Quarterly Report


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      .

Commission File Number 001-10932

 

 

WisdomTree Investments, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-3487784

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

245 Park Avenue, 35 th Floor

New York, New York

  10167
(Address of principal executive officers)   (Zip Code)

212-801-2080

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

As of April 27, 2017, there were 136,610,528 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.

 

 

 


Table of Contents

WISDOMTREE INVESTMENTS, INC.

Form 10-Q

For the Quarterly Period Ended March 31, 2017

TABLE OF CONTENTS

 

     Page
Number
 

PART I: FINANCIAL INFORMATION

     4  

Item 1. Financial Statements

     4  

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     20  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     32  

Item 4. Controls and Procedures

     32  

PART II: OTHER INFORMATION

     33  

Item 1. Legal Proceedings

     33  

Item 1A. Risk Factors

     33  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     33  

Item 3. Defaults Upon Senior Securities

     33  

Item 4. Mine Safety Disclosures

     33  

Item 5. Other Information

     33  

Item 6. Exhibits

     34  

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

In particular, forward-looking statements in this Report may include statements about:

 

    anticipated trends, conditions and investor sentiment in the global markets and exchange traded products, or ETPs, which include exchange traded funds, or ETFs;

 

    anticipated levels of inflows into and outflows out of our ETPs;

 

    our ability to deliver favorable rates of return to investors;

 

    our ability to develop new products and services;

 

    our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;

 

    our ability to successfully expand our business into non-U.S. markets;

 

    competition in our business; and

 

    the effect of laws and regulations that apply to our business.

The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.

 

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PART I: FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

WisdomTree Investments, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)

 

     March 31,
2017
    December 31,
2016
 
     (Unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 79,637     $ 92,722  

Securities owned, at fair value

     57,611       58,907  

Securities held-to-maturity

     3,997       3,994  

Accounts receivable

     19,234       17,668  

Prepaid expenses

     3,219       3,346  

Other current assets

     534       555  
  

 

 

   

 

 

 

Total current assets

     164,232       177,192  

Fixed assets, net

     11,642       11,748  

Securities held-to-maturity

     19,205       18,502  

Deferred tax asset, net

     3,596       9,826  

Investment, carried at cost

     20,000       20,000  

Goodwill

     1,799       1,799  

Intangible asset

     9,953       9,953  

Other noncurrent assets

     748       747  
  

 

 

   

 

 

 

Total assets

   $ 231,175     $ 249,767  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Liabilities

    

Current liabilities:

    

Fund management and administration payable

   $ 13,229     $ 13,584  

Compensation and benefits payable

     4,923       14,652  

Income taxes payable

     4,518       4,700  

Acquisition payable

     —         3,537  

Securities sold, but not yet purchased, at fair value

     27       1,248  

Accounts payable and other liabilities

     6,033       5,806  
  

 

 

   

 

 

 

Total current liabilities

     28,730       43,527  

Deferred rent payable

     4,839       4,896  
  

 

 

   

 

 

 

Total liabilities

     33,569       48,423  
  

 

 

   

 

 

 

Commitments and Contingencies (Note 8)

    

Stockholders’ equity

    

Preferred stock, par value $0.01; 2,000 shares authorized:

     —         —    

Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 136,622 and 136,475 at March 31, 2017 and December 31, 2016, respectively

     1,366       1,365  

Additional paid-in capital

     220,858       224,739  

Accumulated other comprehensive income/(loss)

     98       (44

Accumulated deficit

     (24,716     (24,716
  

 

 

   

 

 

 

Total stockholders’ equity

     197,606       201,344  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 231,175     $ 249,767  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

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WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

     Three Months Ended March 31,  
     2017      2016  

Revenues:

     

Advisory fees

   $ 53,262      $ 60,615  

Other income

     1,337        263  
  

 

 

    

 

 

 

Total revenues

     54,599        60,878  

Expenses:

     

Compensation and benefits

     17,874        15,226  

Fund management and administration

     9,600        10,044  

Marketing and advertising

     3,537        3,832  

Sales and business development

     2,962        2,447  

Professional and consulting fees

     1,558        2,835  

Occupancy, communications and equipment

     1,353        1,222  

Depreciation and amortization

     337        316  

Third-party sharing arrangements

     932        907  

Acquisition payment

     —          745  

Other

     1,624        1,632  
  

 

 

    

 

 

 

Total expenses

     39,777        39,206  
  

 

 

    

 

 

 

Income before taxes

     14,822        21,672  

Income tax expense

     7,942        9,600  
  

 

 

    

 

 

 

Net income

   $ 6,880      $ 12,072  
  

 

 

    

 

 

 

Net income per share—basic

   $ 0.05      $ 0.09  
  

 

 

    

 

 

 

Net income per share—diluted

   $ 0.05      $ 0.09  
  

 

 

    

 

 

 

Weighted-average common shares—basic

     134,385        135,467  
  

 

 

    

 

 

 

Weighted-average common shares—diluted

     135,509        136,457  
  

 

 

    

 

 

 

Cash dividends declared per common share

   $ 0.08      $ 0.08  
  

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

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WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In Thousands)

(Unaudited)

 

     Three Months Ended March 31,  
     2017     2016  

Net income

   $ 6,880     $ 12,072  

Other comprehensive income/(loss)

    

Unrealized losses on available-for-sale securities, net of tax

     (103     —    

Foreign currency translation adjustment

     245       373  
  

 

 

   

 

 

 

Other comprehensive income

     142       373  
  

 

 

   

 

 

 

Comprehensive income

   $ 7,022     $ 12,445  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

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WisdomTree Investments, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

     Three Months Ended March 31,  
     2017     2016  

Cash flows from operating activities:

    

Net income

   $ 6,880     $ 12,072  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Deferred income taxes

     6,302       9,219  

Stock-based compensation

     3,421       3,503  

Depreciation and amortization

     337       316  

Other

     120       (59

Changes in operating assets and liabilities:

    

Securities owned, at fair value

     1,292       —    

Accounts receivable

     (1,553     7,055  

Prepaid expenses

     127       (960

Other assets

     64       186  

Acquisition payable

     (3,538     745  

Fund management and administration payable

     (400     (199

Compensation and benefits payable

     (9,772     (22,973

Income taxes payable

     177       (2,879

Securities sold, but not yet purchased, at fair value

     (1,222     —    

Accounts payable and other liabilities

     212       751  
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,447       6,777  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of fixed assets

     (193     (336

Purchase of securities held-to-maturity

     (759     —    

Purchase of securities available-for-sale

     (21,340     —    

Proceeds from held-to-maturity securities maturing or called prior to maturity

     51       1,113  

Proceeds from sales and maturities of securities available-for-sale

     21,000       —    

Acquisition less cash acquired

     —         (11,818
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,241     (11,041
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Dividends paid

     (10,930     (10,913

Shares repurchased

     (3,628     (35,555

Proceeds from exercise of stock options

     5       75  
  

 

 

   

 

 

 

Net cash used in financing activities

     (14,553     (46,393
  

 

 

   

 

 

 

Increase in cash flow due to changes in foreign exchange rate

     262       348  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (13,085     (50,309

Cash and cash equivalents—beginning of period

     92,722       210,070  
  

 

 

   

 

 

 

Cash and cash equivalents—end of period

   $ 79,637     $ 159,761  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for taxes

   $ 1,247     $ 3,594  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

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WisdomTree Investments, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(In Thousands, Except Share and Per Share Amounts)

1. Organization and Description of Business

WisdomTree Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, fixed income, currency, alternative and commodity asset classes. The Company has the following wholly-owned operating subsidiaries:

 

    WisdomTree Asset Management, Inc. (“WTAM”) is a New York based investment adviser registered with the SEC providing investment advisory and other management services to the WisdomTree Trust (“WTT”) and WisdomTree exchange traded funds (“ETFs”).

 

    Boost Management Limited (“BML”) is a Jersey based management company providing investment and other management services to Boost Issuer PLC (“BI”) and Boost ETPs.

 

    WisdomTree Europe Limited (“WisdomTree Europe”) is a U.K. based company registered with the Financial Conduct Authority providing management and other services to BML and WisdomTree Management Limited.

 

    WisdomTree Management Limited (“WTML”) is an Ireland based management company providing investment and other management services to WisdomTree Issuer plc (“WTI”) and WisdomTree UCITS ETFs.

 

    WisdomTree Japan Inc. (“WTJ”) is a Japan based company that is registered with Japan’s Ministry of Finance and serves the institutional market selling U.S. listed WisdomTree ETFs in Japan.

 

    WisdomTree Commodity Services, LLC (“WTCS”) is a New York based company that serves as the managing owner and commodity pool operator of the WisdomTree Continuous Commodity Index Fund. WTCS is registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”).

 

    WisdomTree Asset Management Canada, Inc. (“WTAMC”) is a Canada based investment fund manager registered with the Ontario Securities Commission providing fund management services to locally-listed WisdomTree ETFs.

The WisdomTree ETFs are issued in the U.S. by WTT. WTT, a non-consolidated third party, is a Delaware statutory trust registered with the SEC as an open-end management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S. The Boost ETPs are issued by BI. BI, a non-consolidated third party, is a public limited company organized in Ireland. The WisdomTree UCITS ETFs are issued by WTI. WTI, a non-consolidated third party, is a public limited company organized in Ireland.

