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WisdomTree, Inc. 10-Q Summary: Period Ended June 30, 2011

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended June 30, 2011. WisdomTree, Inc. is a New York-based exchange-traded fund (ETF) sponsor and asset manager. As of September 1, 2011, the Company was the eighth-largest ETF sponsor in the United States with $13.1 billion in Assets Under Management (AUM) across 47 ETFs. The Company generates revenue primarily through investment advisory fees based on a percentage of average daily net assets.

Key Financial Metrics

Note: The Company reported a net loss of $1.9 million for the three months ended June 30, 2010, and a net loss of $5.5 million for the six months ended June 30, 2010.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 78.7% for the quarter and 72.9% for the six-month period compared to the prior year. This was driven by a 107.3% increase in AUM (from $6.2 billion to $12.9 billion) due to strong net inflows of $3.0 billion in the first half of 2011.
• Profitability: The Company achieved profitability in the first half of 2011, recording net income of $0.8 million, a significant turnaround from the $5.5 million net loss in the same period in 2010.
• Expense Increases: Total expenses rose 42.9% for the quarter and 29.3% for the six-month period. Notable increases included:
  • Marketing and Advertising: Up 218.5% (quarter) and 46.8% (six months) due to increased discretionary spending to support growth.
  • Fund Management and Administration: Up 73.5% (quarter) and 47.7% (six months), partly due to a one-time $0.7 million charge to reimburse the WisdomTree India ETF for excess fees.
  • Third-Party Sharing Arrangements: Up 137.7% (quarter) and 201.4% (six months) due to higher net profits in currency and fixed income ETFs shared with partners.
• Compensation: Compensation and benefits remained relatively flat year-over-year despite headcount growth (from 54 to 61 employees), as decreases in stock-based compensation offset increases in accrued incentive compensation.

Guidance, Outlook, and Risks

• Outlook: Management expects higher annual spending on marketing and advertising for the full year 2011 compared to 2010. The Company anticipates continued cash flow generation from operations to fund ongoing operations and strategic growth initiatives.
• Subsequent Event: On July 26, 2011, the Company's common stock began trading on the Nasdaq Global Market under the symbol "WETF".
• Risks and Contingencies:
  • Market Volatility: Revenue is highly correlated with AUM, which is sensitive to global equity market performance and currency exchange rates. Approximately 74% of AUM is invested in foreign securities.
  • Concentration Risk: Approximately 65% of AUM is concentrated in 10 ETFs, and 38% is in emerging markets, exposing the Company to specific regional and product risks.
  • Competitive Landscape: The asset management industry is intensely competitive, with larger competitors possessing greater resources.
  • Regulatory: The Company is subject to extensive regulation by the SEC and FINRA. Changes in tax laws regarding dividends could impact the attractiveness of certain products.

Investor Verification Checklist

• Verify the sustainability of the $3.0 billion net inflow trend in the first half of 2011, as revenue is directly tied to AUM growth.
• Monitor the impact of the one-time $0.7 million charge related to the WisdomTree India ETF on future fund management expense ratios.
• Assess the Company's ability to maintain profitability given the significant increase in marketing spend (up 218.5% QoQ) and the competitive pressure on fee structures.
• Review the concentration of AUM in emerging markets and foreign currencies to understand exposure to geopolitical and currency risks.
• Confirm the timeline and costs associated with the Nasdaq Global Market listing and ongoing compliance with public company reporting requirements (SOX).