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

Greetings, and welcome to the WisdomTree Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce Jessica Zaloom, Head of Corporate Communications. Please go ahead.

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 initially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation. in the Risk Factors section of WisdomTree's annual report on Form 10-K for the year ended December 31, 2025, and in subsequent reports filed with or furnished to the Securities and Exchange Commission. 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 WidsomTree's CFO, Bryan Edmiston.

Thank you, Jessica, and good morning, everyone. I'll begin with a review of our second quarter results, followed by updates to our forward-looking guidance before turning the call over to Jarrett and John for additional business updates. Our assets under management reached $162.9 billion at quarter end, marking our sixth consecutive quarter of record AUM. Assets increased 7% from March 31, driven by favorable market conditions, positive net inflows and the addition of Atlantic House, which closed on May 1. Record AUM was achieved across both our U.S. and European businesses, reflecting continued growth across our global platform. During the quarter, we generated $3.1 billion of net inflows, including $2.1 billion in Europe and $1 billion in the U.S. Year-to-date net inflows totaled $9 billion, representing an annualized organic growth rate of approximately 13%. Flows were generated across a broad range of strategies and geographies contributing to another quarter of strong organic growth. We also completed the acquisition of Atlantic House, adding more than $4 billion of assets under management along with complementary revenue streams. The acquisition expands our presence in Europe, enhances our capabilities in outcome-oriented and derivatives-based investment solutions and provides additional avenues for growth across our international business. Alongside our growth initiatives, we continue to execute upon our capital management priorities. During the quarter, we retired approximately $127 million principal amount of our convertible notes maturing in 2026 and 2029 using cash to reduce leverage and simplify our capital structure. We also commenced open market share repurchases during the quarter and have repurchased approximately $29 million through today, representing roughly 1.7 million shares. These repurchases reflect our confidence in the business and our commitment to enhancing shareholder value. Overall, the first half of the year has been characterized by strong organic growth, targeted strategic expansion and disciplined capital allocation. Together, these initiatives have strengthened our platform and position us well for continued growth and long-term shareholder value creation. Global AUM currently stands at approximately $164 billion, up 1%, reflecting $700 million of net inflows and positive market movements since quarter end. Next slide. Revenues were $177.2 million during the quarter, an increase of 11% from the first quarter and 57% from the prior year quarter, driven by higher AUM, including the Atlantic House acquisition, contributions from Cerus and growth in other revenues. Cerus contributed $5.4 million of management fees and $6 million of performance fees. Other revenues of $19.5 million reflected higher AUM in our European products and revenues from Atlantic House, partly offset by more moderate European trading activity. Year-to-date revenues increased 53%, driven by higher AUM, elevated trading activity relative to the prior year and contributions from the Cerus and Atlantic House acquisitions. Operating leverage in our business model, together with our recent acquisitions resulted in a year-to-date adjusted operating margin of 41.1%, an expansion of 900 basis points compared to the prior year period. surpassing a 40% operating margin marks an important milestone and underscores the scalability of our operating model as we continue to grow. Adjusted net income for the quarter was $48.1 million or $0.31 per share. Next slide. Now a few comments on our forward-looking guidance. As mentioned previously, we have commenced open market share repurchases this quarter and expect to continue repurchasing our common stock over time. While we are not committing to a specific level of repurchases each quarter, we anticipate ongoing activity, balancing capital return with our continued focus on deleveraging and maintaining flexibility for strategic initiatives. Our diluted share guidance for the second half of the year is $152 million to $155 million compared with previous guidance of 154 million shares. This guidance reflects repurchases to date of 1.7 million shares and also contemplates incremental shares associated with our convertible notes, assuming a stock price approximating recent levels. As a reminder, our remaining convertible notes have conversion prices of approximately $19 and $21. An illustration is included within our earnings presentation to assist in quantifying the incremental shares associated with our convertible notes going forward. We are also updating our interest income guidance to $8 million from $10 million, reflecting the allocation of a portion of our interest earning assets to share repurchases, which we believe is a more efficient use of capital. All other elements of our forward-looking guidance remain unchanged from the guidance we provided last quarter. That concludes my remarks. I will now turn the call over to Jarrett.