The Board of Trustees and Board of Directors of WTT, BI and WTI, respectively, are separate from the Board of Directors of the Company. The respective Trustees and Directors of WTT, BI and WTI, as applicable, are primarily responsible for overseeing the management and affairs of the WisdomTree ETFs, Boost ETPs and the WisdomTree UCITS ETFs for the benefit of the WisdomTree ETF, Boost ETP and the WisdomTree UCITS ETF shareholders, respectively, and have contracted with the Company to provide for general management and administration services. The Company, in turn, has contracted with third parties to provide the majority of these administration services. In addition, certain officers of the Company provide general management services for WTT, BI and WTI.

2. Significant Accounting Policies

Basis of Presentation

These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation. Certain accounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year’s consolidated financial statements presentation. These reclassifications had no effect on the previously reported operating results.

Consolidation

The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE

 

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when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company had no variable interests in any VIEs at March 31, 2017 and December 31, 2016.

Segment and Geographic Information

The Company operates as an ETP sponsor and asset manager providing investment advisory services in the U.S., Europe, Canada and Japan. These activities are reported in the Company’s U.S. Business and International Business reportable segments. The U.S. Business segment includes the results of the Company’s U.S. operations and Japan sales office, which primarily engages in selling U.S. listed ETFs to Japanese institutions. The results of the Company’s European and Canadian operations are reported as the International Business segment.

Revenues are primarily derived in the U.S. and the vast majority of the Company’s AUM is currently located in the U.S.

Foreign Currency Translation

Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.

Revenue Recognition

The Company earns investment advisory fees from its ETPs, as well as licensing fees from third parties. ETP advisory fees are based on a percentage of the ETPs’ average daily net assets and recognized over the period the related service is provided. Licensing fees are based on a percentage of the average monthly net assets and recognized over the period the related service is provided.

Depreciation and Amortization

Depreciation is provided for using the straight-line method over the estimated useful lives of the related assets as follows:

 

Equipment      5 years
Furniture and fixtures    15 years

Leasehold improvements are amortized over the term of their respective leases or service lives of the improvements, whichever is shorter. Fixed assets are stated at cost less accumulated depreciation and amortization.

Occupancy

The Company accounts for its office lease facilities as operating leases, which may include free rent periods and escalation clauses. The Company expenses the lease payments associated with operating leases on a straight-line basis over the lease term.

Marketing and Advertising

Advertising costs, including media advertising and production costs, are expensed when incurred.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer and other obligations due under normal trade terms. An allowance for doubtful accounts is not provided since, in the opinion of management, all accounts receivable recorded are deemed collectible.

 

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Impairment of Long-Lived Assets

The Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the two-class method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive) under the treasury stock method. Diluted EPS reflects the reduction in earnings per share assuming dilutive options or other dilutive contracts to issue common stock were exercised or converted into common stock. Diluted EPS is calculated under both the treasury stock method and two-class method. The calculation that results in the most dilutive EPS amount for the common stock is reported in the Company’s consolidated financial statements.

Securities Owned and Securities Sold, but not yet Purchased (at fair value)

Securities owned and securities sold, but not yet purchased are securities classified as either trading or available-for-sale (“AFS”). These securities are recorded on their trade date and are measured at fair value. The Company classifies these financial instruments based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of securities classified as trading are reported in other income in the period the change occurs. Unrealized gains and losses of securities classified as AFS are included within other comprehensive income. Once sold, amounts reclassified out of accumulated other comprehensive income and into earnings are determined using the specific identification method. AFS securities are assessed for impairment on a quarterly basis.

Securities Held-to-Maturity

The Company accounts for certain of its investments as held-to-maturity on a trade date basis, which are recorded at amortized cost. For held-to-maturity investments, the Company has the intent and ability to hold investments to maturity and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. On a quarterly basis, the Company reviews its portfolio of investments for impairment. If a decline in fair value is deemed to be other-than-temporary, the security is written down to its fair value through earnings.

Investment, Carried at Cost

The Company accounts for equity securities that do not have a readily determinable fair value as cost method investments to the extent such investments are not subject to consolidation or the equity method. Income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.

Cost method investments held by the Company are assessed for impairment on a quarterly basis.

Goodwill

Goodwill is the excess of the fair value of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests its goodwill for impairment at least annually and at the time of a triggering event requiring re-evaluation, if one were to occur. Goodwill may be impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized if the implied fair value of the reporting unit’s goodwill is less than the carrying amount of that goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.

For impairment testing purposes, goodwill has been allocated to the Company’s U.S. Business reporting unit (See Note 14). The Company has designated April 30 th as its annual goodwill impairment testing date. When performing its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and the income approach, market approach and its market capitalization when determining the fair value of its reporting units.

Intangible Assets

Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying values.

 

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Finite-lived intangible assets, if any, are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. These intangible assets are tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.

The Company may rely on a qualitative assessment when performing its intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of identifiable cash flows independent of other assets. The Company has designated November 30 th as its annual impairment testing date for its indefinite-lived intangible assets.

Stock-Based Awards

Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period.

Income Taxes

The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are adjusted by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all the deferred tax assets will not be realized.

In order to recognize and measure any unrecognized tax benefits, management evaluates and determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The Company records interest expense and penalties related to tax expenses as income tax expense.

Non-income based taxes are recorded as part of other liabilities and other expenses.

Third Party Sharing Arrangements

The Company pays a percentage of its advisory fee revenues based on incremental growth in AUM, subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third party customer platforms.

Business Combinations and Acquisitions

The Company includes the results of operations of the businesses that it acquires from the respective dates of acquisition. The fair values of the purchase price of the acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. The Company may allocate purchase price to identifiable intangible assets. The estimated fair value of identifiable intangible assets is based on critical estimates, judgments and assumptions derived from: analysis of market conditions; revenue and revenue growth assumptions; profitability assumptions; discount rates; customer retention rates; and estimated useful lives.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in the standard replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity) and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. Accordingly, the new methodology will be utilized when assessing the Company’s securities classified as AFS and held-to-maturity for impairment. ASU 2016-13 is effective for years beginning after December 15, 2019, including interim periods within those fiscal years under a modified retrospective approach. Early adoption is permitted for periods beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company adopted this standard prospectively on January 1, 2017. The adoption of the standard increased volatility

 

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reported in income tax expense as income tax windfalls and shortfalls associated with the vesting of stock-based compensation is now recorded in income tax expense, rather than additional paid-in capital, when applicable. This new guidance resulted in the Company recognizing approximately $1.0 million of income tax expense for tax shortfalls related to stock-based compensation vesting occurring during this period, which reduced basic and diluted EPS by $0.01 (See Notes 11 and 12).

In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02), which requires lessees to include most leases on the balance sheet. ASU 2016-02 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements (See Note 8).

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The main objective of the standard is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments in the update make targeted improvements to generally accepted accounting principles. These include requiring equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Available-for-sale classification for equity investments with readily determinable fair values will no longer be permissible. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted for the updates currently applicable to the Company. The Company’s equity investments with readily determinable fair values are all currently measured at fair value with changes in fair value recognized in net income. The Company will apply the amendments in this update when assessing the carrying value of its investment, held at cost.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which is a new comprehensive revenue recognition standard on the financial reporting requirements for revenue from contracts entered into with customers. In July 2015, the FASB deferred this ASU’s effective date by one year, to interim and annual periods beginning after December 15, 2017. The deferral allows early adoption at the original effective date. During 2016, the FASB issued ASU 2016-08, which clarifies principal versus agent considerations, ASU 2016-10, which clarifies identifying performance obligations and the licensing implementation guidance, and ASU 2016-12, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. ASU 2014-09 allows for the use of either the retrospective or modified retrospective adoption method. The Company is currently reviewing its contracts in order to evaluate the impact that the standard will have on its consolidated financial statements.

3. Cash and Cash Equivalents

Cash and cash equivalents of approximately $39,743 and $56,484 at March 31, 2017 and December 31, 2016, respectively, were held at one financial institution. At March 31, 2017 and December 31, 2016, cash equivalents were approximately $39,522 and $55,619, respectively.

4. Securities Owned and Securities Sold, but not yet Purchased (and Fair Value Measurement)

Securities owned and securities sold, but not yet purchased are measured at fair value. The fair value of securities is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurements , establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:

 

Level 1     Quoted prices for identical instruments in active markets.
Level 2     Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3     Instruments whose significant drivers are unobservable.

The availability of observable inputs can vary from product to product and is effected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the

 

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market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair Valuation Methodology

Cash and Cash Equivalents – These financial assets represent cash in banks or cash invested in highly liquid investments with original maturities less than 90 days. These investments are valued at par, which approximates fair value, and are considered Level 1 (See Note 3).

Securities (Held-to-Maturity) – These securities are Federal agency debt instruments which are instruments that are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 within the fair value hierarchy (See Note 5).

