WisdomTree Inc (WT) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the WisdomTree, Q1 earning's conference call. At this time all participants are in a listen only mode.

(Operator Instructions)

As a reminder today's conference is being recorded. I would now like to introduce your host of today's conference call, WisdomTree Investor Relations, Stuart Bell 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 safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward looking statements generally can be identified by the use of forward looking terminology such as believe, expect, anticipate and similar expressions suggesting future outcomes or events. Such forward looking statements reflect our current expectations regarding future events and operating performance, and speak only as of the date of this presentation. Such forward looking statements are based on a number of assumptions which may prove to be incorrect.

Forward looking statements involve significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether or not or the times at or by which such performance or results will be achieved. A number of risks and other factors could cause actual results to differ materially from the results discussed in forward looking statements. Included but not limited to, the risk set forth in this presentation, and in the risk factor's section in the Company's annual report on form 10K, for the fiscal year ended December 31, 2012.

Now, it is my pleasure to turn the call over to WisdomTree's CEO, Jonathan Steinberg.

Thank you. Good morning everybody and welcome to WisdomTree's, first quarter conference call. Fellow shareholders, the first quarter was another record quarter. Our assets under management ended Q1 up 37% to over $25 billion. As of today, our assets are up 50% year-to-date to a record $27.6 billion.

We had record inflows of $5.9 billion. Very strong market share of inflows of 10.8%. Also record revenues, $29.3 million in Q1 up 53% year-over-year and up 25% sequentially.

Record net income of $7.9 million up over 600% year-over-year and up 49% sequentially. Our pre-tax profit margin expanded significantly to 27% a 5 percentage point increase, in just one quarter's time. This key metric displays our corporate discipline and operational efficiencies.

Later on the call, Amit Muni, WisdomTree's CFO, will walk you through our financials, and our current expense guidance.

Our execution across all business functions defined the success of the quarter. It is simply a testament to the talent and dedication of the 72 people at WisdomTree.

Our incredible efficiency as a firm is becoming apparent to anyone who is watching our business scale.

Finally, the second quarter is also off to another strong start with more than $1.5 billion of inflows quarter to date.

Let's move on and take a look at WisdomTree's net inflows. As stated in the press release, WisdomTree had $5.9 billion of inflows in Q1. You can see how this compares to the last four quarters. In Q1 of 2012, we took in $2.3 billion, which was a record quarter for WisdomTree until this most recent quarter.

In fact, if you look at the right-hand side of the page, you can see how Q1 stacked up against the full year inflows of 2011 and 2012.

In one quarter alone, this was our best year ever. Let's take a look at our inflows by category.

In addition to the $3.9 billion raised by DXJ, our Japan hedged equity ETF, WisdomTree raised an additional $1.9 billion this quarter. It was a strong and balanced quarter of inflows overall. On the top right, we isolate our current and historical flows in the fixed income category. Q1 was our best quarter ever in fixed income, with inflows over $0.5 billion. I do not want this accomplishment to be overlooked in a quarter of great accomplishments.

Our growing strength in fixed income is an extremely positive development for our business.

On the bottom right chart, we compare our emerging market equity inflows to the other leading ETF sponsors. WisdomTree led all firms in emerging market equity inflows with $876 million. No matter how you look at the quarter, from an inflow perspective, it was simply outstanding and better than everyone's expectations.

Now let's look at a little bit more closely at our Japan inflows. In Q1, at the overall industry level, Japan focused ETF's took in $5.4 billion.

WisdomTree's share of that was 72% or $3.9 billion. Our differentiated approach to product strategy really paid off this quarter. In fact, DXJ led all ETF's across the industry in asset gathering in Q1, a tremendous accomplishment.

As we discuss Japan, let me address a question which has been asked frequently. Where's the money in DXJ coming from? On the right, we look at DXJ's estimated inflows in Q1 by channel, and we compare that to our current assets under management by channel for the total complex since the firm's inception.

As you can see, the inflows for DXJ do not differ significantly from our historical patterns of channel representation. One notable development in DXJ's inflows, is the healthy 12% from the international channel.

DXJ has become a globally recognized security. Taken together, the success of DXJ reinforces WisdomTree's business model, its growth story, and also reinforces WisdomTree as an innovative and highly competitive firm within the ETF industry.

Now let's look at our market share of inflows. On the left you can see the last five quarters of market share. The first quarter, as I said before, was very strong coming in at 10.8%. I want to remind investors again that market share can be a very volatile metric, and can move around dramatically from quarter to quarter. On the right side of the page we put our market share into context.

You can see that WisdomTree came in third overall, only behind Vanguard and iShares. WisdomTree continues to compete very effectively against the established giants in the ETF industry.

Now let's put this quarter into a broader context, and compare our inflows in Q1 versus the other leading mutual fund and ETF complexes.

WisdomTree was the ninth best active gatherer overall in Q1, according to MorningStar. This is up significantly from our 2012 ranking. I am incredibly proud of the collective effort at the Company which led to such a significant accomplishment. Being the ninth best asset gatherer, again exceeded everyone's expectations.

Now let's look at WisdomTree's organic growth rates, as they compare to the other publicly traded asset managers, and leading ETF firms.

Many of you on today's call are already familiar with this slide. WisdomTree remains the fastest growing publicly traded asset manager, with 32% organic growth in Q1. This is an important metric for WisdomTree shareholders. And as the only pure play publicly traded ETF sponsor, WisdomTree remains uniquely well positioned for investors who want direct exposure to the ETF industry.

