Wisdomtree, Inc. annual report, FY2023

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WisdomTree, Inc. — FY2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; quarterly figures include the three months ended December 31, 2023. WisdomTree is a global asset manager and ETP sponsor expanding into blockchain-enabled products and services. It ended the year with record AUM of $100.1 billion.

Financial performance and key metrics

  • Revenue: $349.0 million for FY2023, up 15.8% from $301.3 million in FY2022. Advisory fees rose 13.5% to $333.2 million, primarily on higher average AUM; the average advisory fee declined to 0.36% from 0.38%. Other income more than doubled to $15.8 million, mainly reflecting large flows in certain European products.
  • Profit and margins: Operating income was $87.5 million, up 45.6%, and operating margin was approximately 25.1%, expanding by 520 basis points. GAAP net income was $102.5 million, versus $50.7 million in 2022; diluted EPS was $0.64 versus $0.31. FY2023 adjusted net income, a non-GAAP measure, was $62.7 million, with adjusted diluted EPS of $0.37.
  • Fourth quarter: Revenue was $90.8 million and operating income was $26.0 million, for a 28.7% operating margin. Net income was $19.1 million, or $0.16 per diluted share, compared with a $28.3 million loss in Q4 2022. The prior-year quarter included a large loss from revaluing the deferred gold-payment obligation.
  • AUM and flows: Global ETP AUM increased from $82.0 billion to $100.1 billion, reflecting $10.4 billion of net inflows and $7.7 billion of market appreciation. U.S.-listed ETF AUM grew to $72.5 billion; European-listed ETP AUM rose to $27.6 billion, despite $399 million of net outflows. Fixed income, international developed-market equity and emerging-market equity were notable flow contributors.
  • Cash flow and liquidity: Operating cash flow was $85.6 million, versus $55.1 million in 2022. Cash and cash equivalents were $129.3 million at year-end. The company’s defined available liquidity was $73.1 million, down from $113.0 million, after deducting current liabilities, seed capital and regulatory capital requirements from liquid assets.
  • Debt and capital returns: Convertible notes totaled $280 million principal at year-end: $150 million of 3.25% notes due 2026 and $130 million of 5.75% notes due 2028. The company paid $20.1 million in common dividends and repurchased $3.6 million of common stock in 2023. Its quarterly dividend was $0.03 per share.

Material changes and unusual items

  • The company terminated its contractual obligation to pay gold to ETFS Capital in May 2023 for approximately $136.9 million in total consideration. The reported results included a $62.0 million gain on revaluation/termination of the obligation; the obligation’s termination also reduced ongoing gold-payment expense.
  • In November 2023, WisdomTree repurchased the Series C Preferred Stock issued in connection with that termination for approximately $84.4 million. It paid $40.0 million at closing, with the remainder payable in equal, interest-free annual installments. The reported GAAP net income and adjusted net income differ materially, in part because of the gold-obligation gain and other excluded items.
  • FY2023 included a $7.9 million impairment charge, primarily related to the exit from the Securrency investment, and a $9.7 million loss on extinguishment of convertible notes. The company issued $130 million of 2028 notes and repurchased or settled its 2023-maturity notes.
  • Total operating expenses increased 8.4% to $261.5 million, slower than revenue growth. Higher compensation, fund costs, professional fees and marketing were partly offset by lower contractual gold-payment expense.

Outlook, risks and contingencies

  • 2024 expense guidance: Compensation expense is estimated at $108–$118 million; discretionary spending at $64–$68 million; third-party distribution expense at $10–$11 million. Management estimates gross margin of 79%–80% at current AUM and revenue levels and a normalized effective tax rate of 24%–25%. These are estimates, not guarantees; potential proxy-contest expenses are excluded and could be material.
  • Management expects continued flows and AUM growth to support further margin expansion, and views WisdomTree Prime, tokenized assets and digital funds as longer-term growth opportunities. Prime was available in 38 U.S. states, representing about 70% of the population; the company planned to add capabilities such as peer-to-peer transfers and payments.
  • Results remain sensitive to market prices, AUM mix and fee pressure; substantially all revenue is linked to advisory fees on AUM. Other prominent risks include concentration in a limited number of products, intense competition, dependence on third-party service providers, cybersecurity and digital-asset custody risks, and evolving digital-asset regulation and licensing.
  • Investors in the WisdomTree WTI Crude Oil 3x Daily Leveraged ETP have asserted claims totaling about €23.6 million ($26.1 million), including a preliminary demand. No accrual was recorded at year-end; the company expects any losses, if incurred, to be covered by insurance less a $500,000 deductible. Outcomes remain uncertain.
  • The company reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified the valuation of ETFS indefinite-lived intangible assets as a critical audit matter; no impairment was recorded.

Important facts for investors to verify

  • How much of the $102.5 million GAAP net income reflects nonrecurring gains and other unusual items, and how the non-GAAP adjustments reconcile.
  • Whether net inflows persist across product categories and offset the declining average advisory fee and any market-driven AUM changes.
  • Cash availability after required regulatory capital, installment payments to GBH, dividends and any potential cash settlement of convertible notes; management anticipates refinancing the notes when due.
  • Progress, adoption, costs and required regulatory approvals for WisdomTree Prime and digital-asset initiatives, including the planned expansion of features and geographic availability.
  • Developments in the crude-oil ETP litigation and whether insurance coverage will ultimately apply as management expects.