Securities Owned/Sold But Not Yet Purchased – These securities consist of securities classified as trading and AFS, as follows:

 

     March 31,
2017
     December 31,
2016
 

Securities Owned

     

Trading securities

   $ 264      $ 1,556  

Available-for-sale securities

     57,347        57,351  
  

 

 

    

 

 

 

Total

   $ 57,611      $ 58,907  
  

 

 

    

 

 

 

Securities Sold, but not yet Purchased

     

Trading securities

   $ 27      $ 1,248  

Available-for-sale securities

     —          —    
  

 

 

    

 

 

 

Total

   $ 27      $ 1,248  
  

 

 

    

 

 

 

Trading securities are investments in exchange traded funds. These instruments are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 within the fair value hierarchy. AFS securities are investments in short-term investment grade corporate bonds and are classified as Level 2. Fair value is generally derived from observable bids for these Level 2 financial instruments.

AFS Securities

The following table summarizes unrealized gains, losses and fair value of the AFS securities:

 

     March 31,
2017
     December 31,
2016
 

Cost

   $ 57,779      $ 57,615  

Gross unrealized gains in other comprehensive income

     —          —    

Gross unrealized losses in other comprehensive income

     (432      (264
  

 

 

    

 

 

 

Fair value

   $ 57,347      $ 57,351  
  

 

 

    

 

 

 

All the Company’s AFS securities are due within one year. The Company assesses the AFS securities for other-than-temporary impairment on a quarterly basis. No AFS securities were determined to be other-than-temporarily impaired at March 31, 2017 or December 31, 2016.

During the three months ended March 31, 2017, the Company received $21.0 million of proceeds from the sale and maturity of available-for-sale securities and recognized gross realized losses of $0.2 million. These losses have been reclassified out of accumulated other comprehensive income and into other income within the Consolidated Statements of Operations. Proceeds received were used to purchase additional AFS securities.

 

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5. Securities Held-to-Maturity

The following table is a summary of the Company’s securities held-to-maturity:

 

     March 31,
2017
     December 31,
2016
 

Federal agency debt instruments (amortized cost)

   $ 23,202      $ 22,496  
  

 

 

    

 

 

 

The following table summarizes unrealized gains, losses, and fair value of securities held-to-maturity:

 

     March 31,
2017
     December 31,
2016
 

Cost/amortized cost

   $ 23,202      $ 22,496  

Gross unrealized gains

     12        13  

Gross unrealized losses

     (1,405      (1,353
  

 

 

    

 

 

 

Fair value

   $ 21,809      $ 21,156  
  

 

 

    

 

 

 

The Company assesses these securities for other-than-temporary impairment on a quarterly basis. No securities were determined to be other-than-temporarily impaired at March 31, 2017 or December 31, 2016. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity.

The following table sets forth the maturity profile of the securities held-to-maturity; however, these securities may be called prior to maturity date:

 

     March 31,
2017
     December 31,
2016
 

Due within one year

   $ 3,997      $ 3,994  

Due one year through five years

     1,020        1,023  

Due five years through ten years

     4,030        4,031  

Due over ten years

     14,155        13,448  
  

 

 

    

 

 

 

Total

   $ 23,202      $ 22,496  
  

 

 

    

 

 

 

6. Investment, Carried at Cost

On November 18, 2016, the Company made a $20,000 strategic investment in AdvisorEngine, Inc., an end-to-end wealth management platform which enables individual customization of investment philosophies. The Company and AdvisorEngine also entered into an agreement whereby the Company’s asset allocation models are made available through AdvisorEngine’s open architecture platform and the Company actively introduces the platform to its distribution network.

In consideration of its investment, the Company received 11,811,856 shares of Series A convertible preferred shares (“Series A Preferred”), for an aggregate equity ownership interest of approximately 42% (or 36% on a fully-diluted basis).

The Series A Preferred is convertible into common stock at the option of the Company and contains various rights and protections including a non-cumulative 6.0% dividend, payable if and when declared by the board of directors, and a liquidation preference that is senior to all other holders of capital stock of AdvisorEngine. The investment is accounted for under the cost method of accounting as it is not considered to be in-substance common stock.

This investment is assessed for impairment on a quarterly basis. No impairment existed at March 31, 2017 or December 31, 2016.

7. Fixed Assets

The following table summarizes fixed assets:

 

     March 31,
2017
     December 31,
2016
 

Equipment

   $ 1,839      $ 1,739  

Furniture and fixtures

     2,414        2,393  

Leasehold improvements

     11,006        10,877  

Less accumulated depreciation and amortization

     (3,617      (3,261
  

 

 

    

 

 

 

Total

   $ 11,642      $ 11,748  
  

 

 

    

 

 

 

 

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8. Commitments and Contingencies

Contractual Obligations

The Company has entered into obligations under operating leases with initial non-cancelable terms in excess of one year for office space, telephone and data services. Expenses recorded under these agreements for the three months ended March 31, 2017 and 2016 were approximately $1,120 and $985, respectively.

Future minimum lease payments with respect to non-cancelable operating leases at March 31, 2017 were approximately as follows:

 

Remainder of 2017

   $ 3,040  

2018

     3,437  

2019

     2,952  

2020

     2,867  

2021 and thereafter

     24,079  
  

 

 

 

Total

   $ 36,375  
  

 

 

 

Letter of Credit

The Company collateralized its U.S. office lease through a standby letter of credit totaling $1,384. The collateral is included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.

Contingencies

The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company is not currently party to any litigation that is expected to have a material adverse impact on its business, financial position, results of operations or cash flows.

9. Related Party Transactions

The Company’s revenues are derived primarily from investment advisory agreements with related parties. Under these agreements, the Company has licensed to related parties the use of certain of its own indexes for the U.S. and Canadian WisdomTree ETFs and WisdomTree UCITS ETFs. The Board of Trustees and Board of Directors of the related parties are primarily responsible for overseeing the management and affairs of the U.S. and Canadian WisdomTree ETFs, Boost ETPs and WisdomTree UCITS ETFs for the benefit of their shareholders and have contracted with the Company to provide for general management and administration services. The Company is also responsible for certain expenses of the related parties, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, and other non-distribution services, excluding extraordinary expenses, taxes and certain other expenses, which is included in fund management and administration on the Company’s Consolidated Statements of Operations. In exchange, the Company receives fees based on a percentage of the ETF average daily net assets. The advisory agreements may be terminated by the related parties upon notice. Certain officers of the Company also provide general management oversight of the related parties; however, these officers have no material decision making responsibilities and primarily implement the decisions of the Board of Trustees and Board of Directors of the related parties.

The following table summarizes accounts receivable from related parties which are included as a component of Accounts receivable on the Company’s Consolidated Balance Sheets:

 

     March 31,
2017
     December 31,
2016
 

Receivable from WTT

   $ 17,970      $ 16,506  

Receivable from BI and WTI

     766        645  

Receivable from WTCS

     131        158  

Receivable from WTAMC

     31        40  
  

 

 

    

 

 

 

Total

   $ 18,898      $ 17,349  
  

 

 

    

 

 

 

 

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The following table summarizes revenues from advisory services provided to related parties:

 

     Three Months Ended  
     March 31,
2017
     March 31,
2016
 

Advisory services provided to WTT

   $ 50,456      $ 58,642  

Advisory services provided to BI and WTI

     2,155        1,523  

Advisory services provided to WTCS

     570        450  

Advisory services provided to WTAMC

     81        —    
  

 

 

    

 

 

 

Total

   $ 53,262      $ 60,615  
  

 

 

    

 

 

 

The Company also had an investment in a WisdomTree ETF of approximately $1,300 at December 31, 2016. The investment was redeemed by the fund which was subsequently closed and liquidated during three months ended March 31, 2017.

10. Stock-Based Awards

The Company grants equity awards to employees and directors which include restricted stock awards, restricted stock units and stock options. Stock options may be issued for terms of ten years and may vest after at least one year and have an exercise price equal to the Company’s stock price on the grant date. Restricted stock awards and restricted stock units are generally valued based on the Company’s stock price on the grant date. The Company estimates the fair value for stock options using the Black-Scholes option pricing model. All restricted stock awards, restricted stock units and stock option awards require future service as a condition of vesting with certain awards subject to acceleration under certain conditions.

On June 20, 2016, the Company’s stockholders approved a new equity award plan under which the Company can issue up to 10,000,000 shares of common stock (less one share for every share granted under prior plans since March 31, 2016 and inclusive of shares available under the prior plans as of March 31, 2016) in the form of stock options and other stock-based awards. The Company also has issued from time to time stock-based awards outside a plan.

The Company recorded stock-based compensation expense of $3,421 and $3,503 for the three months ended March 31, 2017 and 2016, respectively.

A summary of unrecognized stock-based compensation expense and average remaining vesting period is as follows:

 

     March 31, 2017  
     Unrecognized Stock-
Based
Compensation
     Average
Remaining
Vesting Period
 

Employees and directors restricted stock awards

   $ 22,613        1.93  

A summary of stock options, restricted stock and restricted stock unit activity for the three months ended March 31, 2017 is as follows:

 

     Stock
Options
     Restricted
Stock
Awards
     Restricted
Stock
Units
 

Balance at January 1, 2017

     1,368,247        2,436,454        —    

Granted

     —          492,044        3,759  

Exercised/vested

     (5,000      (819,247      —    

Forfeitures

     —          (3,508      —    
  

 

 

    

 

 

    

 

 

 

Balance at March 31, 2017

     1,363,247        2,105,743        3,759  
  

 

 

    

 

 

    

 

 

 

 

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11. Earnings Per Share

The following is a reconciliation of the basic and diluted earnings per share computation:

 

     Three Months Ended March 31,  
     2017      2016  

Net income

   $ 6,880      $ 12,072  
  

 

 

    

 

 

 
     (shares in thousands)  

Shares of common stock and common stock equivalents :

     

Weighted average common shares used in basic computation

     134,385        135,467  

Dilutive effect of common stock equivalents

     1,124        990  
  

 

 

    

 

 

 

Weighted average common shares used in dilutive computation

     135,509        136,457  
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.05      $ 0.09  

Diluted earnings per share

   $ 0.05      $ 0.09  

In the table above, unvested share-based awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities in calculating EPS.