On the right, we compare WisdomTree's organic growth in assets, to that of the other leading ETF sponsors, with 32% organic growth, WisdomTree was the fastest growing in percentage terms, of all of the leading ETF firms.

Again, WisdomTree is competing very effectively against the established giant, and WisdomTree is taking market share.

On the next page, let's look at the performance of our equity funds. The one year performance numbers ending March 31, 44% of our funds and 36% of our assets outperformed the no fee benchmarks. Our three, five, and since inception numbers remain very compelling. In each of those periods, a clear majority of our funds and assets created alpha.

Now it is my pleasure to introduce, Amit Muni, WisdomTree's CFO.

Thank you, John, and good morning, everyone.

Our strong operating results have translated into another record quarter for us financially. Revenues continued to grow, reaching $29.3 million in the first quarter, up 53% from the first quarter of last year, and up 25% from the fourth quarter.

Our pro forma operating expenses increased only 24% to $21.5 million, and our net income was a record $7.9 million or $0.06 per share.

On the next slide you can see how the changes in AUM helped drive our strong revenue growth. The record inflows of $5.9 billion along with $900 million of positive market movement drove our AUM higher this quarter.

You can see in the bar graph in the middle, how the strong flows in DXJ helped drive the 29% increase in our average AUM. These strong flows also affected the mix of our AUM, which is reflected on the right-hand bar chart. Resulting in international ETF's changing to 29% of our AUM at the end the quarter.

You can see we have a much more balanced product mix now. The operating efficiency and leverage of our business model is clearly apparent when you see the growth in key margin metrics on the next slide. Our gross margin increased to 72% in the first quarter, compared to 68% in the fourth quarter, and 63% in the first quarter of last year.

Higher AUM as well, at the end of our joint venture with the Bank of New York, helped drive these higher gross margins. Our pretax operating margin also grew significantly to 27% in the first quarter, from 22% in the fourth quarter, and 10% from the first quarter of last year.

Remember, we are targeting a 40% pretax operating margin, at approximately $35 billion of a AUM.

The higher margins are being driven by strong ETF revenue growth, which you can review on the next slide. Our ETF revenues reached a record $29 million in the first quarter, with particularly strong revenue growth in international and emerging market ETFs, along with fixed income.

Our average advisory fee remain unchanged at 54 basis points, but because of the mix change towards international, it is 53 basis points today.

Now I'd like to review our expenses on the next slide.

First I'll go through the major changes in our expenses. We had $18 million of expenses in the fourth quarter. Higher AUM increased fund related costs by $1.3 million. Due to the positive equity market environment, and in line with our guidance that we would be increasing our investment in marketing and sales related initiatives this year, marketing and sales spending was up by $1 million.

We incurred higher compensation costs of $936,000 due to higher accrued incentive compensation as a result of our strong results, as well as seasonably higher payroll taxes, due to bonus payments, investing of restricted stock to our employees. We also added two new people to our sales force this quarter, bringing our overall headcount to 72.

Stock-based compensation increased $381,000. As a result of ending our joint venture with the Bank of New York, fund related costs increased $566,000 as we incurred fees that were previously paid by the Bank of New York. However, we saved about $1.2 million from no longer having to share revenue. This resulted in net savings of about $640,000.

We also no longer incurred variable stock-based compensation, which saved us $200,000. This resulted in total expenses of $21.5 million for the quarter, an increase of 16%.

The next slide reflects the changes in the expense line items.

You can see from the chart on the left, expenses increased 24% from the first quarter of last year, for predominately the same reasons I gave on the previous slide.

On the right-hand side of this slide, you can see that our expenses continued to decline as a percent of revenues, and on the far right, you can see the 2012 full year amounts.

Let me pause here for a moment. I would like to remind you of the expense guidance we gave earlier this year. We plan to invest $5 million to $8 million this year on strategic growth initiatives. This includes additional investments in marketing to support our existing products and new products.

Second, sales initiatives and tools to support our sales force.

Third, additional ETF launches to further broaden our product offering, and lastly, hiring additional people.

While these investments will add additional short-term costs, we believe it will pay off with increased assets, and contribute to faster growth rates.

So what did we do this quarter towards that investment? This quarter we added to our sales force, increased our spend for marketing and sales initiatives, and launched a global corporate bond ETF.

In total, we spent about $1.3 million. And at the same time, generated record revenues, net income and improved margins. We do expect our expenses to continue to decline as a percent of revenues in total, but there may be some seasonal fluctuations and not all line items will decline as a percent of revenues.

For example, marketing and sales will fluctuate, and may be flat as a percent of revenues, compared to the 2012 full year amount. But compensation cost should continue to decline as a percent of revenues, and we estimate that compensation as a percent of revenue will be between 24% and 26% for the full year 2013, which is down from the 2012 full year amount of 27.4%.

And lastly, we will continue to experience positive leverage in our gross margins, as our AUM scales. As we have always done, we will carefully manage our expenses and balance them with spending on our growth initiatives.

Our balance sheet and cash liquidity continues to improve as you can see on the next slide.

We have total assets of $76 million at March 31, which is primarily comprised of $52 million of cash and cash equivalents and $10.7 million in investments, and $11 million in revenues receivable from the WisdomTree funds.

We had 125.6 million common shares outstanding, and 140 million shares in total, when you include our options and restricted stock.

