News Column

WISDOMTREE INVESTMENTS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 11, 2014

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" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. 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 eighth largest ETP sponsor in the world based on assets under management ("AUM"), with AUM of $35.6 billion globally as of June 30, 2014. An ETP is a pooled investment vehicle that holds a basket of securities, financial instruments 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 alternative 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 exchange traded funds ("ETFs"), exchange-traded notes and exchange-traded commodities. In April 2014, we acquired Boost, a U.K. and Jersey based ETP provider and renamed it WisdomTree Europe. 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 through our sales force. Our primary 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. $35.5 billion of our AUM are from our U.S. listed WisdomTree ETFs. As of June 30, 2014, we were the fifth largest sponsor of ETFs in the United States based on AUM. As the pie chart below reflects, 30% of our U.S. AUM is concentrated in Japanese exposures, in particular, our Japanese equity fund which hedges the Yen, trading under the symbol DXJ. In addition, another 26% of our AUM is concentrated in emerging markets equity, fixed income and currency exposures. Negative sentiment towards these two markets, as well as the strengthening of the Yen versus the U.S. dollar, will have an adverse effect on our results. [[Image Removed: LOGO]] 16



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Market Environment

We continue to operate in an increasingly challenging and competitive operating environment. The following charts reflect the U.S. ETF industry flows, the U.S. ETF industry flows by category and Japanese equity market and currency returns: [[Image Removed: LOGO]] As the charts above reflect, industry flows increased significantly from a slow start at the beginning of 2014. Investors favored U.S. equities followed by international equity ETFs, in particular European themed products, along with U.S. fixed income ETFs. Investors expressed negative sentiment towards Japan equities as reflected by outflows in that category despite the appreciation of Japanese equities and the Yen weakening against the U.S. dollar.



Our Operating and Financial Results

The following charts reflect the flows into our U.S. listed ETFs:

[[Image Removed: LOGO]] For the second quarter of 2014, we experienced $0.3 billion of net inflows from $1.9 billion of inflows primarily in our U.S. listed European themed and India ETFs partly offset by $1.3 billion of outflows in our Japanese hedged equity ETF.



Although our inflow levels were low, our U.S. listed AUM increased by 4.8% to $35.5 billion at June 30, 2014 compared to $33.9 billion at March 31, 2014, primarily due to $1.3 billion of positive market movement.

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Despite the challenging operating environment, we achieved solid financial results as reflected in the below chart:

[[Image Removed: LOGO]]



Revenues - We recorded revenues of $44.1 million in the second quarter of

2014, an increase of 18.2% from $37.3 million in the second quarter of last

year primarily due to higher average AUM.



Expenses - Total expenses decreased 4.4% compared to the second quarter of

last year primarily due to lower accrued incentive compensation resulting

from our low inflow levels as well as lower fund related expenses in

connection with the transfer of our U.S. ETF fund accounting, administration

and custody services from BNY Mellon to State Street Bank and Trust Company

("State Street"). Also included in the second quarter of 2014 were $1.8

million of expenses related to our European listed ETPs, which were acquired

in April 2014.



Pre-tax income - Pre-tax income reached $20.1 million in the second quarter

of 2014 as compared to $12.2 million in the comparable period last year. We

believe pre-tax income is a better measure of comparing our results to prior

periods as we did not record tax expense prior to the second quarter of 2014.

See "Income Taxes" below for further discussion regarding our income tax expense.



WisdomTree Europe and Goodwill

In April 2014, in a move that expands our footprint to Europe, we acquired Boost, a U.K. and Jersey based ETP provider now known as WisdomTree Europe. At the time of the acquisition, Boost had AUM of $96.8 million. With their management team, we will commence a build-out of a local European platform to offer a select range of ETFs under the WisdomTree brand and continue to manage and grow the Boost lineup of short and leveraged fully collateralized ETPs under the Boost brand through a capital investment of $20 million into the business. We are targeting the fourth quarter of 2014 to launch the WisdomTree ETFs in Europe. Under terms of the acquisition agreement, we own 75% of WisdomTree Europe and the former Boost shareholders own 25%. We will acquire the remaining 25% ownership interest at the end of four years. The price for the remaining interest is determined by a predefined formula based on European AUM at the end of the four year period and will be tied to our enterprise value over global AUM at the time of measurement, and affected by profitability of the European business. The payout will be in cash over two years. Beginning in the second quarter of 2014 and each quarter thereafter for the next four years, we will incur a charge to reflect the changes in the buyout liability. Under U.S. GAAP, we do not reflect the 25% interest held by the former Boost shareholders in WisdomTree Europe as a non controlling interest as we are required to redeem the shares from the former Boost shareholders at the end of four years. We recorded goodwill of $1,676 related to this acquisition. This amount represents the excess value of the purchase price over the fair value of the net assets acquired. While we paid no consideration up front to the former Boost shareholders, under the terms of our acquisition agreement $1,757 was deemed to represent the purchase price. 18



