Ladies and gentlemen, thank you for standing by, and welcome to the WisdomTree Q4 2021 Earnings Call. [Operator Instructions] I would now like to turn the call over to your host, Jessica Zaloom, WisdomTree's Head of Corporate Communications. You may begin.

Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including but not limited to the risks set forth in this presentation and in the Risk Factors section of the WisdomTree's annual report on Form 10-K for the year ended December 31, 2020, and quarterly reports on Form 10-Q for the quarters ended June 30, 2021 and September 30, 2021. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree's President and COO, Jarrett Lilien.

Thanks, Jess, and welcome, everyone. I'm going to start the call today discussing the highly successful quarter and year we just concluded, the strong momentum we are riding into 2022 and some high-level thoughts on our 2022 plan. I will then turn it over to Bryan to walk through Q4 results in more detail and provide an update on 2022 expense guidance. After Bryan, Jono will provide an update on our strategic initiatives in digital assets, including WisdomTree Prime, our new direct-to-customer mobile app, and then we'll open it up for Q&A. So starting with Q4. The momentum has continued with strong organic growth in the quarter. Our $1.9 billion of organic flows marked our fifth consecutive quarter of the inflows, accentuated by tremendous breadth and depth, with 3x as many funds having inflows than outflows. And the momentum has continued into January, where we have generated over $600 million of net inflows, a rate that is outpacing 2021 flow levels even in the face of a volatile market environment. Looking at 2021 in total, it was a highly successful year showcasing smart investments in growth, coupled with increased efficiency and disciplined P&L management. For 2021, revenues increased 22%, operating margins expanded by over 30% and operating income increased by 60%. As we look ahead to 2022 and beyond, we are entering a new chapter, one that leverages core competencies and stays true to our core mission, vision and values and is marked by a focus on strengthening and evolving our business, leveraging existing momentum and adding additional fuel for future growth. In distribution, we will continue to invest in sales and marketing to gain even greater client mindshare. We will also launch WisdomTree Prime, adding a new direct-to-client distribution channel that brings us even closer to the end customer.…

Thank you, Jarrett. Our AUM at December 31 was $77.5 billion, ending the year at a record and representing an increase of 7% versus the prior quarter. Our average AUM was $76 billion, a fourth consecutive record quarter. Our AUM was driven by positive market movement and net inflows. We generated $1.9 billion of inflows during the quarter. Flows of this magnitude represent our best quarter since 2015, and we've had 5 consecutive positive inflowing quarters. Our U.S. business generated most of these flows and, for the full year, brought in $5 billion of inflows, our best year since 2015. During the quarter, Europe's flows were flat. However, we've seen favorable trends in our European UCITS products, which generated over $600 million in flows during the quarter or $1.8 billion for the year, an organic growth rate of 105%. Our physical gold product suite revamp has also proven successful, with lower fee products launched since our ETFs acquisition generating inflows and now representing 40% of our gold AUM. However, outflows from legacy gold products remain a headwind. Our AUM currently stands at about $76 billion, lower than where we ended the quarter due to negative market movement. However, inflows in January are over $600 million and continuing the positive momentum witnessed over the course of last year. Next slide, please. Revenues were $79 million, an increase of 1% from the prior quarter due to higher average AUM offset by a slightly lower fee rate. Adjusted net income was $15.7 million or $0.10 a share, unchanged from the prior quarter. This quarter, we recognized a noncash after-tax loss of $3 million for our future gold commitment payments and $1.5 million in other net nonoperating losses. Next slide. Our operating income margin was 29%, a 2 point decline from the prior quarter…