And as a reminder, we had a pretax NOL of $137 million, which tax effected is $61 million.

Now I'd like to give you an update on our results so far in April. The momentum we experienced in the first quarter continues to carryover. As of this morning, our AUM is approximately $27.6 billion, and we generated $1.6 billion in net inflows for the month. Of which $1.2 billion came in to our Japan hedged equity fund. Our average AUM is up 23% from the first quarter, which will result in higher revenues in the second quarter.

You can see on the bottom right, the ETF industry experienced strong inflows into fixed income in April, followed by equities and large outflows in commodity ETF's.

Now before turning it back to Jon, I'd like to update you on an area we are seeing positive momentum.

We continue to build out our social media presence by connecting directly with investors. The use of blogs, LinkedIn, Twitter and YouTube platforms allows us to engage with existing and potential clients. Since we started this initiative only eight months ago, we are experiencing consistent growth in number of followers, and third-party engagement.

I encourage you to follow us, which you can do right from our website, for timely access to our research material and market commentary.

So to summarize, we had a fabulous quarter, and again record revenues, net income and expanding margins, reflecting the efficiency and scalability of our business model.

The second quarter is off to a great start, and I look forward to speaking with you on our next call to update you on our progress.

Thank you and let me turn it back to Jon.

Thank you, Amit.

In 2009, WisdomTree stated that we had a longer term stretch goal of becoming a top-five player in the US ETF market. I am excited to say that we recently achieved that goal.

I am truly very proud of our recent accomplishments. But I am not satisfied. We need to continue to look forward, so we have established a new longer term stretch goal. We have laid the foundation to become $100 billion asset manager.

So that is our new vision, $100 billion in assets under management.

I feel strongly that going from 0 to $25 billion in assets will prove more difficult than going from $25 billion to $100 billion, that said, we still have plenty of hard work ahead of us. But for a number of different and compelling reasons, I believe this is an achievable long term goal.

I'd like to identify some of the strengths that WisdomTree possesses, which I believe make this goal possible, and even realistic.

First, we have a strength in equities and specifically the broadest global suite of dividend-based ETF's, which are inherently mainstream, scalable strategies, and we have a performance record to back it up.

Second, we have a proven ability to successfully diversify into new asset classes, from equities to currencies to fixed income and alternatives. If you look at other ETF sponsors, a few, but not many, have been able to parlay their early success beyond one or two categories.

WisdomTree has a prowess for product development, and we made product strategy a focus at the top of our organization.

Third, we are effective and efficient marketers. We are intelligently utilizing traditional online and new social media resources, to build a brand and to communicate messages, which resonate with financial advisors and their clients.

WisdomTree is establishing itself as a trusted brand.

Fourth, we have assembled a cohesive veteran leadership team, and a deep bench of dedicated employees. We have invested in their development, and maintain excellent employee relations.

And fifth, most importantly, we have a laser focused commitment to ETF's, which will continue to take market share, significant market share from other structures. Again, we are competing effectively with the established giants.

WisdomTree will grow with the growth of the ETF marketplace.

In the last seven years, ETF's have had inflows of $1 trillion. I expect significantly more than that over the next seven years.

In summary, Q1 was a transformational quarter for WisdomTree. In the years leading up to today, we laid the foundation to be a leader in the ETF industry. We have the infrastructure, we have the talent, and we have the vision.

As we continue executing our ambitious growth plan, I am confident that we can reach our new longer-term goal of becoming a $100 billion ETF sponsor, and creating significant shareholder value in the process.

Thank you for your time, attention and support. This ends the planned portion of today's call. Now let's open this up to some questions.

(Operator Instructions)

Marc Irizarry, Goldman Sachs.

Good morning, guys, thanks for taking my questions.

So just Jon on the path to $100 billion, can you talk about how willing you are to sort of ramp up your spending on any of your initiatives. You called out sort of what you expect this year, but is there sort of a tipping point where maybe you say, all right the brand is at the point where maybe you need to up that target a little bit, A. And then B how much of the organization is in place today, to get to that $100 billion? Thanks.

Thank you, Mark. So this quarter was an important quarter for a number of reasons. If -- first, we took in $5.9 billion as you know, and it was really a breakthrough quarter.

What it proved was that we didn't need to take our sales force from 32 people to 100 people, we added two people. We launched one fund. Our marketing went up incrementally 19% from the fourth quarter. We didn't have to take it up by a factor of five to compete with some of the larger traditional firms.

So I would tell you that I believe the $100 billion goal is primarily a US business, similar business model in terms of marketing spend, Amit has given you long-term margin guidance, so you have a sense really of how we think this will play out.

Let me just say one -- give a little bit more sort of perspective. Seven years ago, we launched our first ETFs. Over those seven years, the industry went from $400 billion to $1.4 trillion and during that time WisdomTree took in 2.5% of those inflows, or $25 billion.

Again, I expect over the next seven years, significantly more, maybe $1.5 trillion to $2 trillion of inflows, and we did almost 11% of the inflows in the first quarter, and I'm not saying we'll do that every quarter for sure, but we've given longer-term guidance of 3% to 5% in the industry inflows, if we just do 5% for the next seven years, you really -- you get there.

So, hopefully that gives you some perspective.

Okay that's helpful. Just I guess, Amit, on the expense guidance on that $8 million. Is there -- it looks like this quarter, $1.3 million should we expect -- how should we sort of expect this quarter -- or seasonality expenses to play out here?

