Greetings. Welcome to the WisdomTree First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference today is being recorded. At this time, I'll turn the conference over to Jessica Zaloom, Head of Corporate Communications. Jessica, 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 WisdomTree's annual report on Form 10-K for year ended December 31, 2023. 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 CFO, Bryan Edmiston.

Thank you, Jessica, and good morning, everyone. Let me begin by sharing our results for the first quarter, along with commentary on our expense guidance before turning the call over to Jarrett and Jono, for additional updates on our business. We continue to demonstrate our ability to grow organically, having generated $2 billion of net inflows during the quarter. Sustainable flows have been a continuing theme with over 3 years of positive momentum, and our results this quarter illustrate the breadth and depth of our product lineup and serve as a proof point in our ability to put points on the board away from USFR. Our $2 billion of inflows were broad and diverse and generally into products with higher fees, which has remixed our blended fee rate higher, setting the table for higher revenue capture for the second quarter. Our inflows coupled with positive market movement resulted in us ending the quarter with record AUM of $107.2 billion. This is driving revenue growth and expanding margins, demonstrating the scalability of our business model, continuing organic growth, coupled with disciplined expense and capital management alongside positive market conditions is the formula for further margin expansion and accelerated EPS growth. Next slide. Revenues were $96.8 million, an increase of 6.6% in the fourth quarter and up 18% from the prior year quarter driven by higher average AUM. We have also observed adjusted operating margins expanding over 820 basis points versus the first quarter of last year or 280 basis points organically when adjusting for the impact of our gold royalty buyout, which we accomplished in the second quarter of last year. Our adjusted net income for the quarter was $20.3 million or $0.12 a share. Next slide. Our adjusted operating expenses were up 5% for the quarter. The largest contributor was…

All right. Thanks, Bryan, and good morning, everyone. We are excited to report another strong quarter with robust net inflows, record AUM and expanding operating margins, which all reflect our continued leadership in delivering innovative products and solutions for every market environment in every part of the cycle. We're also excited about our progress in tokenized assets and blockchain-enabled finance, which are reshaping the future of our industry and creating new opportunities for growth and value creation. As Bryan mentioned, Q1 started with nearly $2 billion of net inflows, driven by the breadth and depth of our product lineup, especially in higher fee funds. Our India earnings fund and our currency hedge strategies attracted strong demand as did commodity funds, such as silver and copper. In total, the fee rate and our gross inflows was 49 basis points, which helped drive our overall blended fees higher. Combined with the supportive market, we ended Q1 with record AUM of $107.2 billion, up 18.2% year-over-year and 7.1% sequentially. We are proud of these results, which reflect our ability to deliver consistent and diversified growth across our product suite. Models also continue to be a steady growth driver. As a reminder, our approach is to grow the number of advisers who have access to our models while also further penetrating that market and growing the number of advisers actively using WisdomTree models. Based on our current pipeline, we expect our accessible market to grow to about 80,000 advisers by year-end. That's up from 70,000 at the end of last year. Additionally, after adding 1,000 new adviser model users in 2023, we're on track to maintain that cadence of new adviser growth in 2024. The ongoing traction models has driven growth in model AUM to about $3.5 billion at the end of March outpacing…

Thank you, Jarrett, and good morning, everyone. Been a great start to the year. Record AUM, strong flows, higher fees, 820 basis points of margin expansion, driving a 71% increase in earnings per share versus the first quarter of last year. We are executing on the key drivers that will propel the next $100 billion of AUM growth. Those drivers being ETFs, model portfolios, tokenization and WisdomTree Prime. Importantly, I want to remind everyone that all of the digital spend, including marketing, is fully baked into our guidance for 2024. It's important to remember as marketing really begins in early May. Now the most important milestone in the quarter was the receipt of WisdomTree's trust charter from the New York State Department of Financial Services. DFS is the premier regulator for digital asset businesses in the U.S. and the operation of a trust company in this space has been a core component of our strategy. Simply put, we think that the trust company is a strong counterparty for our retail and institutional customers, and we think it will open up a number of business opportunities for us going forward. More specifically, the trust charter does 2 things for us. First, it allows us to onboard New York customers to WisdomTree Prime. Second, the trust company gives us the ability to offer products and perform services under DFS supervision with associated legal protections. Specifically, the trust company can perform fiduciary custody of digital assets, issue DFS approved stable coins and manage stable coin reserves. Now from an availability perspective and including the upcoming launch in New York, 75% of the U.S. population across 41 states have access to WisdomTree Prime. On the product and feature front, we also hit another key milestone in the first quarter with the launch of our…

All right. Thank you, Jono, and good morning, everybody. Operator, let's open up the lines and go directly to some questions from our analysts.