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Income Taxes

In the first quarter of 2014, we recognized a deferred tax asset which previously had been reserved with a 100% valuation allowance. As a result, as required under U.S. GAAP, we began to record income taxes beginning in the second quarter of 2014 at a rate of 45%. However, we do not expect to pay cash income taxes in 2014 and for some time thereafter due to the size of our net operating losses attributable to excess stock option and restricted stock deductions. Such amounts will be applied to reduce income taxes payable with a corresponding increase to equity as recognized. We recorded an income tax expense of $9.5 million in the second quarter of 2014.



Non-GAAP Financial Measurements

Gross margin is a non-GAAP financial measurement which we believe provides useful and meaningful information as it is a financial measurement management reviews when evaluating the Company's operating results. We define gross margin as total revenues less fund management and administration expenses and third-party sharing arrangements. We believe this financial measurement provides investors with a consistent way to analyze the amount we retain after paying third party service providers to operate our ETPs and third party marketing agents whose fees are associated with our AUM level. The following table reflects the calculation of our gross margin and gross margin percentage: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2014 2013 2014 2013 GAAP total revenue $ 44,128$ 37,331$ 87,048$ 66,672 Fund management and administration (7,818 ) (9,106 ) (16,986 ) (17,329 ) Third party sharing arrangements (115 ) (428 ) (125 ) (539 ) Gross margin $ 36,195$ 27,797$ 69,937$ 48,804 Gross margin percentage 82.0 % 74.5 % 80.3 % 73.2 % 19



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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 Six Months Ended June 30, March 31, June 30, June 30, 2014 2014 2013 2014 2013 U.S. Listed ETFs Total ETFs (in millions) Beginning of period assets $ 33,884$ 34,884$ 25,103$ 34,884$ 18,286 Inflows/(outflows) 334 (502 ) 4,962 (168 ) 10,855 Market appreciation/(depreciation) 1,282 (498 ) (1,090 ) 784 (166 ) End of period assets $ 35,500$ 33,884$ 28,975$ 35,500$ 28,975 Average assets during the period $ 34,141$ 33,859$ 28,390$ 34,000$ 25,162 ETF Industry and Market Share (in billions) ETF industry net inflows $ 56.9$ 14.5$ 15.4$ 71.4$ 67.6 WisdomTree market share of industry inflows 0.6 % 0.0 % 32.2 % 0.0 % 16.1 % International Hedged Equity ETFs (in millions) Beginning of period assets $ 12,612$ 13,348$ 5,797$ 13,348$ 1,258 Inflows/(outflows) (502 ) (12 ) 4,376 (514 ) 8,447 Market appreciation/(depreciation) 447 (724 ) 97 (277 ) 565 End of period assets $ 12,557$ 12,612$ 10,270$ 12,557$ 10,270



Average assets during the period $ 12,189$ 13,052 $

8,624 $ 12,620$ 6,028 U.S. Equity ETFs (in millions) Beginning of period assets $ 7,505$ 7,181$ 5,161$ 7,181$ 4,371 Inflows/(outflows) 221 189 547 410 838 Market appreciation/(depreciation) 326 135 69 461 568 End of period assets $ 8,052$ 7,505$ 5,777$ 8,052$ 5,777



Average assets during the period $ 7,721$ 7,176 $

5,541 $ 7,448$ 5,145 Emerging Markets Equity ETFs (in millions) Beginning of period assets $ 6,753$ 7,448$ 8,071$ 7,448$ 7,332 Inflows/(outflows) 388 (632 ) (51 ) (244 ) 825 Market appreciation/(depreciation) 465 (63 ) (848 ) 402 (985 ) End of period assets $ 7,606$ 6,753$ 7,172$ 7,606$ 7,172



Average assets during the period $ 7,088$ 6,775 $

7,964 $ 6,932$ 7,934 International Developed Equity ETFs (in millions) Beginning of period assets $ 4,830$ 3,864$ 2,728$ 3,864$ 2,474 Inflows/(outflows) 518 812 57 1,330 196 Market appreciation/(depreciation) (8 ) 154 (152 ) 146 (37 ) End of period assets $ 5,340$ 4,830$ 2,633$ 5,340$ 2,633



