WisdomTree, Inc. (WT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the WisdomTree Investments Annual Meeting. At this time, I would like to turn the conference over to Mr. Frank Salerno.

I'd like to ask that the meeting come to order. Good morning. My name is Frank Salerno, and I am Chairman of the Board of WisdomTree Investments. It is with great pleasure that I welcome you this morning to our 2020 Annual Stockholders Meeting, which is being held virtually. Before we begin the official business of this meeting, I would like to note that in 2019, we made important strides, positioning the business for sustainable growth. Our diversification efforts in investment and distribution over recent years continue to benefit results with positive net flows and asset growth in 2019 across key asset classes. Mindful of our precious resources and with an eye towards maximizing long-term growth and shareholder value, we divested our Canadian franchise and pursued an exit from our investment in AdvisorEngine. We leaned into model portfolios and our collaboration with Professor Jeremy Siegel and made a minority investment in Securrency, a blockchain financial services infrastructure firm. We entered 2020 with significant momentum. However, the spread of COVID-19 across the globe upended capital markets and temporarily shut down large segments of the global economy. Operationally, we were prepared, and our business is running smoothly with the remote workforce. We have the most modern infrastructure as well as a business model that leverages the strength of the largest and best-capitalized financial services firms. We are committed to the health and well-being of our employees and the franchise and we are responsibly managing costs. WisdomTree remains differentiated, confident and well positioned on the right side of secular trends and despite the challenging environment, we are seeing encouraging signs that our investments are paying off. I would like to turn the meeting over to Jonathan.

Good morning, everyone. I am Jonathan Steinberg, CEO of WisdomTree Investments. It is a pleasure to welcome our stockholders to our annual meeting. And our meeting today will consist of 2 phases. First, we will take care of the formal business at hand, which is described in the proxy statement for this meeting. A copy of the agenda is on our annual meeting web portal. Following adjournment of the formal proceedings, I will take questions. You may post your questions online at any time and I will address them at the end of the meeting. Only WisdomTree stockholders who have entered their 16-digit control number to participate in this meeting will be able to ask questions. Before proceeding to the formal business, I would like to introduce our directors who are with us today. Our outside directors, in addition to our Chairman, Frank Salerno, are Tony Bossone, Susan Cosgrove, Bruce Lavine and Win Neuger. In addition, I would like to acknowledge our Executive Officers: Jarrett Lilien, President and Chief Operating Officer; Stu Bell, Chief Operating Officer at WisdomTree Asset Management; Marci Frankenthaler, Chief Legal Officer and Secretary; Alexis Marinof, Head of WisdomTree Europe; Amit Muni, CFO; Jeremy Schwartz, Global Head of Research; and Peter Ziemba, Chief Administrative Officer. Our independent auditor, the firm of Ernst & Young, is represented at this meeting by Eyal Seinfeld and Lindsay Hill. Our outside counsel, the firm of Goodwin Procter, is represented by Jocelyn Arel. Thank you. Now let's proceed to the formal business of the meeting. Marci Frankenthaler, our Secretary, will act as secretary of this meeting.

Mr. Steinberg, I present to you the affidavit of distribution of Joanne Vogel of Broadridge Financial Solutions, Inc. dated May 6, 2020. This affidavit states that commencing on April 29, 2020, notice of the meeting was mailed to all stockholders of record at the close of business on April 24, 2020. I also present you a list of the stockholders of record as of the close of business on April 24. A duplicate record has been on file at the company's principal place of business for the last 10 days immediately prior to the date of this meeting and has been available for inspection by any stockholder during that period at any time during normal business hours.

Thank you, Marci. [Operator Instructions] I hereby appoint [ Henry Farrell ] to act as inspector of elections for this meeting. He will tabulate the voting results. The inspector of elections has signed his oath of office, which will be filed with the minutes of this meeting. [ Mr. Farrell ], do we have a quorum present?

Mr. Steinberg, of the 156,424,840 shares of common stock entitled to vote at the meeting, at least a majority of the shares are represented either in person or by proxy and therefore, a quorum is present.

