 8,873 | ||||||
Accounts receivable | 28,136 | 25,834 | ||||||
Income taxes receivable | 1,770 | 1,181 | ||||||
Prepaid expenses | 4,037 | 4,441 | ||||||
Other current assets | 164 | 163 | ||||||
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Total current assets | 119,468 | 118,276 | ||||||
Fixed assets, net | 8,863 | 9,122 | ||||||
Note receivable, net (Note 8) | 29,317 | 28,722 | ||||||
Indemnification receivable (Note 21) | 31,593 | 34,876 | ||||||
Securitiesheld-to-maturity | 20,159 | 20,180 | ||||||
Deferred tax assets, net | 3,998 | 7,042 | ||||||
Investments, carried at cost (Note 9) | 28,080 | 28,080 | ||||||
Right of use assets – operating leases (Note 14) | 19,446 | — | ||||||
Goodwill (Note 23) | 85,856 | 85,856 | ||||||
Intangible assets (Note 23) | 603,251 | 603,209 | ||||||
Other noncurrent assets | 1,486 | 2,155 | ||||||
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Total assets | $ | 951,517 | $ | 937,518 | ||||
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Liabilities and stockholders’ equity | ||||||||
Liabilities | ||||||||
Current liabilities: | ||||||||
Fund management and administration payable | $ | 26,921 | $ | 22,508 | ||||
Compensation and benefits payable | 9,214 | 18,453 | ||||||
Deferred consideration – gold payments (Note 11) | 11,857 | 11,765 | ||||||
Securities sold, but not yet purchased, at fair value | 1,338 | 1,698 | ||||||
Operating lease liabilities (Note 14) | 3,651 | — | ||||||
Accounts payable and other liabilities | 9,772 | 8,377 | ||||||
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Total current liabilities | 62,753 | 62,801 | ||||||
Long-term debt (Note 12) | 195,174 | 194,592 | ||||||
Deferred consideration – gold payments (Note 11) | 145,290 | 149,775 | ||||||
Operating lease liabilities (Note 14) | 20,704 | — | ||||||
Deferred rent payable | — | 4,570 | ||||||
Other noncurrent liabilities (Note 21) | 31,593 | 34,876 | ||||||
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Total liabilities | 455,514 | 446,614 | ||||||
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Preferred stock – Series ANon-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding (Note 13) | 132,569 | 132,569 | ||||||
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Contingencies (Note 15) | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, par value $0.01; 2,000 shares authorized: | — | — | ||||||
Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 155,056 and 153,202 at March 31, 2019 and December 31, 2018, respectively | 1,551 | 1,532 | ||||||
Additionalpaid-in capital | 364,717 | 363,655 | ||||||
Accumulated other comprehensive income | 758 | 467 | ||||||
Accumulated deficit | (3,592 | ) | (7,319 | ) | ||||
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Total stockholders’ equity | 363,434 | 358,335 | ||||||
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Total liabilities and stockholders’ equity | $ | 951,517 | $ | 937,518 | ||||
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March 31, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 68,429 | $ | 74,972 | ||||
Securities owned, at fair value (including $19,636 and $16,886 invested in WisdomTree ETFs at March 31, 2020 and December 31, 2019, respectively) | 20,261 | 17,319 | ||||||
Accounts receivable (including $20,169 and $25,667 due from related parties at March 31, 2020 and December 31, 2019, respectively) | 22,728 | 26,838 | ||||||
Prepaid expenses | 4,221 | 3,724 | ||||||
Other current assets | 171 | 207 | ||||||
Total current assets | 115,810 | 123,060 | ||||||
Fixed assets, net | 7,914 | 8,127 | ||||||
Notes receivable, net (Note 8) | 8,500 | 28,172 | ||||||
Indemnification receivable (Note 21) | 24,429 | 32,101 | ||||||
Securities held-to-maturity | 10,864 | 16,863 | ||||||
Deferred tax assets, net | 2,863 | 7,398 | ||||||
Investments (Note 9) | 11,192 | 11,192 | ||||||
Right of use assets – operating leases (Note 14) | 17,680 | 18,161 | ||||||
Goodwill (Note 23) | 85,856 | 85,856 | ||||||
Intangible assets (Note 23) | 601,247 | 603,294 | ||||||
Other noncurrent assets | 750 | 983 | ||||||
Total assets | $ | 887,105 | $ | 935,207 | ||||
Liabilities and stockholders’ equity | ||||||||
Liabilities | ||||||||
Current liabilities: | ||||||||
Fund management and administration payable | $ | 22,053 | $ | 22,021 | ||||
Compensation and benefits payable | 3,424 | 26,501 | ||||||
Deferred consideration – gold payments (Note 11) | 14,500 | 13,953 | ||||||
Securities sold, but not yet purchased, at fair value | 469 | 582 | ||||||
Operating lease liabilities (Note 14) | 3,470 | 3,682 | ||||||
Income taxes payable | 1,284 | 3,372 | ||||||
Accounts payable and other liabilities | 9,129 | 8,930 | ||||||
Total current liabilities | 54,329 | 79,041 | ||||||
Debt (Note 12) | 171,548 | 175,956 | ||||||
Deferred consideration – gold payments (Note 11) | 160,800 | 159,071 | ||||||
Operating lease liabilities (Note 14) | 18,661 | 19,057 | ||||||
Other noncurrent liabilities (Note 21) | 24,429 | 32,101 | ||||||
Total liabilities | 429,767 | 465,226 | ||||||
Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding; redemption value of $50,003 and $71,980 at March 31, 2020 and December 31, 2019, respectively (Note 13) | 132,569 | 132,569 | ||||||
Contingencies (Note 15) | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, par value $0.01; 2,000 shares authorized: | — | — | ||||||
Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 156,424 and 155,264 at March 31, 2020 and December 31, 2019, respectively | 1,564 | 1,553 | ||||||
Additional paid-in capital | 349,495 | 352,658 | ||||||
Accumulated other comprehensive income | 92 | 945 | ||||||
Accumulated deficit | (26,382 | ) | (17,744 | ) | ||||
Total stockholders’ equity | 324,769 | 337,412 | ||||||
Total liabilities and stockholders’ equity | $ | 887,105 | $ | 935,207 | ||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Operating Revenues: | ||||||||
Advisory fees | $ | 64,840 | $ | 58,456 | ||||
Other income | 645 | 448 | ||||||
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Total revenues | 65,485 | 58,904 | ||||||
Operating Expenses: | ||||||||
Compensation and benefits | 21,301 | 18,832 | ||||||
Fund management and administration | 15,166 | 10,912 | ||||||
Marketing and advertising | 2,680 | 3,195 | ||||||
Sales and business development | 4,422 | 3,813 | ||||||
Contractual gold payments (Note 11) | 3,098 | — | ||||||
Professional and consulting fees | 1,482 | 1,636 | ||||||
Occupancy, communications and equipment | 1,618 | 1,363 | ||||||
Depreciation and amortization | 269 | 355 | ||||||
Third-party distribution fees | 2,400 | 1,725 | ||||||
Acquisition-related costs (Note 3) | 313 | 2,062 | ||||||
Other | 2,053 | 1,790 | ||||||
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Total expenses | 54,802 | 45,683 | ||||||
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Operating income | 10,683 | 13,221 | ||||||
Other Income/(Expenses): | ||||||||
Interest expense | (2,892 | ) | — | |||||
Gain on revaluation of deferred consideration – gold payments (Note 11) | 4,404 | — | ||||||
Interest income | 779 | 962 | ||||||
Impairment (Note 14) | (572 | ) | — | |||||
Other losses, net | (4,627 | ) | (261 | ) | ||||
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Income before taxes | 7,775 | 13,922 | ||||||
Income tax (benefit)/expense | (1,049 | ) | 4,498 | |||||
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Net income | $ | 8,824 | $ | 9,424 | ||||
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Earnings per share—basic | $ | 0.05 | $ | 0.07 | ||||
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Earnings per share—diluted | $ | 0.05 | $ | 0.07 | ||||
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Weighted-average common shares—basic | 151,625 | 135,329 | ||||||
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Weighted-average common shares—diluted | 166,811 | 136,468 | ||||||
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Cash dividends declared per common share | $ | 0.03 | $ | 0.03 | ||||
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Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Operating Revenues: | ||||||||
Advisory fees | $ | 62,950 | $ | 64,840 | ||||
Other income | 924 | 645 | ||||||
Total revenues | 63,874 | 65,485 | ||||||
Operating Expenses: | ||||||||
Compensation and benefits | 17,295 | 21,301 | ||||||
Fund management and administration | 14,485 | 15,166 | ||||||
Marketing and advertising | 2,468 | 2,680 | ||||||
Sales and business development | 3,417 | 4,422 | ||||||
Contractual gold payments (Note 11) | 3,760 | 3,098 | ||||||
Professional and consulting fees | 1,273 | 1,482 | ||||||
Occupancy, communications and equipment | 1,551 | 1,618 | ||||||
Depreciation and amortization | 256 | 269 | ||||||
Third-party distribution fees | 1,355 | 2,400 | ||||||
Acquisition and disposition-related costs | 383 | 313 | ||||||
Other | 1,997 | 2,053 | ||||||
Total expenses | 48,240 | 54,802 | ||||||
Operating income | 15,634 | 10,683 | ||||||
Other Income/(Expenses): | ||||||||
Interest expense | (2,419 | ) | (2,892 | ) | ||||
(Loss)/gain on revaluation of deferred consideration – gold payments (Note 11) | (2,208 | ) | 4,404 | |||||
Interest income | 163 | 779 | ||||||
Impairments (Notes 7 and 24) | (19,672 | ) | (572 | ) | ||||
Other losses, net | (2,507 | ) | (4,627 | ) | ||||
(Loss)/income before income taxes | (11,009 | ) | 7,775 | |||||
Income tax benefit | (2,371 | ) | (1,049 | ) | ||||
Net (loss)/income | $ | (8,638 | ) | $ | 8,824 | |||
(Loss)/earnings per share – basic (Note 20) | $ | (0.06 | ) | $ | 0.05 | |||
(Loss)/earnings per share – diluted (Note 20) | $ | (0.06 | ) | $ | 0.05 | |||
Weighted-average common shares – basic (Note 20) | 152,519 | 151,625 | ||||||
Weighted-average common shares – diluted (Note 20) | 152,519 | 166,811 | ||||||
Cash dividends declared per common share | $ | 0.03 | $ | 0.03 | ||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Net income | $ | 8,824 | $ | 9,424 | ||||
Other comprehensive income | ||||||||
Change in unrealized gains onavailable-for-sale debt securities, net of tax | — | 460 | ||||||
Foreign currency translation adjustment | 291 | 412 | ||||||
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Other comprehensive income | 291 | 872 | ||||||
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Comprehensive income | $ | 9,115 | $ | 10,296 | ||||
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Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Net (loss)/income | $ | (8,638 | ) | $ | 8,824 | |||
Other comprehensive (loss)/income | ||||||||
Reclassification of foreign current translation adjustment to other losses, net, upon the sale of WisdomTree Asset Management Canada, Inc. (“WTAMC” or “Canadian ETF business”) (Note 24) | (167 | ) | — | |||||
Foreign currency translation adjustment | (686 | ) | 291 | |||||
Other comprehensive (loss)/income | (853 | ) | 291 | |||||
Comprehensive (loss)/income | $ | (9,491 | ) | $ | 9,115 | |||
For the Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other | Accumulated Deficit | Total | ||||||||||||||||||||
Shares Issued | Par Value | Comprehensive Income | ||||||||||||||||||||||
Balance—January 1, 2019 | 153,202 | $ | 1,532 | $ | 363,655 | $ | 467 | $ | (7,319 | ) | $ | 358,335 | ||||||||||||
Restricted stock issued and vesting of restricted stock units, net | 2,145 | 21 | (21 | ) | — | — | — | |||||||||||||||||
Shares repurchased | (311 | ) | (2 | ) | (2,003 | ) | — | — | (2,005 | ) | ||||||||||||||
Exercise of stock options, net | 20 | — | 14 | — | — | 14 | ||||||||||||||||||
Stock-based compensation | — | — | 3,072 | — | — | 3,072 | ||||||||||||||||||
Other comprehensive income | — | — | — | 291 | — | 291 | ||||||||||||||||||
Dividends | — | — | — | — | (5,097 | ) | (5,097 | ) | ||||||||||||||||
Net income | — | — | — | — | 8,824 | 8,824 | ||||||||||||||||||
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Balance—March 31, 2019 | 155,056 | $ | 1,551 | $ | 364,717 | $ | 758 | $ | (3,592 | ) | $ | 363,434 | ||||||||||||
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For the Three Months Ended March 31, 2018 | ||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other | Accumulated Deficit | Total | ||||||||||||||||||||
Shares Issued | Par Value | Comprehensive Income | ||||||||||||||||||||||
Balance—January 1, 2018 | 136,996 | $ | 1,370 | $ | 216,006 | $ | 291 | $ | (24,716 | ) | $ | 192,951 | ||||||||||||
Restricted stock issued and vesting of restricted stock units, net | 667 | 7 | (7 | ) | — | — | — | |||||||||||||||||
Shares repurchased | (60 | ) | — | (734 | ) | — | — | (734 | ) | |||||||||||||||
Exercise of stock options, net | 148 | 1 | 53 | — | — | 54 | ||||||||||||||||||
Stock-based compensation | — | — | 3,309 | — | — | 3,309 | ||||||||||||||||||
Stock issuance costs | — | — | (139 | ) | — | — | (139 | ) | ||||||||||||||||
Other comprehensive income | — | — | — | 872 | — | 872 | ||||||||||||||||||
Dividends | — | — | — | — | (4,132 | ) | (4,132 | ) | ||||||||||||||||
Net income | — | — | — | — | 9,424 | 9,424 | ||||||||||||||||||
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Balance—March 31, 2018 | 137,751 | $ | 1,378 | $ | 218,488 | $ | 1,163 | $ | (19,424 | ) | $ | 201,605 | ||||||||||||
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For the Three Months Ended March 31, 2020 | ||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other | Accumulated Deficit | Total | ||||||||||||||||||||
Shares Issued | Par Value | Comprehensive Income | ||||||||||||||||||||||
Balance | 155,264 | $ | 1,553 | $ | 352,658 | $ | 945 | $ | (17,744 | ) | $ | 337,412 | ||||||||||||
Restricted stock issued and vesting of restricted stock units, net | 1,438 | 14 | (14 | ) | — | — | — | |||||||||||||||||
Shares repurchased | (385 | ) | (3 | ) | (1,492 | ) | — | — | (1,495 | ) | ||||||||||||||
