Wealthfront Stock

[Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matthew Moon, Vice President, Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us today to discuss Wealthfront's fiscal second quarter 2027 financial results, which, like the quarter, ended July 31, 2026. On the line are David Fortunato, our Chief Executive Officer and President, and Alan Imberman, our Chief Financial Officer and Treasurer. After prepared remarks, we will open the line for Q&A. During the course of today's call, you may make forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties. The company can give no assurance that they will prove to be correct. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents at Wealthfront Files of the Securities and Exchange Commission, including our most recent form.

Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute or in isolation from, GAAP measures. Reconciliations of non-GAAP financial measures to comparable GAAP measures can be found in our press release accompanying this call, which is posted to our investor relations website at ir.wealthfront.com. I will now turn the call over to David. Good afternoon, everyone. In our fiscal second quarter 2027, we continue to deliver on our objective of becoming the leading tech-driven platform for digital natives seeking to turn their savings into wealth. Before I get into a review of our last quarter, I want to remind everyone of our unique business model and development philosophy. We believe we make the best practices of personal finance accessible at low fees through automation and intuitive and convenient through user-friendly design.

At scale, this drives high margins, allowing us to share savings with clients, creating trust, which drives add-on deposits, new product adoption, and low-cost word-of-mouth growth, which once again drives high margins. This flywheel enables us to enhance our core cash management and investment advisory product offerings and build new products like Wealthfront Home Lending, which helps our clients save more, earn higher returns on their savings, and borrow at lower rates. In other words, grow their wealth. We continue to believe that the best way to build deep, long-term client relationships is to delight clients by offering them more value than they can find anywhere else and focusing on their long-term financial outcomes. This informs our product development strategy and keeps us focused on our roadmap regardless of short-term market conditions. For example, this past quarter, we expanded availability of Wealthfront Home Lending and further automated key parts of the flow. We added Custodial Accounts to our broad suite of family wealth management offerings and started select client testing of an initial AI solution that helps clients size and set their emergency funds.

We don't attempt to time the market or build products that take advantage of speculative fads. And each year, we continue to increase the value we provide to clients. I'm proud to announce this focus allowed us to surpass $100 billion in total platform assets as of the end of August. As I reflect on this achievement, I could not be more grateful for our clients who have entrusted us to help them achieve their financial goals and proud of our team that have been instrumental in getting us to this point. Digital natives, defined as those born after 1980, have faced significant economic headwinds throughout the years, like the 2008 financial crisis and the COVID-19 pandemic. And they continue to navigate inflation, housing affordability, and a changing labor market. Despite these challenges, we both advised and observed our clients remain resilient and focused on intelligent savings and investing strategies.

An analysis of clients who have been saving and investing with Wealthfront from January 1, 2021 to January 1, 2026 showed impressive growth across their accounts. Of these clients, millennials have on average nearly tripled their wealth held on our platform over that timeframe. And Gen Z clients have on average quintupled their wealth held on our platform over that timeframe. Across the same cohort of clients, the number of millennial clients who have over $1 million on our platform has increased by over 500%. We aspire to be the modern wealth manager for digital natives, replacing financial uncertainty with best practice investing, automated habits, and tax strategies that maximize what clients keep. By continuing to ship products aligned with our clients' interests, we remain confident in our ability to deliver on this aspiration. Turning to the quarter, total platform assets grew 2% quarter-over-quarter and 12% year-over-year to $99 billion at quarter end, driven by investment advisory assets up 5% quarter-over-quarter and up 30% year-over-year to $54.1 billion.

