Hello, and welcome to the WisdomTree Q4 2023 Earnings Conference Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Jessica Zaloom, Head of Corporate Communications. Please go ahead, Jessica.

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 the year ended December 31, 2022. 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. I'll begin my remarks with a recap of 2023 and our fourth quarter results, followed by our 2024 expense guidance before turning it over to Jarrett and Jono for additional updates on our business. 2023 has been a year of transformation and table setting for the future. We generated $10.4 billion of inflows during the year, which translated into a 13% organic flow growth rate. And flow diversification is driving our average fee capture on our flows upward, which was about 2x greater than our fee capture in the prior year. While we experienced modest outflows in the fourth quarter, revenue grew organically as we captured positive run rate revenues on our flows as we outflowed from lower fee products while inflowing into products with a higher fee capture. Continued organic growth and positive market conditions have resulted in record revenue and AUM levels, while capital management actions undertaken by management have driven meaningful margin expansion and EPS accretion. The buyout of our gold royalty obligation in the spring was 15% accretive and drove operating margin expansion by over 500 basis points. This transaction also cleaned up our balance sheet, eliminating a perpetual obligation and reduced the volatility in our quarterly financial results. Consideration paid included $50 million in cash and the issuance of preferred stock convertible into 13 million shares of our common stock. In November, we repurchased these shares for $84.4 million, $40 million of which was paid upfront and the remainder payable in equal annual installments over the next three years with no requirement to pay interest. The implied price per share is $6.02 when considering the interest-free financing element of the transaction, and the stock repurchase was approximately 7% accretive. These actions, together with record AUM of $100 billion at year-end, serve as a strong foundation and jumping-off point as we turn the page into 2024. Revenue growth going forward is naturally derived from our AUM ending the year at a level greater than our average AUM over this past year. That coupled with continuing organic growth and favorable market conditions, as well as disciplined expense and capital management, is the formula for margin expansion and EPS accretion. Our AUM currently stands at $100.6 billion, up slightly from the end of December, resulting from $300 million of inflows and positive market movement. Revenues were $90.8 million, essentially flat compared to the third quarter as the increase in our AUM was more heavily weighted toward the latter part of the year. Our ending AUM of $100 billion, which is greater than our average AUM for the year, serves as a nice tailwind for future growth. For the year, we experienced revenue growth of 16% and adjusted operating income growth of 45%. This translated into 540 basis points of adjusted operating margin expansion or 140 basis points of organic adjusted operating margin expansion when excluding the impact of our gold royalty buyout that occurred earlier this year. Adjusted net income for the quarter was $18.6 million or $0.11 per share. Our operating expenses were up 1.7% for the quarter, driven by higher marketing, fund costs, and sales-related expenses. We ended the year toward the high end of our compensation and discretionary spending expense guidance. Now a few comments on our 2024 expense guidance. We are forecasting our compensation expense to range from $108 million to $118 million. This guidance includes planned hires as well as year-end compensation adjustments and the annualization of hires made during 2023. The range 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. Just a reminder that we experienced elevated seasonality in the amount of compensation we report in the first quarter as we recognized payroll tax benefits and other items in connection with year-end bonuses. We estimate first quarter compensation expense to be approximately $30 million to $31 million. Discretionary spending is anticipated to range from $64 million to $68 million compared to $59.3 million recognized in 2023. The modest uptick incorporates planned expenses for our national rollout of WisdomTree Prime, including our measured approach towards marketing and other related costs. Our gross margin is anticipated to be about 79% to 80% at current AUM levels and taking into consideration 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 is anticipated to range from $10 million to $11 million as we expand our partnerships and grow AUM on the platforms. Our adjusted interest expenses forecasted to be about $14 million compared to almost $15 million in 2023 as we paid down $45 million of debt this past June. Our adjusted interest expense 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 in November this past year. Our interest income is estimated to be approximately $4 million in 2024, taking into consideration the magnitude of our investible assets and current interest rates. Our adjusted tax rate is expected to be about 24% to 25%, a slight uptick versus last year to account for the full-year impact of the UK rate change to 25% that went into effect on April 1st of last year. Our weighted average diluted shares are estimated to be between $166 million and $168 million compared to $171 million this past quarter. The decline is primarily due to the recognition of the remaining half of the 13.1 million share equivalents recently repurchased as that repurchase occurred midway through the fourth quarter. That's all I have. I'll now turn the call over to Jarrett.