Yes, I think we're still in line with that $5 million to $8 million if you just annualize that $1.3 million, we are closer to the $5 million than to the $8 million. But I think right now the way we're thinking, we're sort of in the middle of that $5 million to $8 million range.

Just on DXJ, I would assume that there's a good bit of first mover advantage in the product category, can you talk a little bit about the competition though just as this overall as a percentage of the ETF business Japan as a theme seems to be growing.

What are you seeing competitively, and is there -- is it right to assume that there is a first mover advantage in the product there?

Marc, let Luciano, our Chief Investment Strategist, and Head of Sales answer that question. Luciano?

Hi, Marc, so as Jon mentioned in the presentation, DXJ was taking in the majority of the inflows into Japan -- the ETF industry the first quarter.

What we've seen is that for people who want hedged currency exposure, their overwhelmingly using DXJ, for people who want the unhedged exposure they're using the existing Japan ETF that was in the marketplace.

One of the things that DXJ has for it at this point is it's trading 5 million, 6 million, 7 million shares a day, it's typically trading a $0.01 to $0.02 wide, stock is nearly $50. So that's very meaningful for larger clients that need to trade in size, and they're often trading in and out with market orders. There's also options trading around the ETF.

That gives an additional layer of liquidity for people who need to execute more complex strategies. So that's one of the things that sets DXJ apart. Now there will likely be competition in the future, but at this point DXJ is really the only game in town if you're looking for ETF's that have sizable assets, sizable volume, very tight spreads, deep markets and options.

So we think it's in a very strong position.

Marc, the only thing I would add is that because of how Japan had traded for the last 15 years or 20 years it has really been a poor performer from the global equity markets.

It feels that many investors are under weight Japan and that the trend does have some legs. When we launched the firm in June of 2006, the category Japanese equities only had $9 billion of AUM. And the industry itself has taken in $1 trillion, and you've only seen a couple of billion dollars of growth from that over the last seven years.

So it does feel that there may be some -- people are just underexposed to Japan and maybe chasing the rally.

Matt Kelley, Morgan Stanley

I was hoping you could give a little bit more color on the international investors that you were selling DXJ to and just kind of I'm more interested in your broader comments on the incremental buyer of your products, where you've been strongest in distribution channels in the past and where you have the most opportunity for growth you think?

Again, this is Luciano speaking, what we saw in this quarter was interest in DXJ from some of the Latin American institutional investors. We use a third-party manager in Latin America to market our funds to institutions and pensions. Particularly, the Chilean pension funds were showing interest in DXJ. From data that they've disclosed publicly we saw several $100 million of inflows into our DXJ funds.

So, I would say they were a major driver of the international inflows into the fund in the first quarter. Although I would add that we've also seen institutions around the world who are free to buy DXJ on the New York Stock Exchange buy it.

And we can see that showing up in some of the international custodial buckets. But our efforts principally are in the United States, and we use an outside firm in Latin America to market some of the -- to the institutions down there.

And then just following up on that, when these institutions are using DXJ, have you seen them engage in your other products yet and which ones, and is there also somewhat a halo effect, not only for them for the existing institutions on other products, but from one institution to another? Kind of word of mouth, is that -- are you seeing that play out or is that something still to come from here?

It has been happening and there's a list of approved ETF's that the Chilean pension funds, for example, can buy and there are six AFPs down there.

So, we have seen in the past them buying DLN, our large cap dividend fund, we've seen combined DTN which excludes the financials. So there are other WisdomTree ETFs that they have access to, and they have bought them in the past, and I would just say that our brand is growing down there as DXJ becomes a more popular fund.

Let me just add, you know, in our equities where you hedge out the currency, that franchise, we actually have seen significant growth in our other fund Hedge, HEDJ which very similar in strategy, it's the European exporters where hedge out the Euro.

About seven or eight weeks ago that fund was maybe $40 million, and we've seen increased volumes and today it's about $230 million. So it has been a significant driver. And referring to that halo effect, we are certainly seeing more inbound phone calls, I mean that's a very positive development for the firm.

Again, Luciano has touched on the international drivers, and then just the enhanced cash flows in general make us a stronger firm, so there is definitely a halo effect.

Okay great, and then just one last one for me. Just in terms of -- and this is a little bit nuanced I realize, but in terms of performance of your funds long term has obviously been quite strong and near term was a little bit weaker last year.

So I'm just curious if you can kind of provide some commentary behind that and when you would expect your funds to really outperform and potentially -- and potentially under perform? Just environments for which your fund perform the best I guess would be helpful.

Sure, again, this is Luciano. So, I think if you -- every fund obviously has its own attribution, its own dynamics, but generally if you look at the United States, what happens in the one year period, through March 31, is that the more defensive sectors in the market performed better than the S&P 500.

Consumer staples, utilities, telecom, healthcare, in that type of environment our domestic dividend funds typically perform well if they're a little bit more tilted toward the defensive sectors.

And I think if you look at the fund returns through the last year, generally that's what you saw. Strength on the dividend side, under performance on the earnings side. Now the earnings were more tilted towards the more aggressive sectors, information technology, financials, materials, energy.

So I would say sector performance and where we're weighted is one of the drivers in the short term, internationally it is more a focus of our country exposure. And I think if you look at the one year returns you'll see us lagging on the emerging market side, but performing pretty well in the developed world, and then a little under performance in some of our specialty sector funds.

We have four of them, they don't really reflect our broad methodology, but they're more actively designed strategy with a significant amount of stock selection risk.

