WisdomTree Announces Fourth Quarter 2023 Results

Surpasses $100 Billion in Total AUM

520bps of Operating Margin Expansion vs. the Prior Year

Diluted Earnings Per Share of $0.16 ($0.11, as Adjusted)

13% Annualized Organic Growth Rate Across All Products

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

$19.1 million net income ($18.6⁽¹⁾ million net income, as adjusted), see "Non-GAAP Financial Measurements" for additional information.

$100.1 billion of ending AUM, an increase of 6.8% arising primarily from market appreciation.

$0.3 billion of net outflows, primarily driven by outflows from our fixed income and commodity products, partly offset by inflows into our U.S. equity and emerging markets products.

0.36% average advisory fee, unchanged from the prior quarter.

$90.8 million of operating revenues, essentially unchanged from the prior quarter.

79.7% gross margin⁽¹⁾, a 0.4 point decrease from the prior quarter due to higher fund costs.

28.7% operating income margin, an 0.8 point decrease compared to our operating margin of 29.5% in the prior quarter primarily due to higher expenses.

Repurchase of Series C non-voting preferred shares convertible into 13.1 million shares of common stock from Gold Bullion Holdings (Jersey) Limited ("GBH"), a subsidiary of the World Gold Council, for aggregate cash consideration of approximately $84.4 million, with $40.0 million paid on the closing date and the remainder of the purchase price payable in equal annual installments on the first, second and third anniversaries of the closing date, with no requirement to pay interest. The repurchase price per share equated to $6.02 per share when taking into consideration the interest-free financing element of the transaction.

$0.03 quarterly dividend declared, payable on February 28, 2024 to stockholders of record as of the close of business on February 14, 2024.

Update from Jarrett Lilien, WisdomTree COO and President

Update from Jonathan Steinberg, WisdomTree CEO

RECENT BUSINESS DEVELOPMENTS

QUARTERLY HIGHLIGHTS

Operating Revenues

• Operating revenues were essentially unchanged from the third quarter of 2023 and increased 23.9% from the fourth quarter of 2022 primarily due to higher average AUM.
• Our average advisory fee was 0.36% during the fourth quarter of 2023, the third quarter of 2023 and the fourth quarter of 2022, respectively.

Operating Expenses

• Operating expenses increased 1.7% from the third quarter of 2023 primarily due to higher marketing expenses, sales and business development expenses and fund management and administration costs. These increases were partly offset by lower professional fees.
• Operating expenses increased 5.2% from the fourth quarter of 2022 primarily due to higher stock-based compensation and headcount, fund management and administration costs, third party distribution expenses and marketing expenses. These increases were partly offset by the termination of our deferred consideration—gold payments obligation on May 10, 2023.

Other Income/(Expenses)

• Interest expense increased 8.6% from the third quarter of 2023, primarily due to the recognition of imputed interest on our obligation payable to GBH. Interest expense was essentially unchanged from the fourth quarter of 2022, as the increase related to imputed interest on our obligation payable to GBH was offset by a lower level of debt outstanding.
• Interest income increased 54.9% from the third quarter of 2023 and 29.6% from the fourth quarter of 2022 due to a higher level of interest-earning assets.
• During the fourth quarter of 2023, we recognized a non-cash impairment charge of $0.3 million on our investment in Securrency, Inc., as we marked our investment to net realizable value in connection with the closing of the sale of Securrency, Inc. to an unrelated third party.
• Other gains and losses, net was a gain of $1.6 million for the fourth quarter of 2023. This quarter includes gains of $0.5 million and $1.0 million on our financial instruments and our investments, respectively. Gains and losses also generally arise from the sale of gold earned from management fees paid by our physically-backed gold exchange-traded products ("ETPs"), foreign exchange fluctuations and other miscellaneous items.

Income Taxes

• Our effective income tax rate for the fourth quarter of 2023 was 23.0%, resulting in income tax expense of $5.7 million. The effective tax rate differs from the federal statutory rate of 21.0% primarily due to non-deductible executive compensation and state and local taxes, partly offset by a lower tax rate on foreign earnings.
• Our adjusted effective income tax rate for the fourth quarter was 22.3%⁽¹⁾.

ANNUAL HIGHLIGHTS

• Operating revenues increased 15.8% as compared to 2022 due to higher average AUM and higher other income from large flows from some of our European products, partly offset by a lower average advisory fee.
• Operating expenses increased 8.4% as compared to 2022 primarily due to higher stock-based compensation and headcount, fund management and administration costs, professional fees, marketing expenses, third-party distribution fees, sales and business development expenses and other expenses. These increases were partly offset by the termination of our deferred consideration—gold payments obligation on May 10, 2023.
• Significant items reported in other income/(expense) in 2023 include: an increase in interest income of 23.5% due to a higher level of interest-earning assets, a non-cash gain on revaluation/termination of deferred consideration of $62.0 million during the first and second quarters; loss on extinguishment of convertible notes of $9.7 million arising from the repurchase of $115.0 million in aggregate principal amount of our 4.25% Convertible Senior Notes (the "2020 Notes") in the first quarter; non-cash impairment charges totaling $7.9 million, primarily on our investments in Securrency, Inc.; a non-cash charge of $1.4 million arising from the release of tax-related indemnification assets upon the expiration of the statute of limitations (an equal and offsetting benefit was recognized in income tax expense); and losses on our financial instruments owned and investments of $0.7 million. Gains and losses also generally arise from the sale of gold earned on management fees paid by our physically-backed gold ETPs, foreign exchange fluctuations and other miscellaneous items.
• Our effective income tax rate for 2023 was 13.8%, resulting in income tax expense of $16.5 million. The effective tax rate differs from the federal statutory rate of 21.0% primarily due to a non-taxable gain on revaluation/termination of deferred consideration, a reduction in unrecognized tax benefits associated with the release of the tax-related indemnification asset described above and a lower tax rate on foreign earnings. These items were partly offset by a non-deductible loss on extinguishment of the 2020 Notes during the first quarter of 2023, an increase in the deferred tax asset valuation allowance on losses recognized on our investments and non-deductible executive compensation.