Thank you, Bryan, and good morning, everyone. We are incredibly proud of our accomplishments in 2023. We have industry-leading organic growth, expanding operating margins, and a leadership position in tokenized assets and blockchain-enabled finance. We have strong momentum built over several years, which we now carry into 2024 and beyond. As Bryan mentioned, our $10 plus billion of net inflows in 2023 generated best-in-class organic growth versus our peers extending our annual inflow streak to three consecutive years, where we have gathered over $27 billion in cumulative net inflows during that timeframe. Further, our ability to consistently drive strong organic growth is helping us reach new milestones. In December, WisdomTree reached $100 billion in assets under management for the first time, and we are now focused on delivering the next $100 billion. So, how do we get there? It starts with our differentiated product lineup where we have products and solutions for every market environment in every part of the market cycle. In 2024, we will continue to augment our product lineup with innovative and differentiated fund launches that are WisdomTree hallmarks. Separately, we will continue to drive flow growth by deepening relationships with existing clients while also adding new clients as we did in 2023. Last year, we deepened relationships and saw a 20% lift in the number of clients that hold multiple WisdomTree products, while at the same time we grew our overall client base by more than 20%. Growing and deepening relationships with existing clients while at the same time adding new ones represents a pipeline of future inflows. A key additional growth driver is building upon momentum in our models business. Given this increased momentum, we are going to begin showcasing quarterly metrics that will better allow analysts and investors to benchmark our success and better understand and underwrite the steady cadence of our future growth. To begin our definition of model AUM is AUM in a model, where we control the allocation decision. We feel this distinction is important as some of our peers include single tickers in home office or advisor models in their figures; we do not. Second, we are now branding our models initiative as WisdomTree Portfolio Solutions, which encompasses all $3.2 billion of total assets sitting in model strategies where WisdomTree drives the portfolio allocation, whether it's at a wirehouse or in the RIA independent broker-dealer channel. In the U.S., there are roughly 300,000 financial advisors in aggregate with over $27 trillion in assets under management. This is our addressable market. Today, our accessible market, which is the number of advisors and RIAs who have access to our models, is about 70,000. Our current penetration of this accessible market is under 3%, meaning that we currently have 2,000 advisors using at least one of our models. Providing more color on the 2,000 current model clients, more than 1,000 were added in the past 12 months. Overall, in 2023, our organic model AUM growth was nearly 40%, while our advisor client growth was over 100%. This gives us visibility and confidence in our model flow growth over the next several quarters, as our experience tells us that AUM growth follows client growth. Overall, growing our accessible market, penetrating this accessible market, and adding new advisors while deepening wallet share with current advisors as they gather additional assets for their end customers translates into a strong pipeline of future AUM and earnings growth. And as Bryan detailed earlier, we are doing this on well-managed expense guidance that will help us continue to deliver high incremental margins and drive expanded operating margins and earnings growth in 2024. In sum, I'm extremely bullish about 2024 and beyond as we continue to drive organic growth, expand our margins, and continue to lead the industry's evolution in tokenized assets and blockchain-enabled finance. And with that, let me now turn it over to Jono.