Thank you, Bryan. Jarrett and Bryan did a great job showcasing our success in 2021 and the strength of our existing business. Today, I'm going to give more details on our digital asset initiatives. WisdomTree has been positioning itself, really for the last few years, for the next big structural revolution, not evolution but revolution, in financial services. It's the convergence of blockchain technology with universal smartphone ownership and tokenization with smart contracts that will effectively blur the lines between savings, payments and investing, fundamentally changing the way consumers view and interact with their own money and assets. This page helps illustrate our synergies and advantages in navigating and exploring the opportunity that we've been calling "responsible DeFi." We are already in the business of providing regulated transparent liquid exposures. We have the product manufacturing and investment capabilities. We have the legal and compliance foundations, the content research and marketing prowess, the deep relationships with best-in-class service providers and a well-earned reputation of investor-friendly innovation. Our approach regarding digital assets is about how we can best use our synergies to most cost effectively capitalize on the coming digital transformation. This includes leveraging the regtech capabilities of our partner, Securrency, to provide compliant, secure and auditable holdings with robust identity protection. Crypto ETPs and crypto direct indexing is an exciting extension of our existing business and already generating revenues. But crypto assets are just one application of the underlying blockchain technology. So let me show you where we are headed. Next slide, please. I'm excited to introduce WisdomTree Prime, our new financial services mobile app. This digital wallet native to the blockchain will bring the look and feel that users are accustomed to from traditional mobile apps, while at the same time offering the benefits of a digital financial services experience…

[Operator Instructions] And now I'd like to turn the call over to Jeremy Campbell, Head of Investor Relations, with a few questions from the shareholders.

Thanks, Kevin, and good morning, everybody. Similar to last quarter, we're going to start Q&A with some questions directly from our shareholders via the Say platform. As a reminder, we typically open up this platform a week before the call, and we encourage shareholders to continue to participate and engage with us in the coming quarters as well. So I'm going to direct our first question here to Jeremy Schwartz, our Global Chief Investment Officer. And the question is: how do rising rates and inflation impact your ETF products?

Well, really, what a timely question and a very timely conversation. Inflation and rising rates are WisdomTree's top focus theme for 2022 when we are talking to clients. And so it's a great question. I believe our diversified AUM today has WisdomTree among the single best or very best positioned asset managers in the market for inflation. And so let's focus on 3 separate areas. Most directly for rates -- you had the Fed meeting this week, and this is going to be a year for important change of the Fed starting to hike rates and people are guesstimating where they're going to hike, but they're starting to get lift off 0, essentially. And we have the shortest duration U.S. treasury fund in the market with USFR, which has just 1 week duration and now $2 billion of AUM. In the last Fed cycle, USFR was the highest yielding treasury ETF in the market, and we think that's likely to occur again during this cycle. And so we're the clear market leader for that, and it's a very exciting opportunity to be the best treasury fund in the market. That's not it in fixed income; We have an innovative suite of duration hedged instruments for zero-duration high yield and investment grade. But in short, we have a great tool set for rising rates in the fixed income market. But secondly, in commodities, which is one of the best inflation hedges, roughly 1/3 of our global AUM is in commodity-focused assets. And you could see that in year-to-date performance: our top-performing fund in the U.S. Is our Broad Commodities fund in Europe, where roughly 1/3 of our total AUM is in commodities as a firm. You could see our market move in Europe is basically flat on the year when the S&P 500 is down almost 10% today. And so commodities, we're talking with clients very aggressively on how they could help serve as an inflation hedge, and we're very, very well positioned for that. But finally, within equities, the rising rates/inflation theme has caused a major rotation away from speculative growth stocks towards stocks with cash flows in form of dividends and buybacks and 45% or $35 billion of our $77 billion is in value-oriented, quality strategies that are outperforming significantly during this rotation. Perhaps the best example of many examples is DGRW, which is the dividend quality fund, our largest fund in the U.S. today, around $7 billion. In the last 3 months, when the large blend category was down 5% as of this morning, DGRW was up 1%. So making it the top 2% of the large blend category, a very exciting performance story for our biggest exposure in the U.S., showing we are very well positioned across bonds, commodities and even within stocks, we're very well positioned for inflation and rising rates.

Great. Jeremy, this next one is also for you: how do you think about the growth of your European business? Is it easier to launch products in Europe versus the U.S., and what trends are you seeing?

