Yahoo Finance WisdomTree, Inc. (NYSE:WT) Q1 2024 Earnings Call Transcript
WisdomTree, Inc. (NYSE:WT) Q1 2024 Earnings Call Transcript April 26, 2024
WisdomTree, Inc. beats earnings expectations. Reported EPS is $0.12, expectations were $0.11. WisdomTree, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the WisdomTree First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference today is being recorded. At this time, I will turn the conference over to Jessica Zaloom, Head of Corporate Communications. Jessica, you may begin.
Jessica Zaloom: 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 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 the 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.
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 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 compensation as we experienced elevated seasonality in the amount of compensation we report in the first quarter due to payroll taxes, benefits, and other items in connection with the payment of year-end bonuses. Fund management expenses were also higher, driven by higher average AUM. Next slide. Now, a few comments on our forecasted expense guidance. Our forecasted compensation expense remains unchanged ranging from $108 million to $118 million. This guidance considers variability in incentive compensation with drivers including the magnitude of our flows, revenue and operating income growth, margin expansion, and our share price performance in relation to our peers.
Where we sit today, the quarter into the year, and given a strong start, we would anticipate trending towards the upper half of this range. Our discretionary spending was $14.9 million in the first quarter. We are reiterating our full year discretionary spending guidance of $64 million to $68 million as we anticipate an uptick in marketing spend in connection with our national rollout WisdomTree Prime. We reported a gross margin of 79.4% in the first quarter. We are maintaining our gross margin guidance of 79% to 80%, considering current AUM levels and fund launches anticipated during the course of the year. If AUM scales higher from continued organic growth or favorable market conditions, we would anticipate further gross margin expansion.
Our third-party distribution expense was $2.3 million in the first quarter. We are maintaining our guidance of $10 million to $11 million for the year. We are also maintaining our annual adjusted interest expense guidance of $14 million. As a reminder, our adjusted interest expense guidance is exclusive of any interest cost we are required to impute under GAAP related to our interest free financing of the shares we repurchased from the World Gold Council last November. Our interest income during the first quarter was $1.4 million. We are increasing our interest income guidance for the year by $1 million to $5 million based upon the magnitude of our forecasted interest earning assets. Our adjusted tax rate was 24.9% in the first quarter and our guidance of 24% to 25% remains unchanged.
And our weighted average diluted shares were $165.3 million during the first quarter and our guidance of $166 million to $168 million for the year remains unchanged as well. That said, this guidance does not take into consideration any incremental shares associated with our convertible notes. Our current stock price of roughly $9 per share is up over 30% year-to-date and is approaching the $9.54 conversion price related to our convertible notes scheduled to mature in 2028. While the notes require principal to be paid in cash, our diluted shares would need to be increased for any incremental shares associated with the conversion option once our stock price exceeds $9.54 per share. An illustration is included within our earnings presentation to assist in quantifying the incremental shares associated with the conversion option going forward.
That's all I have. I will now turn the call over to Jarrett.
Jarrett Lilien : 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 and solutions for every market environment in every part of the cycle. We're also excited about our progress in tokenized assets and block chain 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 on 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 advisors who have access to our models, while also further penetrating that market and growing the number of advisors actively using WisdomTree models. Based on our current pipeline, we expect our accessible market to grow to about 80,000 advisors by year end, that's up from 70,000 at the end of last year.
Additionally, after adding a thousand new advisor model users in 2023, we're on track to maintain that cadence of new advisor growth in 2024. The ongoing traction in models has driven growth in model AUM to about $3.5 billion at the end of March, outpacing the growth of our firm wide AUM. Overall, we remain very bullish on the long runway for model assets growth in the quarters and years ahead. We're also pleased to report that we delivered another strong quarter in margin expansion and earnings growth demonstrating our scalable operating model and our ability to leverage our AUM growth, our total operating margin increased by 820 basis points year-over-year to 30%, of which 540 basis points was from smart deal making and opportunistically buying out the gold royalty payment last spring and 280 basis points was organically driven by growth and operational efficiency.
Our adjusted earnings per share increased by 71% year-over-year to $0.12 reflecting top-line growth and margin expansion dropping to the bottom-line. We remain focused on driving expanded operating margins and earnings growth in 2024 and beyond. And we continue to believe that tokenized assets and blockchain enabled finance represent a huge growth opportunity for WisdomTree as they open new markets, attract new customers and create new revenue streams. Back in 2020, we talked about our AUM growth opportunity driven by our diversified product suite models. We talked about our scalable operating model and how growth and operational efficiency would drive margin expansion. And we talked about the potential of tokenized assets and blockchain enabled finance.
Each quarter since we have delivered on those opportunities and each quarter our growth momentum shines brighter, our margins have been expanding and we further solidify our position in tokenized assets. We used to be alone in talking about many of these themes, but now we have some company. We like to say that if you want to know what the industry is going to do tomorrow, look at what WisdomTree is doing today. In conclusion, we are confident that we have the right strategy, the right products, the right team, and the right culture to continue to create value for our clients and shareholders in the long-term. We remain extremely bullish about 2024 and beyond and we continue to drive organic growth, expand our margins and lead the industry's evolution in tokenized assets and blockchain enabled finance.
And with that, let me now turn it over to Jono.
Jono Steinberg: Thank you, Jarrett, and good morning, everyone. It's 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 stablecoins, and manage stablecoins 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 debit card to Prime users. The card is available both physically and digitally through Apple and Google Pay platforms and ties a WisdomTree Prime customer's asset balance to the payments ecosystem. Initially, customers will be able to auto debit from the dollar token balances, but we will expand that functionality to other asset classes, like our money market fund, gold and crypto in the coming quarters. With the Trust Charter and the launch of the debit card, as I already mentioned, in early May, we will be increasing our marketing efforts going forward.
It's too early to share any takeaways, but this is the effort that will generate further downloads, funded accounts, and activity. This is the beginning. We are seeing increasing interest in tokenization in the asset management space, as many of you may have noted. Our combination of retail and institutional distribution, our regulatory licenses and our broad suite of tokenized assets and funds across asset classes positions us as the early leader in this space. We are looking to press this advantage in the coming months. This is only the beginning. As I continue to mention in recent calls, it's a very exciting time for WisdomTree. We have best in class organic growth, a meaningful margin expansion opportunity and leverage to the secular shift towards tokenization.
Now, let's turn the call over to Jeremy Campbell, WisdomTree's Head of Investor Relations.
Jeremy Campbell : All right. Thank you, Jono, and good morning, everybody. Operator, let's open up the lines and go directly to some questions from our analyst.
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