CONFERENCE CALL DIAL-IN AND WEBCAST DETAILS

WisdomTree will discuss its results and operational highlights during a live webcast on Friday, February 2, 2024 at 11:00 a.m. ET, which can be accessed using the following link: https://event.choruscall.com/mediaframe/webcast.html?webcastid=CoAvcnGg.

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

About WisdomTree

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

* The WisdomTree Prime digital wallet and digital asset services are made available through WisdomTree Digital Movement, Inc. (NMLS ID: 2372500) in select U.S. jurisdictions and may be limited where prohibited by law. Visit https://www.wisdomtreeprime.com or the WisdomTree Prime mobile app for more information.

WisdomTree currently has approximately $100.6 billion in assets under management globally.

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

Please visit us on X, formerly known as Twitter, at @WisdomTreeNews.

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

PRODUCTS AND SERVICES AVAILABLE VIA WISDOMTREE PRIME:

NOT FDIC INSURED | NO BANK GUARANTEE | NOT A BANK DEPOSIT | MAY LOSE VALUE | NOT SIPC PROTECTED | NOT INSURED BY ANY GOVERNMENT AGENCY

The products and services available through the WisdomTree Prime app are not endorsed, indemnified or guaranteed by any regulatory agency.

1. See "Non-GAAP Financial Measurements."
2. Earnings/(loss) per share ("EPS") is calculated pursuant to the two-class method as it results in a lower EPS amount as compared to the treasury stock method. In addition, the three months and year ended December 31, 2023 includes a gain of $7,966 recognized upon the repurchase of our Series C non-voting preferred shares convertible into 13.1 million shares of common stock from GBH, which is excluded from net income, but required to be added to net income to arrive at income available to common stockholders in the calculation of EPS. This gain is excluded from our EPS when computed on a non-GAAP basis.

Note: Previously issued statistics may be restated due to fund closures and trade adjustments 

Source: WisdomTree

NON-GAAP FINANCIAL MEASUREMENTS

In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews these non-GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measurements should be considered in the context with our GAAP results. The non-GAAP financial measurements contained in this press release include:

Adjusted Operating Income, Operating Expenses, Income Before Income Taxes, Income Tax Expense, Net Income and Diluted Earnings per Share

We disclose adjusted operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting these non-GAAP financial measurements provides investors with a consistent way to analyze our performance. These non-GAAP financial measurements exclude the following:

Gains or losses on financial instruments owned: We account for our financial instruments owned as trading securities, which requires these instruments to be measured at fair value with gains and losses reported in net income. We exclude these items when calculating our non-GAAP financial measurements as the gains and losses introduce volatility in earnings and are not core to our operating business.

Tax windfalls and shortfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense. These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised. We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.

Imputed interest on our payable to the Gold Bullion Holdings (Jersey) Limited ("GBH"): During the fourth quarter of 2023, we repurchased our Series C Non-Voting Convertible Preferred Stock which were convertible into 13.1 million shares of WisdomTree common stock, from GBH, a subsidiary of the World Gold Council, for aggregate cash consideration of approximately $84.4 million. Under the terms of the transaction, we paid GBH $40.0 million on the closing date, with the remainder of the purchase price payable in equal annual installments on the first, second and third anniversaries of the closing date, with no requirement to pay interest. Under US GAAP, the obligation is recorded at its present value utilizing a market rate of interest on the closing date of 7.0% and the corresponding discount is amortized as interest expense pursuant to the effective interest method of accounting over the life of the obligation. We exclude this item when calculating our non-GAAP financial measurements as recognition of interest expense is non-cash and contrary to the stated terms of our obligation.

Other items: Unrealized gains or losses on the revaluation/termination of deferred consideration—gold payments, which we terminated in the second quarter of 2023, loss on extinguishment of our convertible notes, impairments, remeasurement of contingent consideration payable to us from the sale of our former Canadian ETF business, unrealized gains and losses recognized on our investments, changes in deferred tax asset valuation allowance, expenses incurred in response to an activist campaign and litigation expenses associated with certain provisions of our Stockholder Rights Agreement dated as of March 17, 2023, as amended, with Continental Stock Transfer & Trust Company, as Rights Agent, are excluded when calculating our non-GAAP financial measurements.

Adjusted Effective Income Tax Rate

We disclose our adjusted effective income tax rate as a non-GAAP financial measurement in order to report our effective income tax rate exclusive of items that are non-recurring or not core to our operating business. We believe reporting our adjusted effective income tax rate provides investors with a consistent way to analyze our income taxes. Our adjusted effective income tax rate is calculated by dividing adjusted income tax expense by adjusted income before income taxes. See above for information regarding the items that are excluded.

Gross Margin and Gross Margin Percentage

We disclose our gross margin and gross margin percentage as non-GAAP financial measurements because we believe they provide investors with a consistent way to analyze the amount we retain after paying third-party service providers to operate our ETPs. These measures also assist us in analyzing the profitability of our products. We define gross margin as total operating revenues less fund management and administration expenses. Gross margin percentage is calculated as gross margin divided by total operating revenues.