Thanks, Bryan, and good morning, everyone. This was another strong quarter for WisdomTree and more importantly, another quarter that demonstrated the strength of the business we've been building. Repeating some of the metrics that Bryan just listed. In the quarter, we generated $3.1 billion of net inflows. Year-to-date, we've delivered a 13% annualized organic growth rate. We finished the quarter with a record $162.9 billion of assets under management, our sixth consecutive quarter, ending at an all-time high. and we delivered adjusted earnings per share of $0.31, while expanding our adjusted operating margin by 900 basis points year-over-year. Those are excellent results. But what I find most encouraging isn't any single number, it's where those results came from. For several years, we've talked about creating more ways to win, building a business with greater breadth across geographies, client channels, investment capabilities and revenue streams and this quarter showed exactly what that looks like. Growth came from both the U.S. and Europe. It came from multiple asset classes, multiple client segments and businesses we've deliberately invested in over several years. No single product or market drove the quarter. And that diversification matters because it makes the business more durable. It gives us greater confidence that we can continue to perform across different market environments rather than depending on 1 product, 1 theme or 1 geography. Portfolio Solutions is another highlight. We've invested heavily in building deeper relationships with advisers, through models and SMAs, and that business continues to grow faster than the firm overall. and those are long-term relationships with stickier assets that should become an increasingly important contributor to our organic growth over time. This quarter also demonstrates the strength of our operating model as we've continued to grow organically, we've translated that growth into higher revenues, expanding margins and higher earnings while continuing to invest in the business. We're also executing against our broader strategic priorities. During the quarter, we completed the Atlanta House acquisition. We continued integrating Cerus, and we've repurchased approximately 1.7 million of our shares, and each reflects the disciplined way we're building the firm while thoughtfully allocating capital. So overall, the quarter reinforces something we've been saying for a long time. The strategy is working. We're creating more ways to win. Growth is becoming broader and more durable and the operating model is delivering exactly as we expected. And with that, I'll turn it over to Jono.

Thank you, Jarrett, and good morning, everyone. As Bryan and Jarrett had said, this was another strong quarter for WisdomTree, with record average AUM, strong diversified net inflows, adjusted operating margin expansion to 42.6% for the second quarter and EPS growth up 72% year-over-year and 15% from last quarter. This quarter also marks an important milestone for WisdomTree, 20 years since we launched our first 20 ETFs. Over the last 2 decades, we have grown from an ETF pioneer into a truly modern global asset manager, spanning exchange-traded products, private markets and tokenized financial infrastructure. years of disciplined investments are tangibly paying off. Our operating model continues to do exactly what it was designed to do, translate sustained top line growth into expanding profitability and earnings per share growth. For years, we've described the financial model we're building at WisdomTree. Today, we are seeing that model play out. It starts with sustained organic growth, layer on appreciation over time as you generate consistent asset growth, add a stable to improving revenue yield as we diversify into higher-value capabilities like private markets and liquid alternatives, and you create the potential for double-digit revenue growth through the market cycle. That revenue growth drives operating leverage. We've consistently generated incremental margins of more than 50%, that formula has delivered compound annual earnings per share growth of 30% over the past 5 years and more than 50% over the past 3 years. And now with disciplined share repurchases, we've added another lever for long-term earnings per share growth. Switching gears. As you know, WisdomTree spend years building 1 of the industry's most advanced tokenization platforms. Today, public markets are assigning billion dollar valuation to companies focused on tokenized financial infrastructure. yet we believe our own platform, which spans regulated infrastructure, tokenized investment products and institutional distribution capabilities and digital asset services is largely unrecognized in our current valuation. If WisdomTree was simply a global ETF franchise with industry-leading organic growth, expanding operating margins and consistent earnings per share growth, we believe it should command a meaningfully higher valuation than where our shares trade today. But we are not simply an ETF company. We also have a growing private markets business with meaningfully higher revenue yields and expanded liquid alternatives platform through Atlantic House and a tokenization business that we believe is not reflected our current share price. As Bryan mentioned, we repurchased $29 million of our stock at an average price of $17.40. We will continue approaching capital allocation with discipline. And at today's valuation, we believe repurchasing our own shares remains 1 of the most compelling opportunities to create long-term shareholder value. In conclusion, 20 years after launching our first EPS, our vision has remained remarkably consistent. Our business has never been stronger, and we believe we're still in the early innings of what this platform can become. Our vision has never changed. the world around it has. That concludes my remarks. Thank you. We can now open the call up to questions.

[Operator Instructions] And our first question comes from the line of Chris Kotowski with Oppenheimer.

I wonder, just a couple of things. One is we were wondering is there a cadence to the Cerus both flows and or -- and also the incentive fees from Cerus or should we assume that those are kind of random through the year?

Bryan, do you want to go first on that?