Exercise of stock options, net | 107 | — | 240 | — | — | 240 | ||||||||||||||||||
Stock-based compensation | — | — | 3,239 | — | — | 3,239 | ||||||||||||||||||
Other comprehensive loss | — | — | — | (853 | ) | — | (853 | ) | ||||||||||||||||
Dividends | — | — | (5,136 | ) | — | — | (5,136 | ) | ||||||||||||||||
Net loss | — | — | — | — | (8,638 | ) | (8,638 | ) | ||||||||||||||||
Balance | 156,424 | $ | 1,564 | $ | 349,495 | $ | 92 | $ | (26,382 | ) | $ | 324,769 | ||||||||||||
For the Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other | Accumulated Deficit | Total | ||||||||||||||||||||
Shares Issued | Par Value | Comprehensive Income | ||||||||||||||||||||||
Balance | 153,202 | $ | 1,532 | $ | 363,655 | $ | 467 | $ | (7,319 | ) | $ | 358,335 | ||||||||||||
Restricted stock issued and vesting of restricted stock units, net | 2,145 | 21 | (21 | ) | — | — | — | |||||||||||||||||
Shares repurchased | (311 | ) | (2 | ) | (2,003 | ) | — | — | (2,005 | ) | ||||||||||||||
Exercise of stock options, net | 20 | — | 14 | — | — | 14 | ||||||||||||||||||
Stock-based compensation | — | — | 3,072 | — | — | 3,072 | ||||||||||||||||||
Other comprehensive income | — | — | — | 291 | — | 291 | ||||||||||||||||||
Dividends | — | — | — | — | (5,097 | ) | (5,097 | ) | ||||||||||||||||
Net income | — | — | — | — | 8,824 | 8,824 | ||||||||||||||||||
Balance | 155,056 | $ | 1,551 | $ | 364,717 | $ | 758 | $ | (3,592 | ) | $ | 363,434 | ||||||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 8,824 | $ | 9,424 | ||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | ||||||||
Advisory fees received in gold and other precious metals | (11,389 | ) | — | |||||
Gain on revaluation of deferred consideration | (4,404 | ) | — | |||||
Contractual gold payments | 3,098 | — | ||||||
Stock-based compensation | 3,072 | 3,309 | ||||||
Deferred income taxes | 3,048 | (136 | ) | |||||
Amortization of right of use asset | 798 | — | ||||||
Amortization of credit facility issuance costs | 711 | — | ||||||
Paid-in-kind interest income (Note 8) | (595 | ) | (416 | ) | ||||
Impairment | 572 | — | ||||||
Depreciation and amortization | 269 | 355 | ||||||
Other | 3 | 661 | ||||||
Changes in operating assets and liabilities: | ||||||||
Securities owned, at fair value | 2,454 | 1,106 | ||||||
Accounts receivable | (1,939 | ) | 606 | |||||
Income taxes receivable/payable | (604 | ) | 4,297 | |||||
Prepaid expenses | 419 | (360 | ) | |||||
Gold and other precious metals | 7,975 | — | ||||||
Other assets | 182 | 160 | ||||||
Fund management and administration payable | 4,274 | (1,744 | ) | |||||
Compensation and benefits payable | (9,250 | ) | (22,003 | ) | ||||
Securities sold, but not yet purchased, at fair value | (360 | ) | (950 | ) | ||||
Operating lease liabilities | (881 | ) | — | |||||
Accounts payable and other liabilities | 1,575 | 855 | ||||||
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Net cash provided by/(used in) operating activities | 7,852 | (4,836 | ) | |||||
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Cash flows from investing activities: | ||||||||
Purchase of fixed assets | (7 | ) | (17 | ) | ||||
Proceeds fromheld-to-maturity securities maturing or called prior to maturity | 18 | 32 | ||||||
Proceeds from sales and maturities of debt securitiesavailable-for-sale | — | 60,498 | ||||||
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Net cash provided by investing activities | 11 | 60,513 | ||||||
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Cash flows from financing activities: | ||||||||
Dividends paid | (5,097 | ) | (4,132 | ) | ||||
Shares repurchased | (2,005 | ) | (734 | ) | ||||
Proceeds from exercise of stock options | 14 | 54 | ||||||
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Net cash used in financing activities | (7,088 | ) | (4,812 | ) | ||||
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Increase in cash flow due to changes in foreign exchange rate | 383 | 593 | ||||||
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Net increase in cash and cash equivalents | 1,158 | 51,458 | ||||||
Cash and cash equivalents—beginning of period | 77,784 | 54,193 | ||||||
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Cash and cash equivalents—end of period | $ | 78,942 | $ | 105,651 | ||||
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Supplemental disclosure of cash flow information: | ||||||||
Cash paid for taxes | $ | 707 | $ | 339 | ||||
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Cash paid for interest | $ | 2,224 | $ | — | ||||
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NON-CASH ACTIVITIES
On January 1, 2019, the Company recognized aright-of-use asset and lease liability of $19,827 and $24,817, respectively, upon the implementation of Accounting Standards Update2016-02Leases.See Note 14 for additional information.
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss)/income | $ | (8,638 | ) | $ | 8,824 | |||
Adjustments to reconcile net (loss)/ income to net cash (used in)/provided by operating activities: | ||||||||
Impairments | 19,672 | 572 | ||||||
Advisory fees received in gold and other precious metals | (13,860 | ) | (11,389 | ) | ||||
Deferred income taxes | 4,526 | 3,048 | ||||||
Contractual gold payments | 3,760 | 3,098 | ||||||
Stock-based compensation | 3,239 | 3,072 | ||||||
Gain on sale – Canadian ETF business | (2,877 | ) | — | |||||
(Loss)/gain on revaluation of deferred consideration | 2,208 | (4,404 | ) | |||||
Amortization of right of use asset | 798 | 798 | ||||||
Amortization of credit facility issuance costs | 723 | 711 | ||||||
Paid-in-kind interest income | — | (595 | ) | |||||
Depreciation and amortization | 256 | 269 | ||||||
Other | (31 | ) | 3 | |||||
Changes in operating assets and liabilities: | ||||||||
Securities owned, at fair value | (2,942 | ) | 2,454 | |||||
Accounts receivable | 5,850 | (1,939 | ) | |||||
Income taxes payable | (2,032 | ) | (604 | ) | ||||
Prepaid expenses | (616 | ) | 419 | |||||
Gold and other precious metals | 9,838 | 7,975 | ||||||
Other assets | 139 | 182 | ||||||
Fund management and administration payable | 537 | 4,274 | ||||||
Compensation and benefits payable | (22,688 | ) | (9,250 | ) | ||||
Securities sold, but not yet purchased, at fair value | (112 | ) | (360 | ) | ||||
Operating lease liabilities | (926 | ) | (881 | ) | ||||
Accounts payable and other liabilities | 542 | 1,575 | ||||||
Net cash (used in)/provided by operating activities | (2,634 | ) | 7,852 | |||||
Cash flows from investing activities: | ||||||||
Purchase of fixed assets | (50 | ) | (7 | ) | ||||
Proceeds from held-to-maturity securities maturing or called prior to maturity | 6,030 | 18 | ||||||
Proceeds from sale of Canadian ETF business, net | 2,774 | — | ||||||
Net cash provided by investing activities | 8,754 | 11 | ||||||
Cash flows from financing activities: | ||||||||
Dividends paid | (5,136 | ) | (5,097 | ) | ||||
Repayment of debt | (5,000 | ) | — | |||||
Shares repurchased | (1,495 | ) | (2,005 | ) | ||||
Proceeds from exercise of stock options | 240 | 14 | ||||||
Net cash used in financing activities | (11,391 | ) | (7,088 | ) | ||||
(Decrease)/increase in cash flow due to changes in foreign exchange rate | (1,272 | ) | 383 | |||||
Net (decrease)/increase in cash and cash equivalents | (6,543 | ) | 1,158 | |||||
Cash and cash equivalents | 74,972 | 77,784 | ||||||
Cash and cash equivalents | $ | 68,429 | $ | 78,942 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for taxes | $ | 1,147 | $ | 707 | ||||
Cash paid for interest | $ | 2,312 | $ | 2,224 | ||||
WisdomTree Asset Management, Inc. non-consolidated third party, is a Delaware statutory trust registered with the SEC as anopen-end management investment company. The Company has licensed to WTT the use |
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|
|
|
Acquisition of ETFS
certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S.
Restructuring of Distribution Strategy in Japan
In July 2018, the Company determined to restructure its distribution strategy in Japan and has expanded its existing relationship with Premia Partners Company Limited to manage distribution of the Company’s ETFs in Japan. As a result, WisdomTree Japan Inc. (“WTJ”) has ceased operations and is in the process of being liquidated. During the three months ended March 31, 2019 and 2018, WTJ reported an operating loss of $430 and $1,232, respectively. WTJ also recognized an impairment expense of $572 in connection with the termination of its office lease on March 31, 2019.
The financial results of ETFS are included in the Company’s consolidated financial statements since the acquisition date, April 11, 2018 (See Note 3).
Certain accounts in the consolidated financial statements for the three months ended March 31, 2018 have been reclassified to conform to the current year’s consolidated financial statement presentation. The following table summarizes these reclassifications which had no effect on previously reported net income.
Operating Revenues: | Three Months Ended March 31, 2018 | |||
Advisory fees (previously reported) | $ | 58,756 | ||
Other ETP fees reclassified to Other income | (300 | ) | ||
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| |||
Advisory fees (currently reported) | $ | 58,456 | ||
|
| |||
Other income (previously reported) | $ | 849 | ||
Other ETP fees reclassified from Advisory fees | 300 | |||
Interest income reclassified to Other Income/(Expenses) | (962 | ) | ||
Realized and unrealized losses reclassified to Other losses, net | 261 | |||
|
| |||
Other income (currently reported) | $ | 448 | ||
|
| |||
Total revenues (currently reported) | $ | 58,904 | ||
|
| |||
Other Income/(Expenses): | ||||
Interest income reclassified from operating revenues | $ | 962 | ||
|
| |||
Other losses, net (previously reported) | $ | — | ||
Realized and unrealized losses reclassified from operating revenues | (261 | ) | ||
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| |||
Other losses, net (currently reported) | $ | (261 | ) | |
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|
The
The financial results of ETFS are included in the International Business reportable segment as of the acquisition date.
Equipment | 5��years | |||
Furniture and fixtures | 15 years |
Note
Note
balance sheet date. Previously, credit losses were measured using an incurred loss approach.
Credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings, while impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method.
in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
For impairment testing purposes, goodwill has been
Long-Term
Long-term debt
In August 2018,
3. Business Combination
Summary
On April 11, 2018, the Company acquired from ETFS Capital its European exchange-traded commodity, currency andshort-and-leveraged business for a purchase price consisting of $253,000 in cash, and a fixed number of shares of the Company’s capital stock, consisting of (i) 15,250,000 shares of common stock (the “Common Shares”) and (ii) 14,750 shares of Series ANon-Voting Convertible Preferred Stock (the “Preferred Shares”), which are convertible into an aggregate of 14,750,000 shares of common stock. ETFS Capital is subject tolock-up, standstill and voting restrictions and received registration rights with respect to the Common Shares and shares issuable upon conversion of the Preferred Shares.
Also on April 11, 2018 and in connection with the acquisition, the Company entered into a credit agreement, pursuant to which the lenders extended a $200,000 term loan (the “Term Loan”) and made available a $50,000 revolving credit facility (the “Revolver” and, together with the Term Loan, the “Credit Facility”) (See Note 12).
Purchase Price Allocation
The ETFS Acquisition has been accounted for under the acquisition method of accounting in accordance with ASC Topic 805,Business Combinations, which requires an allocation of the consideration paid by the Company to the identifiable assets and liabilities of ETFS based on the estimated fair values as of the closing date of the acquisition. An allocation of the consideration transferred is presented below and includes the Company’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed.
The following table summarizes the allocation of the purchase price as of the acquisition date:
Purchase price |
| |||
Preferred Shares issued | 14,750 | |||
Conversion ratio | 1,000 | |||
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Common stock equivalents | 14,750,000 | |||
Common Shares issued | 15,250,000 | |||
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| |||
Total shares issued | 30,000,000 | |||
WisdomTree stock price(1) | $ | 9.00 | ||
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Equity portion of purchase price | $ | 270,000 | ||
Cash portion of purchase price | ||||
Term Loan (See Note 12) | 200,000 | |||
Cash on hand | 53,000 | |||
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Purchase price | 523,000 | |||
Deferred consideration (See Note 11) | 172,746 | |||
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Total | $ | 695,746 | ||
Allocation of consideration | ||||
Cash and cash equivalents | 13,687 | |||
Receivables and other current assets | 14,069 | |||
Intangible assets(2) | 601,247 | |||
Other current liabilities | (17,314 | ) | ||
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| |||
Fair value of net assets acquired | 611,689 | |||
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| |||
Goodwill resulting from the ETFS Acquisition (3) | $ | 84,057 | ||
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Acquisition-Related Costs
During the three months ended March 31, 2019 and 2018, the Company incurred acquisition-related costs of $313 and $2,062, respectively.