So in any one year period you can see variability, but what we hope to do is over four market cycles, outperform the broader market, and I think we've been pretty successful with that over the last five years and since inception.

In the last year though, you have had a few of our larger funds with under performance and that's going to impact the one year performance when you look at AUM invested in funds versus benchmark.

Bill Katz, Citigroup

One tactical question and some bigger picture questions, I was just penciling out some of your guidance here, and I'm coming up with a higher incremental dollar cost on comp and marketing relative to your commentary about just annualizing Q1 plus a little bit on top of that.

Am I doing something wrong there, it seems like you have maybe $4 million or $5 million extra of comp, all else being equal and maybe another million or so on marketing. Is at math right or am I just over counting somewhere?

It may have to do with whatever you're assuming as far as revenue growth. Again we sort of expect comp for the full year 2013 to be anywhere between 24% and 26% of revenues.

When you look at our marketing and sales together for the full year of 2012, it was about 10.6% of revenues. I think -- we want -- we said our guidance earlier this year we wanted to spend more on marketing and sales related initiatives to help support our growth. We think it'll probably be flat as a percentage of revenues for the year. So you will see continued ramp-up in that as the year progresses.

But as far as sort of our baseline cost guidance that we gave as well earlier this year, remember we gave the $75 million to $78 million, that does not include any additional expenses as a result of increased assets or any changes in incentive comp.

I would say if you look at our first quarter results, take out those two pieces you'll find that we are still sort of in the middle of that $75 million to $78 million baseline amount.

Okay, so the -- it would just be a function then if revenues rise will the ratio stay the same? Does an absolute dollar start to play into your thinking at all in terms of governing the earnings?

I think to make it easier for you guys to think about the numbers I try to tie it into a percentage of revenues. Hopefully that will make it a little bit easier for you guys to think about what we are thinking about spending levels wise.

I'm sorry to press this here, but if you have another quarter like this, not suggesting you are, but if you were and your revenues pop again, the ratio stays the same, even on the big surge of revenues?

Obviously you will continue to see a decline in total of our expenses as a percentage of revenues. But again, I think you have to remember Bill, we are -- our goal is to invest back into the business to help support our growth.

We believe the time is right, and if we see another [surgence] -- resurgence in inflow levels and record inflow levels we're going to continue to invest because we think the time is right. And that's why I think you can stay roughly within those percentages levels that we gave you. But in total you'll see our expenses continue to decline as a percentage of revenues.

Okay, sorry, I badgered you on that.

Second question is, you've spoken very strongly about this year being maybe a year for new product launches and obviously you're having very good success on your existing franchise. Could you talk a little bit about the outlook for new products and timing and/or where you might be looking at more broadly speaking.

Hi, this is Jon, Bill. As we gave guidance on the last call that we should probably be coming in at sort of the higher end of our recent fund launch schedule, we have recently filed for a number of -- I can only talk about what has been publicly filed but you have seen that some emerging market equities, some domestic dividend funds and we've also filed to expand our equities where we hedge out currency franchise.

So in that area, we've only done one year to date, so it obviously will be more sort of second half heavy and as we get closer to filings you'll -- it'll become apparent the timing of it. But we are still planning on launching more funds later this year.

Okay, that's helpful and then just final one for me and thanks for taking all my questions.

Your balance sheet is building here, you have no debt, and I'm sort of curious as you think about capital management, how you see free cash flow deployment? Obviously you are a large goal of AUM, is it sort of seeding new products if you will, is it -- you have no debt so I'm just sort of curious how you are thinking about maybe buyback at this point versus acquisitions versus other uses?

Hi, Bill. Yes, the business does generate a good amount of cash and as we continue to scale, yes, our cash will continue to grow.

But you know remember we're a growth Company and right now our focus is to invest that cash back into the business when the right opportunities present themselves. There may be opportunities to use our cash for maybe some M&A, I would say it's probably a high hurdle for us to look at M&A activity when you look at our own core organic growth rates.

Second, there may be opportunities for us to do something internationally, so our focus is really on just sort of building that cash, focus on investing in our growth, and I think in general investors like to have financial service companies have strong balance sheets.

But if we get to a point that we think we can't use the cash, we also are focused on creating shareholder value, we would look at doing either stock buybacks or dividends. But in the short term I would say the focus is really on building the cash balance.

All right, thanks for taking all of my questions, sorry to badger you on the margins.

Mike Grondahl, Piper Jaffray.

First question is just I think you filed for like a DXJ small-cap ETF, can you help us just understand the potential demand for that versus the DXJ you have out there today?

Hi, Mike. It's just because we're in the quiet period, and beyond the fact that we filed it's very difficult for us to go into it beyond that we have filed. But obviously we are just seeing tremendous interest in Japan focused product and in Japan hedged focused product. But I can't really go beyond that at this moment, I'm sorry.

Okay. Second question is just you're at $27 billion plus as AUM today with 72 people. When you hit $50 billion how many employees would you envision you having, Jonathan?

Mike, part of the beauty of our business model is the leverage and the operating efficiency of it, right. If we double our assets, we don't necessarily have to double our headcount, that's the beauty and efficiency of the business model.

We will continue to see incremental headcount growth from here, that is part of our strategic growth initiatives to invest -- continue to grow our sales force, but we're talking incremental growth from these levels going forward.

And Amit has given you some guidance on compensation as a percentage of revenue, so that might help you have some sense. But again it's not a people intensive business.