Diluted earnings per share reflects the reduction in earnings per share assuming options or other contracts to issue common stock were exercised or converted into common stock (if dilutive) under the treasury stock method. The Company excluded 1,549,440 and 2,017,005 common stock equivalents from its computation of diluted earnings per share for the three months ended March 31, 2017 and 2016, respectively, as they were determined to be anti-dilutive.

As further discussed in Note 12, the Company adopted ASU 2016-09 prospectively during the three-months ended March 31, 2017 which had the effect of reducing basic and diluted EPS by $0.01.

12. Income Taxes

Effective Income Tax Rate – Three Months Ended March 31, 2017 and March 31, 2016

The Company’s effective income tax rate for the three months ended March 31, 2017 of 53.6% resulted in income tax expense of $7.9 million. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to a valuation allowance on foreign net operating losses, tax shortfalls associated with the vesting of stock-based compensation awards and state and local income taxes.

Effective January 1, 2017, US GAAP was amended with the intention to simplify the accounting for stock-based compensation. This includes the requirement to record the tax effects related to stock-based compensation within income tax expense, rather than additional paid-in capital, when applicable. Therefore, tax shortfalls (and tax windfalls) associated with the vesting of stock-based compensation awards are now included within income tax expense. This new guidance resulted in the recognition of $1.0 million of income tax expense associated with tax shortfalls recognized upon vesting of stock-based compensation awards during the quarter.

The Company’s effective income tax rate for the three months ended March 31, 2016 of 44.3% resulted in income tax expense of $9,600. The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to state and local income taxes, the acquisition payment expense (which is non-deductible) and a valuation allowance on foreign net operating losses.

Net Operating Losses – U.S .

The Company’s pre-tax federal net operating losses for tax purposes (“NOLs”) at March 31, 2017 was $3,671 which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change.

Net Operating Losses – International

The Company’s European and Canadian subsidiaries generated NOLs outside the U.S. These tax effected NOLs were $2.4 million at March 31, 2017. The Company established a full valuation allowance related to these NOLs as it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

 

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Deferred Tax Assets

A summary of the components of the Company’s deferred tax asset at March 31, 2017 is as follows:

 

     March 31,
2017
     December 31,
2016
 

Deferred tax assets:

     

NOLs – Foreign

   $ 2,414      $ 4,551  

Stock-based compensation

     2,353        5,382  

Deferred rent liability

     2,005        2,024  

NOLs – U.S.

     1,410        1,611  

Accrued expenses

     1,207        4,552  

Unrealized losses

     163        101  

Other

     262        227  
  

 

 

    

 

 

 

Deferred tax assets

     9,814        18,448  
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Fixed assets

     2,405        2,405  

Incentive compensation

     1,023        1,365  

Goodwill and intangible assets

     376        301  
  

 

 

    

 

 

 

Deferred tax liabilities

     3,804        4,071  
  

 

 

    

 

 

 

Total deferred tax assets less deferred tax liabilities

     6,010        14,377  

Less: valuation allowance

     (2,414      (4,551
  

 

 

    

 

 

 

Deferred tax assets, net

   $ 3,596      $ 9,826  
  

 

 

    

 

 

 

13. Shares Repurchased

On October 29, 2014, the Company’s Board of Directors authorized a three-year share repurchase program of up to $100,000. On April 27, 2016, the Board of Directors approved a $60,000 increase to the Company’s share repurchase program and extended the term through April 27, 2019. Included under this program are purchases to offset future equity grants made under the Company’s equity plans and are made in open market or privately negotiated transactions. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing and actual number of shares repurchased depends on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The repurchase program may be suspended or terminated at any time without prior notice. Shares repurchased under this program are returned to the status of authorized and unissued on the Company’s books and records.

During the three months ended March 31, 2017 and March 31, 2016, the Company repurchased 346,529 shares and 3,407,305 shares of its common stock, respectively, under this program for an aggregate cost of $3,628 and $35,555, respectively.

As of March 31, 2017, $92,877 remains under this program for future purchases.

14. Goodwill and Intangible Assets

Goodwill has been allocated to the Company’s U.S. Business reporting unit. The Company has designated April 30 th as its annual goodwill impairment testing date. The following table summarizes the goodwill activity during the period:

 

     U.S. Business
Reporting Unit
 

Balance at January 1, 2017

   $ 1,799  

Increases/(decreases)

     —    
  

 

 

 

Balance at March 31, 2017

   $ 1,799  
  

 

 

 

 

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Intangible Asset (Indefinite-Lived)

As part of the GreenHaven acquisition which occurred on January 1, 2016, the Company identified an intangible asset related to its customary advisory agreement with the GreenHaven Commodities ETF for $9,953. This intangible asset (which is deductible for tax purposes) was determined to have an indefinite useful life. The Company has designated November 30 th as its annual impairment testing date for this indefinite-lived intangible asset.

 

     Total  

Balance at January 1, 2017

   $ 9,953  

Increases/(decreases)

     —    
  

 

 

 

Balance at March 31, 2017

   $ 9,953  
  

 

 

 

15. Segment Reporting

The Company operates as an ETP sponsor and asset manager providing investment advisory services in the U.S., Europe, Canada and Japan. These activities are reported in the Company’s U.S. Business and International Business reportable segments. The U.S. Business segment includes the results of the Company’s U.S. operations and Japan sales office. The results of the Company’s European and Canadian operations are reported as the International Business segment.

Information concerning these reportable segments are as follows:

 

     Three Months Ended March 31,  
     2017      2016  

Revenues (U.S. Business segment)

     

Advisory fees

   $ 51,026      $ 59,092  

Other income

     1,312        221  
  

 

 

    

 

 

 

Total revenues (U.S. Business segment)

   $ 52,338      $ 59,313  
  

 

 

    

 

 

 

Revenues (International Business segment)

     

Advisory fees

   $ 2,236      $ 1,523  

Other income

     25        42  
  

 

 

    

 

 

 

Total revenues (International Business segment)

   $ 2,261      $ 1,565  
  

 

 

    

 

 

 

Total revenues

   $ 54,599      $ 60,878  
  

 

 

    

 

 

 

Income/(loss) before taxes

     

U.S. Business segment

   $ 17,908      $ 24,210  

International Business segment

     (3,086      (2,538
  

 

 

    

 

 

 

Total income before taxes

   $ 14,822      $ 21,672  
  

 

 

    

 

 

 

Assets are not reported by segment as such information is not utilized by the chief operating decision maker. The vast majority of the Company’s assets are located in the U.S.

16. Subsequent Events

On April 27, 2017, the Company and AdvisorEngine jointly announced their commitment to providing advisor growth solutions through AdvisorEngine’s acquisition of Kredible Technologies, Inc., a technology enabled, research-driven practice management firm designed to help advisors acquire new clients. The Company invested an additional $5,000 in AdvisorEngine to help facilitate the Kredible acquisition and continue to fuel AdvisorEngine’s growth, leadership and innovation in the advisor solutions space. The Company received 2,646,062 shares of Series A-1 convertible preferred stock (“Series A-1 Preferred”) for an aggregate equity ownership interest of approximately 47% (or 41% on a fully-diluted basis). The Series A-1 Preferred has substantially the same terms as the Series A Preferred that the Company received in November 2016 in connection with its initial investment in AdvisorEngine as described in Note 6.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Executive Summary

Introduction

We were the tenth largest ETP sponsor in the world (based on AUM), with AUM of $43.4 billion globally as of March 31, 2017. An ETP is a pooled investment vehicle that holds a basket of financial instruments, securities or other assets and generally seeks to track (index-based) or outperform (actively managed) the performance of a broad or specific equity, fixed income or alternatives market segment, commodity or currency (or an inverse or multiple thereof). ETPs are listed on an exchange with their shares traded in the secondary market at market prices, generally at approximately the same price as the net asset value of their underlying components. ETP is an umbrella term that includes ETFs, exchange-traded notes and exchange-traded commodities.

Through our operating subsidiaries, we provide investment advisory and other management services to the WisdomTree ETFs and Boost ETPs collectively offering ETPs covering equity, fixed income, currency, alternatives and commodity asset classes. In exchange for providing these services, we receive advisory fee revenues based on a percentage of the ETPs’ average daily AUM. Our expenses are predominantly related to selling, operating and marketing our ETPs. We have contracted with third parties to provide certain operational services for the ETPs. We distribute our ETPs through all major channels within the asset management industry, including brokerage firms, registered investment advisers, institutional investors, private wealth managers and discount brokers primarily through our sales force. Our sales efforts are not directed towards the retail segment but rather are directed towards financial or investment advisers that act as intermediaries between the end-client and us. Recent investments in technology-enabled services including portfolio construction, asset allocation, practice management services and the AdvisorEngine platform have been made in order to differentiate us in the market, expand our distribution and further enhance our relationships with financial advisors.