I am very excited about what we're seeing in Europe and for new products more generally. We have an appendix slide, Jeremy, on Slide 17, for new product launches and it shows some of the planted seeds for what I'd call the next phase of exponential growth in both Europe and the U.S. And most important, it is new asset classes that are diversifying revenue streams, but also broadening our potential. So in Europe, we were historically very strong in commodities, but the last 3 years, we've shown big success in expanding to equities and that's diversifying on many levels. So in UCITS form or thematic exposures for things like artificial intelligence, battery, cloud, cyber, those are diversifying from our traditional value strategies but they're also having a lot of success in WisdomTree's core quality strategy we just talked about in the last question. And so the UCITS platform scaling to equities has been great. They're launching great innovative commodity strategies like carbon credits, which was perhaps one of the fastest funds to $200 million that I recall, in a very short time last year. And we have a strong pipeline of crypto exposures and baskets, and you'll continue to see us do both tactical ETPs in Europe and strategic UCITS. It's been clear the new launches over the last 3 years have been driving flows. So we're very excited about European business and the inflection that's taken. But in the U.S., too, we've seen opening new markets and expanded opportunity sets in the U.S. and then maybe a nuance that is underappreciated. On the bottom part of Slide 17, we show our efficient core suite, which has been really taking off over 3 years. Last year, we launched 2 funds that were building on the success of our first efficient core. Those have scaled to $150 million of AUM quickly. But what's underappreciated is it's another unique attack on core beta, which has been the dominant category for ETFs. So we're the first firm in this efficient core category to really replace core positions. And I think you'll see us invest a lot more around these things. So in short, Europe and U.S., great new ideas to scale and to new opportunities.

Great. And then our final question from shareholders. To answer this question, I'd like to introduce Will Peck, our Head of Digital Assets, to the call. And Will, the question is: how is WisdomTree positioning itself to capture growth in the crypto space? And are you seeing adviser adoption?

Thanks, Jeremy. Yes, absolutely. I think we're very well positioned to capture growth in the crypto space. Over the past year, I think a lot of our traditional competitors are kind of waking up to the asset class. And we made investments before that to really position ourselves well this past year and going forward. So for us, it's obviously we've got a great suite of crypto ETPs in the European market with a lot of momentum. We've got ETF filings here in the States. We don't give -- we have no guidance on when those might be approved, but we're very optimistic that ultimately spot ETFs will be approved here in the U.S. for Bitcoin and Ether. And as we discussed separately, we also have SMAs, direct indexing here in the U.S. where we've seen a lot of adviser interest and adoption so far. And as finally, as Jono mentioned earlier on the call, WisdomTree Prime definitely plays into this. We have a lot of exciting growth and innovation happening there and something we're very excited to see more of going forward. So Jeremy, do you want to provide some more color on adviser interest and adoption?

For the crypto side, we're definitely seeing for SMAs being one of the big opportunities. We're seeing our European business, they've seen interest in the Bitcoin and Ether products as well as now a basket set of products. We're going to continue to innovate in Europe with direct ETPs. But in the U.S., the index options are really the only way in town today, and we've got a robust indexing capability. We're going to continue to innovate and try to make those available starting here in Q2 and through the end of the year.

Great. Thanks. Kevin, we'll now open it up to questions from our covering analysts.

Our first question comes from Dan Fannon with Jefferies.

This is actually [ Rick ] Roy filling in for Dan Fannon. So exciting stuff you guys announced on the WisdomTree Prime rollout. But taking a step back, we've seen some fee rate degradation throughout this year, and sort of based on the flow outlook and demand trends you guys just outlined, where do you kind of see the mix shift there on fee rate in the next, call it, 12 to 24 months? And if I could, separately on the Prime topic, if you could provide an update sort of on -- excuse me -- on regulatory approvals, particularly for perhaps maybe the digital banking features and then maybe for the more crypto-oriented features, that would be appreciated.

So this is Jono. In terms of fee rates, it's going to be market sentiment driven. Our fees of the existing funds have been very consistent. And there are some areas where the fees are lower, like the floating rate treasuries. But then we also have, in the zero-duration bond funds, strong economics or higher fee captures. An area that we've been seeing a lot of growth in has been in the emerging markets where, again, we also are capturing very strong fees. So it's hard to predict. And then growth in our crypto ETPs would also be better fee captures than the 40 basis points that we're averaging on the $77 billion of AUM today. So that was your fee questions. And the next part of your question was, please?