Perfect. And then lastly, with the strong performance of US equities, were you surprised that your inflows into some of your US strategies wasn't stronger?

I wouldn't say -- it's a very competitive segment of the market, it has been growing. You've noticed that we also filed for some more domestic equities. We will continue to focus on it. I'm sure we'll have our day in the sun.

And then maybe just one more, in terms of marketing spend, specifically on advertising, how should we think about that going forward?

So marketing, what we did in the first quarter is a good baseline for you to think of. It was up 19% from the fourth quarter. We are very targeted. We're trying to hit the financial intermediary, the institutional investor.

What Amit touched on at the very end of his presentation was the social media. So one of the things that has been a very exciting sort of new development for WisdomTree is the way we're using our blog and our social media to communicate messages in a very, very cost effective manner to an ever-growing group of investors and advisors.

And so I really do think that you're going to see relative to the other firms on the top 10 asset gathering list, we will be an amazingly efficiently marketer, I don't that's going to change going forward.

Mac Sykes, Gabelli & Company.

Great quarter.

Thanks, Mac.

Just one technical question for Amit and then I had two other follow ups. What is the run rate for fee rate exiting the quarter for international developed equity?

If you look at the statistics that we published, our stat table, we have the mix there. On the complex wide basis about 53 basis points of as you see more -- and that really encompasses the mix levels that we see today.

Where it's running right now, what we have on the stat table is 55 basis points on a blended average basis. If you look at our -- everyday we published our AUM on our website right, and so you can just pull the numbers right from there and look at the run rate from there.

But we can take it offline and I could show you how to do that (inaudible).

Just specifically to international developed because I know it slipped but it's impacting your (inaudible). I was just curious as to what that was exiting the quarter?

We can take it off-line and I can show you how to do it right in Excel.

Great. And then in light of the strong performance from DXJ in the Japanese region, could you talk about how maybe your near term thinking on new products has changed at all?

Really it hasn't changed much. We are -- we're committed to growing our product suite in dividend-based strategies. We are very high on dividends in light of the resolution to taxes with the fiscal cliff resolution at the end of the year. There will be some more emerging market equities, and then we've expanded the hedged equity suite, you'll see that in the filings as well.

So a lot of it is just more filling out offerings in the buckets that we have today.

You did mention potential M&A international et cetera. Could you ever see a time and I'm thinking couple of years out and as you grow, where you would add a product base outside sort of your core competency and fundamentally weighted philosophies?

It's certainly possible, particularly if you're talking about expanding into different asset classes or strengthening in certain asset classes beyond sort of our strength in equities.

But as Amit touched on, our return on organic growth or organic investment is so high that we have a very high threshold when it comes to potential M&A. And again we are very, very disciplined and very conscious of shareholder -- creating shareholder value.

So we'll be very, very careful if we are incrementally adding to the business through acquisitions.

One last question, thank you for the disclosure on the sort of the channel where DXJ is receiving its funds. Maybe if you could just go over those different channels and give us a sense of what you expect in terms of stickiness assuming you -- we did get some volatility going forward? Just what could you expect from the different channels in terms of maybe velocity of a change of mix in that product?

Again, this is Luciano, and so I can comment on what we've seen to this point, which is you know a steady growth in the shares outstanding of DXJ. I think the DXJ success story, it's really emblematic of the WisdomTree success story.

We saw something that was important and of immense value before the rest of the world it. And then we executed on it. And it's not surprising that DXJ has such a great uptake, but it was really the only game in town for a long period of time there. People didn't have a way to hedge out the Japanese yen inside of a 40 Act ETF, but we gave them a solution. And of course the YEN is down about 14% year to date and [EK's] up about 35%.

So I guess the question is how much longer or how much further depreciation yen you're going to see, how much further appreciation you're going to see in the Japanese equity market.

I mean, I think that is what is going to drive the flows into DXJ and I think that's a function of the efficacy of the Bank of Japan's policy. We know they have the will now because they are --- they keep putting the policy through. While they definitely have the wallet, I mean they can create as much money as they want. The real issue is the efficacy of the policy. And that is going to play out over the next 14 months. They've committed to buying $70 billion to $75 billion of assets per month, through 2014.

So I would expect this story to play out for the next at least the next year and a half.

Adam Beatty, Bank of America Merrill Lynch.

Just a quick data point question. Right now where do you put your market share as a percentage of AUM? I didn't see it in the deck, sorry if I missed it.

I think we're a 1.9% of the industry's assets.

Okay and that's -- I think that's quite a bit upward from previous years?

You're absolutely right. And obviously we are playing off of the very strong growth of inflows and it's because our base is relatively small versus the inflows we're really making some big progress as market share of assets. You're right, Adam.

Exactly, I appreciate that. Then a question on your April update, it looks like fixed income flows have eased a little bit and I was just wondering -- and obviously they were strong before. I was wondering if there were -- what your view is on the trend there and if there's certain areas that are more in demand and whether you might consider more product launches in that area?

Well, we've seen some dollar strength in the first quarter and when that happens sometimes people pull back a little bit from their local denominated emerging market debt exposure.

But having said that, ELD, which is our local debt product, is up to nearly $2 billion of assets. It continues to have a place in people's minds and portfolios.

We have plans to launch additional fixed income products, we are continuing to look at the market. We have a great partner in Western Asset Management and hopefully going forward we can fill out some of the parts of the market that haven't been capitalized on yet, using an institutional quality active manager.