A significant portion of our AUM is invested in securities issued outside of the U.S. Therefore, our AUM and revenues are affected by movements in global capital market levels and the strengthening or weakening of the U.S. dollar against other currencies. As the chart below reflects, as of March 31, 2017, 42% of our U.S. AUM was concentrated in two products with similar strategies – HEDJ, our European equity ETF which hedges exposure to the Euro, and DXJ, our Japanese equity ETF which hedges exposure to the Yen. The strengthening of the Euro or Yen against the U.S. dollar, or the decline in European or Japanese equity markets, may have an adverse effect on our results.

 

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Market Environment

During the first quarter of 2017, U.S. market sentiment was favorable as investors focused on the potential for both regulatory and tax reform. Various economic indicators also continued to strengthen which led to a 25bps U.S. interest rate increase along with speculation that further increases may soon follow. International and emerging markets were also on an upswing supported by positive economic data.

The S&P 500 rose 6.1%, MSCI EAFE (local currency) rose 4.8% and MSCI Emerging Markets Index (U.S. dollar) rose 11.5% in the first quarter. In addition, the European equity market appreciated with the MSCI EMU Index rising 7.3% in local currency terms while the Japan equity market as evidenced by the MSCI Japan Index (local currency) was flat for the quarter. Also, the U.S. dollar weakened 4.8% versus the Yen and 1.3% versus the Euro during the first quarter.

The vast majority of our global AUM is in U.S. listed ETFs. As the charts below reflect, industry flows for the first quarter of 2017 reached a record of $132.4 billion. U.S. equities and fixed income gathered the majority of those flows.

 

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Source: Investment Company Institute, WisdomTree

Business Segments

We operate as an ETP sponsor and asset manager providing investment advisory services in the U.S., Europe, Canada and Japan. These activities are reported in our U.S. Business and International Business segments, as follows:

 

    U.S. Business segment : Our U.S. business and Japan sales office, which primarily engages in selling our U.S. listed ETFs to Japanese institutions; and

 

    International Business segment : Our European business which commenced in April 2014 in connection with our acquisition of U.K. based ETP sponsor Boost ETP, LLP (“Boost”) and our Canadian business which launched its first six ETFs in July 2016.

 

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Our Operating and Financial Results

U.S. Business Segment

Outflows from our U.S. listed ETFs were muted in the first quarter of 2017. We continued to experience outflows from our European equity ETF (HEDJ), however those outflows were offset by inflows into our Japan equity ETF (DXJ) and our U.S. equity, emerging markets and international equity ETFs. Our U.S. listed AUM increased from $40.2 billion as of December 31, 2016 to $41.9 billion as of March 31, 2017 primarily due to $1.8 billion of market appreciation.

 

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International Business Segment

Our International ETFs had net inflows of $320.1 million in the first quarter of 2017. This was principally a result of inflows of $160.3 million into our European listed ETPs and $159.8 million into our UCITS ETFs. Our International AUM increased from $1.1 billion as of December 31, 2016 to $1.4 billion as of March 31, 2017 primarily due to net inflows and, to a lesser extent, market appreciation.

 

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Consolidated Operating Results

Our revenues, expenses and net income are as follows:

 

LOGO

 

    Revenues – We recorded revenues of $54.6 million in the three months ended March 31, 2017, down 10.3% from the three months ended March 31, 2016 due to declines in our average AUM, primarily in our two largest ETFs and partly offset by an increase in average AUM resulting from $2.1 billion of net inflows into our U.S. equity ETFs and market appreciation.

 

    Expenses – Total expenses increased 1.5% from the three months ended March 31, 2016 to $39.8 million primarily resulting from higher compensation partly offset by lower professional fees.

 

    Net income – Net income declined 43.0% from the three months ended March 31, 2016 to $6.9 million.

 

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Key Operating Statistics

The following table presents key operating statistics that serve as indicators for the performance of our business:

 

     Three Months Ended  
     March 31,
2017
    December 31,
2016
    March 31,
2016
 

U.S. LISTED ETFs (in millions)

      

Beginning of period assets

   $ 40,164     $ 37,704     $ 51,639  

Assets acquired

     —         —         225  

Inflows/(outflows)

     (58     132       (5,359

Market appreciation/(depreciation)

     1,834       2,328       (2,249
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 41,940     $ 40,164     $ 44,256  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

   $ 41,292     $ 38,253     $ 45,475  

Revenue days

     90       92       91  

Number of ETFs – end of the period

     88       94       93  

ETF Industry and Market Share (in billions)

      

ETF industry net inflows

   $ 132.4     $ 127.2     $ 34.6  

WisdomTree market share of industry inflows

     n/a       0.1     n/a  

Average ETF advisory fee during the period

      

Alternative strategy ETFs

     0.66     0.72     0.88

Emerging markets equity ETFs

     0.70     0.70     0.71

International developed equity ETFs

     0.56     0.56     0.56

International hedged equity ETFs

     0.53     0.54     0.54

Currency ETFs

     0.50     0.50     0.50

Fixed income ETFs

     0.42     0.43     0.46

U.S. equity ETFs

     0.35     0.35     0.35
  

 

 

   

 

 

   

 

 

 

Blended total

     0.50     0.50     0.52
  

 

 

   

 

 

   

 

 

 

EUROPEAN LISTED ETPs

      

Total ETPs (in thousands)

      

Beginning of period assets

   $ 626,280     $ 647,497     $ 437,934  

Inflows/(outflows)

     160,327       (38,214     123,461  

Market appreciation/(depreciation)

     (12,120     16,997       (73,326
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 774,487     $ 626,280     $ 488,069  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

     704,843       640,101       428,827  

Average ETP advisory fee during the period

     0.79     0.80     0.84

Number of ETPs—end of period

     68       68       67  

Total UCITS ETFs (in thousands)

      

Beginning of period assets

   $ 398,015     $ 371,307     $ 335,938  

Inflows/(outflows)

     159,774       12,442       71,440  

Market appreciation/(depreciation)

     18,714       14,266       (10,477
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 576,503     $ 398,015     $ 396,901  
  

 

 

   

 

 

   

 

 

 

Average assets during the period

     504,294       375,286       356,814  

Average UCITS ETF advisory fee during the period

     0.43     0.42     0.47

Number of UCITS ETFs—end of period

     17       16       12  

CANADIAN LISTED ETFs* (in thousands)

      

Beginning of period assets

   $ 68,618     $ 68,427     $ —    

Inflows/(outflows)

     (2     3       —    

Market appreciation/(depreciation)

     4,311       188       —    
  

 

 

   

 

 

   

 

 

 

End of period assets

   $ 72,927     $ 68,618     $ —    
  

 

 

   

 

 

   

 

 

 

Average assets during the period

     71,242       67,168       n/a  

Average ETF advisory fee during the period

     0.46     0.46     n/a  

Number of ETFs—end of period

     6       6       n/a  

Headcount: U.S. Business Segment

     163       163       153  

Headcount: International Business Segment

     47       46       38  

 

* ETF inception date July 14, 2016

Note: Previously issued statistics may be restated due to trade adjustments

Source: Investment Company Institute, Bloomberg, WisdomTree

 

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Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Overview

 

     Three Months Ended
March 31,
     Change      Percent
Change
 
     2017      2016        

Global AUM (in millions)

           

End of period assets

   $ 43,364      $ 45,141      $ (1,777      (3.9 %) 
  

 

 

    

 

 

       

U.S. listed AUM (in millions)

           

Beginning of period assets

   $ 40,164      $ 51,639        

Assets acquired

     —          225        

Net inflows/(outflows)

     (58      (5,359    $ 5,301        98.9

Market appreciation/(depreciation)

     1,834        (2,249      
  

 

 

    

 

 

       

End of period assets

   $ 41,940      $ 44,256      $ (2,316      (5.2 %) 
  

 

 

    

 

 

       

Financial Results (in thousands)

           

Total revenues

   $ 54,599      $ 60,878      $ (6,279      (10.3 %) 

Total expenses

     39,777        39,206        571        1.5
  

 

 

    

 

 

    

 

 

    

Pre-tax income

   $ 14,822      $ 21,672      $ (6,850      (31.6 %) 

Net income

   $ 6,880      $ 12,072      $ (5,192      (43.0 %) 

Our global AUM decreased 3.9% from $45.1 billion at March 31, 2016 to $43.4 billion at March 31, 2017. This decline was primarily driven by changes in our U.S. listed AUM which decreased 5.2% from $44.3 billion at March 31, 2016 to $41.9 billion at March 31, 2017 primarily due to net outflows from our two largest funds, HEDJ and DXJ. These net outflows were partly offset by net inflows of $2.1 billion into our U.S. equity ETFs and market appreciation.

We reported pre-tax income of $14.8 million for the three months ended March 31, 2017, a decrease of 31.6% from the three months ended March 31, 2016 primarily due to lower revenues, and we reported net income of $6.9 million for the three months ended March 31, 2017 compared to $12.1 million for the three months ended March 31, 2016.

