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TheStreet Open House

WisdomTree Announces Fourth Quarter And Year End 2012 Results

Stocks in this article: WETF

Margins

Our gross margin, which is our total revenues less fund management and administration expenses and third party sharing arrangements, was 68% in the fourth quarter of 2012 as compared to 62% in the fourth quarter of 2011 and was unchanged from the third quarter of 2012. Changes in our gross margin are primarily driven by changes in AUM and mix of AUM.

Our pre-tax margin was 22% in the fourth quarter of 2012 as compared to 6% in the fourth quarter of 2011 and 21% in the third quarter of 2012. Excluding non-operating items, proforma pre-tax operating margin was 22% in the fourth quarter of 2012 as compared to 6% in the fourth quarter of 2011 and was unchanged from the third quarter of 2012.

Expenses

Total expenses increased 19.9% to $18.3 million from $15.3 million in the fourth quarter of 2011 and increased 7.0% from $17.1 million in the third quarter of 2012. Excluding non-operating items, expenses increased 22.2% compared to the fourth quarter of 2011 and increased 9.4% compared to the third quarter of 2012.

  Three Months Ended Change from
(in thousands) Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31,
  2012 2012 2011 2012 2011
Total expenses $18,321 $17,128 $15,286 7.0% 19.9%
Less patent litigation expenses (393) (1,468) (150)    
Add back insurance reimbursement 217 1,249 --    
Add back litigation settlement 700 -- --    
Less secondary offering fees  (353)  --  --    
Proforma operating expenses (non-GAAP) $18,492 $16,909 $15,136 9.4% 22.2%
  • Compensation and benefits expense increased 30.6% to $6.2 million compared to the fourth quarter of 2011. This increase was primarily due to higher accrued incentive compensation due to our strong results, higher stock based compensation expense due to equity awards granted to our employees as part of their 2011 year end incentive compensation, as well as costs associated with higher headcount. Our headcount at the end of the fourth quarter of 2012 was 70 compared to 65 at the end of the fourth quarter of 2011. 

Compensation and benefits expense increased 7.5% compared to the third quarter of 2012 primarily due to higher accrued incentive compensation.

  • Fund management and administration expenses increased 29.7% to $6.3 million compared to the fourth quarter of 2011. Higher average AUM resulted in a $0.8 million increase in portfolio management, fund administration and accounting, index licensing and distribution fees. We also incurred $0.3 million in tax fees related to our India ETF. This expense also increased due to additional ETFs we launched during the period. We launched two ETFs since the fourth quarter of 2011 and closed three at the end of 2012. 

Fund management and administration expenses increased 11.8% compared to the third quarter of 2012 primarily due to the reasons described above. 

  • Marketing and advertising expenses increased 31.7% to $1.6 million compared to the fourth quarter of 2011 and increased 88.7% compared to the third quarter of 2012 primarily due to higher levels of advertising related activities to support our growth.   
  • Sales and business development expenses increased 6.3% to $1.1 million compared to the fourth quarter of 2011 and increased 26.7% compared to the third quarter of 2012 primarily due to higher levels of sales related activities.  
  • Professional and consulting fees decreased 29.3% to $0.8 million compared to the fourth quarter of 2011 and decreased 39.6% compared to the third quarter of 2012 primarily due to lower variable stock based compensation. We will no longer incur variable stock based compensation after the fourth quarter of 2012.   
  • Occupancy, communication and equipment expense increased 31.3% to $0.4 million compared to the fourth quarter of 2011. Beginning in the second quarter, we began occupying office space we had previously sub-leased to a third party. This expense declined slightly compared to the third quarter of 2012.  
  • Third-party sharing arrangements expense increased 6.8% to $1.3 million compared to the fourth quarter of 2011 and increased 8.9% compared to the third quarter of 2012 due to higher profit sharing from our joint venture with BNY Mellon. This joint venture ended at the end of 2012.  
  • Other expenses increased 23.8% to $0.8 million compared to the fourth quarter of 2011 primarily due to higher general and administrative expenses. This expense decreased 10.9% compared to the third quarter of 2012 primarily due to lower public company related expenses.  
  • Litigation – We incurred $0.4 million in expenses in the fourth quarter of 2012 related to our patent infringement lawsuit of which $0.2 million will be reimbursed by our insurance carrier. In addition, we received a settlement payment of $0.7 million from Research Affiliates in connection with the resolution of the litigation.   
  • We incurred $0.4 million in expenses related to the public offering of shares held by two of our stockholders in November of 2012. The Company did not issue any new shares in the offering but was required to pay for these fees under the registration rights agreement with these stockholders.

Full Year Results

Total revenues increased 30.1% to $84.8 million in 2012 as compared to $65.2 in 2011. This increase was due to higher average AUM, which increased 32.5%, primarily due to $4.7 billion of ETF net inflows. Our average fee decreased to 0.54% from 0.55% due to a change in mix of our AUM.

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