Thanks, Luciano, I appreciate that. Then turning to international, it's come up a couple of times on the call, and I understand sort of the leveraged model of ETFs. In terms of establishing or expanding an international presence, what's your view in terms of the need for boots on the ground, or investment in other countries that you might need to do that?

Right now WisdomTree is a US listed ETF sponsor, and our efforts have been internationally really to support the US listed ETFs.

So it is -- at some point we may want to have additional WisdomTree employee boots on the ground. One may be with a properly licensed in local markets to sell the US listed ETFs. That's sort of an easy evolution, but then eventually over time there is an opportunity to do locally listed usage structured ETFs in certain markets because the ETF phenomenon is a global phenomenon.

But at the moment, we are still focused on the US business. And as we evolve, get stronger, we will update you as we get closer to any sort of change in that in our plans.

Got it, that's a clear delineation thank you. And then finally I guess for Amit, you mentioned a little bit about seasonality of some the expenses and initiatives that you have especially I guess around marketing. Just wondering of your view on seasonality whether the marketing there is certain things that you would see in the market where you would be -- increase your spend opportunistically or are there -- you know just periods during the year where you wouldn't necessarily?

Generally if you look historically, our marketing expense has generally been a little bit lower in the third quarter because of the summer months. Not quite sure that, that may happen this year maybe at different levels. But listen, our focus is really to invest back in the business and if we believe the market opportunity is right to increase the level of investment for marketing we are going to do that.

You know one of the things that we have to live within is sort of market sentiment in general. And even still today, market sentiment is quite muted in my opinion, so I don't think you are going to see just an aggressive blowout in marketing, but we would be responsive if we start to see industry inflows into ETFs expand dramatically.

And just again remember what I -- my --- the thinking on marketing spend in total, we're thinking it will probably be closer to the 2012 levels as a percentage of revenues.

Got it, thank you. And just one last one, thanks for taking all my questions, I'll bother you one more time on the margin and just kind of bigger broader picture, maybe some comments. You have given guidance on margin levels at certain AUM, and I'm not asking you necessarily to modify that, but it seems just intuitive that there would be a speed limit in terms of how much you can invest and with the rate of flows that you're taking in, maybe not right now but if it were to continue it just seems as though your margin AUM relationship might improve somewhat?

I would say we are a growth Company and the ETF industry is in it's early innings and we're focused on growth and growing that top line revenue. And so, we're going to invest back in the business. Jon gave his longer-term guidance of the long-term vision that we have for the Company.

We've given those longer-term margin guidance of 40% operating margin at $35 billion, you've seen the margin potential and our results when you look at it currently. And even that I would say that's also in the early innings. I think the important thing is, Adam, to remember is, we are -- we're running this business to have the highest pretax operating margins of any of the traditional asset managers, and continue to grow it from there.

So the key is we need to continue to scale, and even though we had a great quarter and even though we're at record asset levels we are still very small relative to many of the companies that we compete with.

Todd Wetzel, Morgan Stanley

Hi, gentlemen. Congratulations on just another phenomenal quarter, just in terms of overall growth and everything else.

One of my questions regarding capital allocation was already answered, but I wanted to just talk briefly about a couple of things. With regard to 401Ks given that the landscape for 401K plans could be changing very rapidly as people are starting to wake up that fundamental investing is really the wave of the future, how do you plan to take advantage of that? That's my first question.

Second thing is with regard to getting ETFs green lighted very quickly in terms of new product launches within the wire house channel, what's your strategy to get it -- expedite approval of any new issues in the wire house channel?

Hi, Todd, this is Luciano. Let me answer your second question first. You know the wire house channel as there's more ETFs announced and launched, becomes a little bit more of a process in terms of getting through due diligence teams. On the equity side if we can continue to launch index-based equity products, we hope to be able to hit the wire houses relatively quickly in terms of getting through some of those gates.

Some of those gates have to do with asset size and time in the market, so that's just a question of getting to certain threshold levels.

One of the things that we have been able to do in the past is to try to launch funds that we know will resonate in the RA community. And if we can get certain funds to scale quickly, and we've done this in the past with ELD and ALD, that has a way of expediting the process on the wire house side.

So again we're trying to launch products that we think can resonate across the channels so that we can get them into the wire houses quicker.

On 401K, the important thing about 401K it still is a very large opportunity because there's so much mutual fund money in the 401K channel. But right now 401K is really not a driver of ETF asset growth.

There's many reasons for that but one of them is it's a more complicated sale it has to involve several parties. There's typically an advisor who is advising plan sponsors on what they should be doing, the plan sponsor needs to review it sometimes in consultation with the participants. And so it's a longer cycle and it typically involves focusing on all-in costs across the entire platform.

And what WisdomTree is trying to do in our effort is to make people more aware of what that all-in cost is, including the cost of the investment management fee. And hopefully as more people become aware of it, and become under more scrutiny and even more pressure to lower fees in that channel, the WisdomTree solution will resonate more and money managers who are using WisdomTree in their 401K models will hopefully have greater success in the channel. And that would be really one of our drivers going forward.

Great thank you congratulations, again, thank you very much.

John Dunn, Sidoti.

You've referred to putting out more hedged ETFs. In your conversations is there a greater interest or acceptance of just hedged ETFs in general in other geographies?

I would just say that currency is an important contributor to the total return of international equities. It's also a contributor to their volatility. And there are some markets where the currency adds a lot of volatility, and over time doesn't really add a great deal to the total return.