Average assets during the period $ 5,135$ 4,347 $

2,820 $ 4,741$ 2,730 Fixed Income ETFs (in millions) Beginning of period assets $ 1,610$ 1,906$ 2,600$ 1,906$ 2,118 Inflows/(outflows) (278 ) (306 ) 78 (584 ) 586 Market appreciation/(depreciation) 44 10 (241 ) 54 (267 ) End of period assets $ 1,376$ 1,610$ 2,437$ 1,376$ 2,437



Average assets during the period $ 1,435$ 1,747 $

2,700 $ 1,591$ 2,577 Currency ETFs (in millions) Beginning of period asset $ 422$ 979$ 626$ 979$ 611 Inflows/(outflows) (21 ) (549 ) (62 ) (570 ) (50 ) Market appreciation/(depreciation) 5 (8 ) (17 ) (3 ) (14 ) End of period assets $ 406$ 422$ 547$ 406$ 547



Average assets during the period $ 413$ 611 $

607 $ 512$ 622 20



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Table of Contents Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2014 2014 2013 2014 2013 Alternative Strategy ETFs (in millions) Beginning of period assets $ 152$ 158$ 120$ 158$ 122 Inflows/(outflows) 8 (4 ) 17 4 13 Market appreciation/(depreciation) 3 (2 ) 2 1 4 End of period assets $ 163$ 152$ 139$ 163$ 139 Average assets during the period $ 160$ 151$ 134$ 156$ 126 Average ETF assets during the period International hedged equity ETFs 36 % 39 % 30 % 37 % 24 % U.S. equity ETFs 23 % 21 % 20 % 22 % 20 % Emerging markets equity ETFs 21 % 20 % 28 % 20 % 32 % International developed equity ETFs 15 % 13 % 10 % 14 % 11 % Fixed income ETFs 4 % 5 % 10 % 5 % 10 % Currency ETFs 1 % 2 % 2 % 2 % 2 % Alternative strategy ETFs 0 % 0 % 0 % 0 % 1 % Total 100 % 100 % 100 % 100 % 100 % Average ETF advisory fee during the period Alternative strategy ETFs 0.94 % 0.94 % 0.94 % 0.94 % 0.94 % Emerging markets equity ETFs 0.67 % 0.66 % 0.66 % 0.67 % 0.66 % International developed equity ETFs 0.57 % 0.56 % 0.56 % 0.56 % 0.56 % Fixed income ETFs 0.55 % 0.55 % 0.55 % 0.55 % 0.55 % International hedged equity ETFs 0.50 % 0.49 % 0.49 % 0.49 % 0.49 % Currency ETFs 0.49 % 0.49 % 0.51 % 0.49 % 0.51 % U.S. equity ETFs 0.35 % 0.35 % 0.35 % 0.35 % 0.35 % Blended total 0.51 % 0.51 % 0.52 % 0.51 % 0.53 %



Number of ETFs-end of the period

International developed equity ETFs 17 16 16 17 16 U.S. equity ETFs 13 13 12 13 12 Fixed income ETFs 12 12 6 12 6 International hedged equity ETFs 12 6 4 12 4 Emerging markets equity ETFs 7 7 5 7 5 Currency ETFs 6 6 5 6 5 Alternative strategy ETFs 2 2 2 2 2 Total 69 62 50 69 50 European Listed ETPs Total ETPs (in thousands) Beginning of period assets $ 96,817 Inflows/(outflows) 17,658 Market appreciation/(depreciation) (1,231 ) End of period assets $ 113,244



Average ETP advisory fee during the period 0.82 %

Number of ETPs - end of period 38 Global Headcount 103 90 79 103 79



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

Source: Investment Company Institute, Bloomberg, WisdomTree

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Three Months Ended June 30, 2014 Compared to June 30, 2013

Revenues Three Months Ended June 30, Percent 2014 2013 Change Change Average assets under management (in millions) $ 34,141$ 28,390$ 5,751 20.3 % Average ETP advisory fee 0.51 % 0.52 % (0.01 ) Advisory fees (in thousands) $ 43,938$ 37,101$ 6,837 18.4 % Other income (in thousands) 190 230 (40 ) (17.4 %) Total revenues (in thousands) $ 44,128$ 37,331$ 6,797 18.2 % Advisory fees Advisory fees revenue increased 18.4% from $37.1 million in the three months ended June 30, 2013 to $43.9 million in the comparable period in 2014. This increase was primarily due to higher average AUM. Our average advisory fee declined to 0.51% from 0.52% over the same period due to the change in mix of our AUM. Other income



Other income decreased 17.4% from $0.23 million in the three months ended June 30, 2013 to $0.19 million in the comparable period in 2014 primarily due to lower index licensing revenue.