Overall net deposits were $1.1 billion in the quarter, including $1.1 billion from investment advisory, which incorporated the second best quarter of net cross-account transfers from cash to invest in the company's history. This is a continuation of our intentional strategy to drive cross-product flows during transition environments like the one we are in today. This reflects the intentionally hedged business model we constructed that should drive client asset growth through most, if not all, macro environments. Transition environments are periods where prospect and client sentiment shift, often driven by changes in the macro environment and investing sentiment. This transition environment began during the rate cuts towards the end of calendar year 2025 and has persisted due to continued strong market performance. Helping clients adopt a broader range of products is vital to continuing asset growth through any environment, including during transition environments like the one we are in today. Most of our annual client cohorts have shown broad-based investment account adoption, supporting year-to-date net asset growth on the platform, but our 2023 and 2024 annual cohorts have lagged behind. The behavior of the 2023 and 2024 annual client cohorts is not entirely a surprise, as a large majority of these clients hired us during the recent period where rates peaked and the cash account was particularly attractive.

We had a shorter period of time to drive cross-product adoption for these cohorts and have been focused on doing so over the past year. We've been quite successful in driving cross-product adoption. However, these client cohorts have been investing at external brokerages as well. The result has been cash asset flows in a dynamic equilibrium, with these two client cohorts underperforming, but more than offset by the remaining client cohorts performing better and contributing to overall asset growth. We have focused our recent incentives and new product offerings on improving adoption of investing products and specifically focused on the 2023 and 2024 client cohorts. Our cross-product adoption incentives have shifted the behavior of some clients and new account types like our tax-aware Custodial Account have helped broaden client relationships. These efforts have helped improve the 2023 and 2024 annual cohort performance, and the current year client cohort performance has been consistently strong. The result has been improving cash net deposits in July and August, including the best month for cash net deposits since March of this year.

There's more for us to do, and we will be better positioned in the future. I'm happy to share that in October, we will complete the transition of the stock investing account to the broker dealer and rename it the Wealthfront Brokerage Account. This enhancement has been in the work for some time, and we expect the Wealthfront Brokerage Account to benefit us in periods of elevated, self-directed investing sentiment like the one we are in today by providing a familiar experience to beginner investors and increasing asset consolidation from our existing clients. We shipped a variety of other new products and feature enhancements in the quarter as well. We launched the Custodial Account in June, an expansion of our suite of family-oriented wealth management offerings that complement our existing 529, joint, and trust account offerings. Our Custodial Account provides a flexible way for parents to save for their child's future and is one of the only custodial accounts in market designed to automatically lower a child's future tax burden through tax gain harvesting. Tax gain harvesting is designed to take advantage of the favorable federal tax treatment available to children, helping them realize up to $1,350 in tax-free growth each year without requiring a federal tax return filing, increasing their cost basis, thereby reducing the amount of realized gain when the investment is later sold. Due to this strategy, when the funds are eventually withdrawn by the child years later, they have less taxes to pay so they can keep more of their returns.

We continue to see our digital native clients progress into the home buying phases of their lives. In May, we launched general availability of Wealthfront Home Lending in Texas. And in August, we launched general availability in California. We plan to enter Washington, Florida, Illinois, and Oregon in the coming months as we continue our measured rollout. Recall, Wealthfront Home Lending intends to deliver a better digital home mortgage experience with mortgage rates at least 50 basis points below the national average. We're proud to have delivered on this mortgage rate objective of our value proposition on an average basis and have made excellent progress on improving the digital home mortgage experience. We launched a self-service scenarios tool that allows borrowers to explore custom loan configurations and lock in their new rate autonomously online, all without the back and forth with a loan officer. We launched a smarter restricted stock unit income verification process that improves loan officer efficiency and allows borrowers to get an accurate rate quote much more quickly and allows home buyers to get a faster pre-qualification.

We also automated the pre-fill of application intake fields using both Wealthfront and linked account data. These enhancements have led to improved automated decisioning. We have more to improve upon and automate, but they reflect strong progress towards our vision of delivering the first mortgage product designed to be handled entirely in a mobile app. In the long term, we expect to see many more examples of clients executing on self-service loans. As signaled last quarter, we recently began testing our own AI solutions with current client experimentation centered on an LLM tool that's initially focused on helping select clients choose the appropriate amount and then subsequently set or adjust an emergency fund directly in-app. We ultimately envision clients coming to Wealthfront and using AI tools such as this one to answer all of their financial questions. In order for us to achieve that goal, we must ensure that the solution builds trust to reach that critical point of client confidence. We expect to have more to share with you on this in coming quarters as we progress towards this goal. With that, I'll turn it over to Alan to go over the financials.