It can during certain periods, but over longer-term periods sometimes it can net out. So what we are trying to do is target countries where there is -- there either is excessive volatility in the currency, the people may not want exposure to, or countries where the equities could benefit, depending on the direction of the currency movement.

So, a lot of advisers allocate internationally by country, and until recently they had to take on unhedged country exposure in most parts of the world, we have seen in Japan the demand for an alternative and people don't realize this but Japan is the second-largest country in the world by market cap.

There are other countries out there that people use in models and we just think it makes sense to give people an alternative in case the currency really does enter into their thinking.

And just -- we launched our first equity currency hedge product probably three years ago, so there has been an educational process to the financial intermediary over those last three years, but there's nothing like such a productive example like DHJ where it really works to help crystallize people's thinking.

So we do think that this is maybe just a new tool in the toolbox for investors, equities where you hedge out currency exposure. So it's something that we have a strength in, and investors have been looking to us for additional thoughts.

Got you. And then the two new sales people can you say which channel their focused on?

One is in the wire house and the other one helps support our sales efforts on our capital markets desk.

Great, thank you good quarter.

Dan Weiskopf, Forefront.

Great quarter, thanks very much. My question's, a lot of them have been answered, but I have to compliment you frankly on being aggressive in your promotion and marketing spend on DXJ because it was so timely and, because there is another product that's similar out there but your competitor just couldn't react as quickly.

The question I have really is if I understand correctly I think the SEC is reviewing, our has made a decision on backtesting. Can you guys comment on that? Because I think it's been a positive review so that you can speak to backtesting more with institutional buyers of your product?

Thank you for the question. We are aware of the recent guidance and our legal and compliance team is reviewing it. We would of course love to be able to use some of our backtested returns particular with institutional clients. We think our research is very sound, we think it's as plain vanilla and as replicable by others as possible with definitely a rules-based approach.

We are going to need to just study a little bit quicker, a little fuller the details of it before we comment further. But I just would say that we have had great success over the last few years getting people to focus on the real-time performance of our funds. And some of them now have been in the marketplace for six, nearly seven years and have done very well.

And so as much as we would like to include a longer track record for people who need it, we still think we have a lot to work with the real-time record.

Has the SEC finalized a decision on backtesting?

We're going to need to explore a little further before we comment it. It's really a function of FINRA, but we need to study it a little further before we comment to make sure that we are in the final stages of what they've proposed and our understanding of it.

Okay, and then I have to ask a follow-up question, if you would, on the marketing spend. Again I complement on your success with DXJ. How often are you reviewing the marketing spend, is it a weekly, daily, monthly review, and is it aligned with a specific product?

We are very nimble. There's no question about it. The budget is really annual but we do have an ability to pull back or invest against more strongly if we choose to. The message is though is what I think you're talking about, and we are able to get our messages to market very quickly.

The team -- we are just a well oiled machine here, everybody's focused so you did see the DXJ and the hedged TV commercials get implemented quite quickly to take advantage of market opportunity. I do believe that is an advantage that WisdomTree has over others.

Thanks, thank you very much.

[Bonnie Chen], Chen Planning Consultants.

First of all bravo, gentlemen, it's really wonderful performance. My question is focusing on that you have been very innovative from day one. Now that it seems to be -- the trend is instead of only just doing the plain vanilla passive ETFs, a great deal of value added active management is heating up. And you were ahead of the game. And -- but pulled back now. So what are your thinking?

And you also mentioned something about international equity currencies, I couldn't help but thinking China is obviously number one, and of course Indonesia and Korea. So I'd like for you to share with us. Last but not the least I thought I'd put all the questions in, is that you are using social media, which is very smart, are you saying that your focus now are not just only I mean basically trying to get retail instead of focusing on most of the other with institutional clients?

And so that would be helpful for me to know as your directions.

First with active, WisdomTree is the second-largest quote active ETF sponsor. But you might use our proprietary fundamentally weighted equities sort of as rules-based active, but at a minimum they're differentiated.

We have really a very strong relationship with Western on active fixed income, and I do think that as newer entrants come into the marketplace it's going to help expand the total pie. So we're excited about all of the new focus and energy that is being put upon the ETF industry. I think in general you're going to see it grow the pie dramatically.

In terms of the currency hedged equity suite, I would just ask you to check our filings. We have filed for quite a number of them, and you can just see it there, but we are in a quiet period, so we can't really go into it beyond just the name and the focal point of the different strategies.

In terms of social media, what we are really doing is we're using it as a way to get our research and commentary out to a much broader audience, so what it allows us to do, is have multiple messages being communicated at one time.

So -- and it all works in sort of synergy. There's a very aggressive lead with television. We then are supporting it with print and online, and then a lot of research -- multiple messages a week, which is allowing us to drive investor interest into the full 47 funds at one time. And we are encouraging the advisors that the sales team interacts with, to register to help smooth the communications between WisdomTree and them.

Great. And any comment about China specifically?

We have not filed for that yet. Or have not filed for it but nothing specific, I mean we do have the Chinese currency ETF, which is the largest Chinese currency fund.

And last year we did launch our first Chinese equity fund which excludes financials, that's has been in the market for several months.

Great, congratulations again, gentlemen. Thanks.

I am not showing any further questions at this time. I'd like to turn the conference back to our host for closing remarks.

Well, I just want to thank all of you for your support and your attention. And we look forward to updating you on next call.

Thank you everybody, have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.