Revenues

 

     Three Months Ended
March 31,
    Change      Percent
Change
 
     2017     2016       

Global AUM (in millions)

         

Global - Average AUM

   $ 42,572     $ 46,261     $ (3,689      (8.0 %) 
  

 

 

   

 

 

      

U.S. listed AUM (in millions)

         

U.S. listed - Average AUM

   $ 41,292     $ 45,475     $ (4,183      (9.2 %) 

U.S. listed - Average ETF advisory fee

     0.50     0.52     (0.02      (3.8 %) 

Revenues (in thousands)

         

Advisory fees

   $ 53,262     $ 60,615     $ (7,353      (12.1 %) 

Other income

     1,337       263       1,074        408.4
  

 

 

   

 

 

   

 

 

    

Total revenues

   $ 54,599     $ 60,878     $ (6,279      (10.3 %) 
  

 

 

   

 

 

   

 

 

    

Advisory fees

Advisory fees revenues decreased 12.1% from $60.6 million in the three months ended March 31, 2016 to $53.3 million in the comparable period in 2017 due to declines in our average AUM, primarily in our two largest ETFs and partly offset by $2.1 billion of net inflows into our U.S. equity ETFs and market appreciation. Our average advisory fee for our U.S. listed ETFs declined from 0.52% for the three months ended March 31, 2016 to 0.50% for the three months ended March 31, 2017 due to changes in product mix.

Other income

Other income increased 408.4% from $0.3 million in the three months ended March 31, 2016 to $1.3 million in the comparable period in 2017. Included within other income for the three months ended March 31, 2017 was a one-time reimbursement of fund-related costs for prior years of $0.8 million. In addition, other income increased due to higher interest earned on our securities owned, at fair value.

 

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Expenses

 

     Three Months Ended
March 31,
     Change      Percent
Change
 
(in thousands)    2017      2016        

Compensation and benefits

   $ 17,874      $ 15,226      $ 2,648        17.4

Fund management and administration

     9,600        10,044        (444      (4.4 %) 

Marketing and advertising

     3,537        3,832        (295      (7.7 %) 

Sales and business development

     2,962        2,447        515        21.0

Professional and consulting fees

     1,558        2,835        (1,277      (45.0 %) 

Occupancy, communications and equipment

     1,353        1,222        131        10.7

Depreciation and amortization

     337        316        21        6.6

Third-party sharing arrangements

     932        907        25        2.8

Acquisition payment

     —          745        (745      n/a  

Other

     1,624        1,632        (8      (0.5 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

   $ 39,777      $ 39,206      $ 571        1.5
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
March 31,
 

As a Percent of Revenues:

   2017     2016  

Compensation and benefits

     32.7     25.0

Fund management and administration

     17.6     16.5

Marketing and advertising

     6.5     6.3

Sales and business development

     5.4     4.0

Professional and consulting fees

     2.9     4.7

Occupancy, communications and equipment

     2.5     2.0

Depreciation and amortization

     0.6     0.5

Third-party sharing arrangements

     1.7     1.5

Acquisition payment

     n/a       1.2

Other

     3.0     2.7
  

 

 

   

 

 

 

Total expenses

     72.9     64.4
  

 

 

   

 

 

 

Compensation and benefits

Compensation and benefits expense increased 17.4% from $15.2 million in the three months ended March 31, 2016 to $17.9 million in the comparable period in 2017 primarily due to higher accrued incentive compensation and other headcount related expenses. Headcount of our U.S. Business segment was 153 and our International Business segment was 38 at March 31, 2016 compared to 163 and 47, respectively, at March 31, 2017.

Fund management and administration

Fund management and administration expense decreased 4.4% from $10.0 million in the three months ended March 31, 2016 to $9.6 million in the comparable period in 2017. This decrease was primarily due to lower fund costs for our U.S. Business segment attributable to lower average AUM partly offset by the higher number of ETPs and higher average AUM of our International Business segment. We had 93 U.S. listed ETFs and 79 European ETPs at March 31, 2016 compared to 88 U.S. listed ETFs, 85 ETPs and 6 Canadian listed ETFs at March 31, 2017.

Marketing and advertising

Marketing and advertising expense decreased 7.7% from $3.8 million in the three months ended March 31, 2016 to $3.5 million in the comparable period in 2017 primarily due to lower levels of marketing related activities.

Sales and business development

Sales and business development expense increased 21.0% from $2.4 million in the three months ended March 31, 2016 to $3.0 million in the comparable period in 2017 primarily due to higher spending on sales related activities within both our U.S. Business and International Business segments.

 

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Professional and consulting fees

Professional and consulting fees decreased 45.0% from $2.8 million in the three months ended March 31, 2016 to $1.6 million in the comparable period in 2017 primarily due to lower advisory fees associated with our GreenHaven acquisition which occurred in the first quarter of 2016 as well as lower corporate consulting related expenses.

Occupancy, communications and equipment

Occupancy, communications and equipment expense increased 10.7% from $1.2 million in the three months ended March 31, 2016 to $1.4 million in the comparable period in 2017 primarily due to higher real estate taxes.

Depreciation and amortization

Depreciation and amortization expense was essentially unchanged from the three months ended March 31, 2016.

Third-party sharing arrangements

Third-party sharing arrangements was essentially unchanged from the three months ended March 31, 2016.

Other

Other expense was essentially unchanged from the three months ended March 31, 2016.

Income tax

Our effective income tax rate for the three months ended March 31, 2017 of 53.6% resulted in income tax expense of $7.9 million. In the first quarter of 2017, as required, the Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which requires companies to record the tax effects related to stock-based compensation within income tax expense, rather than additional paid-in capital, when applicable. Therefore, tax shortfalls (and tax windfalls) associated with the vesting of stock-based compensation awards are now included within income tax expense. This guidance resulted in the recognition of $1.0 million of income tax expense associated with tax shortfalls recognized upon vesting of stock-based compensation awards during the quarter. In addition, our tax rate differs from the federal statutory tax rate of 35% primarily due to a valuation allowance on foreign net operating losses and state and local income taxes.

Our effective income tax rate for the three months ended March 31, 2016 of 44.3% resulted in income tax expense of $9,600. Our tax rate differs from the federal statutory tax rate of 35% primarily due to state and local income taxes, the acquisition payment expense (which is non-deductible) and a valuation allowance on foreign net operating losses.

 

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Segment Results

The table below presents the net revenues, operating expenses and income before taxes of our U.S. Business and International Business reportable segments.

 

     Three Months Ended March 31,  
     2017     2016  
     (in thousands)  

U.S. Business segment

  

Revenues

   $ 52,338     $ 59,313  

Operating expenses

     (34,430     (35,103
  

 

 

   

 

 

 

Income before taxes

   $ 17,908     $ 24,210  
  

 

 

   

 

 

 

Average assets during the period (in millions)

   $ 41,292     $ 45,475  

Average advisory fee during the period

     0.50     0.52

International Business segment

    

Revenues

   $ 2,261     $ 1,565  

Operating expenses

     (5,347     (4,103
  

 

 

   

 

 

 

Loss before taxes

   $ (3,086   $ (2,538
  

 

 

   

 

 

 

European ETPs – Average assets during the period (in thousands)

   $ 704,843     $ 428,827  

UCITS ETFs – Average asset during the period (in thousands)

   $ 504,294     $ 356,814  

Canadian ETFs – Average asset during the period (in thousands)

   $ 71,242       n/a  

European ETPs – Average advisory fee during the period

     0.79     0.84

UCITS ETFs – Average advisory fee during the period

     0.43     0.47

Canadian ETFs – Average advisory fee during the period

     0.46     n/a  

Totals

    

Revenues

   $ 54,599     $ 60,878  

Operating expenses

     (39,777     (39,206
  

 

 

   

 

 

 

Income before taxes

   $ 14,822     $ 21,672  
  

 

 

   

 

 

 

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

U.S. Business segment

Revenues of the U.S. Business segment decreased 11.8% from $59.3 million in the three months ended March 31, 2016 to $52.3 million in the comparable period in 2017. The decrease was attributable to lower average AUM which decreased 9.2%, primarily due to net outflows from our two largest U.S. listed ETFs, HEDJ and DXJ. These net outflows were partly offset by net inflows of $2.1 billion into our U.S. Equity ETFs and market appreciation. Our average U.S. advisory fee decreased to 0.50% from 0.52% during the year due to changes in product mix.

Operating expenses of the U.S. Business segment decreased 1.9% from $35.1 million in the three months ended March 31, 2016 to $34.4 million in the comparable period in 2017. The decrease was primarily attributable to lower fund management and administration expenses due to lower average U.S. listed AUM and lower professional fees primarily a result of lower advisory fees associated with our GreenHaven acquisition which occurred in the first quarter of 2016. These decreases were partly offset by higher compensation expenses primarily due to higher accrued incentive compensation and other headcount related expenses. Headcount of our U.S. Business segment was 153 and 163 at March 31, 2016 and 2017, respectively.

International Business segment

Revenues of the International Business segment increased 44.5% from $1.6 million in the three months ended March 31, 2016 to $2.3 million in the comparable period in 2017. This increase was attributable to higher average AUM which increased 63.0% from $785.6 million in the three months ended March 31, 2016 to $1.3 billion in the comparable period in 2017 primarily due to net inflows. In addition, in July 2016 we began distributing six locally listed ETFs in Canada.