Thanks, David.

Starting with our end of quarter asset and client data, total platform assets grew 12% year-over-year to $99 billion, with investment advisory assets up $54.1 billion, up 30% year-over-year, and cash management assets up $44.9 billion, down 4% year-over-year. We ended the quarter at 1.1 million funded clients, up 14% year-over-year, and 1.97 million funded accounts, up 15% year-over-year, reflecting 1.3 funded accounts per funded client. Moving to the income statement, revenue for the last quarter came in at $91.9 million, up 1% year-over-year. Cash management revenue was $61.8 million, down 10% year-over-year, primarily due to a lower annualized cash management fee rate of 55 basis points, down 6 basis points year-over-year. Average cash management balances measured as the simple average of beginning and end of quarter figures was also down 1% year-over-year to $44.9 billion. The year-over-year decline in the annualized cash management fee rate was driven primarily by the fee rate loss in converting APYs to an APR given the lower Fed funds rate, as well as higher overall impact of APY boosts from client incentives. To help inform your models, the run rate annualized cash management fee rate at the end of August was 55 basis points.

Investment advisory revenue was $28.8 million, up 31% year-over-year, primarily due to average investment advisory balances of $52.9 billion, up 35% year-over-year, while the annualized investment advisory fee rate of 22 basis points was down 1 basis point versus the same period last year due to the impact of one-time client incentives tied to the launch of Custodial Accounts. Asset growth was driven by both strong market and net deposits over the trailing 12-month timeframe. Gross profit was $81.1 million, down 1% year-over-year, reflecting a gross profit margin of 88%, down roughly 1 percentage point year-over-year, due in part to the higher data costs, higher money movement costs, and startup expenses associated with Wealthfront Home Lending. Total GAAP expenses of $75.1 million were up 45% year-over-year, which recall does not incorporate an apples-to-apples comparison of share-based compensation, as share-based compensation prior to the IPO did not incorporate dual trigger RSU expense, given that the second of the two dual triggers conditions was not satisfied until the IPO occurred. Adjusted operating expenses, that is expenses excluding share-based compensation, were $58.7 million, up 17% year-over-year, due primarily to higher adjusted product development expense. Increase in adjusted product development expense was due to higher personnel-related expenses, including from increased headcount associated with the launch of Wealthfront Home Lending. Looking to next quarter, we expect roughly $3 million to $3.5 million in one-time employer tax expense tied to option exercises for former employees ahead of their exercise deadline in September. The September deadline was contractually set for nine months after our IPO, which, recall, occurred back in December 2017 for 2025.

Adjusted EBITDA of $38.1 million was down 15% year-over-year and reflected an adjusted EBITDA margin of 41% down eight percentage points year-over-year, primarily reflecting lower cash management revenue due to a lower cash management fee rate given the previously noted APY to APR conversion and higher client incentives, as well as continued investments, including into the measured rollout of Wealthfront Home Lending. Despite these investments, we continue to demonstrate significant operational and financial discipline, delivering a rule of 40 metric of 42 for the quarter. This is our 16th consecutive quarter exceeding the rule of 40 and underscores a business model designed to successfully and consistently balance top-line growth with the structural efficiencies of our automated platform. GAAP diluted net income was $17.6 million, and GAAP diluted earnings per share was 10 cents per share. Net cash provided by operating activities was $47.3 million, and adjusted free cash flow was $28.3 million in the quarter, with the difference in values driven by the change in temporary client funding receivables related to our initial funding of clients' early direct deposits and instant withdrawals between the two reporting dates. Recall, this adjustment to our free cash flow normalizes for the change in these receivables from period to period, as these end of period balances can fluctuate due to factors such as the day of the week, quarter ends. Importantly, these actions provide clients access to their funds more quickly and in the case of early direct deposit, generates additional days of interest income for our clients.