Expenses Three Months Ended June 30, Percent (in thousands) 2014 2013 Change Change Compensation and benefits $ 7,551$ 9,447$ (1,896 ) (20.1 %) Fund management and administration 7,818 9,106 (1,288 ) (14.1 %) Marketing and advertising 2,726 2,196 530 24.1 % Sales and business development 1,727 1,520 207 13.6 % Professional and consulting fees 1,840 657 1,183 ) 180.1 % Occupancy, communication and equipment 853 591 262 44.3 % Depreciation and amortization 201 83 118 142.2 % Third-party sharing arrangements 115 428 (313 ) (73.1 %) Other 1,164 1,061 103 9.7 % Total expenses $ 23,995$ 25,089$ (1,094 ) (-4.4 %) 22



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Three Months Ended June 30, As a Percent of Revenues: 2014 2013 Compensation and benefits 17.1 % 25.3 % Fund management and administration 17.7 % 24.4 % Marketing and advertising 6.2 % 5.9 % Sales and business development 3.9 % 4.1 % Professional and consulting fees 4.2 % 1.8 % Occupancy, communication and equipment 1.9 % 1.6 % Depreciation and amortization 0.5 % 0.2 % Third-party sharing arrangements 0.3 % 1.1 % Other 2.6 % 2.8 % Total expenses 54.4 % 67.2 % Compensation and benefits Compensation and benefits expense decreased 20.1% from $9.4 million in the three months ended June 30, 2013 to $7.6 million in the comparable period in 2014. This decrease was primarily due to lower accrued incentive compensation due to our level of net inflows. Partly offsetting this decrease was higher headcount related expenses to support our growth; higher stock based compensation due to the recognition of expense for equity awards granted to our employees as part of 2013 year-end compensation; and headcount expenses associated with our acquisition of Boost, which added 11 employees to our headcount. Our headcount at June 30, 2014 was 103 compared to 79 at June 30, 2013.



Fund management and administration

Fund management and administration expense decreased 14.1% from $9.1 million in the three months ended June 30, 2013 to $7.8 million in the comparable period in 2014. This decrease was primarily due to $1.6 million in savings realized from transferring our U.S. ETF fund accounting, administration and custody services from BNY Mellon to State Street, despite the higher average AUM. In addition, we had higher fees associated with launching additional ETFs in the U.S. We had 69 U.S. listed ETFs and 38 European listed ETPs at June 30, 2014 compared to 50 U.S. listed ETFs at June 30, 2013.



Marketing and advertising

Marketing and advertising expense increased 24.1% from $2.2 million in the three months ended June 30, 2013 to $2.7 million in the comparable period in 2014 primarily due to higher levels of online, print and television advertising.

Sales and business development

Sales and business development expense increased 13.6% from $1.5 million in the three months ended June 30, 2013 to $1.7 million in the comparable period in 2014 primarily due to higher levels of spending to support sales related activities.



Professional and consulting fees

Professional and consulting fees increased by $1.2 million from $0.7 million in the three months ended June 30, 2013 to $1.8 million in the comparable period in 2014. We incurred $0.7 million in advisory and other professional fees associated with our acquisition of Boost as well as other corporate strategic advisory fees. 23



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Occupancy, communications and equipment

Occupancy, communications and equipment expense increased 44.3% from $0.6 million in the three months ended June 30, 2013 to $0.9 million in the comparable period in 2014. This increase was primarily due to costs for new office space we began occupying in 2014.

Depreciation and amortization

Depreciation and amortization expense increased by $0.1 million from $0.1 million in the three months ended June 30, 2013 to $0.2 million in the comparable period in 2014 primarily due to amortization of leasehold improvements for our new office facility.

Third-party sharing arrangements

Third-party sharing arrangements decreased 73.1% from $0.4 million in the three months ended June 30, 2013 to $0.1 million in the comparable period in 2014 primarily due to periodic adjustments to AUM levels with our third party marketing agent in Latin America.

Other

Other expenses increased 9.7% from $1.1 million in the three months ended June 30, 2013 to $1.2 million in the comparable period in 2014 primarily due to higher independent director fees partly offset by lower general and administrative expenses.