Supplemental Unaudited Pro Forma Financial Information
The following table presents unaudited pro formaconsolidated financial information of the Company as if the ETFS Acquisition had been consummated on January 1, 2017. The information was derived from the historical financial results of the Company and ETFS for all periods presented and was adjusted to give effect to pro forma events that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results following the acquisition.
Three Months Ended March 31, 2018 | ||||||
Revenues | $ | 79,771 | ||||
Net income | $ | 11,243 | (including a loss on revaluation of deferred consideration of $2,555) |
Significant adjustments to the unaudited pro forma financial information above include the recognition of interest expense associated with the Credit Facility for the periods presented, eliminating acquisition-related costs directly attributable to the acquisition and adjusting consolidated income tax expense based upon the Company’s anticipated normalized consolidated effective tax rate.
The unaudited pro forma financial information above is not necessarily indicative of what the combined results of the Company would have been had the acquisition been completed as of January 1, 2017 and does not purport to project the future results of the combined company. In addition, the unaudited pro forma financial information does not reflect any future planned cost savings initiatives following the completion of the acquisition.
4.statements.
Cash
In addition, certain
5.
Level 1 | – | Quoted prices for identical instruments in active markets. | ||
Level 2 | – | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. | ||
Level 3 | – | Instruments whose significant drivers are unobservable. |
March 31, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Cash equivalents | $ | 566 | $ | 566 | $ | — | $ | — | ||||||||
Securities owned, at fair value | 6,419 | 6,419 | — | — | ||||||||||||
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Total | $ | 6,985 | $ | 6,985 | $ | — | $ | — | ||||||||
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| |||||||||
Liabilities: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Deferred consideration (Note 11) | $ | 157,147 | $ | — | $ | — | $ | 157,147 | ||||||||
Securities sold, but not yet purchased | 1,338 | 1,338 | — | — | ||||||||||||
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| |||||||||
Total | $ | 158,485 | $ | 1,338 | $ | — | $ | 157,147 | ||||||||
|
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|
|
|
|
December 31, 2018 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Cash equivalents | $ | 24 | $ | 24 | $ | — | $ | — | ||||||||
Securities owned, at fair value | 8,873 | 8,873 | — | — | ||||||||||||
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| |||||||||
Total | $ | 8,897 | $ | 8,897 | $ | — | $ | — | ||||||||
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Non-recurring fair value measurements: | ||||||||||||||||
Thesys – Series Y preferred stock(1) | $ | 3,080 | $ | — | $ | — | $ | 3,080 | ||||||||
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Total | $ | 3,080 | $ | — | $ | — | $ | 3,080 | ||||||||
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| |||||||||
Liabilities: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Deferred consideration (Note 11) | $ | 161,540 | $ | — | $ | — | $ | 161,540 | ||||||||
Securities sold, but not yet purchased | 1,698 | 1,698 | — | — | ||||||||||||
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Total | $ | 163,238 | $ | 1,698 | $ | — | $ | 161,540 | ||||||||
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March 31, 2020 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Cash equivalents | $ | 3,885 | $ | 3,885 | $ | — | $ | — | ||||||||
Securities owned, at fair value | 20,261 | 20,261 | — | — | ||||||||||||
Total | $ | 24,146 | $ | 24,146 | $ | — | $ | — | ||||||||
Non-recurring fair value measurements: | ||||||||||||||||
AdvisorEngine , Inc. – Financial interests(1) | $ | 8,500 | $ | — | $ | — | $ | 8,500 | ||||||||
Total | $ | 8,500 | $ | — | $ | — | $ | 8,500 | ||||||||
Liabilities: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Deferred consideration (Note 11) | $ | 175,300 | $ | — | $ | — | $ | 175,300 | ||||||||
Securities sold, but not yet purchased | 469 | 469 | — | — | ||||||||||||
Total | $ | 175,769 | $ | 469 | $ | — | $ | 175,300 | ||||||||
(1) | Fair value determined on March 31, 2020 (Note 7). |
December 31, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Cash equivalents | $ | 317 | $ | 317 | $ | — | $ | — | ||||||||
Securities owned, at fair value | 17,319 | 17,319 | — | — | ||||||||||||
Total | $ | 17,636 | $ | 17,636 | $ | — | $ | — | ||||||||
Non-recurring fair value measurements: | ||||||||||||||||
AdvisorEngine , Inc. – Financial interests(2) | $ | 28,172 | $ | — | $ | — | $ | 28,172 | ||||||||
Total | $ | 28,172 | $ | — | $ | — | $ | 28,172 | ||||||||
Liabilities: | ||||||||||||||||
Recurring fair value measurements: | ||||||||||||||||
Deferred consideration (Note 11) | $ | 173,024 | $ | — | $ | — | $ | 173,024 | ||||||||
Securities sold, but not yet purchased | 582 | 582 | — | — | ||||||||||||
Total | $ | 173,606 | $ | 582 | $ | — | $ | 173,024 | ||||||||
(2) | Fair value determined on December 31, |
Measurements—Measurements – Methodology4)3)6)5)
20192020 using forward-looking gold prices ranging from $1,303$1,597 per ounce to $2,394$2,275 per ounce ($1,294(weighted average of $1,775 per ounce to $2,621 per ounce at December 31, 2018)ounce) which are extrapolated from the last observable price (beyond 2024)2025), discounted at a rate of 10% and includes a perpetual growth rate of 1.5%. Forward-looking gold prices ranged from $1,535 per ounce to $2,328 per ounce (weighted
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Deferred consideration (See Note 11) | ||||||||
Beginning balance | $ | 161,540 | $ | — | ||||
Net realized losses/(gains)(1) | 3,098 | — | ||||||
Net unrealized losses/(gains)(2) | (4,404 | ) | — | |||||
Settlements | (3,087 | ) | — | |||||
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Ending balance | $ | 157,147 | $ | — | ||||
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|
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Deferred consideration (Note 11) | ||||||||
Beginning balance | $ | 173,024 | $ | 161,540 | ||||
Net realized losses (1) | 3,760 | 3,098 | ||||||
Net unrealized losses/(gains) (2) | 2,208 | (4,404 | ) | |||||
Settlements | (3,692 | ) | (3,087 | ) | ||||
Ending balance | $ | 175,300 | $ | 157,147 | ||||
(1) | Recorded as contractual gold payments expense on the Company’s Consolidated Statements of Operations. |
(2) | Recorded as (loss)/gain on revaluation of deferred consideration – gold payments on the Company’s Consolidated Statements of Operations. |
6.
March 31, 2020 | December 31, 2019 | |||||||
Securities Owned | ||||||||
Trading securities | $ | 20,261 | $ | 17,319 | ||||
Securities Sold, but not yet Purchased | ||||||||
Trading securities | $ | 469 | $ | 582 | ||||
March 31, 2019 | December 31, 2018 | |||||||
Securities Owned | ||||||||
Trading securities | $ | 6,419 | $ | 8,873 | ||||
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Securities Sold, but not yet Purchased | ||||||||
Trading securities | $ | 1,338 | $ | 1,698 | ||||
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The Company had noavailable-for-sale debt securities at March 31, 2019 and December 31, 2018.
March 31, 2020 | December 31, 2019 | |||||||
Debt instruments: Pass-through GSEs (amortized cost) | $ | 10,864 | $ | 16,863 | ||||
7. SecuritiesHeld-to-Maturity
The following table is a summary of the Company’s securitiesheld-to-maturity:
March 31, 2019 | December 31, 2018 | |||||||
Federal agency debt instruments (amortized cost) | $ | 20,159 | $ | 20,180 | ||||
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|
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|
The following table summarizes unrealized gains, losses, and fair value (classified as Level 2 within the fair value hierarchy) of securities Cost/amortized cost Gross unrealized gains Gross unrealized losses Fair value March 31,
2019 December 31,
2018 $ 20,159 $ 20,180 6 5 (1,083 ) (1,679 ) $ 19,082 $ 18,506 The Company assesses these
March 31, 2020 | December 31, 2019 | |||||||
Cost/amortized cost | $ | 10,864 | $ | 16,863 | ||||
Gross unrealized gains | 102 | 38 | ||||||
Gross unrealized losses | (17 | ) | (297 | ) | ||||
Fair value | $ | 10,949 | $ | 16,604 | ||||
March 31, 2019 | December 31, 2018 | |||||||
Due within one year | $ | — | $ | — | ||||
Due one year through five years | — | — | ||||||
Due five years through ten years | 7,519 | 7,521 | ||||||
Due over ten years | 12,640 | 12,659 | ||||||
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| |||||
Total | $ | 20,159 | $ | 20,180 | ||||
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8. Note Receivable
March 31, 2020 | December 31, 2019 | |||||||
Due within one year | $ | — | $ | — | ||||
Due one year through five years | 2,000 | 2,000 | ||||||
Due five years through ten years | 3,494 | 7,494 | ||||||
Due over ten years | 5,370 | 7,369 | ||||||
Total | $ | 10,864 | $ | 16,863 | ||||
March 31, 2020 | December 31, 2019 | |||||||||||||||
Amortized Cost, Accrued Interest | Net Carrying Value | Amortized Cost, Accrued Interest | Net Carrying Value | |||||||||||||
Unsecured convertible note (Note 8) | $ | 2,126 | $ | — | $ | 2,126 | $ | 2,126 | ||||||||
Unsecured non-convertible note (Note 8) | 31,184 | 8,500 | 31,184 | 26,046 | ||||||||||||
Preferred stock (Note 9) | 25,000 | — | 25,000 | — | ||||||||||||
Total (1) | $ | 58,310 | $ | 8,500 | (1) | $ | 58,310 | $ | 28,172 | (1) | ||||||
(1) | Net of an impairment of $49,810 and $30,138 in the aggregate at March 31, 2020 and December 31, 2019, respectively. |
fair value hierarchy):
Unobservable Inputs | March 31, 2020 | ||
Forecasted revenue simulated forward as a percentage of the pre-defined revenue targets | 34% – 71% (47% weighted average) | ||
Revenue volatility | 25% |
March 31, 2019 | December 31, 2018 | |||||||
Note receivable (face value) | $ | 30,000 | $ | 30,000 | ||||
Less: Original issue discount (“OID”), unamortized | (2,378 | ) | (2,582 | ) | ||||
Plus: PIK interest | 1,695 | 1,304 | ||||||
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| |||||
Total note receivable, net | $ | 29,317 | $ | 28,722 | ||||
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|
percentages for each of the four years. An increase in the forecasted revenue percentages and revenue volatility input would result in a higher fair value.
March 31, 2020 | December 31, 2019 | |||||||
AdvisorEngine – Unsecured convertible notes | $ | — | $ | 2,126 | ||||
AdvisorEngine – Unsecured non-convertible note | 8,500 | 26,046 | ||||||
Subtotal | $ | 8,500 | $ | 28,172 | ||||
Less: Allowance for credit loss (1) | (— | ) | (— | ) | ||||
Carrying value, net (1) | $ | 8,500 | $ | 28,172 | ||||
(1) | Credit losses of $19,672 were recognized as impairment on the Company’s Statements of Operations during the three months ended March 31, 2020 which resulted in a write-off of the carrying value of the notes receivable rather than an increase in the allowance for credit loss. This was comprised of write-offs of the carrying values of the unsecured convertible notes and unsecurednon-convertible note of $2,126 and $17,546, respectively, during the three months ended March 31, 2020 . See Note 7 for additional information. |
Total | Notes Receivable | Accrued Interest | ||||||||||
Unsecured Convertible Note: | ||||||||||||
Balance on January 1, 2020 | $ | — | $ | — | $ | — | ||||||
Increase in allowance for credit loss (1) | (2,126 | ) | (2,090 | ) | (36 | ) | ||||||
Write-offs charged against the allowance (1) | 2,126 | 2,090 | 36 | |||||||||
Balance on March 31, 2020 | $ | (— | ) | $ | (— | ) | $ | (— | ) | |||
Unsecured Non-Convertible Note: | ||||||||||||
Balance on January 1, 2020 | $ | — | $ | — | $ | — | ||||||
Increase in allowance for credit loss (1) | (17,546 | ) | (14,618 | ) | (2,928 | ) | ||||||
Write-offs charged against the allowance (1) | 17,546 | 14,618 | 2,928 | |||||||||
Balance on March 31, 2020 | $ | (— | ) | $ | (— | ) | $ | (— | ) | |||
Allowance for credit losses – Total: | $ | (— | ) | $ | (— | ) | $ | (— | ) | |||
(1) | Total increase in allowance for credit loss of $19,672 was recorded as impairment on the Company’s Consolidated Statements of Operations. Write-offs were charged against the allowance as the Company is in receipt of information that contractual amounts of principal and interest due will not be paid in connection with the exit from its investment in AdvisorEngine. See Note 7 for additional information. |
March 31, 2019 | December 31, 2018 | |||||||
AdvisorEngine – Preferred stock | $ | 25,000 | $ | 25,000 | ||||
Thesys Group, Inc. (“Thesys”) | 3,080 | 3,080 | ||||||
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| |||||
Total | $ | 28,080 | $ | 28,080 | ||||
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|
investments:
March 31, 2020 | December 31, 2019 | |||||||
AdvisorEngine – Preferred stock | $ | — | $ | — | ||||
Securrency, Inc. – Preferred stock | 8,112 | 8,112 | ||||||
Thesys Group, Inc. (“Thesys”) – Preferred stock | 3,080 | 3,080 | ||||||
Total | $ | 11,192 | $ | 11,192 | ||||
– Preferred Stock
redeem all of the outstanding shares of Series A preferred stock for the original issue price thereof, plus all declared and unpaid dividends.
| ||||
| ||||
| ||||
|
An increase in the revenue multiple would result insimilar observable transactions on a higher enterprise value, whereas an increase in the WACC would reduce fair value. The results of the quantitative assessment notedquarterly basis. There was no impairment at December 31, 2018. In addition, no impairment existed atrecognized during the three months ended March 31, 20192020 based upon a qualitative assessment. ThereIn addition, there were also no observable price changes during the applicable reporting periods.
period.
| ||||
|
|
The quantitative assessment performed resulted in the recognition of an impairment in the fourth quarter of 2018. No additional impairment was recognized atthree months ended March 31, 2020 and 2019, respectively, based upon a qualitative assessment. Thereassessments. In addition, there were also no observable price changes during the applicable reporting periods.