Thank you, Jarrett, and good morning, everyone. What a terrific year 2023 was. Over $100 billion of AUM, over $10 billion of inflows, over 500 basis points of margin expansion, and a 42% increase in earnings per share. Building on recent years of strong momentum, I'm very bullish on WisdomTree's future. While I'm proud that WisdomTree achieved $100 billion of assets, I'm optimistic that the next $100 billion will take significantly less time. One of the reasons for that optimism is the expectation that tokenization and WisdomTree Prime will contribute significantly to our overall organic growth in the years ahead. WisdomTree has put a lot of hard work to cement our leadership status in tokenization. The market is moving quickly, and some of our traditional finance peers are starting to discuss the enormous opportunity in tokenization. This is not only a validation of our tokenization strategy but also underscores the importance of WisdomTree's strong early mover position, the attractiveness of our strategy, and the need to maintain our multi-year head start. Regarding digital assets, similar to last quarter, I want to frame my remarks around our key goals. First, we want to increase the availability of WisdomTree Prime across the United States. Second, we aim to enhance the Prime experience through additional product and features. Third, we plan to deploy a targeted marketing effort to drive user growth. Lastly, we will explore opportunities for strategic partnerships. On the geographic front, we've made additional progress since last quarter's call with five additional states. WisdomTree Prime is now available to approximately 70% of the U.S. population across 38 states. There are a lot of variables in receiving state approvals, which differ by state, with some states taking longer than anticipated. We are in the home stretch and confident that most of the rest of the population will have access to WisdomTree Prime in the coming weeks. We are continually looking at different products or features that enhance the value proposition of the Prime experience. In December, we launched three WisdomTree Siegel branded digital funds where customers can deploy a model-like experience with just one click. Additionally, our digital money market fund is now live and available to customers inside WisdomTree Prime. I'm pleased to announce that the debit card is currently live in internal product testing and is being successfully used at merchants, including through Apple Pay, and it's slated to be available to WisdomTree Prime customers by the end of February. As previously discussed, we believe it's wise to limit marketing spend until we are available across most of the U.S. and have our initial full suite of product and service features. To us, that is being prudent with our capital. Our nationwide rollout is now expected to start by late Q1 or early Q2. That's when you should expect us to lean into the marketing efforts that will begin to generate both downloads and growth in funded accounts. However, I want to stress that the guidance that Bryan gave this morning fully contemplates all of the planned WisdomTree Prime marketing spends for 2024. We also see a meaningful opportunity to leverage strategic relationships to drive both the growth of the WisdomTree Prime platform as well as revenue opportunities outside of Prime. We have several active B2B and B2B2C conversations in the pipeline, and we think many of those efforts will further diversify our revenue streams and offer new topline growth opportunities. For example, we see a significant opportunity to distribute our funds and gold token to and through established partners, platforms, and ecosystems outside of WisdomTree Prime. These types of relationships will naturally be episodic in nature, so we may not have an update for you each quarter, but each would likely be meaningful in nature when they cross the finish line. As I have mentioned in recent quarters, 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 operator, will you please turn the call over to Jeremy Campbell, our Head of Investor Relations, to field some questions from our shareholders.

All right. Thanks, Jono. Good morning, everybody. Like prior quarters, we're going to take some questions here from the Say platform from our retail shareholders. A few this quarter were all kind of along the same lines, so I want to condense them into just one question. This is to our President and COO, Jarrett Lilien. Jarrett, the question is we are now about three weeks into the Bitcoin ETFs going live. What are some of the early takeaways and what's your plan to grow in a crowded field?

Thanks, Jeremy. Yes, let's start with a few takeaways. First of all, this was really a unique situation where you had 11 beta funds that all came to market at the same time, all with cutthroat fees and fee waivers. A second takeaway is that while demand was solid, not all of it was new money. There's a lot of swapping out of Grayscale and ProShares into other products. Many competitors were able to use their own balance sheet to put money into funds or use discretionary allocations from other funds or lean on captive distribution to drive early flows. So, you pull that all together; it's a very unique launch. Yes, some solid demand, but also some noise in the early numbers. In terms of WisdomTree, remember for us, this is another ETF launch. We launched over 20 funds each year, and you look at our track record, we've generated three consecutive years of organic growth and industry-leading organic growth last year. Also, remember that we are managing today eight crypto ETPs in Europe with over $0.5 billion of AUM, where last year we generated 37% organic growth; this year so far, we are leading European crypto inflow growth. Overall, we're confident in our ability and our track record in growing AUM. That said, it does take time, especially in our model because these products are not yet available on many adviser platforms, which is where we would expect to see most of our flows. But I'd make one final point, really a larger point is that we believe the best use case for Bitcoin is not in an ETF but actually inside of WisdomTree Prime where not only can you hold Bitcoin together with other digital assets, you also get added utility in the form of payments and peer-to-peer functionality that doesn't come with an ETF. So that's the early look, and obviously, more to come.

Great. Thanks, Jarrett. All right, operator, we can open up the lines here to take some questions from the analyst community at this point.

Certainly. Our first question is coming from Adam Beatty from UBS. Your line is now live.

Thank you, and good morning. I wanted to ask about Portfolio Solutions. I appreciate the new metrics. I think the way you're measuring it and tracking it makes a lot of sense. It looks like as we look at the addressable market versus the accessible market that WisdomTree has already managed to capture over half the addressable AUM with less than 25% of the advisers. So that, to me, suggests that there might be a bit of a shift in your approach toward maximizing that accessible market that you've kind of already got on the table. So check me on that, whether or not that's correct. And then maybe if you could talk about your goals for the year in that context? Thank you.

Thanks, Adam. Jarrett, why don't you start?

Sure. Yes, I think you have it right. Of course, we would like to keep increasing that accessible market. But again, you read it right. Our real key is penetrating what we have today. We're already seeing that. The confidence that we have is, again, now 2,000 advisors using our models, with 1,000 coming in the last year. We're also able to see sort of vintages of seasoning. What it means when somebody starts and where they get to after three months, six months, a year or what have you? You're absolutely right; it's all about penetrating that accessible market. That's really the main goal for 2024.