Right. So just on the WisdomTree Prime rollout this year, just in terms of inevitable regulatory approvals necessary for the digital banking-oriented features, similar to the likes of like [ Ally ] and such? And then maybe if there are separate sort of regulatory approvals needed for the crypto features, if you could provide an update around those, that would be appreciated.

Will, could you take the first crack at this?

Yes. So really, we're navigating -- and I think a lot of people -- this has been talked about a lot in the media -- a complex set of kind of regulation across different regulators. And so we think we're having great dialogue with a number of different regulators. I can't give a specific update on time lines for which regulator on which time line, but we're feeling very optimistic in terms of the plan that Jono laid out in terms of beta testing in Q2 with a national rollout later this year.

And I would just add that regulatory engagement happens to be a strength of ours. So I feel pretty confident about our ability to execute on this.

Your next question comes from Robert Lee with KBW. Alex Murray;KBW;Analyst: This is Alex Murray for Rob. Trying to get a sense of the backdrop on the expense guidance. Given the rough start to the year in the market, does this guidance include market performance for the first couple of weeks, or was this guidance determined prior to the year?

Bryan?

Yes, that's me. The guidance is current. I mean I wouldn't suggest that anything with respect to the recent backdrop would impact the guidance that we had given. Alex Murray;KBW;Analyst: Okay. Great. And then a quick follow-up. How do you guys think about the ramp-up in flows in the Model Portfolio? Could we expect to see a steady build? Or would there probably be like an inflection point there?

Jarrett, would you take that?

Sure. Yes, we're -- we've seen a steady build, and we expect to continue to see a steady build. And just giving you a little color there, I mean we've been focused really on, I think, what are the 2 high opportunity channels, the large multitrillion-dollar networks such as Merrill and Morgan Stanley, where we have partnerships. But then also on the other end of the spectrum, we provide customized models to small and midsized RIAs and IBDs. That's where we're putting our effort. We've been strengthening the relationships that we've already closed, and we've got a really good pipeline and we're adding new features and support. So we expect -- short answer is we expect the traction to continue to build.

Our next question comes from Brennan Hawken with UBS.

I'd just like to ask a couple on the Prime app. You -- previously, there was a prior question about regulators, but it wasn't completely clear to me which regulators. What's the plan here? Are you going to become a bank holding company? Or are you going to work with partner banks? So if you could just clarify that component of the strategy.

Will, why don't you start?

Not becoming a bank holding company. We will work with partner banks as well as pursuing our own relevant state charters. State charter -- and specifically, we're focused on New York right now for a non-banking charter, but something that allows us to pursue different opportunities in the space. So no need to be a bank holding company.

Okay. Got it. And then, maybe if you -- this is definitely -- WisdomTree has got a great reputation among financial advisers. You guys are viewed as innovators and absolutely have had a great track record of innovation. This seems to be, though, a pretty substantial shift, since distribution capabilities into the financial adviser space and the wealth channel are different than direct-to-consumer broad financial app. So how is it that you're planning to make that tradition -- transition, sorry? And what do you expect as far as marketing spend, marketing plan? How -- what can you add to maybe increase our understanding of the go-to-market strategy here and driving adoption?

Good question. Will, let me take this to start, and maybe if you have anything you can add. So first, we've been marketing to consumers from the -- direct to consumers from the very beginning, though more narrowly only around investing. But I would characterize our approach to customer acquisition for WisdomTree Prime as lean marketing principles. So test, learn, iterate. It will be data driven, results-oriented and trackable. So we'll start small and then go aggressive cost effectively. I'll tell you what we won't do. We're not going to put our brand on a sports stadium, we're not going to hire Matt Damon to be in our TV commercials. Now in addition to our marketing, I think there'll be a very strong heavy emphasis to business development, to partnerships. So that's another element that could be very, very cost effective and scale us very quickly. And then lastly, I would just say that we also, in addition to what we're initially launching towards the direct to the consumer, there's also going to be -- we envision an institutional user portal for RIAs and for platforms, which is just another great synergy to our core business. So I think in combination, we have a lot of advantages and skills and sets. And like you said, one way to do this more cost effectively is we have a very strong brand, I think it markets incredibly well. And with a great user experience, which we're committed to delivering, I think we have the ability to really virally market and virally grow. So that's all I can share with you at this point.

