WisdomTree, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts are U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context and reporting period
WisdomTree sponsors and manages exchange-traded products (ETPs) and is developing digital funds, tokenized assets and the WisdomTree Prime digital wallet. It reported approximately $107.2 billion of global ETP assets under management (AUM) at quarter-end and operates as one reportable segment.
Global ETP AUM increased from $100.1 billion at December 31, 2023, reflecting $2.0 billion of net inflows and $5.1 billion of market appreciation. Average AUM was $102.4 billion, up 17.1% year over year. U.S.-listed ETF AUM reached $78.1 billion, including $2.0 billion of net inflows; European-listed ETP AUM reached $29.1 billion, primarily from market appreciation.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $96.8 million | $82.0 million; up 18.0% |
| Advisory fees | $92.5 million | $77.6 million; up 19.1% |
| Operating expenses | $68.9 million | $65.5 million; up 5.2% |
| Operating income | $28.0 million | $16.6 million |
| Operating margin | 28.9% | 20.2% |
| Adjusted operating income and margin | $28.6 million; 29.6% | $17.5 million; 21.4% |
| Net income | $22.1 million | $16.2 million |
| Diluted EPS | $0.13 | $0.10 |
| Gross margin | 79.4% | Not clearly stated for Q1 2023 in the filing text |
Advisory-fee growth was driven mainly by higher average AUM; the average advisory fee remained 0.36%. Compensation and benefits rose 13.3%, and fund management and administration costs rose 16.4%, partly offset by the absence of contractual gold payments, which ended in May 2023. Headcount was 300 versus 279 a year earlier.
Net cash used in operating activities was $1.0 million, compared with $5.4 million used a year earlier. Investing activities provided $2.0 million; financing activities used $12.8 million, including $7.8 million of share repurchases and $5.0 million of dividends. Cash, cash equivalents and restricted cash fell $12.4 million to $116.9 million. Management-defined available liquidity was $78.5 million, versus $73.1 million at year-end 2023; this measure deducts current liabilities, digital-fund seed capital and regulatory capital requirements from liquid assets.
At March 31, 2024, total liabilities were $375.8 million. Convertible notes had $280.0 million principal outstanding and a $275.3 million carrying amount: $150.0 million of 3.25% notes due 2026 and $130.0 million of 5.75% notes due 2028. The company also had $39.8 million payable to GBH for its 2023 preferred-stock repurchase, payable in installments. Series A preferred stock had a stated redemption value of $123.1 million; its carrying amount was $132.6 million and was not adjusted to redemption value because redemption was not considered probable.
Material changes versus the prior comparable period
- Revenue rose 18.0%, reflecting 17.1% growth in average AUM; net inflows and market appreciation both contributed to AUM growth.
- Operating expenses increased more slowly than revenue, and operating margin expanded to 28.9% from 20.2%.
- Q1 2024 included no contractual gold-payment expense. Q1 2023 included $4.5 million of such expense and a $20.6 million gain on revaluation/termination of the gold-payment obligation.
- Q1 2023 also included a $4.9 million investment impairment and a $9.7 million loss on extinguishment of convertible notes. These prior-period items make the year-over-year comparison of reported earnings less indicative of underlying operating trends.
- Cash from operations remained negative, although the outflow narrowed from the prior-year quarter. Cash declined during Q1 2024 primarily due to share repurchases and dividends.
Guidance, outlook, risks and unusual items
For full-year 2024, management maintained guidance for compensation expense of $108–$118 million and discretionary spending of $64–$68 million. Management said compensation expense was trending toward the upper half of its range after the strong start to the year. Other guidance: gross margin of 79%–80%; third-party distribution fees of $10–$11 million; interest expense of $16.5 million, including approximately $2.6 million of imputed GBH interest; interest income of $5.0 million; normalized effective tax rate of 24%–25%; and weighted-average diluted shares of 166–168 million, excluding incremental shares from convertible-note conversion. Guidance is subject to AUM, flows, market conditions, compensation variability and other factors.
Management stated that operating cash flows and existing cash balances should fund operations for the foreseeable future. Regulatory capital requirements were approximately $42.1 million at quarter-end. The company maintained its $0.03 quarterly dividend and had $88.6 million remaining under its share-repurchase authorization, which runs through April 27, 2025.
Risk exposures include market movements that affect ETP AUM and advisory-fee revenue; currency translation; interest rates; and commodity and cryptocurrency prices, including fees received in underlying assets. The company said it does not currently hedge certain currency, commodity or cryptocurrency exposures. It also cautioned that digital-asset strategy execution, regulation, competition, vendors and investor flows could affect results.
Investor claims relating to the 2020 closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP remained pending. A Milan court ruled for the company in March 2024 on one claim seeking approximately €9.3 million; that ruling is subject to appeal. Damages sought across the described claims were approximately €15.2 million at quarter-end, with a further demand of up to approximately €8.4 million in a preliminary matter. The company had made no accrual, expecting any losses, if any, to be covered by insurance less a $0.5 million deductible.
Activist-stockholder activity remains a governance and execution risk. An investor filed proxy materials in April and May 2024 opposing certain director nominees. The company extended its stockholder rights plan in March 2024; the rights are scheduled to expire March 17, 2025, subject to stockholder ratification and the agreement’s terms. Management identified $0.7 million of Q1 activist-response expense, excluded from adjusted results.
The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It early adopted the crypto-asset fair-value accounting standard on January 1, 2024, with no material financial-statement impact.
Important facts for investors to verify
- Whether AUM growth continues to be supported by organic inflows, particularly in U.S.-listed products, rather than market appreciation alone.
- How 2024 expenses and margins track against management’s guidance, including compensation trending toward the upper half of its range.
- Available liquidity after regulatory capital, fund seed capital and current liabilities, and the timing of the GBH installment payments.
- The effect of the $280.0 million convertible-note maturities and any share dilution if the stock price exceeds the notes’ conversion prices.
- Developments in the 3OIL litigation and appeal, insurance coverage, and the activist campaign and stockholder-rights-plan ratification.
- Whether digital products and WisdomTree Prime achieve planned expansion and contribute meaningfully to revenue, given regulatory and execution risks.