March 31, 2019 | December 31, 2018 | |||||||
Equipment | $ | 2,284 | $ | 2,244 | ||||
Furniture and fixtures | 2,218 | 2,218 | ||||||
Leasehold improvements | 10,982 | 10,964 | ||||||
Less: accumulated depreciation and amortization | (6,621 | ) | (6,304 | ) | ||||
|
|
|
| |||||
Total | $ | 8,863 | $ | 9,122 | ||||
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||
Equipment | $ | 2,290 | $ | 2,330 | ||||
Furniture and fixtures | 2,222 | 2,218 | ||||||
Leasehold improvements | 10,951 | 10,989 | ||||||
Less: accumulated depreciation and amortization | (7,549 | ) | (7,410 | ) | ||||
Total | $ | 7,914 | $ | 8,127 | ||||
See Note 5 for a reconciliation of changes in the deferred consideration balances.
consideration:
Three Months March 31, | ||||||||
2020 | 2019 | |||||||
Contractual Gold Payments | $ | 3,760 | $ | 3,098 | ||||
Contractual Gold Payments – gold ounces paid | 2,375 | 2,375 | ||||||
(Loss)/gain on revaluation of deferred consideration – gold payments (1) | $ | (2,208 | ) | $ | 4,404 |
(1) | Gains/(losses) arise due to (decreases)/increases in the forward-looking price of gold and the magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold. See Note 4 for significant unobservable assumption and a reconciliation of changes in the deferred consideration balances. |
Credit Facility
March 31, 2019 | December 31, 2018 | |||||||||||||||
Term Loan | Revolver | Term Loan | Revolver | |||||||||||||
Amount borrowed | $ | 200,000 | $ | — | $ | 200,000 | $ | — | ||||||||
Unamortized issuance costs | (4,826 | ) | 1,066 | (5,408 | ) | 1,195 | ||||||||||
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|
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|
|
|
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| |||||||||
Carrying amount | $ | 195,174 | $ | 1,066 | $ | 194,592 | $ | 1,195 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Effective interest rate(1) | 5.47 | % | n/a | 5.09 | % | n/a | ||||||||||
|
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|
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||||||||||
Term Loan | Revolver (1) | Term Loan | Revolver (1) | |||||||||||||
Amount borrowed | $ | 179,000 | $ | — | $ | 200,000 | $ | — | ||||||||
Amounts repaid | (5,000 | ) | — | (21,000 | ) | — | ||||||||||
Amounts outstanding | 174,000 | — | 179,000 | — | ||||||||||||
Unamortized issuance costs | (2,452 | ) | 540 | (3,044 | ) | 671 | ||||||||||
Carrying amount | $ | 171,548 | $ | 540 | $ | 175,956 | $ | 671 | ||||||||
Effective interest rate (2) | 5.00 | % | n/a | 5.32 | % | n/a | ||||||||||
(1) | The available capacity under the Revolver is subject to compliance with the Total Leverage Ratio. |
(2) | Includes amortization of issuance costs. |
During
| ||||
| ||||
Fiscal Quarter Ending | Total Leverage Ratio | |||
March 31, 2020 | 2.25:1.00 | |||
June 30, | 2.25:1.00 | |||
| ||||
| ||||
| ||||
September 30, 2020 and each subsequent fiscal quarter ending on or before the maturity date | 2.00:1.00 |
agreement and is actively exploring refinancing and extension alternatives as the facility matures within approximately the next 12 months.
March 31, 2019 | December 31, 2018 | |||||||
Issuance of Preferred Shares | $ | 132,750 | $ | 132,750 | ||||
Less: Issuance costs | (181 | ) | (181 | ) | ||||
|
|
|
| |||||
Preferred Shares – carrying value | $ | 132,569 | $ | 132,569 | ||||
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||
Issuance of Preferred Shares | $ | 132,750 | $ | 132,750 | ||||
Less: Issuance costs | (181 | ) | (181 | ) | ||||
Preferred Shares – carrying value | $ | 132,569 | $ | 132,569 | ||||
Upon the adoption of ASC 842 on January 1, 2019, the Company recognized aright-of-use asset and lease liability of $19,827 and $24,817, respectively. Theright-of-use asset was equal to the lease liability, less accrued lease payments and remaining unamortized lease incentives.
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Lease cost: | ||||||||
Operating lease cost | $ | 798 | $ | 743 | ||||
Short-term lease cost | 389 | 284 | ||||||
|
|
|
| |||||
Total lease cost | $ | 1,187 | $ | 1,027 | ||||
|
|
|
| |||||
Other information: | ||||||||
Cash paid for amounts included in the measurement of operating liabilities (operating leases) | $ | 881 | n/a | |||||
|
|
|
| |||||
Right-of-use assets obtained in exchange for new operating lease liabilities | n/a | n/a | ||||||
|
|
|
| |||||
Weighted-average remaining lease term (in years) – operating leases | 10.0 | n/a | ||||||
|
|
|
| |||||
Weighted-average discount rate – operating leases | 6.3 | % | n/a | |||||
|
|
|
|
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Lease cost: | ||||||||
Operating lease cost | $ | 798 | $ | 798 | ||||
Short-term lease cost | 342 | 389 | ||||||
Total lease cost | $ | 1,140 | $ | 1,187 | ||||
Other information: | ||||||||
Cash paid for amounts included in the measurement of operating liabilities (operating leases) | $ | 926 | $ | 881 | ||||
Right-of-use assets obtained in exchange for new operating lease liabilities | n/a | n/a | ||||||
Weighted-average remaining lease term (in years) – operating leases | 9.2 | 10.0 | ||||||
Weighted-average discount rate – operating leases | 6.3 | % | 6.3 | % | ||||
months prior to the commencement of the extension term. The lease also includes a cancellation option which is effective on August 21, 2024 and requires notice to be provided to the landlord at least 12 months prior. Triggering this option requires a cancellation payment of $4,236. The cancellation and extension options were not reasonably certain of being exercised and were therefore not recognized as part of the
Remainder of 2019 | $ | 2,723 | ||
2020 | 3,695 | |||
2021 | 2,958 | |||
2022 | 2,958 | |||
2023 | 2,958 | |||
2024 and thereafter | 17,641 | |||
|
| |||
Total future minimum lease payments (undiscounted) | $ | 32,933 | ||
|
|
Remainder of 2020 | $ | 2,740 | ||
2021 | 2,958 | |||
2022 | 2,958 | |||
2023 | 2,958 | |||
2024 | 3,037 | |||
2025 and thereafter | 14,604 | |||
Total future minimum lease payments (undiscounted) | $ | 29,255 |
Amounts recognized in the Company’s Consolidated Balance Sheet | ||||
Lease liability – short term | $ | 3,651 | ||
Lease liability – long term | 20,704 | |||
|
| |||
Subtotal | 24,355 | |||
Difference between undiscounted and discounted cash flows | 8,578 | |||
|
| |||
Total future minimum lease payments (undiscounted) | $ | 32,933 | ||
|
|
The following table discloses the future minimum lease payments at March 31, 2018 (prior period), which is required as the Company elected to apply the new lease requirements at the effective date, rather than the beginning of the earliest comparative period presented:
Remainder of 2018 | $ | 3,072 | ||
2019 | 3,764 | |||
2020 | 3,516 | |||
2021 | 3,146 | |||
2022 | 2,958 | |||
2023 and thereafter | 20,599 | |||
|
| |||
Total future minimum lease payments (undiscounted) | $ | 37,055 | ||
|
|
Lease Termination – Japan Office
The Company recognized an impairment expense of $572 in connection with the termination of its Japan office lease.
Letter of Credit
The Company collateralized its U.S. office lease through a standby letter of credit totaling $1,384. The collateral is included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.
Amounts recognized in the Company’s Consolidated Balance Sheet | ||||
Lease liability – short term | $ | 3,470 | ||
Lease liability – long term | 18,661 | |||
Subtotal | 22,131 | |||
Difference between undiscounted and discounted cash flows | 7,124 | |||
Total future minimum lease payments (undiscounted) | $ | 29,255 | ||
boards.
March 31, 2019 | December 31, 2018 | |||||||
Carrying Amount - Assets | ||||||||
Preferred stock | $ | 25,000 | $ | 25,000 | ||||
Note receivable - unsecured | 29,317 | 28,722 | ||||||
|
|
|
| |||||
Total carrying amount - Assets | $ | 54,317 | $ | 53,722 | ||||
|
|
|
| |||||
Maximum exposure to loss | $ | 54,317 | $ | 53,722 | ||||
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||
Carrying Amount – Assets (Securrency) | ||||||||
Preferred stock (Note 9 ) | $ | 8,112 | $ | 8,112 | ||||
Carrying Amount – Assets (AdvisorEngine) | ||||||||
Unsecured convertible notes receivable | $ | — | $ | 2,126 | ||||
Unsecured non-convertible note receivable | 8,500 | 26,046 | ||||||
Preferred stock | — | — | ||||||
Total carrying amount (Note 7) | $ | 8,500 | $ | 28,172 | ||||
Total carrying amount – Assets | $ | 8,500 | $ | 36,284 | ||||
Maximum exposure to loss | $ | 16,612 | $ | 36,284 | ||||
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
Revenues from contracts with customers: | ||||||||
Advisory fees | $ | 62,950 | $ | 64,840 | ||||
Other | 924 | 645 | ||||||
Total operating revenues | $ | 63,874 | $ | 65,485 | ||||
See Note 18 for further information including disaggregation
where the respective management companies reside:
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
United States | $ | 39,870 | $ | 42,623 | ||||
Jersey | 22,525 | 21,161 | ||||||
Ireland | 1,114 | 1,155 | ||||||
Canada (Note 24) | 365 | 546 | ||||||
Total operating revenues | $ | 63,874 | $ | 65,485 | ||||
March 31, 2019 | December 31, 2018 | |||||||
Receivable from WTT | $ | 15,036 | $ | 14,678 | ||||
Receivable from ETFS Issuers | 8,786 | 8,779 | ||||||
Receivable from BI and WTI | 1,004 | 951 | ||||||
Receivable from WTAMC | 189 | 167 | ||||||
Receivable from WTCS | 97 | 95 | ||||||
|
|
|
| |||||
Total | $ | 25,112 | $ | 24,670 | ||||
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||
Receivable from WTT | $ | 11,220 | $ | 14,765 | ||||
Receivable from ManJer Issuers | 7,612 | 9,036 | ||||||
Receivable from WMAI and WTI | 1,283 | 1,559 | ||||||
Receivable from WTAMC (Note 24) | — | 227 | ||||||
Receivable from WTCS | 54 | 80 | ||||||
Total | $ | 20,169 | $ | 25,667 | ||||
Three Months Ended | ||||||||
March 31, 2019 | March 31, 2018 | |||||||
Advisory services provided to WTT | $ | 42,223 | $ | 55,202 | ||||
Advisory services provided to ETFS Issuers | 19,273 | — | ||||||
Advisory services provided to BI and WTI | 2,504 | 2,626 | ||||||
Advisory services provided to WTAMC | 546 | 311 | ||||||
Advisory services provided to WTCS | 294 | 317 | ||||||
|
|
|
| |||||
Total | $ | 64,840 | $ | 58,456 | ||||
|
|
|
|
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
Advisory services provided to WTT | $ | 39,601 | $ | 42,223 | ||||
Advisory services provided to ManJer Issuers | 20,258 | 19,273 | ||||||
Advisory services provided to WMAI and WTI | 2,528 | 2,504 | ||||||
Advisory services provided to WTAMC | 365 | 546 | ||||||
Advisory services provided to WTCS | 198 | 294 | ||||||
Total | $ | 62,950 | $ | 64,840 | ||||
Stock options: | Generally issued for terms of ten years and may vest after at least one year of service and have an exercise price equal to the Company’s stock price on the grant date. The Company estimates the fair value of stock options (when granted) using the Black-Scholes option pricing model. | |
RSAs/RSUs: | Awards are valued based on the Company’s stock price on grant date and generally vest ratably over three years. | |
PRSUs: | These awards cliff vest three years from the grant date and contain a market condition whereby the number of PRSUs ultimately vesting is tied to how the Company’s total shareholder return (“TSR”) compares to a peer group of other publicly traded asset managers over the three-year period. A | |
|
For
March 31, 2019 | ||||||||
Unrecognized Stock- Based Compensation | Average Remaining Vesting Period | |||||||
Employees and directors restricted stock awards | $ | 24,012 | 2.48 |
March 31, 2020 | ||||||||
Unrecognized Stock- Based Compensation | Average Remaining Vesting Period | |||||||
Employees and directors | $ | 17,760 | 1.91 |
Stock Options | RSAs | RSUs | PRSUs | |||||||||||||
Balance at January 1, 2019 | 570,537 | 1,957,102 | 9,494 | — | ||||||||||||
Granted | — | 2,233,878 | 35,283 | 270,872 | (1) | |||||||||||
Exercised/vested | (20,000 | ) | (827,721 | ) | (4,341 | ) | — | |||||||||
Forfeitures | — | (93,194 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at March 31, 2019 | 550,537 | 3,270,065 | 40,436 | 270,872 | (1) | |||||||||||
|
|
|
|
|
|
|
|
Stock Options | RSAs | RSUs | PRSUs | |||||||||||||
Balance at January 1, 2020 | 485,536 | 3,244,558 | 39,278 | 232,610 | ||||||||||||
Granted | — | 1,436,089 | 32,901 | 117,013 | (1) | |||||||||||
Exercised/vested | (107,000 | ) | (936,186 | ) | (27,130 | ) | — | |||||||||
Forfeitures | (63,536 | ) | (23,483 | ) | (1,993 | ) | — | |||||||||
Balance at March 31, 2020 | 315,000 | 3,720,978 | 43,056 | 349,623 | ||||||||||||
(1) | Represents the target number of PRSUs granted and outstanding. The number of PRSUs that ultimately vest ranges from 0% to 200% of this amount. A . |
Three Months Ended March 31, | ||||||||
Basic Earnings per Share | 2019 | 2018 | ||||||
Net income | $ | 8,824 | $ | 9,424 | ||||
Less: Income distributed to participating securities | (544 | ) | (71 | ) | ||||
Less: Undistributed income allocable to participating securities | (391 | ) | (85 | ) | ||||
|
|
|
| |||||
Net income available to common stockholders | $ | 7,889 | $ | 9,268 | ||||
Weighted average common shares (in thousands) | 151,625 | 135,329 | ||||||
|
|
|
| |||||
Basic earnings per share | $ | 0.05 | $ | 0.07 | ||||
|
|
|
| |||||
Three Months Ended March 31, | ||||||||
Diluted Earnings per Share | 2019 | 2018 | ||||||
Net income | $ | 8,824 | $ | 9,424 | ||||
|
|
|
| |||||
Weighted Average Diluted Shares (in thousands): | ||||||||
Weighted average common shares | 151,625 | 135,329 | ||||||
Dilutive effect of common stock equivalents | 15,186 | 1,139 | ||||||
|
|
|
| |||||
Weighted average diluted shares | 166,811 | 136,468 | ||||||
|
|
|
| |||||
Diluted earnings per share | $ | 0.05 | $ | 0.07 | ||||
|
|
|
|
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Basic Earnings per Share | ||||||||
Net (loss)/income | $ | (8,638 | ) | $ | 8,824 | |||
Less: Income distributed to participating securities | (555 | ) | (544 | ) | ||||
Less: Undistributed income allocable to participating securities | — | (391 | ) | |||||
Net (loss)/income available to common stockholders – Basic EPS | $ | (9,193 | ) | $ | 7,889 | |||
Weighted average common shares (in thousands) | 152,519 | 151,625 | ||||||
Basic (loss)/earnings per share | $ | (0.06 | ) | $ | 0.05 | |||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Diluted Earnings per Share | ||||||||
Net (loss)/income available to common stockholders | $ | (9,193 | ) | $ | 7,889 | |||
Add back: Undistributed income allocable to participating securities | — | 391 | ||||||
Less: Reallocation of undistributed income allocable to participating securities considered potentially dilutive | (— | ) | (390 | ) | ||||
Net (loss)/income available to common stockholders – Diluted EPS | $ | (9,193 | ) | $ | 7,890 | |||
Weighted Average Diluted Shares (in thousands) | ||||||||
Weighted average common shares | 152,519 | 151,625 | ||||||
Dilutive effect of common stock equivalents, excluding | — | 196 | ||||||
Weighted average diluted shares, excluding participating securities (in thousands) | 152,519 | 151,821 | ||||||
Diluted (loss)/earnings per share | $ | (0.06 | ) | $ | 0.05 | |||
Three Months Ended March 31, | ||||||||
Reconciliation of Weighted Average Diluted Shares (in thousands) | 2020 | 2019 | ||||||
Weighted average diluted shares as disclosed on the consolidated statements of operations | 152,519 | (1) | 166,811 | |||||
Less: Participating securities: | ||||||||
Weighted average shares of common stock issuable upon conversion of the Preferred Shares (Note 13) | — | (14,750 | ) | |||||
Potentially dilutive restricted stock awards | — | (240 | ) | |||||
Weighted average diluted shares used to calculate diluted (loss)/earnings per share as disclosed in the table above | 152,519 | (1) | 151,821 | |||||
(1) | Excludes participating securities as the Company reported a net loss for the period. |
2019
The Company’s effective income tax rate for the three months ended March 31, 2018 of 32.3% resulted in income tax expense of $4,498. The Company’s effective income tax rate differs from the federal statutory tax rate of 21% primarily due to a valuation allowance on foreign net operating losses and state and local income taxes, partly offset by tax windfalls associated with the vesting and exercise of stock-based compensation awards.