Adjusted free cash flow conversion ratio, that is, adjusted free cash flow as a percentage of adjusted EBITDA, was 74%. Recall, we pay out 35% of accrued annual bonuses, cash bonuses, to our employees each July with the remainder paid each January. Our trailing 12-month adjusted free cash flow conversion ratio, which normalizes for seasonality, was 88%. During the fiscal second quarter of 2027, we repurchased 3.3 million shares in the open market for approximately $30 million as part of our share repurchase program. We're comfortable deploying our cash for share repurchases because of our robust free cash flow generation, our debt-free capital structure, as well as the multi-decade opportunity to compound wealth with new and existing clients who are in the wealth accumulation phase of their lives. Even with the strong repurchase activity, we ended the quarter with cash and cash equivalents of $453 million, which excludes the receipt of temporary client funding receivables we just mentioned as a part of the Adjusted Free Cash Flow reconciliation. As a reminder, our long-term capital priorities are to invest in organic, product-led growth, including infrastructure, and automation to evaluate opportunities to repurchase shares and to assess M&A with the preference to build versus buy.

Any remaining capital would be added to our surplus reserves in order to enhance resilience and durability. Looking to recent trends, as David mentioned, we surpassed $100 billion in total platform assets for the first time in August, doubling total platform assets in less than three years. We ended August at $100.9 billion in total platform assets, including $55.8 billion in investment advisory assets and $45.1 billion in cash management assets. Total net deposits in August were $605 million, which includes the impact of five full weekends in a month versus the typical four full weekends in a month. That's important because we only recognize withdrawals on weekends to satisfy client spending needs and instant withdrawals, which drives client delight but does impact monthly cash net deposit figures on the margins. Also, as David mentioned, August was the best month for cash net deposits since March of this year, and August was the best month for total net deposits since August of 2025. Asset-weighted cross-product adoption continued increasing up a half a percentage point month-over-month to under 64%, reflecting our continued success in driving cross-product adoption.

While we remain in a dynamic macro backdrop, we have built a diverse product suite that allows our clients to build wealth through a multitude of environments. We make money when our clients do, and our product suite, as well as our continued investments, put us in a strong position to continue to grow with our clients over the long term.

With that, let's move to Q&A. Certainly. And our first question for today comes from the line. Devin Ryan from Citizens JMP. Your question, please.

First question just on the cash deposit momentum. You're seeing obviously nice to see some improvement in July and then further in August and then I know summer can kind of be a heavier cash spending period and then you also mentioned a couple things that maybe could in theory be headwinds, but you saw some momentum there. So be good to get a sense of kind of what's driving that, or if you can just give us a little more granularity on what you were seeing in the last couple of months here, what you're seeing kind of with customer behavior, kind of the competitive dynamic, and then just anything else you can share just on expectations broadly for cash management moving forward in terms of deposits.

Yes, thanks for the question. In the script I talked a little bit about the 2023 and 2024 cohorts. So we noticed something interesting recently in the cohort analysis, which was the 2023 and 2024 cohorts, which hired us during a kind of peak interest rate period. We're adopting investing with Wealthfront at a slightly lower rate than other cohorts. We focused our incentives on those cohorts. We focused some of the new product launch merchandising at those cohorts. We have seen improvement in cross-product adoption, which has helped keep those assets on the platform and retain more of those assets. So I think what I said was, we've kind of been in a dynamic equilibrium with some cash outflows from the 2023 and 2024 cohorts, and then inflows from both the 2023 and 2024 new client cohort and other cohorts roughly breaking even. We've seen a little bit of improvement in the 2023 and 2024 cohort as the new product launches and incentives have worked and that's led to an improving backdrop in July and August. I don't think we're always going to share kind of the cohort analysis, but do think that it's useful to help underscore the sort of trend differences that we saw over the summer, which you're right is not normally a period of kind of large deposit or withdrawal movement, which tends to be a slower period.