That sounds good, Jono. I'm glad I muted myself because with -- when you said that about the stadiums and Matt Damon, I was laughing, I couldn't control to laugh out-loud. A quick follow-up on, if I might maybe squeeze one more in. So we've seen a filing from Graham Tuckwell, which struck me as a little unusual to see former leadership of a firm that had been acquired express frustrations around the direction of the company. Have you begun to have some dialogue with Graham? I'd guess that you have just given the relationship there? And are you in a position to share at all some of the components of his frustration or what the source of his dissatisfaction is?

So really, we communicate often with all shareholders and that does include Mr. Tuckwell. But for the second part of your question, you'll have to discuss it directly with Mr. Tuckwell.

Our next question comes from Michael Cyprys with Morgan Stanley.

Maybe just circling back to WisdomTree Prime. I was hoping you could elaborate a bit more on the economics, how that will work? I think you mentioned that you'd expect some digital asset revenues by the end of '22. Maybe you could just elaborate a bit on what the composition you'd expect that to look like more near term, or as I understand, maybe more medium to longer term, there could be other additive revenue pools over time?

Will, why don't you start?

Yes, absolutely. I think it's a lot like what we had on the slide earlier, I'm forgetting which page it was. But some of the same types of fees that a lot of fintech apps are able to earn. So that could be like net interest income, for example, various types of transaction fees, like with a debit card interchange fee, for example, as well as asset-based fees for blockchain-enabled funds where you might charge a management fee. So we think those are all on the page, and we're going to learn a lot with the beta test to be able to provide more guidance on that in the future.

Okay. And just maybe another follow-up there on the WisdomTree Prime and more broadly on the digital asset strategy, can you just talk a little bit about the team that you have built out behind the digital asset strategy? How large is the team? And maybe talk a little bit about the headcount ambitions that you have looking out over the next year or 2 for that team? And maybe talk a little bit about where you're recruiting this expert talent from as well?

Very exciting question for us. Will, why don't you start?

Yes. I'm not sure we're giving, like, specific guidance on like number of people. I think you -- we made an announcement earlier this year, when a gentleman by the name of John Davidson joined the team as our Global Head of Financial Crimes, that we were in the range of 15. That number is higher than it now, but not double than it, for example. This isn't going to be like a huge mass of hundreds of people. We've just been -- we've got a great brand, a lot of people in financial services would like to work with us. And we found that our story is resonating very well with technical and other talent in the market today.

Our next question comes from Keith Housum with Northcoast Research.

I'm going to continue the theme of asking more questions about Prime. Maybe I'm kind of naive here, because as I think about the areas that the Prime will be involved in, it seems like the security risk is just massive and the amount of spending in your guidance, well, you did increase what you're seeing in the current year. It seems like that amount needs to be a lot higher. I mean you guys have partners that have a lot of security settings already in place? Or what's the underlying technology here that gets us comfortable that a lot more money won't be required to invest in this than what you guys are kind of disclosing here?

Will, I think you should start and touch on Securrency as well.

Yes, absolutely. We're very confident in the guidance we gave. We do not feel like we'll need to spend more than that on security. And really, that's from some of the great partners that we're working with. Obviously, Securrency is one of those, although not the only partner that's going to allow us to really focus on security here. And from the start, security remains a primary focus for us. And we think we've covered that well between the partners that we have and the spending guidance that we've given.

Okay. I appreciate that. And then as you kind of think about the investment here, because again, it's a significant investment here I'm sure you guys have already made in 2022. Is there a payback period where you guys see where you can perhaps be profitable in this unit, are you 2 or 3 years away from that, you think?

I think that's a little early for us to give guidance on. We'll see how quickly it ramps, but we are expecting -- we're building this with an eye towards very strong economics and relative -- strong economics relative to our ETP business.

Got you. And if I can squeeze one quick more question in here. You guys talk a lot about like the Bitcoin fund in Europe and the new ones you guys have released recently, but yet the uptick on those does not seem, I guess, as quick as we'd like to see. I guess you always want to see it quicker. But what guidance gives you guys the confidence that your Bitcoin and crypto strategy is going to eventually take hold?