Operating expenses of the International Business segment increased 30.3% from $4.1 million in the three months ended March 31, 2016 to $5.3 million in the comparable period in 2017. The increase was primarily due to higher headcount related compensation expenses. Headcount of our International Business segment was 38 and 47 at March 31, 2016 and 2017, respectively. In addition, fund management and administration expenses increased due to a higher number of ETPs and higher average AUM. These increases were partly offset by the acquisition payment expense of $0.8 million recorded in the first quarter of 2016 associated with the buyout obligation of the minority interest in our European business which was ultimately completed during the second quarter of 2016.

 

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Liquidity and Capital Resources

The following table summarizes key data regarding our liquidity, capital resources and use of capital to fund our operations:

 

     March 31,
2017
     December 31,
2016
 

Balance Sheet Data (in thousands) :

     

Cash and cash equivalents

   $ 79,637      $ 92,722  

Securities owned, at fair value

     57,611        58,907  

Securities held-to-maturity

     23,202        22,496  

Accounts receivable

     19,234        17,668  
  

 

 

    

 

 

 

Total: Liquid assets

     179,684        191,793  

Less: Total liabilities

     (33,569      (48,423
  

 

 

    

 

 

 

Total: Available liquidity

   $ 146,115      $ 143,370  
  

 

 

    

 

 

 

 

     Three Months Ended March 31,  
     2017      2016  

Cash Flow Data (in thousands) :

     

Operating cash flows

   $ 2,447      $ 6,777  

Investing cash flows

     (1,241      (11,041

Financing cash flows

     (14,553      (46,393

Foreign exchange rate effect

     262        348  
  

 

 

    

 

 

 

Decrease in cash and cash equivalents

   $ (13,085    $ (50,309
  

 

 

    

 

 

 

Liquidity

We consider our available liquidity to be our liquid assets less our liabilities. Liquid assets consist of cash and cash equivalents, securities owned, at fair value, securities held-to-maturity and accounts receivable. Cash and cash equivalents include cash on hand with financial institutions and all highly liquid investments with an original maturity of 90 days or less at the time of purchase. Our securities owned, at fair value are highly liquid investments in a portfolio of short-duration investment grade corporate bonds. Certain securities are accounted for as held-to-maturity securities and we have the intention and ability to hold them to maturity. However, these securities are also readily traded and, if needed, could be sold for liquidity. Accounts receivable are current assets and primarily represent receivables from advisory fees we earn from our ETPs. Our liabilities consist primarily of payments owed to vendors and third parties in the normal course of business as well as accrued year end compensation for employees.

Cash and cash equivalents decreased $13.1 million in the three months ended March 31, 2017 due to $21.3 million used to purchase securities available-for-sale, $10.9 million used to pay dividends on our common stock, $3.6 million used to repurchase our common stock and $0.7 million used for other activities. These decreases were partly offset by $2.4 million of cash generated by our operating activities and $21.0 million from sales and maturities of securities available-for-sale.

Cash and cash equivalents decreased $50.3 million in the three months ended March 31, 2016 due to $35.6 million used to repurchase our common stock, $11.8 million used in connection with the GreenHaven acquisition which occurred on January 1, 2016 and $10.9 million used to pay dividends on our common stock. These decreases were partly offset by $6.8 million of cash flows generated by our operating activities, $1.1 million from held-to-maturity securities called or maturing during the period and $0.1 million of other activities.

Capital Resources

Our principal source of financing is our operating cash flow. We believe that current cash flows generated by our operating activities and existing cash balances should be sufficient for us to fund our operations for at least the next 12 months.

Use of Capital

Our business does not require us to maintain a significant cash position. We expect that our main uses of cash will be to fund the ongoing operations of our business, invest in strategic growth initiatives, expand our business through strategic acquisitions and fund our capital return program. As part of our capital management, we maintain a capital return program which includes a $0.08 per share quarterly cash dividend and authority to purchase our common stock through April 27, 2019, including purchases to offset future equity grants made under our equity plans. During the three months ended March 31, 2017, we repurchased 346,529 shares of our common stock under the repurchase program for an aggregate cost of $3,628. As of March 31, 2017, $92,877 remains under this program for future purchases.

 

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Contractual Obligations

The following table summarizes our future cash payments associated with contractual obligations as of March 31, 2017:

 

     Total      Payments Due by Period  
      (in thousands)  
      Less than 1
year
     1 to 3 years      3 to 5 years      More than 5
years
 

Operating leases

   $ 36,375      $ 3,040      $ 6,389      $ 8,423      $ 18,523  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-Balance Sheet Arrangements

Other than operating leases, which are included in the table above, we do not have any off-balance sheet financing or other arrangements. We have neither created nor are party to any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business.

Critical Accounting Policies

Goodwill and Intangible Assets

Goodwill is the excess of the fair value of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests its goodwill for impairment at least annually and at the time of a triggering event requiring re-evaluation, if one were to occur. Goodwill may be impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized if the implied fair value of the reporting unit’s goodwill is less than the carrying amount of that goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.

For impairment testing purposes, goodwill has been allocated to our U.S. Business reporting unit. When performing our goodwill impairment test, we consider a qualitative assessment, when appropriate, and the income approach, market approach and our market capitalization when determining the fair value of our reporting units. We have designated April 30 th as our annual impairment testing date.

Indefinite-lived intangible assets are tested for impairment at least annually and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair value is less than their carrying value. We may rely on a qualitative assessment when performing our intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of identifiable cash flows independent of other assets. We have designated November 30 th as our annual impairment testing date for our indefinite-lived intangible assets.

Revenue Recognition

We earn investment advisory fees from ETPs, as well as licensing fees from third parties. ETP advisory fees are based on a percentage of the ETPs’ average daily net assets and recognized over the period the related service is provided. Licensing fees are based on a percentage of the average monthly net assets and recognized over the period the related service is provided.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in the standard replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity) and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. Accordingly, the new methodology will be utilized when assessing our securities classified as available-for-sale (“AFS”) and held-to-maturity for impairment. ASU 2016-13 is effective for years beginning after December 15, 2019, including interim periods within those fiscal years under a modified retrospective approach. Early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

 

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In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We adopted this standard prospectively on January 1, 2017. The adoption of the standard increased volatility reported in income tax expense as income tax windfalls and shortfalls associated with the vesting of stock-based compensation is now recorded in income tax expense, rather than additional paid-in capital, when applicable. This new guidance resulted in us recognizing approximately $1.0 million of income tax expense for tax shortfalls related to stock-based compensation vesting occurring during this period, which reduced basic and diluted EPS by $0.01. See Notes 11 and 12 to our Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02), which requires lessees to include most leases on the balance sheet. ASU 2016-02 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018 and early adoption is permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements. See Note 8 to our Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The main objective of the standard is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments in the update make targeted improvements to generally accepted accounting principles. These include requiring equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Available-for-sale classification for equity investments with readily determinable fair values will no longer be permissible. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted for the updates currently applicable to us. Our equity investments with readily determinable fair values are all currently measured at fair value with changes in fair value recognized in net income. We will apply the amendments in this update when assessing the carrying value of our investment, held at cost.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which is a new comprehensive revenue recognition standard on the financial reporting requirements for revenue from contracts entered into with customers. In July 2015, the FASB deferred this ASU’s effective date by one year, to interim and annual periods beginning after December 15, 2017. The deferral allows early adoption at the original effective date. During 2016, the FASB issued ASU 2016-08, which clarifies principal versus agent considerations, ASU 2016-10, which clarifies identifying performance obligations and the licensing implementation guidance, and ASU 2016-12, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. ASU 2014-09 allows for the use of either the retrospective or modified retrospective adoption method. We are currently reviewing our contracts in order to evaluate the impact that the standard will have on our consolidated financial statements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following information, together with information included in other parts of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, describes key aspects of our market risk.

Market Risk

Market risk to us generally represents the risk of changes in the value of securities held in the portfolios of the WisdomTree ETPs that generally results from fluctuations in securities prices, foreign currency exchange rates against the U.S. dollar, and interest rates. Nearly all of our revenues are derived from advisory agreements for the WisdomTree ETFs. Under these agreements, the advisory fee we receive is based on the average market value of the assets in the WisdomTree ETF portfolios we manage.

Fluctuations in the value of these securities are common and are generated by numerous factors such as market volatility, the overall economy, inflation, changes in investor strategies and sentiment, availability of alternative investment vehicles, government regulations and others. Accordingly, changes in any one or a combination of these factors may reduce the value of investment securities and, in turn, the underlying AUM on which our revenues are earned. These declines may cause investors to withdraw funds from our ETPs in favor of investments that they perceive as offering greater opportunity or lower risk, thereby compounding the impact on our revenues. We believe challenging and volatile market conditions will continue to be present in the foreseeable future.

Interest Rate Risk

In order to maximize yields, we invest our corporate cash in short-term interest earning assets, primarily money market instruments at a commercial bank, federal agency debt instruments and short-term investment grade corporate bonds which totaled $135.7 million and $120.3 million as of December 31, 2016 and March 31, 2017, respectively. We do not anticipate that changes in interest rates will have a material impact on our financial condition, operating results or cash flows.