March 31, 2019 | December 31, 2018 | |||||||
Deferred tax assets: |
| |||||||
NOLs – Foreign | $ | 8,222 | $ | 6,605 | ||||
Goodwill and intangible assets | 1,794 | 1,841 | ||||||
Accrued expenses | 1,358 | 2,699 | ||||||
Stock-based compensation | 1,189 | 2,673 | ||||||
Net lease liability | 1,172 | 1,184 | ||||||
Capital losses | 794 | 794 | ||||||
NOLs – U.S. | 635 | 762 | ||||||
Other | 37 | 40 | ||||||
|
|
|
| |||||
Deferred tax assets | 15,201 | 16,598 | ||||||
|
|
|
| |||||
Deferred tax liabilities: |
| |||||||
Fixed assets and prepaid assets | 1,439 | 1,433 | ||||||
Unrealized gains | 748 | 724 | ||||||
|
|
|
| |||||
Deferred tax liabilities | 2,187 | 2,157 | ||||||
|
|
|
| |||||
Total deferred tax assets less deferred tax liabilities | 13,014 | 14,441 | ||||||
Less: valuation allowance | (9,016 | ) | (7,399 | ) | ||||
|
|
|
| |||||
Deferred tax assets, net | $ | 3,998 | $ | 7,042 | ||||
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||
Deferred tax assets: | ||||||||
Capital losses | $ | 17,002 | $ | 8,226 | ||||
Operating lease liabilities | 5,295 | 5,529 | ||||||
NOLs – International | 5,233 | 9,336 | ||||||
Goodwill and intangible assets | 1,622 | 1,671 | ||||||
Stock-based compensation | 1,115 | 1,754 | ||||||
NOLs – U.S. | 514 | 642 | ||||||
Accrued expenses | 373 | 4,054 | ||||||
Outside basis differences | 123 | 123 | ||||||
Other | 159 | 218 | ||||||
Deferred tax assets | 31,436 | 31,553 | ||||||
Deferred tax liabilities: | ||||||||
Right of use assets – operating leases | 4,189 | 4,400 | ||||||
Fixed assets and prepaid assets | 1,309 | 1,326 | ||||||
Unrealized gains | 717 | 744 | ||||||
Deferred tax liabilities | 6,215 | 6,470 | ||||||
Total deferred tax assets less deferred tax liabilities | 25,221 | 25,083 | ||||||
Less: valuation allowance | (22,358 | ) | (17,685 | ) | ||||
Deferred tax assets, net | $ | 2,863 | $ | 7,398 | ||||
Canadian ETF business.
International
CARES Act did not have a material impact on the Company’s consolidated financial statements.
Total | Unrecognized Tax Benefits | Interest and Penalties | ||||||||||
Balance on January 1, 2019 | $ | 34,876 | $ | 28,101 | $ | 6,775 | ||||||
Decrease—Lapse of statute of limitations | (4,309 | ) | (2,999 | ) | (1,310 | ) | ||||||
Increases | 101 | — | 101 | |||||||||
Foreign currency translation(1) | 925 | 745 | 180 | |||||||||
|
|
|
|
|
| |||||||
Balance at March 31, 2019 | $ | 31,593 | $ | 25,847 | $ | 5,746 | ||||||
|
|
|
|
|
|
Total | Unrecognized Tax Benefits | Interest Penalties | ||||||||||
Balance on January 1, 2020 | $ | 32,101 | $ | 25,998 | $ | 6,103 | ||||||
Decrease - Lapse of statute of limitations (1) | (5,981 | ) | (4,620 | ) | (1,361 | ) | ||||||
Increases | 76 | — | 76 | |||||||||
Foreign currency translation (2) | (1,767 | ) | (1,432 | ) | (335 | ) | ||||||
Balance at March 31, 2020 | $ | 24,429 | $ | 19,946 | $ | 4,483 | ||||||
(1) | Recorded as an income tax benefit of $5,981 during the three months ended March 31, 2020, along with an equal and offsetting amount recorded in other losses, net, to recognize a reduction in the indemnification asset. During the three months ended March 31, 2019, an income tax benefit of $4,309 was recorded along with an equal and offsetting amount in other losses, net. |
(2) | The gross unrecognized tax benefits were accrued in British pounds sterling. |
The gross unrecognized tax benefits and interest and penalties totaling $31,593$24,429 at March 31, 20192020 are included in otherexpectedreasonably possible that the total amount of unrecognized tax benefits will changedecrease by $4,525 (including interest and penalties of $1,317) in the next 12 months; however,months upon lapsing of the Company does not expect the change to have a material impact on its consolidated financial statements.
statute of limitations.
As more fully disclosed in Note 3, the Company completed the ETFS Acquisition on April 11, 2018. To partially finance the acquisition,
unissued on the Company’s books and records.
Reporting Unit | ||||||||||||
European Business(1) | U.S. Business | Total | ||||||||||
Balance at January 1, 2019 | $ | 84,057 | $ | 1,799 | $ | 85,856 | ||||||
Changes | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Balance at March 31, 2019 | $ | 84,057 | $ | 1,799 | $ | 85,856 | ||||||
|
|
|
|
|
|
|
Total | ||||
Balance at January 1, 2020 | $ | 85,856 | ||
Changes | — | |||
Balance at March 31, 2020 | $ | 85,856 | ||
The goodwill allocated to
Advisory Agreements (ETFS) | Advisory Agreements (Questrade AUM) | Total | ||||||||||
Balance at January 1, 2019 | $ | 601,247 | $ | 1,962 | $ | 603,209 | ||||||
Foreign currency translation | — | 42 | 42 | |||||||||
|
|
|
|
|
| |||||||
Balance at March 31, 2019 | $ | 601,247 | $ | 2,004 | $ | 603,251 | ||||||
|
|
|
|
|
|
Advisory Agreements (ETFS) | Advisory Agreements (Questrade AUM) | Total | ||||||||||
Balance at January 1, 2020 | $ | 601,247 | $ | 2,047 | $ | 603,294 | ||||||
Decreases (1) | — | (1,992 | ) | (1,992 | ) | |||||||
Foreign currency translation | — | (55 | ) | (55 | ) | |||||||
Balance at March 31, 2020 | $ | 601,247 | $ | — | $ | 601,247 | ||||||
(1) | Derecognized upon the sale of the Company’s Canadian ETF business (Note 24). |
Questrade ETFs
During the fourth quarter of 2017, the Company acquired eight Canadian-listed ETFs from Questrade, Inc. (the “Questrade ETFs”).
Most of the Questrade ETFs were merged into the Company’s existing Canadian-listed ETFs. The intangible assets (which are deductible for tax purposes) were determined towholly-owned subsidiaries that have an indefinite useful life. The Company has designated November 30th aseither been sold or liquidated during reporting periods covered by its annual impairment testing date for these intangible assets.
24. Segment Reporting
The Company operates as an ETP sponsor and asset manager providing investment advisory services globally. These activities are reported in the Company’s U.S. Business and International Business reportable segments. The U.S. Business segment includes the results of the Company’s U.S. operations and wind down costs associated with the Japan sales office. The results of the Company’s European and Canadian operations are reported as the International Business segment.
Information concerning these reportable segments are as follows:
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
U.S. Business Segment | ||||||||
Operating revenues | ||||||||
Advisory fees | $ | 42,517 | $ | 55,518 | ||||
Other income | 106 | 147 | ||||||
|
|
|
| |||||
Total operating revenues | $ | 42,623 | $ | 55,665 | ||||
|
|
|
| |||||
Total operating expenses | $ | (37,176 | ) | $ | (39,030 | ) | ||
|
|
|
| |||||
Other income/(expenses) | ||||||||
Interest expense | $ | (192 | ) | $ | — | |||
Interest income | 779 | 962 | ||||||
Impairment | (572 | ) | — | |||||
Other gains/(losses), net | 145 | (226 | ) | |||||
|
|
|
| |||||
Total other income/(expenses) | $ | 160 | $ | 736 | ||||
|
|
|
| |||||
Total income before taxes (U.S. Business Segment) | $ | 5,607 | $ | 17,371 | ||||
|
|
|
|
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
WTAMC | $ | 428 | $ | 777 | ||||
WisdomTree Japan Inc. (“WTJ”) (1) | — | 430 | ||||||
Total | $ | 428 | $ | 1,207 | ||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
International Business Segment(1) | ||||||||
Operating revenues | ||||||||
Advisory fees | $ | 22,323 | $ | 2,938 | ||||
Other income | 539 | 301 | ||||||
|
|
|
| |||||
Total operating revenues | $ | 22,862 | $ | 3,239 | ||||
|
|
|
| |||||
Total operating expenses | $ | (17,626 | ) | $ | (6,653 | ) | ||
|
|
|
| |||||
Other income/(expenses) | ||||||||
Interest expense | $ | (2,700 | ) | $ | — | |||
Gain on revaluation of deferred consideration | 4,404 | — | ||||||
Other losses, net | (4,772 | ) | (35 | ) | ||||
|
|
|
| |||||
Total other income/(expenses) | $ | (3,068 | ) | $ | (35 | ) | ||
|
|
|
| |||||
Total income/(loss) before taxes (International Business Segment) | $ | 2,168 | $ | (3,449 | ) | |||
|
|
|
| |||||
Income/(loss) before taxes | ||||||||
U.S. Business segment | $ | 5,607 | $ | 17,371 | ||||
International Business segment | 2,168 | (3,449 | ) | |||||
|
|
|
| |||||
Total income before taxes | $ | 7,775 | $ | 13,922 | ||||
|
|
|
|
Assets are not reported by segment as such information is not utilized by the chief operating decision maker.