Thank you. We may now proceed to transact the business for which this meeting has been called. Let me briefly describe the voting procedures. Stockholders who have previously turned in their proxy or voted by any of the other available means described in the proxy statement and do not want to change their vote, do not need to take any further action. Your vote will be counted. It is now 11:06. If you are eligible to vote and have not submitted your proxy or if you want to change your vote, the polls are open. You can cast your vote via the annual meeting web portal during the meeting until the polls are closed. The first item of business is the election of directors. At this meeting, we will be voting on 2 nominees for Class III Directors to serve for the term of 3 years, as stated in the proxy statement. In accordance to the bylaws, your directors have nominated Frank Salerno and Jonathan Steinberg to be elected to serve as Class III Directors. The company's bylaws require that a stockholder provide advanced notice to the company of a stockholder's intent to nominate persons or directors. No such notice was received. Accordingly, I declare the nominations for directors closed. The Board of Directors unanimously recommended that stockholders vote in favor of these nominees.

I move for their election.

I second the motion.

Anyone who is voting by electronic means, please do so now. [Voting]

The second item of business is the ratification of Ernst & Young as the company's independent registered public accounting firm for the fiscal year ending 12/31/2020. The Audit Committee of the Board of Directors, which is comprised entirely of independent directors, appointed Ernst & Young as the company's independent registered public accounting firm to audit the company's financial statements for the fiscal year ending December 31, 2020. Stockholder ratification is not required by the company's bylaws. However, the Board of Directors is submitting this to stockholders for ratification as a matter of good corporate governance. If the stockholders do not approve the selection of Ernst & Young as the company's independent registered public accounting firm, the Audit Committee will reconsider the appointment.

I move for ratification.

I second the motion.

Anyone who is voting by electronic means, please do so now. [Voting]

The third item of business is the vote on an advisory resolution to approve the compensation of the company's named executive officers, as disclosed in the proxy statement pursuant to Item 402 of Regulation S-K. The Board of Directors unanimously recommended that stockholders vote in favor of this proposal.

I move to approve, on an advisory basis, the compensation of the company's named executive officers, as disclosed in the proxy statement pursuant to Item 402 of Regulation S-K.

I second the motion.

Anyone who is voting by electronic means, please do so now. [Voting]

We will now close the polls. It is 11:09 on June 18, 2020, and the polls for each matter to be voted on at this meeting are now closed. No additional proxies or votes and no changes or revocations will be accepted. I will now ask the inspector of elections to report on the voting results. I remind everyone that these results are based on the votes received prior to the meeting and that the final number will be verified and reported by the inspector of elections and recorded in the minutes. Is the inspector prepared to announce the preliminary voting results?

Yes. With regards to Proposal 1, a majority of the votes cast have been voted in favor of the election of the persons nominated. With regards to Proposal 2, a majority of the votes cast have been voted in favor of the ratification of the appointment of Ernst & Young as the company's independent registered accounting firm for the fiscal year ending December 31, 2020. With regards to Proposal 3, a majority of the votes have been voted in favor of an advisory resolution to approve the compensation of the company's named executive officers.

Thank you. The final results will be included in our reports filed with the SEC. There being no other matters for consideration at this meeting, I will entertain a motion to adjourn this meeting.

I so move.

I second the motion.

The formal part of this meeting is now adjourned. At this time, I would like to give everyone a chance to ask questions. Ms. Frankenthaler, please recite our cautionary statement.

The following answers 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 the Risk Factors section in WisdomTree's annual report on Form 10-K for the year ended December 31, 2019, and quarterly report on Form 10-Q for the quarter ended March 31, 2020. WisdomTree assumes no duty and does not undertake to update any forward-looking statements.

This is Marci Frankenthaler, and I will respond -- I will read the first question and then provide an answer to it. The first question is, "I really like virtual shareholder meetings as it makes it easier to attend. Out of curiosity, how many are attending this meeting?" We have a small number of shareholders attending our virtual meeting, but welcome shareholders to attend our virtual meetings in the future. And we've been holding virtual meetings for a long time, so this is something that we very much like to engage in. Our next question is, and I will read it, "Can you give us an idea of how you think about operating margins percentages range as business builds AUM to $75 billion? Thank you." Amit, will you take this question?

Yes. This is Amit Muni. While we do not give guidance -- forward-looking guidance on operating margins, just some things to think about generally. There is a lot of operating leverage in our business as our AUM continues to scale. Because of our business model, the way our expenses are built, they will decline as a percentage of our revenues as our revenues increase, particularly around compensation, gross margins and our other AUM variable costs. So as AUM scales, we do expect to see increases in our operating margin.

Next question. "After current financing and buyback executed, more how should we look at how aggressive or not the company might continue the buyback program this year?"