Excellent. Thank you. I appreciate that. And then just one more maybe for Bryan around operating margin and potential upside there. It looks like pretty good cost control, the guidance for 2024 looks to have some opportunity. Yet the gross margin is kind of more or less where it was before, and you didn't guide adjusted operating margin. If that's a better way to talk about it, feel free to do that. But just wondering what kind of operating leverage you might see to the extent that you hit the high end of your other targets? Thank you.

Yes. There is certainly operating leverage in our business model. We showed expansion of 540 basis points this past year. If you strip out the impact of the gold buyout, it was 140 basis points of organic expansion. As we go forward from here, it's really a story about scale. It's about continued organic growth. It's about cooperating market conditions and capitalizing on our strategic initiatives. When you think about expansion going forward, I'd suggest that you view our ability to expand margins through the lens of achieving incremental margins greater than 50% in up revenue environments. That would imply a very long runway with respect to margin expansion as we scale.

Excellent. Got it. Thank you very much.

Thank you. Next question today is coming from Mike Brown from KBW. Your line is now live.

Okay. Great. Thanks for taking my questions. I was looking at Slide 14. On that slide, you lay out some use cases for tokenization across the industry. Can you just expand on how you think this trend can progress for the industry? How has investor uptake been? What's the education required? And maybe expand on why this could be a better wrapper or better mousetrap than the ETF and how will that dynamic play out over the next five or ten years?

Hey, Will. Will Peck, Head of WisdomTree Digital Assets. Why don't you take the first crack at this?

Yes, happy to. On Slide 14, we're showing where a lot of our traditional and alternative asset management competitors are operating. There's clearly been a large uptick in activity. Some live products exist, but a lot of this has been proof of concepts so far. In terms of actual investor demand at this point, you're seeing some activity in the DeFi space regarding the tokenization of real-world assets, but it's still very early. In terms of the advantages, I like to focus on three things: liquidity, transparency, and standardization. Those are three benefits that tokenization provides versus traditional methods for financial assets. We're very encouraged by what we're seeing in the industry so far, but we're also excited about our ability and nimbleness to actually bring live products to market, which we think is going to give us an advantage over other players today.

I guess maybe if you could just expand a little bit on the key advantages versus ETFs and perhaps what that growth potential could be longer term and maybe what's the key impediments to delivering on that growth potential?

Again, I see the key advantages versus ETFs being liquidity, transparency, and standardization. With liquidity, the ability to trade something 24/7, 365 is significant if you have the right market participants engaged. Transparency provides much greater visibility to market participants about who is holding what assets and where they're situated in different lifecycle phases. Finally, standardization, I think blockchain offers a powerful structure where any asset can be held in a compatible wallet. Those three advantages I believe will prove to be significant versus traditional assets over time. As for the market opportunity, we've cited something like $5 trillion in tokenized securities projected over the next five to ten years, with some people estimating up to $10 trillion. A lot of people point to regulation as a catalyst for this growth. To me, the most crucial factor will be the actual launching of live products, acquiring customers, and placing offerings in the market—something we are actively engaged in with WisdomTree Prime and our institutional user portal. This will drive continued growth and adoption.

Let me add. One of the real advantages will be around the user experience. By that, I mean you'll gain much greater control of your assets compared to the existing infrastructure. Your savings, vesting, and payment functionalities will connect much more closely. This flexibility will generate significant excitement among investors over time. Those who remember the early days of ETFs might have viewed them as a niche structure, but the user experience proved to be compelling enough that it ultimately converted every single liquid asset available. I believe that the trend for tokenization will follow a similar trajectory, potentially leading to the tokenization of every asset, integrating both crypto and traditional assets seamlessly, along with illiquid assets. By leveraging the advantages of this decentralized structure, we feel fortunate to be launching in this segment of the market ahead of many others.

Great. Thank you for all that color. That's really fascinating. Maybe if I just change gears to USFR. With the Fed soon shifting to easing with timing still unclear there, how do you believe investor sentiment for the USFR product could progress in a declining rate environment? Could there be some growth headwinds, but ultimately, the outlook is still good assuming rates stay relatively high compared to historical levels? Additionally, 21% of your AUM is tied to fixed income. How well do you believe the rest of the fixed income franchise will perform in what looks to be a great opportunity for fixed income flows as investors reallocate?

Good question. Thank you. Jeremy Schwartz, our global CIO, why don't you take the first shot at this?

