WisdomTree Investments, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; quarterly figures below identify Q4 2014 where relevant. The company sponsors and manages exchange-traded products, earning primarily advisory fees tied to average assets under management (AUM). It reported $39.5 billion of global AUM at year-end, including $39.3 billion in U.S.-listed products.
Financial and operating results
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Total revenue | $183.8 million | $149.5 million | +22.9% |
| ETF advisory fee revenue | $182.8 million | $148.6 million | +23.0% |
| Total expenses | $110.2 million | $97.9 million | +12.5% |
| Pre-tax income | $73.5 million | $51.5 million | +42.7% |
| Income tax expense | $12.5 million | $0 | — |
| Net income | $61.1 million | $51.5 million | +18.5% |
| Diluted EPS | $0.44 | $0.37 | — |
- Pre-tax margin was approximately 40.0% in 2014, versus 34.5% in 2013; net margin was approximately 33.2%, versus 34.5%.
- U.S.-listed year-end AUM rose 12.6% to $39.3 billion. Net inflows were $5.1 billion, down from $14.3 billion in 2013; market depreciation reduced AUM by $678 million.
- Average U.S.-listed AUM increased 24.0% to $35.3 billion. The average advisory fee remained 0.52%.
- Q4 2014 revenue was $49.6 million, pre-tax income $16.7 million and net income $9.6 million. Q4 2013 revenue was $43.2 million, pre-tax income $16.5 million and net income $16.5 million.
- Operating cash flow was $82.6 million, compared with $70.1 million in 2013. Investing cash flow was negative $5.8 million and financing cash flow negative $15.8 million. Cash and cash equivalents increased by $61.0 million to $165.3 million.
- At year-end, investments were $14.0 million, current assets $189.0 million, current liabilities $29.4 million and total liabilities $36.5 million. The filing reports no debt balance; verify whether any debt or credit facilities exist outside the reported figures.
Changes, outlook and notable items
- Revenue growth was driven mainly by higher average AUM. Expenses grew more slowly than revenue, with total expenses declining as a share of revenue from 65.5% to 60.0%.
- Flows slowed sharply from 2013. In 2014, the Europe-hedged equity ETF HEDJ drove most net inflows and offset outflows in emerging markets. International developed equity, fixed-income and currency products also experienced outflows or asset declines.
- The company acquired Boost in April 2014, entering Europe with 75% ownership of the resulting WisdomTree Europe business; former owners retain 25%, subject to a future mandatory cash redemption under a formula. The company recorded $1.7 million of goodwill and a $1.8 million acquisition payable. European products were at an early stage, with $181 million of AUM at year-end.
- Management planned $12–16 million of strategic growth investment in 2015, including sales-force expansion, product launches, marketing and technology/operational support. It expected 2015 compensation and benefits to be 21–25% of revenue and said it intended to increase headcount materially.
- The company began a quarterly $0.08-per-share dividend in November 2014 and announced a share repurchase program of up to $100 million over three years. The board may change or discontinue dividends.
- 2014 income tax expense included substantial deferred-tax effects. A first-quarter valuation-allowance release generated a tax benefit, while the full year recorded $12.5 million of tax expense; the company said it paid only $66,000 of cash taxes in 2014 and did not expect significant cash income taxes for some time because of tax attributes.
- Management identified market declines, foreign-exchange movements, concentrated product exposure, competition and fee pressure, regulation, vendor dependence, and execution of international expansion as material risks. Approximately 78% of U.S.-listed ETF AUM was in the ten largest funds; DXJ represented 30% and HEDJ 14% of that AUM. The filing states that no pending litigation was expected to have a material impact.
Most important facts for investors to verify
- Whether the large AUM concentration in DXJ, HEDJ and the top ten funds has changed, and how flows and market movements affect fee revenue.
- Whether 2015 growth investments, hiring and product launches produced AUM growth commensurate with added costs.
- The terms, valuation and eventual cash cost of the remaining 25% interest in WisdomTree Europe, and the European business’s profitability and AUM trajectory.
- The sustainability of the dividend and the pace and use of the announced repurchase authorization.
- The extent of any debt or committed credit arrangements; the filing does not provide a clear debt balance, while contractual commitments include $41.3 million of operating leases.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.