Six Months Ended June 30, 2014 Compared to June 30, 2013

Revenues Six Months Ended June 30, Percent 2014 2013 Change Change



Average assets under management (in millions) $ 34,000$ 25,162

$ 8,838 35.1 % Average ETP advisory fee 0.51 % 0.53 % (0.02 ) Advisory fees (in thousands) $ 86,547$ 66,254$ 20,293 30.6 % Other income (in thousands) 501 418 83 19.9 % Total revenues (in thousands) $ 87,048$ 66,672$ 20,376 30.6 % Advisory fees Advisory fees revenue increased 30.6% from $66.3 million in the six months ended June 30, 2013 to $86.5 million in the comparable period in 2014. This increase was primarily due to higher average AUM. Our average advisory fee declined to 0.51% from 0.53% over the same period due to the change in mix of our AUM.



Other income

Other income increased 19.9% from $0.4 million in the six months ended June 30, 2013 to $0.5 million in the comparable period in 2014. This was due to an increase in the value of pounds sterling we acquired in connection with our acquisition of Boost and higher interest income from larger available cash balances partly offset by lower index licensing revenue.

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Table of Contents Expenses Six Months Ended June 30, Percent (in thousands) 2014 2013 Change Change Compensation and benefits $ 16,906$ 16,929$ (23 ) (0.1 %)



Fund management and administration 16,986 17,329 (343 ) (2.0 %)

Marketing and advertising 5,304 4,133



1,171 28.3 %

Sales and business development 3,028 3,321



(293 ) (8.8 %)

Professional and consulting fees 3,635 1,270



2,365 186.2 %

Occupancy, communication and equipment 1,753 968 785 81.1 %

Depreciation and amortization 393 165



228 138.2 %

Third-party sharing arrangements 125 539 (414 ) (76.8 %) Other 2,306 1,922 384 20.0 % Total expenses $ 50,436$ 46,576$ (3,860 ) 8.3 %) Six Months Ended June 30, As a Percent of Revenues: 2014 2013 Compensation and benefits 19.4 % 25.4 % Fund management and administration 19.5 % 26.0 % Marketing and advertising 6.1 % 6.2 % Sales and business development 3.5 % 5.0 % Professional and consulting fees 4.2 % 1.9 % Occupancy, communication and equipment 2.0 % 1.5 % Depreciation and amortization 0.5 % 0.2 % Third-party sharing arrangements 0.1 % 0.8 % Other 2.6 % 2.9 % Total expenses 57.9 % 69.9 % Compensation and benefits Compensation and benefits expense remained essentially flat at $16.9 million in the six months ended June 30, 2013 and 2014 as higher headcount related expenses to support our growth; payroll taxes due to bonus payments for 2013 compensation; and higher stock based compensation due to the recognition of expense for equity awards granted to our employees as part of 2013 year-end compensation were offset by lower accrued incentive compensation as a result of low inflow levels in 2014.



Fund management and administration

Fund management and administration expense decreased 2.0% from $17.3 million in the six months ended June 30, 2013 to $17.0 million in the comparable period in 2014 as savings from the transfer of our U.S. ETF fund accounting, administration and custody services was partly offset by higher costs associated with new fund launches and higher average AUM.



Marketing and advertising

Marketing and advertising expense increased 28.3% from $4.1 million in the six months ended June 30, 2013 to $5.3 million in the comparable period in 2014 primarily due to higher levels of online, print and television advertising.

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Sales and business development

Sales and business development expense decreased 8.8% from $3.3 million in the six months ended June 30, 2013 to $3.0 million in the comparable period in 2014 primarily due to lower levels of spending for certain discretionary sales activities as well as new product development costs.



Professional and consulting fees

Professional and consulting fees increased by $2.4 million from $1.3 million in the six months ended June 30, 2013 to $3.6 million in the comparable period in 2014. We incurred $1.5 million in costs related to our acquisition of Boost as well as corporate legal and accounting related fees.



Occupancy, communications and equipment

Occupancy, communications and equipment expense increased 81.1% from $1.0 million in the six months ended June 30, 2013 to $1.8 million in the comparable period in 2014. This increase was primarily due to costs for new office space we began occupying in 2014.



Depreciation and amortization

Depreciation and amortization expense increased by $0.2 million from $0.2 million in the six months ended June 30, 2013 to $0.4 million in the comparable period in 2014 primarily due to amortization of leasehold improvements for our new office facility.