Yes. We're excited to have this conversation today because the environment for USFR still appears quite attractive. The performance we've seen throughout this cycle has been strong, with USFR now close to a 5.5% yield. The ten-year yield is still 150 basis points below it, resulting in an inverted yield curve. There has been no volatility due to the very stable rate resetting, and many think that USFR can still gain market share from cash holdings. We've launched new funds that can help clients extend their duration, and we’ll continue to enhance our existing fixed-income offerings. There's a fantastic story on just the current market environment, which remains quite favorable for USFR.

Thank you, Jeremy.

Okay, great. Thank you very much.

Thank you. Next question is coming from Keith Housum from Northcoast Research. Your line is now live.

Good morning, guys. I appreciate the color on the portfolio solutions as well. If you can dig a little bit deeper there. You guys mentioned trying to deepen the relationship with your customers there. How, in fact, do you guys plan on deepening those relationships? And what is your competition level with those people that you want to deepen your relationship with?

Jarrett, do you want to start?

Sure. We are competing with some of the biggest names out there and are doing extremely well. We're doing exceptionally well because of our holistic focus. We have content and tools that allows advisers to do analysis and create customized reports for their end clients. This was part of the reason for our branding change. It's more than just models; it's a holistic approach. Additionally, we work closely with advisers to get them up on our models and get them using models. I often mention that a significant macro trend in wealth management is financial advisers using centralized models. We're at the forefront of this change, which provides opportunities. Our growth strategy is about penetrating and seasoning our models clients, continuously expanding their use of our program.

Great. Thank you.

Thank you. Next question is coming from Michael Cyprys from Morgan Stanley. Your line is now live.

Great. Thanks! I wanted to follow up a bit on the commentary around tokenization. The benefits that you've outlined sound compelling. However, I understand it's still early days. I was hoping you can elaborate on some of the hurdles holding back further adoption across the industry? What catalysts do you think could accelerate adoption? How long do you think this can take? Is it a five to ten-year journey in terms of widespread adoption? What sort of progress can we expect in 2024 that can really help move the dial on adoption across the industry?

Thank you, Michael. I would say the biggest hurdle to adoption has been regulation; the regulatory environment has been challenging, but we've made tremendous progress with recent developments, whether it's the Bitcoin ETP launch in the U.S. or the approvals we've achieved. However, regulatory approvals don’t happen overnight. The fact is, we started this journey three or four years ago as others are just now discussing proof of concepts. As we launch live products and engage customers, we will see adoption based on better experiences, functionality, and efficiency. This better user experience will drive tokenization adoption, and you’ll see WisdomTree leading that charge starting in Q2 with more downloads and funded accounts.

The one thing I'd point out is that while token assets may have greater liquidity potential, real liquidity won't happen without true demand and proper market participants. Many people have tokenized various assets but without liquidity provision, they don't actually trade as expected. We've built both retail and institutional product offerings to meet customer needs as we drive adoption through actual products and utility, which we'll continue to grow.

That's a great point, Will. Those who are on board with tokenization are experiencing greater asset control and functionality, much like the early days of ETFs. The flexibility this brings will prove beneficial over time. The trajectory for tokenization appears strong and will evolve as we realize the substantial benefits to investors.

Great. Just a follow-up question on capital management. I wanted to know about your priorities around cash generation and how you're thinking about that moving forward. Additionally, regarding strategic M&A, where could that be most additive for WisdomTree at this point? I understand you may have sold down your stake in Securrency; could you update us on that relationship?

Bryan, why don't you start with capital management?

We've been very active over the past few years. We retired a gold royalty obligation, which was a $90 million cash outlay. We have another $44 million payable over the next three years. We've also paid down $45 million in debt this past June. Over the last four years, we’ve bought back around 15 million shares, amounting to $70 million in stock repurchases. Going forward, our primary commitment is our dividend; buybacks will always be considered and weighed against our desire to further reduce debt. We want to keep our leverage optimized; for example, we have another $150 million maturing in 2026. We prioritize the return we could earn from investing our cash versus early debt retirement.

Regarding strategic M&A, this has been a secondary but implemented strategy within WisdomTree. We maintain high hurdles for our M&A activities, but our past ventures have been accretive. If we see opportunities that enhance our digital efforts, we may look to make additional investments, although we maintain high hurdles before pursuing new M&A.

Great. Thank you so much.

Thank you. We reach the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

I just wanted to thank everybody for their attention today, and we'll speak to you shortly. Have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.