WisdomTree charts aggressive growth path in first-ever earnings call for investors and analysts.
As exchange-traded funds sponsor WisdomTree Investments Inc. continues to build its base of assets, it faces the same quandary of most start-ups-elusive profits.
In the second quarter, the company reported net losses of $7.96 million, or 8 cents a share, in its first-ever earnings call after markets closed on Thursday. That represented a 17% increase from a year earlier.
But WisdomTree executives pointed out that Q2 losses showed an 18% improvement from the previous quarter. In Q1, the firm said it had net losses of $9.68 million.
That narrowing in losses between quarters came as a result of declining expenses and greater revenue streams in the three-month period ended June 30, according to the company.
The conference call was unusual since WisdomTree is the only pure-play publicly traded ETF provider. The meeting, which lasted more than an hour, provided a rare glimpse into the financials of a sponsor which has been particularly aggressive in the fast-growing $576 billion ETF marketplace.
Top WisdomTree managers emphasized throughout the call that although losses remain on the company's balance sheet, they realize the tightrope they're walking between remaining competitive in such a dynamic market and holding down expenses.
WisdomTree Chief Financial Officer Amit Muni said that while keeping a close eye on costs, management intends to keep investing in key parts of the business as it plans for future growth.
"We're committed to decreasing losses quarter-over-quarter," he said. "Breakeven is a moving target based on our expenses. Our expenses continue to grow as we invest in our business."
Total operating expenses, which exclude non-cash charges, were $11.1 million in the second quarter, an increase of 21% from the same period a year ago. Sequentially, WisdomTree's operating costs were actually down 8% from the first quarter. The firm's expenses primarily consisted of costs related to gathering assets and product development as well as marketing its brand.
Meanwhile, its revenue of $6.2 million showed an increase of 40% from the same quarter a year ago and 15% from the first quarter. Muni credited much of that increase to rising asset levels, which were helped by new product launches.
As of June 30, WisdomTree had $4.9 billion under management representing an 11% increase from the previous quarter. That came in its 48 ETFs, nine of them launched in the second quarter.
Net inflows in the quarter were up by $745 million despite a hostile market. Turbulent market conditions actually sank the value of WisdomTree's funds by some $305 million.
Based on WisdomTree's current position, Muni estimated that WisdomTree would need $4.3 billion in additional assets to be at the breakeven level.
Despite its challenges to become profitable, WisdomTree emphasized in Thursday's call that it doesn't plan to shift current growth plans. Management said besides continuing to spend on marketing and product development, it plans to keep making new filings with the Securities and Exchange Commission for additional ETFs.
Whether those new funds, new license deals and asset growth will be enough to make the company profitable remains to be seen. An analyst on Thursday's call asked WisdomTree Chief Executive Jonathan Steinberg directly about speculation the firm was an attractive acquisition target by larger asset managers.
"We do believe [WisdomTree] would make an attractive acquisition," said Steinberg. "We are a scarce commodity. I have an obligation to take inquiries seriously."
But he added: "We do value our independence."
The company, which bases its investment style on fundamentally weighted dividend and earnings indexes, has started to branch out to the 401(k) market in an effort to grow its business.
Last October it launched the initiative. WisdomTree is targeting plans with assets in the $5 million-$50 million range. Management pointed to the "very large opportunity" in the $2.4 trillion 401(k) market, adding that it is just a matter of time before WisdomTree becomes a big player in 401(k) plans.
WisdomTree has already showed progress in the pension market, making deals with the New York City Employees' Retirement System and the New York City Police Pension Fund on July 21 that brought in $415 million of initial funding.
On Wednesday, it announced collaboration with Mellon Capital to introduce its funds to the institutional market. Mellon will serve as the sole U.S. licensee of WisdomTree's indexes in marketing to pension funds, governments, endowments and foundations.
WisdomTree managers said they are pursuing opportunities with non-U.S. firms to license the indexes internationally.
The company's stock trades as a NASDAQ Pink Sheet (WSDT.PK) but is pursuing a regular listing, which won't come until it meets the minimum $4 per share requirement.
It closed Thursday at $2.49, near its all-time lows. Despite trading since late 2005, the call on Thursday was its first such meeting with analysts and investors. WisdomTree says it plans to hold earnings calls on a quarterly basis now.