WisdomTree(US:WT)2020-05-08 15:42PART I: FINANCIAL INFORMATION Financial Statements WisdomTree's Q1 2020 unaudited consolidated financial statements show an $8.6 million net loss, primarily due to a $19.7 million impairment charge and reduced total assets Consolidated Balance Sheet Summary (in thousands) | | March 31, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $887,105 | $935,207 | | Cash and cash equivalents | $68,429 | $74,972 | | Goodwill | $85,856 | $85,856 | | Intangible assets | $601,247 | $603,294 | | Total Liabilities | $429,767 | $465,226 | | Debt | $171,548 | $175,956 | | Deferred consideration – gold payments | $175,300 | $173,024 | | Total Stockholders' Equity | $324,769 | $337,412 | Consolidated Statements of Operations Summary (in thousands) | | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total revenues | $63,874 | $65,485 | | Advisory fees | $62,950 | $64,840 | | Total expenses | $48,240 | $54,802 | | Operating income | $15,634 | $10,683 | | Impairments | $(19,672) | $(572) | | Net (loss)/income | $(8,638) | $8,824 | | (Loss)/earnings per share – diluted | $(0.06) | $0.05 | - Net cash used in operating activities was $2.6 million, a significant decrease from the $7.9 million provided by operating activities in the prior-year period, mainly due to a net loss and unfavorable working capital changes24 Notes to Consolidated Financial Statements Notes detail accounting policies, including the $19.7 million AdvisorEngine impairment, the $175.3 million gold-linked deferred consideration, and the $174 million term loan - On February 19, 2020, the Company sold its Canadian ETF business for initial cash of CDN $3.7 million (USD $2.8 million) and potential future payments of CDN $2.0 to $8.0 million based on AUM growth targets26179201 - The company recognized a $19.7 million impairment charge to adjust the carrying value of its AdvisorEngine investment to its fair value of $8.5 million prior to its exit from the investment9597 - Deferred consideration for the ETFS Acquisition, payable in gold, was valued at $175.3 million, resulting in a $2.2 million loss on revaluation due to rising forward-looking gold prices109111112 - The company has a $174.0 million term loan outstanding, maturing on April 11, 2021, and is actively exploring refinancing and extension alternatives113121247 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's impact, noting a 20.9% AUM decline to $50.3 billion, a 2.5% revenue decrease, and an $8.6 million net loss due to a $19.7 million impairment - The COVID-19 pandemic caused a 16% decline in AUM in March alone, contributing to a total AUM decrease from $63.6 billion at year-end 2019 to $50.3 billion at March 31, 2020189195 Q1 2020 vs Q1 2019 Operating Results (in thousands) | | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $63,874 | $65,485 | (2.5%) | | Total Expenses | $48,240 | $54,802 | (12.0%) | | Operating Income | $15,634 | $10,683 | 46.3% | | Net (Loss)/Income | $(8,638) | $8,824 | n/a | - A non-cash impairment charge of $19.7 million was recognized on the company's investment in AdvisorEngine; adjusted net income was $11.2 million, or $0.07 per diluted share, excluding this and other non-recurring items208232240 - The company is managing costs in response to the market environment, with expected declines in variable expenses, incentive compensation, and discretionary spending on marketing and sales193 Assets Under Management Global AUM declined 20.9% to $50.3 billion in Q1 2020, primarily due to market depreciation and net outflows, also impacting the average advisory fee Global ETP AUM Roll-Forward Q1 2020 (in millions) | | Amount | | :--- | :--- | | Beginning of period assets | $63,615 | | Assets sold | ($778) | | Inflows/(outflows) | ($536) | | Market appreciation/(depreciation) | ($11,958) | | Fund closures | ($20) | | End of period assets | $50,323 | - The average global ETP advisory fee decreased from 0.46% in Q1 2019 to 0.43% in Q1 2020, primarily due to AUM mix shift209213 Liquidity and Capital Resources Available liquidity slightly increased to $74.7 million, while the company manages a $174.0 million term loan maturing in April 2021 and remains compliant with debt covenants Available Liquidity (in thousands) | | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total: Liquid assets | $122,282 | $135,992 | | Less: Total current liabilities | ($54,329) | ($79,041) | | Less: Regulatory capital requirement | ($10,398) | ($12,312) | | Plus: Revolving credit facility – available capacity | $17,128 | $27,908 | | Total: Available liquidity | $74,683 | $72,547 | - The company's credit facility matures in April 2021, and management is actively exploring refinancing and extension alternatives251 - The company's ability to pay dividends above $0.03/share or repurchase stock is restricted by a Total Leverage Ratio covenant, requiring the ratio not to exceed 1.75 to 1.00 for such actions254294 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include securities price fluctuations, foreign currency exchange rates, and commodity price risk (gold), with no current hedging strategies - The company's revenue is directly tied to its AUM, making it vulnerable to market risk from fluctuations in securities prices driven by market volatility, economic conditions, and investor sentiment271272 - The company has commodity price risk exposure to gold, as advisory fees and a significant deferred consideration liability are payable in gold ounces, with no current hedging of this exposure277278 - Exchange rate risk exists from translating the results of non-U.S. operations, mainly in the United Kingdom, from British pounds to the U.S. dollar reporting currency275 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls - The CEO, CFO, and Chief Accounting Officer concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective279 - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls280 PART II: OTHER INFORMATION Legal Proceedings The company is not currently party to any litigation expected to have a material adverse impact on its business or financial position - There are no material legal proceedings to report282135 Risk Factors Key risks include COVID-19's adverse impact on AUM and liquidity, operational challenges from remote work, and counterparty risk for certain European products - The COVID-19 pandemic has led to a significant decline in AUM, adversely impacting revenues, and continued pressure could affect compliance with the credit facility's leverage test covenant284285 - Operational challenges may arise from the company's and its key service providers' remote work arrangements, including potential disruptions to communication systems or workforce illness286 - Certain European products face counterparty risk, such as oil products backed by uncollateralized futures swaps from a Shell affiliate, exposing investors to default risk288292 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales and repurchased 385,399 shares for $1.5 million under its program, with $81.9 million remaining available Issuer Purchases of Equity Securities (Q1 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | Dollar Value Remaining in Program (in thousands) | | :--- | :--- | :--- | :--- | | Jan 2020 | 378,408 | $3.86 | - | | Feb 2020 | 6,991 | $4.75 | - | | Mar 2020 | 0 | $0.00 | - | | Total | 385,399 | $3.88 | $81,894 | - The share repurchase program was extended for three years through April 27, 2022, with $81.9 million remaining available for future repurchases as of March 31, 2020294 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, agreements, and officer certifications