When we think about our capital generally, we want to make sure that we make -- we have cash available so that we can make investments in our business, whether organic or inorganic opportunities. Second is to return capital to our shareholders through dividends and buybacks. And third, we do have debt to make sure that we do have enough cash to eventually pay that off at the end of 3 years. Currently, we just did a very large buyback in connection with our convertible debt offering. And so I think how we allocate between those 3 buckets will be about how our AUM continues to scale from here. If we continue to see AUM rise, cash earnings increase, we may consider changing how we allocate that capital to increase buybacks. But that will all again depend upon how our AUM and earnings power scales from here.

Our next question is, "As the industry consolidates with only a few firms dominating the market, how does a small firm like WisdomTree compete and grow profitably?"

Thank you. Jono Steinberg. I'll take that one. It requires great, passionate teammates, workforce and a great coordination amongst the members, which I think we really have. It also requires great products. And that we, as an organization, move with speed and urgency and focus. But bottom line is you have to grow your assets and you really have to be very focused on your cost structure. But like a recent example, at the end of last year, WisdomTree launched a thematic fund, an emerging cloud fund, WCLD. And that fund, year-to-date, is up 45%. It's the best-performing technology fund in the United States. We've raised over $250 million year-to-date in the United States, but we've also launched it in the usage structure in Europe and showing great coordination between our global franchise. And there, we've raised another $100 million. But basically, that is how we tackle the issues of growing in a very competitive business. Marci, next question?

Next question. "The SEC seems to have a just-say-no attitude towards Bitcoin ETFs. Would it not be easier to do one with Ethereum, which does not have the dubious background or use cases as Bitcoin?" And the second part of that question is also, "What makes the WisdomTree Bitcoin ETF different from the others the SEC has flushed?"

Thank you for the question. So one, I think the news media has recently sort of misrepresented our recent filing. What we have, we have a broad commodity fund that we will be launching in the 40 Act. And as part of that broad exposure to commodities, we're seeking the ability to have up to 5% of our assets in Bitcoin futures. Now I don't know if the SEC is forever going to be a no to Bitcoins, but we think it would be additive and of investor interest. And so we will do our best to work with the SEC to alleviate any concerns that they might have. In terms of their overall feeling towards Bitcoin versus other instruments like Ethereum, I think that their concern is on broadly digital assets, crypto assets and expect that they would be -- they would not be any more favorable upon an Ethereum launch as they would be to a Bitcoin launch. And I'm not sure that there would be great investor demand for that. So we have to balance what we can, investor desire with what the SEC will allow. Marci, if there's another question?

There is one final question. "Can you please give us an update on partnership progress with Securrency?"

Yes. So as Frank mentioned at the opening of his comments, WisdomTree made a minority investment in a blockchain infrastructure company, financial service infrastructure company called Securrency. And we made that investment with an eye towards bringing to market asset management onto the blockchain as we see there could be substantial customer benefits for doing so. This is cutting-edge in terms of new product structure, and we'd have to work very, very carefully and closely with the SEC and other regulators, which we are more than prepared to do. When you think that WisdomTree launched our first funds in 2006, we were 13 years behind State Street, who launched the first ETF. With digital assets on the blockchain, WisdomTree has an opportunity to be first or truly amongst the very first with these, but there is no guarantee on time frame. We do have to work with the regulators. But we do see that we could improve upon this existing structure ETFs. And that's really one of the mantras for WisdomTree, from a product development standpoint, is to always try to envision what would be the best structure to compete. And our strategy team and others at the company have determined that this is an important direction and so that's what we are trying to accomplish. Marci, are there any other questions?

We have -- one additional question came in. "If you can provide an update on how Siegel Model Portfolio are doing in terms of interest inflows."

So -- thank you for that question. We really have been working since the very beginning of WisdomTree back in 2004 with Professor Siegel, and he is an intimate part of our research, investment committee, product development, and we have expanded that relationship to Model Portfolios. There has been -- now we've only very recently launched the Siegel portfolios, but we have gotten a tremendous amount of interest. And we aren't breaking out, at least at this point, assets flows into those models. But I will say that models are a key initiative for the firm. Models have been growing. Model-acted AUM is at record highs and they were growing in the first quarter. But I do believe we'll have some positive substantial updates around specifically, the Siegel models on upcoming earnings calls. Thank you.

There are no further questions, so I'm going to turn it back over to the operator.

If there are no further questions, this will conclude the 2020 Annual Stockholders Meeting. Thank you for attending, and thank you for your commitment to WisdomTree. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.