Exchange Rate Risk

As a result of our operations in Europe, Japan and Canada, we now operate globally and are subject to currency translation exposure on the results of our non-U.S. operations. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. dollar) for consolidation purposes. We generate the vast majority of our revenues and expenses in the U.S. dollar and expect to do so for some time. We do not anticipate that changes in exchange rates, predominantly the British pound or Euro, and to a lesser extent, the Japanese Yen and Canadian Dollar, as they relate to translating functional currency to our reporting currency, will have a material impact on our financial condition, operating results or cash flows. Currently, we do not enter into derivative financial instruments aimed at offsetting certain exposures in the statement of operations or the balance sheet but may look to do so in the future.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2017, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2017, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

You should carefully consider the information set forth in this Report, as well as the information set forth in Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent sales of Unregistered Securities

None.

Use of Proceeds

Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” of shares of the Company’s common stock.

 

     Total Number
of Shares
Purchased
     Average Price
Paid Per Share
     Total Number of
Shares Purchased
as
Part of Publicly
Announced Plans
or
Programs (1)
     Approximate
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
 

Period

                        (in thousands)  

January 1, 2017 to January 31, 2017

     343,096      $ 10.49        343,096     

February 1, 2017 to February 28, 2017

     —        $ —          —       

March 1, 2017 to March 31, 2017

     3,433      $ 8.76        3,433     
  

 

 

       

 

 

    

Total

     346,529      $ 10.47        346,529      $ 92,877  
  

 

 

       

 

 

    

 

 

 

 

(1) On October 29, 2014, our Board of Directors authorized a three-year share repurchase program of up to $100.0 million. On April 27, 2016, the Board approved a $60.0 million increase to this program and extended the term through April 27, 2019, increasing the total authorized repurchase amount to $100.3 million. During the three months ended March 31, 2017, we repurchased 346,529 shares of our common stock under this program for an aggregate cost of $3.6 million. As of March 31, 2017, $92.9  million remained under this program for future purchases.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

Exhibit No.

 

Description

    3.1   Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
    3.2   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
    4.1   Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
    4.2   Amended and Restated Stockholders Agreement among Registrant and certain investors dated December  21, 2006 (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
    4.3   Securities Purchase Agreement among Registrant and certain investors dated December 21, 2006 (incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
    4.4   Securities Purchase Agreement among Registrant and certain investors dated October 15, 2009 (incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
    4.5   Third Amended and Restated Registration Rights Agreement dated October 15, 2009 (incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form 10, filed with the SEC on March 31, 2011)
  10.1(1)   Form of Amendment, dated May 5, 2017, to Form of Employment Agreement for Executive Officers, dated December  22, 2016 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on December 23, 2016)
  31.1 (1)   Certification of Chief Executive Officer and Principal Executive Officer pursuant to Rule 13a-14 of the Exchange Act
  31.2 (1)   Certification of Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14 of the Exchange Act
  32 (1)   Section 1350 Certification
101 (1)   Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2017, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income (Unaudited); (iii) Consolidated Statements of Cash Flows (Unaudited); and (iv) Notes to Consolidated Financial Statements, as blocks of text and in detail.
101.INS (1)   XBRL Instance Document
101.SCH (1)   XBRL Taxonomy Extension Schema Document
101.CAL (1)   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF (1)   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB (1)   XBRL Taxonomy Extension Label Linkbase Document
101.PRE (1)   XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) Filed herewith.

 

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Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized on this 8 th day of May 2017.

 

WISDOMTREE INVESTMENTS, INC.
By:  

/s/ Jonathan L. Steinberg

  Jonathan L. Steinberg
  Chief Executive Officer and President (Authorized Officer and Principal Executive Officer)
WISDOMTREE INVESTMENTS, INC.
By:  

/s/ Amit Muni

  Amit Muni
  Executive Vice President—Finance and Chief Financial Officer (Authorized Officer and Principal Financial and Accounting Officer)

 

35

EXHIBIT 10.1

WISDOMTREE ASSET MANAGEMENT, INC.

245 Park Avenue, 35 th Floor

New York, New York 10167

May 5, 2017

[Name]

Dear [Name]:

Reference is made to the letter agreement, dated [December 22, 2016][January 26, 2017] (“Letter”), between you and WisdomTree Asset Management, Inc. (“WTAM”), relating to your employment with WTAM. Capitalized terms used and not defined in this amendment to the letter (“Amendment”) have the respective meanings assigned to them in the Letter.

The terms of this Amendment are as follows:

 

1. Section 12(c) of the Letter is hereby amended to read as follows:

“(i) the Non-Triggering Amount less the product of the aggregate marginal rate of any applicable federal, state and local income taxes times the Non-Triggering Amount would be greater than (ii) the aggregate value of the Change of Control Benefits (without such reduction) minus (x) the aggregate amount of tax required to be paid by you thereon by Section 4999 of the Code (or any successor provision thereto) and any similar excise tax imposed by state or local law and further minus (y) the product of the Change of Control Benefits times the aggregate marginal rate of any applicable federal, state and local income taxes; then”

 

2. Paragraph 2 of Exhibit A to the Letter (Form of Release Agreement) is hereby amended to read as follows:

“Pursuant to and as a part of Employee’s complete, total release and discharge of the Primary Releasees as set forth in Paragraph 1 above, and as part of Employee’s limited release and discharge of the Secondary Releasees as set forth in Paragraph 1, Employee expressly agrees, to the fullest extent permitted by law, not to sue, file a charge, claim, complaint, grievance or demand for arbitration in any forum or to assist or otherwise participate willingly or voluntarily in any claim, arbitration, suit, action, charge, complaint, investigation or other proceeding of any kind which relates to (i) any matter that involves the Primary Releasees and that occurred on or before the Effective Date of this Release and (ii) any matter that involves the Secondary Releasees and relates to Employee’s employment by WisdomTree and that occurred on or before the Effective Date of this Release. Employee represents that Employee has not filed or initiated any such proceedings against any of the Releasees as of the Effective Date. Nothing in this Release shall be interpreted or applied to prohibit Employee from making any good faith report to any governmental agency or other governmental entity concerning any acts or omissions that Employee may believe to constitute a possible violation of federal or state


law or making other disclosures that are protected under the whistleblower provisions of applicable federal or state law or regulation. Nothing in this Release shall be construed to prohibit Employee from filing a charge with or participating in any investigation or proceeding conducted by the Equal Employment Opportunity Commission (“EEOC”) or a comparable state or local agency. Notwithstanding the foregoing, Employee agrees to waive the right to recover monetary damages in any charge, complaint, or lawsuit filed by Employee or by anyone else on Employee’s behalf with the EEOC or a comparable state or local agency. For the avoidance of doubt, this Release does not limit Employee’s right to receive an award for information provided to any government agency or entity other than the EEOC or a comparable state or local agency. Except as otherwise provided in this paragraph, Employee will not voluntarily participate in any judicial proceeding of any nature or description against any member of the Releasees that in any way involves the allegations and facts that Employee could have raised against any member of the Releasees as of the date of this Release.”

 

3. Except as expressly provided in this Amendment, all the terms and provisions of the Letter are and will remain in full force and effect, and are hereby ratified and confirmed by the parties. On and after the date hereof, each reference in the Letter to “this letter, “this letter agreement,” “hereunder,” “hereof,” “herein” or words of like import will mean and be a reference to the Letter as amended by this Amendment.

 

4. This Amendment shall be governed by, and construed in accordance with, the internal laws of New York, without regard to principles of conflicts of law. This Amendment may not be amended or modified unless memorialized in writing and signed by both you and WTAM. This Amendment may be executed in counterparts, each of which is deemed an original, but all of which constitutes one and the same agreement. Delivery of an executed counterpart of this Amendment electronically or by facsimile shall be effective as delivery of an original executed counterpart of this Amendment.

Please acknowledge your acceptance by signing and dating this Amendment in the place below.

 

Sincerely,
WISDOMTREE ASSET MANAGEMENT, INC.
By:  

 

Name:
Title:

I agree to the terms and conditions set forth in the above Amendment to the Letter.

 

 

   

 

[Name]     Date

Exhibit 31.1

CERTIFICATION

I, Jonathan Steinberg, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of WisdomTree Investments, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:  

/s/ Jonathan L. Steinberg

  Jonathan L. Steinberg
  Chief Executive Officer
  (Principal Executive Officer)

Date: May 8, 2017

Exhibit 31.2

CERTIFICATION

I, Amit Muni, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of WisdomTree Investments, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:  

/s/ Amit Muni

  Amit Muni
  Chief Financial Officer (Principal Financial Officer)

Date: May 8, 2017

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of WisdomTree Investments, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2017 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), we, Jonathan Steinberg, Chief Executive Officer of the Company, and Amit Muni, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being furnished and not filed, and shall not be incorporated into any documents for any purpose, under the Exchange Act of 1934, as amended. A signed original of this written statement require by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

 

By:  

/s/ Jonathan L. Steinberg

  Jonathan L. Steinberg
 

Chief Executive Officer

(Principal Executive Officer)

By:  

/s/ Amit Muni

  Amit Muni
 

Chief Financial Officer

(Principal Financial Officer)

Date: May 8, 2017