I think, Jeremy, can you go? Can you start on the customer demand, I guess?

Well, so for sure in the -- crypto has been a very retail -- early adoption, so advisers in the U.S., as an example, have not been able to access crypto. And it remains very, very difficult. And that's why we think the SMA option is really the best option for advisers today as regulators have been slow to improve those strategies. And we're continuing to try to make our offerings in Europe ever more attractive. I think we're going to continue to be at the forefront of innovation, and we will be positioning those products for success there as well. So we have a multifaceted approach to a global crypto exposure. And then WisdomTree Prime will give us further opportunities to distribute that in our own native wallet.

And we do have a follow-up question from Michael Cyprys with Morgan Stanley.

I just wanted to circle back on the crypto direct indexing. I know you had the partnership with Onramp as well. I was just hoping you can elaborate a bit more on where those efforts stand today? How much in assets, what the traction has been? And maybe just elaborate a little bit on how exactly that works?

It's still very early days -- no, no, I was going to say, Jeremy, you might want to start. Maybe Will, there's some -- if he'd leave something off, you could add on. So please go, Jeremy.

Sorry. So it's very early days, and there's going to be more opportunities. I'd say even the large custodians from -- where Gemini, Coinbase and some of the others, they're still building out their own functionality and you're seeing them make acquisitions in the space to further and service this market. So I think this will be a year where you'll see a lot more development. But where we are today, it's still very early days, and we hope to have more updates through the course of the year on where that initiative stands.

I would just add that I think the interest has been fantastic at the start. I mean we've seen -- it's clearly meeting a need that a lot of advisers have and we think it's been the right approach for the U.S. market and we're very optimistic about it.

Great. And if I could put one final question in just on the European crypto products. Just an update on the traction that you're seeing there, particularly with the distribution platforms. Maybe you can just give us an update on how many platforms you're on right now and sort of what the outlook and the plan is for getting any more platforms in the next 12 months.

Will, do you want to start or Jeremy? Will, why don't you start?

Yes. I'm happy to start. I spoke a little bit about this earlier. I mean certainly with this asset class and certainly with the types of clients that you have in Europe tend to be larger institutions, there's a long education and just information cycle with something like this. I think we've done a very good job with that so far and we've got a great team in Europe that's focused on educating their clients over there about this. So we think we've done a lot of great work, built a great team to do that. And we've got a lot of momentum in it right now, and we expect -- we're not going to give guidance on platform relationships or certainly which ones, but we remain very optimistic about that going into 2022.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jonathan Steinberg, WisdomTree's CEO, for any closing remarks.

Thank you. So in summary, let me just say that the existing business is growing very well. We're at record AUM, we're the most diverse and truly global that we've ever been. The momentum, with $700 million inflows in January, we're just off to a very strong start. And within -- with respect to the digital assets, we view this as very holistic to the existing business. It's a clear extension of the existing business. And because of that, I mean, I can -- from your questions -- our cost guidance has been very controlled around this. And that's because we have so many synergies that we're bringing to the table. I think about -- going back to the ETF industry, at the birth of it, not going after the digital wallet and tokenization of funds and assets on the blockchain. Not going after that opportunity would be very similar to the mutual fund companies not going after ETFs. They waited so long that they would let new brands like WisdomTree and iShares take that opportunity. We're not going to allow that to happen. And vision is very important. And we seem to be a very innovative firm in the eyes of many. But timing is everything. And from the consumer standpoint, I would say, you're at the lift-off phase, meaning you're going from the early adopters to the mainstream. And with respect to WisdomTree and the industry doing this, our timing really is perfect. You're going from cryptocurrencies on the blockchain to blockchain-enabled fixed income and equities and commodities, an area that we're really strong on. And with respect to some of the early -- the early entrants into digital wallets as well as into neobanks, you can be too early. And by that I mean many have created these mobile apps but are using the old rails, so they're not native to the blockchain. And I can't stress enough that, starting now, being native to the blockchain will prove to be one of the great differentiating advantages. So I'll end the call there, but we look forward to updating you on our progress on future calls. Thank you, everybody, for your interest.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.