[Operator Instructions] Our first question is coming from the line of Adam Beatty with UBS.

I wanted to ask, as you roll out Prime and some of the retail initiatives, there have been some kind of prominent examples in recent years of other firms you're trying to go from an institutional kind of setup to a more retail approach and then backing away from that strategy. So I just wanted to get your thoughts on, obviously, you've seen that studied how WisdomTree's offering is differentiated and how you'll succeed there?

Adam, let me start and then maybe, Will, you'll jump in. First, I'd say that WisdomTree is already and has from the very beginning been a direct-to-consumer brand within investments. So online brokerage accounts had seen our TV ads starting 17 years ago and have been interacting with us on a direct-to-retail basis from the very beginning. This is fully integrated into what we're doing with Prime, further delve into the consumer space for sure. It isn't a new business line, though, it really is built on the infrastructure of the core business, and we're starting with the sort of the low-hanging fruit of investors, people most interested in money, people that we've known or gotten to know over the course of the past 20 years and it will build incrementally over time. But by keeping our costs extremely low as we do this, I think that we'll be able to find a cost-effective marketing message, and that's the reason for the early testing in small incremental bites, which is what we said from the very beginning. And so what we're talking about in May is just an increase in marketing spend, and it will just continue to be increased in incremental waste through the -- for the rest of the year. Will, what would you add to that?

No, I think a lot of that was covered well, Jono. I'd just add, we're doing both. And I think they're mutually kind of beneficial in self-reinforcing. I mean one of the co-parts about our tokenization platform is it the same platform being applied both to retail and institutional. We've spoken a lot about prime, but we're going to be having more announcements coming up for that institutional portal that we've alluded to in the past. So it's both and they're both mutually [indiscernible] enforcing and there's a good flywheel effect from both of them.

Fair enough. Yes. I appreciate the context around direct to retail. And I wanted to follow up on kind of the flywheel effect on the synergies. One of the things that we sometimes hear from investors is there tends to be a mentality and we'll just sort of address the point a little bit, but there tends to be a mentality of prime and tokenization being separate from the core business of WisdomTree. So maybe if you could talk a little bit about the synergies and how some of the marketing spend might help your legacy business as well.

Will, should I take that and go ahead?

I'll start, Jono. I'm happy to start. I mean I think that it's completely leveraging the core competencies of WisdomTree, right? a tokenized fund or a tokenized asset looks very similar in a lot of ways, right, to like an exchange-traded product. Instead of being listed on the New York Stock Exchange or fix in Switzerland, it could be listed on a kind of available on blockchain. So it's very similar core competencies to what we have. I think maybe a different distribution set right now, but it's definitely leveraging kind of what WisdomTree does today.

We're just tapping into regulatory prowess, product development prowess, marketing prowess, even our engineering team, which had been building the solutions business of the core business has been tapped and expanded to help with the user interface and other elements of the technology builds of our digital assets. And so synergy all along as well as overlapping vendor relationship management. So those are some of the elements that have come to mind in terms of how well the WisdomTree footprint was or is or trying to tackle the digital asset opportunity.

Our next question is from the line of Keith Housum with Northcoast Research.

So I appreciate the commentary on WisdomTree. But if we come back to the ETF part of the business, perhaps Jono you can give a little summary about the new product creation over the past, say, 4 or 5 quarters and then what the vision is for new product creation going forward?

Well, I'm going to -- I'll very, very quickly touch on it, but Jeremy Schwartz, I'll turn it over to you. One of the things that we've done and we is expanded one of our internal brands quality as a family and as a foundational factor that we build a lot of our funds on. We started by not only did the original factor funds overweight to quality, but then we build a more specific quality family. We started with quality dividend growth, our largest equity fund. We've taken that internationally in recent years into the usage format. And we recently, over the last year launched quality growth, which has had just an extraordinary performance and this past quarter, first quarter or maybe it's actually more recently than that, it could have been in the second quarter that we launched the usage version of quality growth. But Jarrett, Jeremy, why don't you talk a little bit more about some of the product strategies that we've launched recently.

