WisdomTree, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; quarterly comparisons include the unaudited fourth quarter. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
WisdomTree is a global exchange-traded product (ETP) sponsor and asset manager. Its principal revenue source is advisory fees calculated on average ETP assets under management (AUM). Products cover equities, commodities, fixed income, currencies, leveraged and inverse strategies, cryptocurrency and alternatives. The company reported $77.5 billion of global ETP AUM at year-end and ranked fifteenth among global ETP sponsors by AUM.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $304.3 million | $249.9 million |
| Operating income | $89.1 million | $55.1 million |
| Net income/(loss) | $49.8 million | ($35.7 million) |
| Diluted earnings/(loss) per share | $0.31 | ($0.25) |
| Operating cash flow | $75.3 million | $47.1 million |
| Investing cash flow | ($99.6 million) | $10.6 million |
| Financing cash flow | $92.6 million | ($60.2 million) |
| Cash and cash equivalents at year-end | $140.7 million | $73.4 million |
- Revenue increased 21.8%, chiefly as average AUM rose 21.9% to $73.4 billion. Advisory fees were $298.1 million; the average advisory fee rate edged up to 0.41% from 0.40%.
- Operating expenses increased 10.5% to $215.3 million. Operating margin was approximately 29.3%, versus 22.0% in 2020.
- Management-reported adjusted net income, a non-GAAP measure, was $61.4 million, or $0.38 diluted per share, compared with $40.2 million, or $0.24, in 2020. The company cautions that non-GAAP measures are not standardized.
- Available liquidity was $204.1 million at year-end, defined by the company as liquid assets less current liabilities and regulatory capital requirements. Operating cash flow was positive; investing outflows primarily reflected purchases of securities.
- Year-end debt included $325.0 million principal of senior unsecured convertible notes: $175.0 million due in 2023 at 4.25% and $150.0 million due in 2026 at 3.25%. The balance-sheet carrying amount was $318.6 million.
- The fair value of the deferred gold-payment obligation was $228.1 million. The separate Series A preferred shares had a disclosed redemption value of $90.7 million.
- The company declared dividends of $0.12 per common share for the year ($0.03 quarterly) and repurchased 5.1 million shares for $34.5 million.
Material changes versus the prior comparable period
- Global ETP AUM rose from $67.4 billion to $77.5 billion. Net inflows were $4.66 billion and market appreciation added $5.45 billion. U.S.-listed ETP AUM grew to $48.2 billion, with $4.95 billion of net inflows; international-listed ETP AUM reached $29.3 billion despite $290 million of net outflows.
- Net income swung from a $35.7 million loss to $49.8 million of income. In addition to higher revenue and operating income, the comparison was materially affected by a $58.8 million year-over-year favorable change in revaluation of deferred gold consideration: a $2.0 million gain in 2021 versus a $56.8 million loss in 2020.
- Impairments fell to $16.2 million from $22.8 million. The 2021 charge included costs related to terminating the New York office lease and writing off associated assets; 2020 impairments primarily related to investments in AdvisorEngine and Thesys.
- Cash and cash equivalents increased by $67.3 million. The company issued $150 million of 2026 convertible notes; it also used $115.5 million to purchase securities, repurchased shares and paid dividends.
Guidance, commentary, risks and unusual items
- 2022 expense outlook: Compensation expense estimated at $92–$102 million; discretionary spending at $49–$57 million; contractual gold-payment expense at approximately $17 million; and third-party distribution expense at approximately $9.5 million. Management estimated an 81%–82% gross margin at then-current AUM and revenue levels and a normalized effective tax rate of approximately 21%–22%. The filing provides no specific 2022 revenue or earnings guidance.
- Management planned continued product launches and expansion into digital assets, including development of WisdomTree Prime, a blockchain-based wallet, tokenized assets and blockchain-enabled funds. These plans depend on execution, customer adoption and obtaining or relying on appropriate regulatory approvals.
- Digital-assets initiative expenses were approximately $4 million in 2021; management projected $9–$14 million of spending in 2022, with actual costs potentially higher. The disclosed discretionary-spending outlook depends partly on the rollout of WisdomTree Prime and additional products.
- In September 2021, the company terminated its former New York office lease, paying a $12.7 million termination fee and recognizing a $15.9 million impairment charge in total related lease and asset impairments. It estimated approximately $3.5 million of 2022 cost savings from reduced New York and London office footprints compared with 2020 occupancy and depreciation expense.
- Key business risks include sensitivity of fee revenue to markets, AUM and product mix; intense competition and fee pressure; concentration in a limited number of products (about 48% of AUM in the ten largest ETPs, including about 20% in gold-backed products); reliance on third-party service providers; and evolving digital-asset regulation, cybersecurity and custody risks.
- Investors in the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP brought Italian claims totaling approximately €9.0 million ($10.2 million) following the product’s 2020 closure. The company said it was assessing the claims and had not accrued a loss at year-end.
- ETFS Capital and Graham Tuckwell reported beneficial ownership of approximately 10.5% of shares in January 2022. The company warned that potential activist actions may be disruptive and costly; possible related 2022 expenses were not included in its guidance and could be material.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls. An immaterial correction revised 2019–2020 revenue and fund-administration expense presentation, with no effect on previously reported net income.
Important facts for investors to verify
- Whether AUM growth and positive U.S. flows persist, and how market returns, outflows and product mix affect advisory fees and margins.
- Whether projected digital-asset spending produces launched, approved products and meaningful revenues, and whether licensing, regulatory, cybersecurity or custody obstacles delay or limit that strategy.
- The cash-flow and valuation sensitivity of the $228.1 million deferred gold-payment obligation, including its annual gold-ounces requirement and exposure to gold-price assumptions.
- Liquidity and refinancing plans for the $175 million notes due in 2023, alongside the conversion and redemption terms of both note series and the preferred-share redemption provisions.
- The outcome and potential financial impact of the approximately $10.2 million crude-oil ETP litigation claims and any expenses or strategic effects associated with the activist shareholder situation.