Third-party sharing arrangements

Third-party sharing arrangements decreased 76.8% from $0.5 million in the six months ended June 30, 2013 to $0.1 million in the comparable period in 2014 primarily due to periodic adjustments to AUM levels with our third party marketing agent in Latin America.

Other

Other expenses increased 20.0% from $1.9 million in the six months ended June 30, 2013 to $2.3 million in the comparable period in 2014 primarily due to higher general and administrative expenses.

Liquidity and Capital Resources

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

June 30, December 31, 2014 2013 Balance Sheet Data (in thousands): Cash and cash equivalents $ 128,847$ 104,316 Investments $ 12,145$ 11,748 Accounts receivable $ 15,733$ 18,100 Total liabilities $ 26,428$ 32,762 26



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Table of Contents Six Months Ended June 30, 2014 2013 Cash Flow Data (in thousands): Operating cash flows $ 32,660$ 29,209 Investing cash flows (2,826 ) (546 ) Financing cash flows (5,310 ) 824 Foreign exchange rate effect 7 - Increase in cash and cash equivalents $ 24,531$ 29,487



Liquidity

We consider our available liquidity to be our liquid assets less our liabilities. Liquid assets consist of cash and cash equivalents, current receivables and investments. We account for investments as held to maturity securities and have the intention and ability to hold to maturity. However, if needed, such investments could be redeemed for liquidity. Cash and cash equivalents include cash on hand and non-interest-bearing and interest-bearing deposits with financial institutions. Accounts receivable primarily represents advisory fees we earn from the WisdomTree and Boost ETPs which are generally collected before the 30th day of the month following the month earned. Investments represent debt instruments of U.S. government and agency securities. Our liabilities consist primarily of payments owed to vendors and third parties in the normal course of business as well as accrued year end incentive compensation for employees. Cash and cash equivalents increased by $24.5 million in the first six months of 2014 to $128.8 million at June 30, 2014 primarily due to $32.7 million of cash flow from operations due to our business results, $1.3 million acquired from Boost and $0.8 million from proceeds of principal payments and called investments, partly offset by $5.4 million used to repurchase shares of our common stock pursuant to the terms of awards granted to employees to cover income tax withholding obligations, $3.7 million used to purchase leasehold improvements for our new office space and $1.2 million used to purchase investments.



Capital Resources

Currently, our principal source of financing is our operating cash flows, though historically, our principal source of financing was through the private placement of our common stock. We believe that current cash flows generated by our operating activities 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, re-acquire shares of our common stock issued to our employees as incentive compensation as discussed below or expand our business through strategic acquisitions. If our cash position continues to increase, we will explore other uses of cash, including adopting additional return of capital programs such as open market stock repurchases or paying cash dividends. During the first six months of 2014, we repurchased 312,006 shares from employees at then current market prices at a cost of $5.4 million in connection with income tax withholding upon vesting of restricted stock. The amount repurchased represented the required amount of income tax withholding. We expect to continue purchasing shares for similar reasons. 27



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Contractual Obligations

The following table summarizes our quantifiable future cash payments associated with contractual obligations as of June 30, 2014.

Payments Due by Period (in thousands) Less than 1 More than 5 Total year 1 to 3 years 3 to 5 years years Operating leases $ 42,513$ 1,641$ 5,746$ 8,319$ 26,807 In addition, the Company is required to redeem the remaining 25% non-controlling interest held by the former Boost shareholders in WisdomTree Europe in 2018. The ultimate price for the remaining interest will be determined by a predefined formula based on European AUM at the time of redemption and will be tied to our enterprise value over global AUM at the time of payout, and affected by profitability of the European business. The payout will be in cash over two years.



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

Stock-Based Compensation

Stock-based compensation expense reflects the fair value of stock-based awards measured at grant date and is recognized over the relevant service period. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model includes the input of certain variables that are dependent on future expectations, including the expected lives of our options from grant date to exercise date, the volatility of our underlying common shares in the market over that time period, the rate of dividends that we may pay during that time and an appropriate risk-free interest rate. Many of these assumptions require management's judgment. If actual experience differs significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected. Revenue Recognition The Company earns investment advisory fees for 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. Fees for separately managed accounts and licensing 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 May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU 2014-09) Revenue from Contracts with Customers, which is a new comprehensive revenue recognition standard on the financial reporting requirements for revenue from contracts entered into with customers. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2016. The Company is currently assessing the potential impact of the adoption of this guidance on its consolidated financial statements.


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