Yes. We've been continually trying to diversify the product set for market environments where you have something in all market environments. And I think what you've seen with quality growth and our investment in thematics is that exact playing out. In our UCITS family, we have about $1.5 billion in thematics across over 10 different you say, more sector-specific versions of not just the tech sector, but cloud and cyber and AI. And so now you have a real growth led type of [indiscernible] family you can compete in. And in the U.S., we have almost $1 billion in that thematic range, so $2.5 billion in these sort of sector-specific growth areas. The quality dividend growth family in the firm is up to almost $15 billion across the U.S. and Europe or maybe even more than $15 billion across that family and is taking a lot of those inflows. And we're continuing to broaden out how do we go beyond USFR for fixed income. We've been investing in broader enhanced yield indexes for bringing a longer duration exposures and our efficient core family for equities, which combines stocks with bond futures is another way people can add duration to portfolios, and we're seeing that both in the U.S. and recently launched that in Europe. So we continue to try to be innovative in the funds that we launch and try to help diversify the overall business with that approach.

Great. If I can follow up there. And I'm sure AUM is the easiest way to measure success in some of these new funds. But how do you guys evaluate the success of these funds outside of just AUM growth?

Maybe I can jump in. This is Jarrett jumping in for just a quick one. I think, and Jeremy, you can talk about measuring the new launches. But our overall strategy is about growth. And so growth is about having that diversified product suite and then enhancing it with innovative launches. And that's been a strategy that's been working for us very well over the last several years, where we're looking to generally launch about 20 new funds a year, and we're not changing that. That's sort of the pace we're looking at this year as well. And again, it's a strategy that's working well for us as evidenced by more than 3 years of consistent organic growth that really is leading the industry in terms of organic growth. So it's a very sound strategy, and we're continuing with it.

Jeremy, do you want to add any?

The only thing I would say is in addition to the individual products, we continue to launch more models. And you'll hear us -- we talk about how to get diversified flow. It's going beyond the single ticker sale at the Model Portfolio business is really. The best way and we continue to launch innovative models as well. Certainly, we've had a lot of success with the Siegel branded models for the big platforms, and that's also part of our prime offering is Siegel token fund, which is the overlap between sort of the prime business and the traditional business and how there is synergies there, but we continue to launch very interesting new models that leverage our new funds. So I think you'll see -- you can see that as another source of growth for us.

Our next question is from the line of Michael Cyprys with Morgan Stanley.

I wanted to dig in a bit on the models, if we could. I was hoping you could maybe talk to some of the steps you're taking to drive greater adoption with new advisers using your models. I think you mentioned that 70,000 advisers right now is sort of the accessible market to understand that's likely to expand this year. Just curious how penetrated you are within that 70,000 in terms of the number that are actually using your models and some of the -- talk about some of the steps that you're taking to improve that penetration.

Jarrett?

Yes. Well, that's one of our major focuses. And we talked about it last quarter that it's -- there's a formula there. We want to expand the accessible market. So those are the number of financial advisers that can access our models. And at the end of the year, that was at 70,000 -- and then, of course, you want to penetrate that accessible market. And as of the end of last year, we had taken a number to 2,000 advisers. So our penetration was under 3%, and that's one of the exciting things is that we still have a lot more addressable market to penetrate. Now so far this year, we've already seen growth on both. We're growing the accessible market. And today, the accessible market, we've been really successful on getting on to some of the best platforms with the firms that are most focused on this trend. So we're on Merrill's platform, Morgan Stanley's platform, LPL's platform. And that's a big part of the effort. How do we get on more platforms and grow our accessible market. But then the game is on. And now your door is open, and you have to walk through it and start convincing the individual advisers of how good our product is. And that's done with very good sales, a lot of great research, a lot of great models, as Jeremy mentioned earlier. We've got a not-so-secret weapon with Jeremy Siegel and we go in and we try to win the hearts and minds. And last year, we took our the number of advisers using our models, we doubled the number from 1,000 to 2,000. We were adding roughly 250 new advisers per quarter. We're on that same pace this year. So another great thing about this business is you have real visibility into the pipeline. So already out there, as we said in the prepared remarks, we have great visibility that, that accessible market, we expect it to be 80,000 and possibly more by the end of the year by just what we know is in the pipeline and then we also can see that we're growing our penetration. And another thing is just sort of the seasoning. We know when someone starts on their first day with one of our models, it might be for one of their clients, and they're testing it out. And we know as they get more comfortable, they start using the models for a bigger portion of that client's portfolio and then start adding more clients. And so we're at the very early stages because a lot of the advisers that have started with us are early in the seasoning process. So giving you a lot there, but we're growing the addressable market. We're growing our penetration, and we're also beginning to seize in those advisers that we've onboarded.