(1) |
|
25. Subsequent Events
Convertible Note - AdvisorEngine
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2018.2019. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.one of thea leading global ETP sponsors in the worldsponsor based on assets under management, or AUM, with AUM of $58.9$50.3 billion globally as of March 31, 2019.2020. An ETP is a pooled investment vehicle that holds a basket of securities, financial instruments or other assets and generally seeks to track (index-based) or outperform (actively managed) the performance of a broad or specific equity, fixed income or alternatives market segment, commodity or currency (or an inverse or multiple thereof). ETPs are listed on an exchange with their shares traded in the secondary market at market prices, generally at approximately the same price as the net asset value of their underlying components. ETP is an umbrella term that includes exchange-traded funds, or ETFs, exchange-traded notes and exchange-traded commodities.We focus on creatingfor investorsincludes funds that offer thoughtful innovation, smart engineeringtrack our own indexes, funds that track third-party indexes and redefined investing. We have launched manyfirst-to-market ETFs in the United States and pioneered alternative weighting and performance methods commonly referred to as “smart beta.” However,actively managed funds. Most of our U.S. listed ETFs are not beta, but rather anequity-based funds employ a fundamentally weighted investment innovation we call “Modern Alpha.” Our Modern Alpha approach combines the outperformance potential of active management with the benefits of passive management to offer investors cost-effective ETFs that are built to perform.Through our operating subsidiaries, we provide investment advisory and other management services to our ETPs collectively offering ETPs covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. In exchange for providing these services, we receive advisory fee revenuesmethodology, which weights securities based on factors such as dividends, earnings or investment factors, whereas most other ETF industry indexes use a percentage of the ETPs’ average daily AUM. Our expenses are predominantly related to selling, operating and marketing our ETPs. We have contracted with third parties to provide certain operational services for the ETPs.capitalization weighted methodology. We distribute our ETPsETFs through all major channels within the asset management industry, including brokerage firms, registered investment advisers, institutional investors, private wealth managers and discount brokers primarily through our sales force. Our sales efforts are not directed towards the retail segment but rather are directed towards financial or investment advisers that act as intermediaries between thethe launch of our Advisor Solutions program, in October 2017, which includes portfolio construction, asset allocation, practice management services and wealth management technology, have been madedigital tools for financial advisors, are meant to differentiate us in the market, expand our distribution and further enhance our relationships with financial advisors.Acquisition and ultimately renamed WisdomTree Investments, Inc. on September 6, 2005.ETFSIn April 2018,2020, market declines arising from theacquiredmanage. During the European exchange-traded commodity, currencyheight of the market volatility in March 2020, we experienced a 16% decline in our AUM resulting from market depreciation andshort-and-leveraged business, or ETFS, of ETFS Capital Limited, or ETFS Capital. Throughout this report, we refer to the acquired business as ETFS and the acquisition as the ETFS Acquisition. ETFS had approximately $17.6 $1.6 billion of AUMnet outflows. These pressures contributed to a corresponding decline in our operating results which, if further eroded, could adversely impact our liquidity as our credit facility includes a financial covenant that requires we maintain compliance with a leverage test. At March 31, 2020, we were in compliance with this covenant and we continue to be in compliance as of the date of this Report.10, 2018. Following2020 led to a partial recovery of our AUM. Our AUM increased 8% from $50.3 billion at March 31, 2020 to $54.5 billion at May 4, 2020. While this improvement is meaningful, we will continue to monitor our compliance with the ETFS Acquisition we becamefinancial covenants under our credit facility and are actively exploring refinancing and extension alternatives in advance of the largest global independent ETP provider based on AUM, with significant scale and presencematurity date in April 2021. Our available liquidity as disclosed in the U.S.section entitled “Liquidity and Europe,Capital Resources” was $74.7 million, which is available to reduce our outstanding debt, if necessary.
Industry Developments
In April 2019,
Assets Under Management
WisdomTree ETPs
A significant portion of our AUM historically has been held in ETFs that invest in foreign securities. Therefore, our AUM and revenuesthe current overall operating environment, we are affected by movementsmanaging a reduction in global capital marketsour expenses. Certain of our variable expenses that are tied to average AUM will decline, such as our fund related operating costs and the strengthening or weakening of the U.S. dollar against other currencies. Over the last few years, concentrationsfees we pay for third party distribution platforms. In addition, we expect a significant decline in HEDJ, our European equity ETF which hedges exposureincentive compensation. We also expect to the euro,spend less on discretionary expenses such as marketing, sales and DXJ,overhead expenses for managing our Japanese equity ETF which hedges exposure to the yen, have declined dramatically as negative investor sentiment toward these productsbusiness.
commodity, fixed income,
The ETFS Acquisition diversified our investment theme concentrations by adding commodity exposures, predominantly gold, that historically have been negatively correlated with HEDJ2020:
Market Environment
Performancesectors of the U.S. and European markets recoveredeconomy, including the AUM that we manage. Our AUM declined 20.9% from the prior quarter volatilityprimarily due to market depreciation.
The2020, the S&P 500 rose 13.6%declined 19.6%, MSCI EAFE (local currency) rose 10.7%declined 20.4%, MSCI Emerging Markets Index (U.S. dollar) rose 12.0% anddeclined 25.2%, while gold prices rose 1.1% during the first quarter of 2019.5.6%. In addition, the European and Japan equityJapanese equities markets both appreciateddepreciated with the MSCI EMU Index rising 9.9% and MSCI Japan Index rising 7.7%declining 23.6% and 17.2%, respectively, in local currency terms for the quarter. Also, the U.S. dollar strengthened 0.5% versus the yen1.3% and 2.0%5.5% versus the euro and British pound, respectively, while weakening 1.1% versus the Japanese yen during the quarter.
As the charts below reflect,
InternationalWisdomTree
As the charts below reflect, international
partly offset by commodity inflows.
Business Segments
U.S. Business Segment
Our U.S. Business segment included our Japan sales office, WTJ, which engaged in selling our U.S. listed ETFs to Japanese institutions. In July 2018,Europe.
International Business Segment
The International Business segment includes our European business (which now includes ETFS) and our Canadian business.
Our Operating and Financial Results
Listed ETFsBusiness Segment
depreciation and net outflows.
Listed ETPs
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Three Months Ended | ||||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | ||||||||||
U.S. LISTED ETFs (in millions) | ||||||||||||
Beginning of period assets | $ | 35,486 | $ | 41,556 | $ | 46,827 | ||||||
Inflows/(outflows) | 147 | (893 | ) | (2,167 | ) | |||||||
Market appreciation/(depreciation) | 3,820 | (5,177 | ) | (1,729 | ) | |||||||
Fund closures | (87 | ) | — | (45 | ) | |||||||
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End of period assets | $ | 39,366 | $ | 35,486 | $ | 42,886 | ||||||
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Average assets during the period | $ | 38,061 | $ | 38,246 | $ | 45,618 | ||||||
Average ETF advisory fee during the period | 0.45 | % | 0.47 | % | 0.49 | % | ||||||
Number of ETFs – end of the period | 77 | 85 | 81 | |||||||||
INTERNATIONAL LISTED ETPs (in millions) | ||||||||||||
Beginning of period assets | $ | 18,608 | $ | 17,587 | $ | 2,110 | ||||||
Inflows/(outflows) | 414 | 1,138 | (47 | ) | ||||||||
Market appreciation/(depreciation) | 545 | (117 | ) | 12 | ||||||||
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End of period assets | $ | 19,567 | $ | 18,608 | $ | 2,075 | ||||||
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Average assets during the period | $ | 19,616 | $ | 18,175 | $ | 2,106 | ||||||
Average ETP advisory fee during the period | 0.47 | % | 0.47 | % | 0.57 | % | ||||||
Number of ETPs—end of period | 457 | 452 | 99 | |||||||||
PRODUCT CATEGORIES (in millions) | ||||||||||||
Commodity & Currency | ||||||||||||
Beginning of period assets | $ | 16,251 | $ | 15,039 | $ | 445 | ||||||
Inflows/(outflows) | 227 | 984 | (28 | ) | ||||||||
Market appreciation/(depreciation) | 358 | 228 | (1 | ) | ||||||||
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End of period assets | $ | 16,836 | $ | 16,251 | $ | 416 | ||||||
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Average assets during the period | $ | 17,027 | $ | 15,658 | $ | 426 | ||||||
U.S. Equity | ||||||||||||
Beginning of period assets | $ | 13,334 | $ | 15,187 | $ | 14,234 | ||||||
Inflows/(outflows) | 632 | 394 | 47 | |||||||||
Market appreciation/(depreciation) | 1,914 | (2,247 | ) | (922 | ) | |||||||
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End of period assets | $ | 15,880 | $ | 13,334 | $ | 13,359 | ||||||
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Average assets during the period | $ | 14,947 | $ | 14,291 | $ | 14,122 | ||||||
International Developed Market Equity | ||||||||||||
Beginning of period assets | $ | 14,532 | $ | 19,590 | $ | 25,950 | ||||||
Inflows/(outflows) | (1,553 | ) | (2,384 | ) | (2,704 | ) | ||||||
Market appreciation/(depreciation) | 1,438 | (2,674 | ) | (814 | ) | |||||||
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End of period assets | $ | 14,417 | $ | 14,532 | $ | 22,432 | ||||||
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Average assets during the period | $ | 14,525 | $ | 16,962 | $ | 24,435 | ||||||
Emerging Market Equity | ||||||||||||
Beginning of period assets | $ | 5,278 | $ | 5,346 | $ | 5,887 | ||||||
Inflows/(outflows) | (84 | ) | 233 | 425 | ||||||||
Market appreciation/(depreciation) | 536 | (301 | ) | (23 | ) | |||||||
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End of period assets | $ | 5,730 | $ | 5,278 | $ | 6,289 | ||||||
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Average assets during the period | $ | 5,502 | $ | 5,148 | $ | 6,259 |
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||
Fixed Income | ||||||||||||||||||||||||
GLOBAL ETPs ($ in millions) | ||||||||||||||||||||||||
Beginning of period assets | $ | 2,570 | $ | 1,721 | $ | 862 | $ | 63,615 | $ | 59,981 | $ | 54,094 | ||||||||||||
Assets sold | (778 | ) | — | — | ||||||||||||||||||||
Inflows/(outflows) | 1,418 | 880 | 253 | (536 | ) | 390 | 561 | |||||||||||||||||
Market appreciation/(depreciation) | 35 | (31 | ) | (14 | ) | (11,958 | ) | 3,247 | 4,544 | |||||||||||||||
Fund closures | (20 | ) | (3 | ) | (87 | ) | ||||||||||||||||||
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End of period assets | $ | 4,023 | $ | 2,570 | $ | 1,101 | $ | 50,323 | $ | 63,615 | $ | 59,112 | ||||||||||||
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Average assets during the period | $ | 3,511 | $ | 2,140 | $ | 1,014 | $ | 59,819 | $ | 61,858 | $ | 57,683 | ||||||||||||
Leveraged & Inverse | ||||||||||||||||||||||||
Beginning of period assets | $ | 1,282 | $ | 1,445 | $ | 930 | ||||||||||||||||||
Inflows/(outflows) | 67 | (1 | ) | (135 | ) | |||||||||||||||||||
Market appreciation/(depreciation) | 70 | (162 | ) | 77 | ||||||||||||||||||||
Average ETP advisory fee during the period | 0.43 | % | 0.44 | % | 0.46 | % | ||||||||||||||||||
Number of ETPs – end of the period | 331 | 349 | 534 | |||||||||||||||||||||
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End of period assets | $ | 1,419 | $ | 1,282 | $ | 872 | ||||||||||||||||||
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Average assets during the period | $ | 1,408 | $ | 1,393 | $ | 877 | ||||||||||||||||||
Alternatives | ||||||||||||||||||||||||
Beginning of period assets | $ | 755 | $ | 674 | $ | 582 | ||||||||||||||||||