Yes, I could take that question. On the flows, if you recall, we generated, I think it was $75 million in the first quarter. I suggest that's a nice quarter for us. It was about $5 million this quarter, but we just -- we closed the flagship fund to new investment. We just launched Fund II. So there's a transition period there with respect to flow cadence. I wouldn't necessarily think of flows fits and starts, although there may be certain periods in the year where it may very well be fits and starts. But this particular quarter, it was a transition quarter, and I think I'd attribute it to that. On the performance fee, $6 million this quarter was maybe $3 million in the prior quarter, if memory serves correctly. The first quarter does have some seasonality in it. There is some seasonality with respect to the performance fee structures. This $6 million number in my mind is a, call it, more normalized number. if you're thinking about modeling, I guess I'd keep my message consistent, just take our AUM and multiply it by a reasonable rate of return, maybe 7% or 8% and multiply that by a 15% fee capture.

And I just -- I'd throw 1 more thing on about Cerus. We're very happy that the Cerus team is part of the WisdomTree team today. And as Bryan said, a little bit of transition or integration right now as we've closed Fund 1 to new investment, launched Fund II in June, but more importantly, the pipeline looks great. We've got over 100 interested investors that have come from the WisdomTree distribution team representing over $100 million of assets. So feeling very good today.

Okay. Great. Then the other kind of more technical modeling question is you had Atlantic House in for 2 months of the quarter. And I guess we can see the advisory fees just from the AUM disclosures that you give. But just I'm curious in terms of the AUA and the structuring fees that they generate, how would that -- have looked in your P&L that you disclosed on Page 23. How would we have looked at that -- if Atlantic House had been in for the whole quarter?

Yes. And I'll take this 1 again. Atlantic House, we closed on May 1. We have 2 months of Atlantic house in our P&L. as it relates to the advisory fees, that should be straightforward because you have our AUM, you have our fees that we're earning on our AUM, that's all embedded in the information that we provide on our website. The other portion of Atlantic House rolls through other revenue. They have a models business, there's about $1.5 billion of assets, AUA in their models business that captures 25 basis points. That's not going to fluctuate meaningfully quarter-to-quarter. sort over that math is -- would establish a good run rate. It will grow over time, but it's not going to be highly sporadic, the structuring fee stuff, that could ebb and flow each quarter -- last -- the prior 12 months, just to provide some kind of indication as it relates to magnitude, in the 2025 year that number was $13 million for the year. And again, I can't tell you exactly how that's going to come in each quarter because it's dependent upon when a particular product is structured, launched and issued. But that was their baseline number in '25. We think there's a lot of opportunity to grow that line over time by providing those offerings not only in the U.K. market, but also in the U.S. and Europe as well.

Right. But we'll see all the Atlantic House revenues and what you classified other revenues in European.

In other revenue, and then if I were just to shed a little color on other revenue, we were $19 million this quarter, $16 million last quarter. It's probably a good baseline going into the third quarter. We'll have 1 more month of Atlantic House, but the transaction fees, markets aren't as volatile as they once were in our European products that might be a partial offset versus Atlantic House rolling in for a full 3 months next quarter.

The next question comes from the line of George Sutton with Craig-Hallum Capital Group.

First, 41% margin is just outstanding. Congratulations. So I wondered, Jono, as we look at this, the market has endorsed and I believe we'll continue to endorse your M&A strategy. As I look at the AUM breakdown chart, you've got some smaller sleeves, obviously, like the newer private assets or liquid alts. I'm curious how you're thinking of broadening out via future M&A? Would it be in some of these smaller sleeves? Would you be looking for more international distribution. Just curious how you're thinking about that.

Thanks for the question, George. So first, M&A has historically been and I think will continue to be a secondary strategy, though I think we have proven to be very adept at it, considering that we've made now 3 acquisitions in Europe, plus of private assets Cerus acquisition. We have guardrails when we're trying to make acquisitions. We want it to be accretive, we'd like it to be revenue enhancing or revenue capture enhancing and really strategically important to the firm as opposed to just trying to buy AUM for the sake of AUM. I think you have to be somewhat opportunistic, which we were in both Cerus and in Atlantic House. So -- but I think we'll continue to try to find those winning opportunities. And when we do well, I think, pounce on them again, if -- particularly if it meets those criteria.

So I'm curious relative to your tokenized plans, where are we in terms of expanding partnerships. And we're in a weird period, I think, in the tokenized market, but we are also hopefully just in front of the Clarity. I'm just kind of curious how you're thinking of expansion opportunities in that part of the market.

Will?