And just a follow-up question on WisdomTree Prime. I was hoping you could maybe talk about your go-to-market strategy. Talk about some of the steps that you're going to be taking to bring awareness to the offering and bring customers directly to WisdomTree. And what does sort of success look like to you as you look out over the next couple of years and understand to your earlier comment that you've been a DTDC business for a bit. Maybe you could just remind us on what portion of the ETFs today are held in self-directed brokerage accounts.

Will, do you want to start?

Yes, I'm happy to start. And then if you have anything else you can that, Jono. I think it was just that -- it's like you've been talking about in the past. Lean marketing, focusing on digital and organic first. So that could be targeting app store, search ads, things like that for people who are looking at some of the themes that we've got. A very clear example of that would be digital gold. There is a large universe of people out there who are -- find gold very appealing, a digital gold product with instant settlement that's appealing to them. We want to target that user and continue to monetize that user. So that's the type of people that we're going to be targeting in addition to the organic and press strategy that we've got going on as well. And a big piece of that has been adding features and also adding states and being available to additional people in the U.S. So the New York Trust Co announcement was a big part of that. Being open to New York customers in the coming weeks will be a big part of that. So that's the type of marketing strategy that we're going to be leaning into.

And I would say from a penetration on the core business to retail just AUM, it's something I don't have it exact, but it's sort of a $9 billion to $10 billion number. Yes, $9 billion number out of the total with the U.S. being more retail-oriented than Europe.

And that $9 billion in brokerage self-directed?

Yes.

Our next question comes from the line of George Sutton from Craig-Hallum.

This is Adam on for George. With respect to WisdomTree Prime and the receivable of the NYDFS approval. I was curious, does this help push forward any of the conversations with respect to third-party white labeling?

Will, do you want to start?

Yes. Yes, it would. Now I think the -- like Jono has said earlier in the call, the trust charter opens up New York customers to us, but it's also a really strong regulated counterparty for people to be dealing business with. So on lots of B2B and B2B2C opportunities. The trust charter is a great kind of way to do that. And you actually see other businesses in the market today who have that trust charter who have lots of white labeling style strategies around that. So that very much is a good step along that kind of just white labeling, but B2B and B2B2C more broadly?

Great. And then I know it's early days with respect to the debit card offering, but I was curious if there's any insights you could share about the initial response from existing users.

The initial response has been great. Yes. So just jumped in there. It's actually been very helpful in terms of our marketing strategy. We've seen an uptick with debit card messaging. We're seeing people open the cards beginning to spend on it. So the debit card has been -- it's always been a key component of it, and that's being borne out in the marketing so far.

Great. And then just with respect to flow so far through Q2. Obviously, there's a little bit of a headwind in the European business. Just curious if you had any additional color on what's driving that?

Jeremy or Jarrett, do you want to start -- one of you?

Sure. I can give a start and Jarrett, you jump in. We've seen is some money in motion. You've seen some repositioning, especially in commodities. So you've seen some big moves. And in Europe, you tend to see that it's a chunky business. It tends to move in big blocks at one time and then comes back into the market. So in terms of customer distribution, though, still growing the number of customers still feel very positive in one area where you can really see it is in our UCITS business, which is now over $6 billion, and that is an important part of the European growth strategies and again, the product development strategy is to continue to launch UCITS. We launched the QGRW UCIT yesterday, I believe, in Europe. And we've seen inflows into UCITS every year since 2014. So still feeling very good about what's going on in Europe, but the nature of the business is pretty chunky when money moves around and people change your allocations. Also though, it's great to talk about the U.S. for I know a lot -- last year and the year before, a lot of people were asking, okay, are you worried about USFR because we've seen some great flows there and our point always was no. This is a core holding, number one. So we're not -- even when interest rates change direction, we're not expecting large outflows. You might see some, but more importantly, as a core holding and for many a cash substitute, it puts us in the position to be in the conversation of where that money goes. And you saw that in the first quarter in spades, where you saw some money moving out of USFR, but moving into things like GGRW into India, into the currency hedge strategies in the models and really helping drive something really significant in the first quarter was the quality of the overall flows into basically higher fee products, but driving real revenue growth. So a lot of great things going on with the flows, both in Europe and the U.S.

Thank you. At this time, we've reached the end of our question-and-answer session. I'll turn the floor back to management for closing remarks.

This is me, Jono Steinberg. I don't think we have any closing remarks. We want to thank you all for your time and attention and support, and we'll speak to you next quarter. Thanks, everybody. Have a great day.

This will conclude today's conference. You may disconnect your lines at this time, and have a wonderful day.