Inflows/(outflows) | (141 | ) | 178 | (70 | ) | |||||||||||||||||||
Market appreciation/(depreciation) | 14 | (97 | ) | (20 | ) | |||||||||||||||||||
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End of period assets | $ | 628 | $ | 755 | $ | 492 | ||||||||||||||||||
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Average assets during the period | $ | 666 | $ | 712 | $ | 547 | ||||||||||||||||||
Closed ETPs | ||||||||||||||||||||||||
U.S. LISTED ETFs ($ in millions) | ||||||||||||||||||||||||
Beginning of period assets | $ | 92 | $ | 141 | $ | 47 | $ | 40,600 | $ | 37,592 | $ | 35,486 | ||||||||||||
Inflows/(outflows) | (5 | ) | (39 | ) | (2 | ) | (1,273 | ) | 563 | 147 | ||||||||||||||
Market appreciation/(depreciation) | — | (10 | ) | — | (10,424 | ) | 2,448 | 3,820 | ||||||||||||||||
Fund closures | (87 | ) | — | (45 | ) | (10 | ) | (3 | ) | (87 | ) | |||||||||||||
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End of period assets | $ | — | $ | 92 | $ | — | $ | 28,893 | $ | 40,600 | $ | 39,366 | ||||||||||||
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Average assets during the period | $ | 91 | $ | 117 | $ | 44 | $ | 36,936 | $ | 39,094 | $ | 38,061 | ||||||||||||
Headcount – U.S. Business Segment | 141 | 153 | 157 | |||||||||||||||||||||
Headcount – International Segment | 75 | 75 | 34 | |||||||||||||||||||||
Average ETF advisory fee during the period | 0.43 | % | 0.44 | % | 0.45 | % | ||||||||||||||||||
Number of ETFs – end of the period | 77 | 80 | 77 | |||||||||||||||||||||
INTERNATIONAL LISTED ETPs ($ in millions) | ||||||||||||||||||||||||
Beginning of period assets | $ | 23,015 | $ | 22,389 | $ | 18,608 | ||||||||||||||||||
Assets sold | (778 | ) | — | — | ||||||||||||||||||||
Inflows/(outflows) | 737 | (173 | ) | 414 | ||||||||||||||||||||
Market appreciation/(depreciation) | (1,534 | ) | 799 | 724 | ||||||||||||||||||||
Fund closures | (10 | ) | — | — | ||||||||||||||||||||
End of period assets | $ | 21,430 | $ | 23,015 | $ | 19,746 | ||||||||||||||||||
Average assets during the period | $ | 22,883 | $ | 22,764 | $ | 19,622 | ||||||||||||||||||
Average ETP advisory fee during the period | 0.43 | % | 0.44 | % | 0.47 | % | ||||||||||||||||||
Number of ETPs – end of period | 254 | 269 | 457 | |||||||||||||||||||||
PRODUCT CATEGORIES ($ in millions) | ||||||||||||||||||||||||
Commodity & Currency | ||||||||||||||||||||||||
Beginning of period assets | $ | 20,326 | $ | 19,954 | $ | 16,212 | ||||||||||||||||||
Inflows/(outflows) | 780 | (266 | ) | 228 | ||||||||||||||||||||
Market appreciation/(depreciation) | (1,018 | ) | 638 | 539 | ||||||||||||||||||||
End of period assets | $ | 20,088 | $ | 20,326 | $ | 16,979 | ||||||||||||||||||
Average assets during the period | $ | 20,643 | $ | 20,146 | $ | 16,994 | ||||||||||||||||||
U.S. Equity | ||||||||||||||||||||||||
Beginning of period assets | $ | 17,746 | $ | 16,296 | $ | 13,222 | ||||||||||||||||||
Inflows/(outflows) | (285 | ) | 458 | 639 | ||||||||||||||||||||
Market appreciation/(depreciation) | (5,302 | ) | 992 | 1,898 | ||||||||||||||||||||
End of period assets | $ | 12,159 | $ | 17,746 | $ | 15,759 | ||||||||||||||||||
Average assets during the period | $ | 16,022 | $ | 16,983 | $ | 14,823 | ||||||||||||||||||
International Developed Market Equity | ||||||||||||||||||||||||
Beginning of period assets | $ | 13,089 | $ | 12,243 | $ | 14,309 | ||||||||||||||||||
Inflows/(outflows) | (1,107 | ) | (139 | ) | (1,575 | ) | ||||||||||||||||||
Market appreciation/(depreciation) | (3,300 | ) | 985 | 1,407 | ||||||||||||||||||||
End of period assets | $ | 8,682 | $ | 13,089 | $ | 14,141 | ||||||||||||||||||
Average assets during the period | $ | 11,515 | $ | 12,684 | $ | 14,280 |
Three Months Ended | ||||||||||||
March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||
Emerging Market Equity | ||||||||||||
Beginning of period assets | $ | 6,494 | $ | 5,787 | $ | 5,275 | ||||||
Inflows/(outflows) | 59 | 193 | (94 | ) | ||||||||
Market appreciation/(depreciation) | (1,887 | ) | 514 | 533 | ||||||||
End of period assets | $ | 4,666 | $ | 6,494 | $ | 5,714 | ||||||
Average assets during the period | $ | 6,002 | $ | 6,082 | $ | 5,492 | ||||||
Fixed Income | ||||||||||||
Beginning of period assets | $ | 3,633 | $ | 3,390 | $ | 2,345 | ||||||
Inflows/(outflows) | 17 | 212 | 1,403 | |||||||||
Market appreciation/(depreciation) | (86 | ) | 31 | 24 | ||||||||
End of period assets | $ | 3,564 | $ | 3,633 | $ | 3,772 | ||||||
Average assets during the period | $ | 3,697 | $ | 3,589 | $ | 3,268 | ||||||
Leveraged & Inverse | ||||||||||||
Beginning of period assets | $ | 1,058 | $ | 1,046 | $ | 981 | ||||||
Inflows/(outflows) | (81 | ) | 14 | 147 | ||||||||
Market appreciation/(depreciation) | (78 | ) | (2 | ) | (43 | ) | ||||||
End of period assets | $ | 899 | $ | 1,058 | $ | 1,085 | ||||||
Average assets during the period | $ | 1,043 | $ | 1,078 | $ | 1,074 | ||||||
Alternatives | ||||||||||||
Beginning of period assets | $ | 394 | $ | 461 | $ | 739 | ||||||
Inflows/(outflows) | (77 | ) | (68 | ) | (138 | ) | ||||||
Market appreciation/(depreciation) | (55 | ) | 1 | 15 | ||||||||
End of period assets | $ | 262 | $ | 394 | $ | 616 | ||||||
Average assets during the period | $ | 358 | $ | 437 | $ | 653 | ||||||
Closed ETPs | ||||||||||||
Beginning of period assets | $ | 875 | $ | 804 | $ | 1,011 | ||||||
Assets sold | (778 | ) | — | — | ||||||||
Inflows/(outflows) | 158 | (14 | ) | (49 | ) | |||||||
Market appreciation/(depreciation) | (232 | ) | 88 | 171 | ||||||||
Fund closures | (20 | ) | (3 | ) | (87 | ) | ||||||
End of period assets | $ | 3 | $ | 875 | $ | 1,046 | ||||||
Average assets during the period | $ | 539 | $ | 859 | $ | 1,099 | ||||||
Headcount | 210 | 208 | 216 |
2019
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
2019 | 2018 | |||||||||||||||
Global AUM (in millions) | ||||||||||||||||
Average global AUM | $ | 57,677 | $ | 47,724 | $ | 9,953 | 20.9 | % | ||||||||
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Operating Revenues (in thousands) | ||||||||||||||||
Advisory fees | $ | 64,840 | $ | 58,456 | $ | 6,384 | 10.9 | % | ||||||||
Other income | 645 | 448 | 197 | 44.0 | % | |||||||||||
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Total revenues | $ | 65,485 | $ | 58,904 | $ | 6,581 | 11.2 | % | ||||||||
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Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
2020 | 2019 | |||||||||||||||
Global AUM (in millions) | ||||||||||||||||
Average global AUM | $ | 59,819 | $ | 57,683 | $ | 2,136 | 3.7 | % | ||||||||
Operating Revenues (in thousands) | ||||||||||||||||
Advisory fees | $ | 62,950 | $ | 64,840 | $ | (1,890 | ) | (2.9 | %) | |||||||
Other income | 924 | 645 | 279 | 43.3 | % | |||||||||||
Total revenues | $ | 63,874 | $ | 65,485 | $ | (1,611 | ) | (2.5 | %) | |||||||
U.S. equity ETPs.
AUM mix shift.
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
(in thousands) | 2019 | 2018 | ||||||||||||||
Compensation and benefits | $ | 21,301 | $ | 18,832 | $ | 2,469 | 13.1 | % | ||||||||
Fund management and administration | 15,166 | 10,912 | 4,254 | 39.0 | % | |||||||||||
Marketing and advertising | 2,680 | 3,195 | (515 | ) | (16.1 | %) | ||||||||||
Sales and business development | 4,422 | 3,813 | 609 | 16.0 | % | |||||||||||
Contractual gold payments | 3,098 | — | 3,098 | n/a | ||||||||||||
Professional and consulting fees | 1,482 | 1,636 | (154 | ) | (9.4 | %) | ||||||||||
Occupancy, communications and equipment | 1,618 | 1,363 | 255 | 18.7 | % | |||||||||||
Depreciation and amortization | 269 | 355 | (86 | ) | (24.2 | %) | ||||||||||
Third-party distribution fees | 2,400 | 1,725 | 675 | 39.1 | % | |||||||||||
Acquisition-related costs | 313 | 2,062 | (1,749 | ) | (84.8 | %) | ||||||||||
Other | 2,053 | 1,790 | 263 | 14.7 | % | |||||||||||
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Total expenses | $ | 54,802 | $ | 45,683 | $ | 9,119 | 20.0 | % | ||||||||
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Three Months Ended March 31, | ||||||||
As a Percent of Revenues: | 2019 | 2018 | ||||||
Compensation and benefits | 32.5 | % | 32.0 | % | ||||
Fund management and administration | 23.2 | % | 18.5 | % | ||||
Marketing and advertising | 4.1 | % | 5.4 | % | ||||
Sales and business development | 6.8 | % | 6.5 | % |
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
(in thousands) | 2020 | 2019 | ||||||||||||||
Compensation and benefits | $ | 17,295 | $ | 21,301 | $ | (4,006 | ) | (18.8 | %) | |||||||
Fund management and administration | 14,485 | 15,166 | (681 | ) | (4.5 | %) | ||||||||||
Marketing and advertising | 2,468 | 2,680 | (212 | ) | (7.9 | %) | ||||||||||
Sales and business development | 3,417 | 4,422 | (1,005 | ) | (22.7 | %) | ||||||||||
Contractual gold payments | 3,760 | 3,098 | 662 | 21.4 | % | |||||||||||
Professional and consulting fees | 1,273 | 1,482 | (209 | ) | (14.1 | %) | ||||||||||
Occupancy, communications and equipment | 1,551 | 1,618 | (67 | ) | (4.1 | %) | ||||||||||
Depreciation and amortization | 256 | 269 | (13 | ) | (4.8 | %) | ||||||||||
Third-party distribution fees | 1,355 | 2,400 | (1,045 | ) | (43.5 | %) | ||||||||||
Acquisition and disposition-related costs | 383 | 313 | 70 | 22.4 | % | |||||||||||
Other | 1,997 | 2,053 | (56 | ) | (2.7 | %) | ||||||||||
Total expenses | $ | 48,240 | $ | 54,802 | $ | (6,562 | ) | (12.0 | %) | |||||||
Three Months Ended March 31, | ||||||||
As a Percent of Revenues: | 2019 | 2018 | ||||||
Contractual gold payments | 4.7 | % | n/a | |||||
Professional and consulting fees | 2.3 | % | 2.8 | % | ||||
Occupancy, communications and equipment | 2.4 | % | 2.3 | % | ||||
Depreciation and amortization | 0.4 | % | 0.6 | % | ||||
Third-party distribution fees | 3.7 | % | 2.9 | % | ||||
Acquisition-related costs | 0.5 | % | 3.5 | % | ||||
Other | 3.1 | % | 3.1 | % | ||||
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Total expenses | 83.7 | % | 77.6 | % | ||||
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Three Months Ended March 31, | ||||||||
As a Percent of Revenues: | 2020 | 2019 | ||||||
Compensation and benefits | 27.1 | % | 32.5 | % | ||||
Fund management and administration | 22.7 | % | 23.2 | % | ||||
Marketing and advertising | 3.9 | % | 4.1 | % |
Three Months Ended March 31, | ||||||||
As a Percent of Revenues: | 2020 | 2019 | ||||||
Sales and business development | 5.3 | % | 6.8 | % | ||||
Contractual gold payments | 5.9 | % | 4.7 | % | ||||
Professional and consulting fees | 2.0 | % | 2.3 | % | ||||
Occupancy, communications and equipment | 2.4 | % | 2.4 | % | ||||
Depreciation and amortization | 0.4 | % | 0.4 | % | ||||
Third-party distribution fees | 2.1 | % | 3.7 | % | ||||
Acquisition and disposition-related costs | 0.6 | % | 0.5 | % | ||||
Other | 3.1 | % | 3.1 | % | ||||
Total expenses | 75.5 | % | 83.7 | % | ||||
2020, respectively.
2019 compared to 77 U.S. listed ETFs and 254 International listed ETPs at March 31, 2020.
resulting from the
ounce during the three months ended March 31, 2019 and 2020, respectively.
Depreciationlower fees for platform relationships.
Depreciationdisposition-related costs
Third-party distribution fees
Third-party distribution fees increased 39.1%Canadian ETF business.
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
(in thousands) | 2020 | 2019 | ||||||||||||||
Interest expense | $ | (2,419 | ) | $ | (2,892 | ) | $ | 473 | (16.4 | %) | ||||||
(Loss)/gain on revaluation of deferred consideration | (2,208 | ) | 4,404 | (6,612 | ) | n/a | ||||||||||
Interest income | 163 | 779 | (616 | ) | (79.1 | %) | ||||||||||
Impairments | (19,672 | ) | (572 | ) | (19,100 | ) | 3,339.2 | % | ||||||||
Other losses, net | (2,507 | ) | (4,627 | ) | 2,120 | (45.8 | %) | |||||||||
Total other income/(expenses) | $ | (26,643 | ) | $ | (2,908 | ) | $ | (23,735 | ) | 816.2 | % | |||||
Three Months Ended March 31, | ||||||||
As a Percent of Revenues: | 2020 | 2019 | ||||||
Interest expense | (3.8 | %) | (4.4 | %) | ||||
(Loss)/gain on revaluation of deferred consideration | (3.5 | %) | 6.7 | % | ||||
Interest income | 0.2 | % | 1.2 | % | ||||
Impairment | (30.7 | %) | (0.9 | %) | ||||
Other losses, net | (3.9 | %) | (7.0 | %) | ||||
Total other income/(expenses) | (41.7 | %) | (4.4 | %) | ||||
Acquisition-related costs
Acquisition-related costs decreased 84.8% from $2.1 millionlower level of debt outstanding as well as lower interest rates. Our effective interest rate during the three months ended March 31, 2018 to $0.3 million in the comparable period in 2019 as the integration of ETFS is essentially complete.
Other
Other expenses increased 14.7% from $1.8 million during the three months ended March 31, 2018 to $2.1 million in the comparable period in 2019 primarily due to higher International Business segment office expenses associated with an increase in headcount from the ETFS Acquisition.
