WisdomTree, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing was signed February 28, 2023. It also reports fourth-quarter 2022 results. WisdomTree sponsors and manages exchange-traded products (ETPs), with revenue primarily from advisory fees tied to ETP assets under management (AUM).
Financial performance and key metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $301.3 million | $304.3 million |
| Operating income | $60.1 million | $89.1 million |
| Net income | $50.7 million | $49.8 million |
| Adjusted net income (non-GAAP) | $41.7 million | $61.4 million |
| Operating cash flow | $55.1 million | $75.3 million |
| Cash and cash equivalents at year-end | $132.1 million | $140.7 million |
| Available liquidity, as defined by the company | $113.0 million | $204.1 million |
- AUM and flows: Year-end global ETP AUM was $82.0 billion, up from $77.5 billion. Net inflows were $12.2 billion, offset by $7.7 billion of market depreciation. U.S.-listed ETF AUM rose to $56.0 billion; European-listed ETP AUM fell to $26.0 billion.
- Revenue and fees: Advisory fees were $293.6 million, down 1.5%, despite average AUM rising 4.8% to $77.0 billion. The average advisory fee declined to 0.38% from 0.41%, reflecting a shift in AUM mix. Management-defined gross margin was approximately 78.5% in 2022, calculated as revenue less fund management and administration expenses.
- Expenses and operating margin: Operating expenses increased 12.1% to $241.3 million. Operating margin decreased to approximately 19.9% from 29.3%.
- Taxes and unusual items: A $10.7 million income tax benefit contributed to reported net income; the effective tax rate was negative 26.9%, primarily reflecting reductions in unrecognized tax benefits and other tax items. Other expenses included $16.5 million of losses on financial instruments owned. A $27.8 million gain on revaluation of deferred gold consideration partly offset these items.
- Debt: At year-end, $325 million principal amount of convertible notes was outstanding: $175 million due 2023 and $150 million due 2026. The balance sheet reported $321.2 million carrying value of notes, including issuance-cost effects. In February 2023, the company issued $130 million of 5.75% notes due 2028 and repurchased $115 million of 2023 notes; the filing reports $340 million aggregate principal outstanding after those transactions.
- Capital returns: The company paid $19.4 million in dividends and repurchased 593,261 shares for $3.4 million during 2022. The quarterly dividend was $0.03 per share; approximately $100 million remained under the repurchase authorization at year-end.
Fourth-quarter 2022
- Revenue was $73.3 million, versus $79.2 million in Q4 2021; operating income was $11.7 million, versus $22.6 million.
- WisdomTree reported a net loss of $28.3 million, versus net income of $11.2 million a year earlier. The quarter included a $35.4 million loss from revaluing deferred gold consideration; quarterly results also reflected other losses and expenses.
- Quarter-end AUM increased to $82.0 billion from $70.9 billion at the start of the quarter, including $5.3 billion of net inflows and $5.8 billion of market appreciation.
Material changes, outlook and risks
- Year-over-year changes: Revenue was nearly flat, while operating expenses rose $26.0 million. Higher compensation and headcount, fund costs, and professional fees were notable drivers. Professional fees included $4.5 million related to the 2022 activist campaign and costs for the digital-assets business. Operating cash flow declined by $20.2 million.
- Business and strategy: Management highlighted its tenth consecutive quarter of net inflows and strongest annual net flows since 2015. Fixed-income products were a major growth driver, including the U.S. Floating Rate Treasury Fund. WisdomTree continued investing in its digital strategy: the SEC had declared the registration effective for ten Digital Funds, FINRA approved its limited-purpose broker-dealer to facilitate transactions in them, and WisdomTree Prime was in beta with a nationwide rollout targeted for 2023. The timing and commercial results of the rollout remain uncertain.
- 2023 expense outlook: Management estimated compensation expense of $96–$106 million, discretionary spending of $56–$59 million, contractual gold-payment expense of about $18 million, and third-party distribution expense of $8–$9 million. It estimated a 78% gross margin at current AUM and revenue levels and a normalized effective tax rate of approximately 23%. Estimates are subject to change; potential proxy-contest expenses were excluded and could be material.
- Key exposures: Revenue is sensitive to market prices, AUM flows and product mix; 55% of year-end AUM was concentrated in ten ETPs. The company also cited fee competition, reliance on third-party service providers, cybersecurity and digital-asset custody risks, and evolving regulatory and licensing requirements.
- Contingencies and valuation: Investor claims relating to the closure of the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP total approximately €15.8 million ($16.9 million); no accrual was recorded at year-end. Deferred gold consideration had a $200.3 million fair value, based on significant unobservable assumptions, and generated a material valuation gain in 2022. The company also disclosed $35.7 million of investments, principally in Securrency and Fnality, which could lose value.
- Governance and other obligations: The company incurred activist-related costs and may face further proxy-contest costs. Series A preferred shares issued in connection with the ETFS acquisition had a disclosed redemption value of $78.0 million at year-end under specified conditions. Management said operating cash flows and existing cash should fund operations for the foreseeable future, while noting it anticipated refinancing debt as it comes due.
Important facts for investors to verify
- Whether net inflows continue, particularly in fixed income and other major products, and whether AUM mix stabilizes the average advisory fee.
- Whether expense growth and 2023 digital-business investment produce sufficient revenue growth and operating-margin improvement.
- The liquidity and refinancing plan for the $60 million notes due June 2023, and the cash, dilution and redemption implications of convertible notes and preferred shares.
- The assumptions behind the $200.3 million deferred gold liability, including gold-price forecasts, discount rate and perpetual growth rate, and the resulting earnings volatility.
- The status and potential financial impact of the €15.8 million 3OIL investor claims, and any further activist-related costs or governance changes.
- Progress on WisdomTree Prime, required regulatory approvals and licenses, and the controls and third-party arrangements supporting digital-asset products and services.