Other Income/(Expenses)
Three Months Ended March 31, | Change | Percent Change | ||||||||||||||
(in thousands) | 2019 | 2018 | ||||||||||||||
Interest expense | $ | (2,892 | ) | $ | — | $ | (2,892 | ) | n/a | |||||||
Gain on revaluation of deferred consideration | 4,404 | — | 4,404 | n/a | ||||||||||||
Interest income | 779 | 962 | (183 | ) | (19.0 | %) | ||||||||||
Impairment | (572 | ) | — | (572 | ) | n/a | ||||||||||
Other losses, net | (4,627 | ) | (261 | ) | (4,366 | ) | n/a | |||||||||
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Total other income/(expenses) | $ | (2,908 | ) | $ | 701 | $ | (3,609 | ) | n/a | |||||||
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Three Months Ended March 31, | ||||||||
As a Percent of Revenues: | 2019 | 2018 | ||||||
Interest expense | (4.4 | %) | n/a | |||||
Gain on revaluation of deferred consideration | 6.7 | % | n/a | |||||
Interest income | 1.2 | % | 1.6 | % | ||||
Impairment | (0.9 | %) | n/a | |||||
Other losses, net | (7.0 | %) | (0.4 | %) | ||||
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| |||||
Total other income/(expenses) | (4.4 | %) | 1.2 | % | ||||
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Interest expense
Interest expense for the three months ended March 31, 2019 of $2.9 million was incurred principally in connection with our $200.0 million term loan, or the Term Loan, to facilitate the ETFS Acquisition. Our effective interest rate during the periodand 2020 was 5.5% and 5.0%, respectively, and includes our cost of borrowing and amortization of issuance costs.
Gain
Impairment
We recognized an impairment of $0.6 million during the three months ended March 31, 2019 to $0.2 million in the comparable period in 2020 due to our AdvisorEngine unsecured convertible note receivable being placed on
rate for the three months ended March 31, 2020 of 21.5% resulted in an income tax benefit of $2.4 million. Our effective income tax rate differs from the federal statutory rate of 21% primarily due a $6.0 million reduction in unrecognized tax benefits, a $2.9 million
Segment Results
The table below presentsawards and the net revenues, operating expenses and income before taxesmagnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our U.S. Businessstock on the date the award was granted and International Business reportable segments (in thousands, except for average assets during the period, whichdate the award vested or was exercised. We exclude these items when determining adjusted net income and adjusted diluted earnings per share as they introduce volatility in earnings and are in millions).
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
U.S. Business Segment | ||||||||
Operating revenues | ||||||||
Advisory fees | $ | 42,517 | $ | 55,518 | ||||
Other income | 106 | 147 | ||||||
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Total operating revenues | $ | 42,623 | $ | 55,665 | ||||
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Total operating expenses | $ | (37,176 | ) | $ | (39,030 | ) | ||
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Other income/(expenses) | ||||||||
Interest expense | $ | (192 | ) | $ | — | |||
Interest income | 779 | 962 | ||||||
Impairment | (572 | ) | — | |||||
Other gains/(losses), net | 145 | (226 | ) | |||||
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Total other income | $ | 160 | $ | 736 | ||||
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Total income before taxes (U.S. Business Segment) | $ | 5,607 | $ | 17,371 | ||||
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Average assets during the period (in millions) | $ | 38,061 | $ | 45,618 | ||||
Average ETF advisory fee during the period | 0.45 | % | 0.49 | % | ||||
International Business Segment | ||||||||
Operating revenues | ||||||||
Advisory fees | $ | 22,323 | $ | 2,938 | ||||
Other income | 539 | 301 | ||||||
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Total operating revenues | $ | 22,862 | $ | 3,239 | ||||
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Total operating expenses | $ | (17,626 | ) | $ | (6,653 | ) | ||
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Other income/(expenses) | ||||||||
Interest expense | $ | (2,700 | ) | $ | — | |||
Gain on revaluation of deferred consideration | 4,404 | — | ||||||
Other losses, net | (4,772 | ) | (35 | ) | ||||
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Total other expenses | $ | (3,068 | ) | $ | (35 | ) | ||
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Total income/(loss) before taxes (International Business Segment) | $ | 2,168 | $ | (3,449 | ) | |||
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Average assets during the period (in millions) | $ | 19,616 | $ | 2,106 | ||||
Average ETP advisory fee during the period | 0.47 | % | 0.57 | % | ||||
Income/(loss) before taxes | ||||||||
U.S. Business segment | $ | 5,607 | $ | 17,371 | ||||
International Business segment | 2,168 | (3,449 | ) | |||||
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Total income before taxes | $ | 7,775 | $ | 13,922 | ||||
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Three Months Ended March 31, 2019 Comparednot core to Three Months Ended March 31, 2018
U.S. Business segment
Operating revenues of the U.S. Business segment decreased 23.4% from $55.7 million during the three months ended March 31, 2018 to $42.6 million in the comparable period in 2019. The decrease was attributable to net outflows from HEDJ and DXJ, market depreciation and lower average U.S. listed ETF advisory fees due to a change in product mix. These decreases were partly offset by net inflows into certainour operating business.
Operating expenses of the U.S. Business segment decreased 4.8% from $39.0 million during the three months ended March 31, 2018 to $37.2 million in the comparable period in 2019 due primarily to lower acquisition-related costs, lower marketing and advertising expense, lower fund management and administration expense, lower professional fees and lower incentive compensation. These decreases were partly offset by higher third-party distribution fees andCanadian ETF business, severance expense and acquisition and disposition-related costs are excluded when determining adjusted net income and adjusted earnings per share.
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
Adjusted Net Income and Diluted Earnings per Share: | 2020 | 2019 | ||||||
Net (loss)/income, as reported | $ | (8,638 | ) | $ | 8,824 | |||
Add back/(deduct): Loss/(gain) on revaluation of deferred consideration | 2,208 | (4,404 | ) | |||||
Add back: Impairment, net of income taxes | 19,672 | 572 | ||||||
Deduct: Gain recognized upon sale of our Canadian ETF business | (2,877 | ) | — | |||||
Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards | 501 | 971 | ||||||
Add back: Acquisition and disposition-related costs, net of income taxes | 358 | 253 | ||||||
Add back: Severance expense, net of income taxes | — | 1,521 | ||||||
Adjusted net income | $ | 11,224 | $ | 7,737 | ||||
Deduct: Income distributed to participating securities | (555 | ) | (544 | ) | ||||
Deduct: Undistributed income allocable to participating securities | (654 | ) | (276 | ) | ||||
Adjusted net income available to common stockholders | $ | 10,015 | $ | 6,917 | ||||
Weighted average diluted shares, excluding participating securities (See Note 20 to our Consolidated Financial Statements) | 152,535 | 151,821 | ||||||
Adjusted earnings per share – diluted | $ | 0.07 | $ | 0.05 | ||||
March 31, 2019 | December 31, 2018 | |||||||
Balance Sheet Data (in thousands): | ||||||||
Cash and cash equivalents | $ | 78,942 | $ | 77,784 | ||||
Accounts receivable | 28,136 | 25,834 | ||||||
Securitiesheld-to-maturity | 20,159 | 20,180 | ||||||
Securities owned, at fair value | 6,419 | 8,873 | ||||||
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Total: Liquid assets | 133,656 | 132,671 | ||||||
Less: Total current liabilities | (62,753 | ) | (62,801 | ) | ||||
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Subtotal | 70,903 | 69,870 | ||||||
Plus: Revolving credit facility—undrawn | 50,000 | 50,000 | ||||||
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Total: Available liquidity | $ | 120,903 | $ | 119,870 | ||||
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March 31, 2020 | December 31, 2019 | |||||||
Balance Sheet Data (in thousands) | ||||||||
Cash and cash equivalents | $ | 68,429 | $ | 74,972 | ||||
Accounts receivable | 22,728 | 26,838 | ||||||
Securities owned, at fair value | 20,261 | 17,319 | ||||||
Securities held-to-maturity | 10,864 | 16,863 | ||||||
Total: Liquid assets | 122,282 | 135,992 | ||||||
Less: Total current liabilities | (54,329 | ) | (79,041 | ) | ||||
Less: Regulatory capital requirement – certain international subsidiaries | (10,398 | ) | (12,312 | ) | ||||
Subtotal | 57,555 | 44,639 | ||||||
Plus: Revolving credit facility – available capacity | 17,128 | 27,908 | ||||||
Total: Available liquidity | $ | 74,683 | $ | 72,547 | ||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash Flow Data (in thousands): | ||||||||
Operating cash flows | $ | 7,852 | $ | (4,836 | ) | |||
Investing cash flows | 11 | 60,513 | ||||||
Financing cash flows | (7,088 | ) | (4,812 | ) | ||||
Foreign exchange rate effect | 383 | 593 | ||||||
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Increase in cash and cash equivalents | $ | 1,158 | $ | 51,458 | ||||
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Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Cash Flow Data (in thousands) | ||||||||
Operating cash flows | $ | (2,634 | ) | $ | 7,852 | |||
Investing cash flows | 8,754 | 11 | ||||||
Financing cash flows | (11,391 | ) | (7,088 | ) | ||||
Foreign exchange rate effect | (1,272 | ) | 383 | |||||
(Decrease)/increase in cash and cash equivalents | $ | (6,543 | ) | $ | 1,158 | |||
Cash and cash equivalents increased $51.5 million during the three months ended March 31, 2018 due to $60.5 million from sales and maturities of debt securities available for sale and $0.6 million from changes in foreign exchange rates. These increases were partly offset by $4.8 million of net cash used in operating activities, $4.1 million used to pay dividends on our common stock and $0.7 million used to repurchase our common stock.
The available capacity under the Revolver is subject to compliance with the Total Leverage Ratio as further described below.
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Fiscal Quarter Ending | Total Leverage Ratio | |||
March 31, 2020 | 2.25:1.00 | |||
June 30, | 2.25:1.00 | |||
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September 30, 2020 and each subsequent fiscal quarter ending on or before the maturity date | 2.00:1.00 |
agreement and are actively exploring refinancing and extension alternatives as the facility matures within approximately the next 12 months.
Total | Payments Due by Period | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | |||||||||||||||||
Term Loan | $ | 200,000 | $ | — | $ | 200,000 | $ | — | $ | — | ||||||||||
Operating leases | 32,933 | 2,723 | 9,611 | 5,995 | 14,604 | |||||||||||||||
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Total | $ | 232,933 | $ | 2,723 | $ | 209,611 | $ | 5,995 | $ | 14,604 | ||||||||||
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2020:
Total | Payments Due by Period | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | |||||||||||||||||
Term Loan | $ | 174,000 | $ | — | $ | 174,000 | $ | — | $ | — | ||||||||||
Deferred consideration – gold payments (1) | 175,300 | 14,500 | 25,876 | 21,839 | 113,085 | |||||||||||||||
Operating leases | 29,255 | 3,479 | 5,916 | 6,042 | 13,818 | |||||||||||||||
Total | $ | 378,555 | $ | 17,979 | $ | 205,792 | $ | 27,881 | $ | 126,903 | ||||||||||
(1) | Paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold with no recourse back to the Company for any unpaid amounts that exceed advisory fees earned (See Note 11 to our Consolidated Financial Statements). |
For impairment testing purposes, goodwill has been
units, in the aggregate.
other comprehensive income, and beneficial interests in securitized financial assets. The CECL model does not apply to will measure credit losses in a manner similar to what they do today,
In August 2018, the FASB issued2020, we adopted ASU (ASUmodifiesmodified the disclosure requirements on fair value measurements, including removing the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. ASUASU2018-13 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019 and early adoption is permitted. This standard will only impactimpacted the disclosures pertaining to fair value measurements. We planmeasurements and were incorporated into the notes to adopt this standard on January 1, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
our consolidated financial statements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Over the last few years, we have expanded our business globally and
The completion of the ETFS Acquisition has provided us with an industry leading position in European-listed gold and commodity products.
ITEM 4. CONTROLS AND PROCEDURES
ITEM 4. | CONTROLS AND PROCEDURES |
As of the date of this Report, we are in the process of completing the integration of the acquired operations of ETFS into our overall internal control over financial reporting, or ICFR, and have deferred our assessment of the ICFR related to ETFS, which constituted 2% and 7% of total and net assets, respectively, at March 31, 2019, and 30% of revenues for the three months then ended.
Notwithstanding the ETFS Acquisition, during
ITEM 1. | LEGAL PROCEEDINGS |
You
ITEM 1A. | RISK FACTORS |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
(in thousands) | ||||||||||||||||
January 1, 2019 to January 31, 2019 | 304,809 | $ | 6.43 | 304,809 | ||||||||||||
February 1, 2019 to February 28, 2019 | — | $ | — | — | ||||||||||||
March 1, 2019 to March 31, 2019 | 6,404 | $ | 7.06 | 6,404 | ||||||||||||
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Total | 311,213 | $ | 6.44 | 311,213 | $ | 83,724 | ||||||||||
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Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||
Period | (in thousands) | |||||||||||||||
January 1, 2020 to January 31, 2020 | 378,408 | $ | 3.86 | 378,408 | ||||||||||||
February 1, 2020 to February 29, 2020 | 6,991 | $ | 4.75 | 6,991 | ||||||||||||
March 1, 2020 to March 31, 2020 | — | $ | — | — | ||||||||||||
Total | 385,399 | $ | 3.88 | 385,399 | $ | 81,894 | ||||||||||
(1) | On April 24, 2019, our Board of Directors extended the term of our share repurchase program for three years through April 27, 2022. During the three months ended March 31, |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 4. | MINE SAFETY DISCLOSURES |
None.
ITEM 6. | EXHIBITS |
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| |||
101 (1) | Financial Statements from the Quarterly Report on Form 10-Q of the Company for the three months ended March 31, | |||
101.SCH (1) | Inline XBRL Taxonomy Extension Schema Document | |||
101.CAL (1) | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF (1) | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB (1) | Inline XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE (1) | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
Exhibit No. | Description | |||
104 (1) | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
(1) | Filed herewith. |
WISDOMTREE INVESTMENTS, INC. | ||
By: | /s/ Jonathan Steinberg | |
Jonathan Steinberg | ||
| ||
WISDOMTREE INVESTMENTS, INC. | ||
By: | /s/ Amit Muni | |
Amit Muni | ||
| ||
WISDOMTREE INVESTMENTS, INC. | ||
By: | /s/ Bryan Edmiston | |
Bryan Edmiston | ||
|
54