Yes, got it. Really interesting. And maybe this is related, but just on the Wealthfront Brokerage Account, and kind of the launch in October. And obviously I know that's intended to capture more self-directed assets currently held elsewhere. Are there capabilities with that that will be different from the existing stock investing today? And what client behavior should we think about with that offering relative to maybe what you're currently seeing, I guess, and also just other capabilities you expect to maybe add on over time?

Yes, sure. So right at the beginning, it gives us the opportunity to offer more order types and a larger list of investable securities, which we think is important and sort of moves us closer to what this generation has come to expect of self-directed offerings. There's different constraints on the account that we have to put if it's an advisory product. And so putting it in the broker-dealer and making them kind of pure brokerage accounts, I think, gives us the opportunity to really present the product, an account type that's more what these types of investors are used to. You know, in periods of strong self-directed interest, the reason we built stock investing in the first place is because we wanted to have a credible product offering in the space to help those folks. The way that we're thinking about it is a little bit different than others are thinking about it. So we're really focused on long-term investing outcomes. And I think that'll inform the products that are relevant in the space that we want to add to our account and might differ a little bit from other products in the space. We want to build the best place for buy-and-hold investing generally across our managed offerings and self-directed offerings.

And so we will continue to add to the Wealthfront Brokerage Account for a lot of time going forward in the future. It's going to be an area of continued investment for us. But it is going to have sort of a different priority set than you might see from other digital brokers.

Yep, understood. Okay, great. I'll leave it there.

Thank you. And our next question comes from the line of Ken Worthington from J.P. Morgan. Your question, please.

Hi, good afternoon, guys. This is Michael Chilin for Ken. I just wanted to touch on mortgage. Dave, you talked through the rollout and you listed another three states coming in the next few months. If you could just provide any thoughts or color on recent volume trends or exit trends that you're seeing in August and any sort of early economics that you might be able to share with us as the mortgage rollout continues.

Yes, so thanks for the question. You know, I think we're pleased with the early progress of the rollouts in Colorado, Texas, and California. The sort of next priorities that we discussed, I think four states, Washington, Oregon, Illinois, You know, the core goal of the mortgage product is really to use technology to build a better experience and deliver a lower rate to our clients. I think we've been successful at doing that. There's a lot left for us to do. We're going to focus our investments on continuing to deliver the best client experience. So one of the things that I guess I would say is as volume – I think this is supported by industry data – as volume in the industry declines, the sort of median buyer of a home tends to get a little bit older and a little bit wealthier because as rates go up, housing affordability becomes tighter. What we've seen is as we expand in states, we've still been able to grow volume, mostly through eligibility.

But we are sort of working against a headwind of higher rates mean less housing affordability. What we really see is an opportunity to take a long-term perspective and invest in the digital experience at better margins, being able to share that savings with clients and fight against that kind of rate housing unaffordability dynamic. I think we're starting to see the progress of this automation already. We've been able to automate away some of the third-party vendors to own more parts of our flow and improve the efficiency that'll help us continue to bring rates down over time. The dynamic scenarios feature as an example of having clients do more self-service, which actually leads to both a better client experience as well as lower operational costs. So we're going to stay kind of laser focused on those dynamics and continuing to build a better experience. We think that as we expand, we'll have the best pricing offering in the space for our target clients, and that'll give us an advantage in the future. But obviously, you know, we are impacted by the larger rate dynamic, and that's one of the reasons we like having a business model that includes cash and includes investing, and we can build a larger relationship there with clients and be there for them when they are ready to buy a home.

Great. Just to follow up a separate topic, you talked through the new product pipeline and you got the brokerage launch coming as well. The industry headlines have been taking effect with tax-aware investing. It's been making quite a bit of headlines. Wealthfront has been doing direct indexing, tax loss harvesting for many years. I'm just kind of curious, you know, I don't know if you'd consider it or if it's in the pipeline in terms of maybe there's a long, short product you might consider for your pipeline from a tax-aware perspective.

Yeah, a great question. Long short is certainly something we're interested in and continue to look into. I don't have anything specific to share at this time, but I will say that tax-aware investing is one of the things and, you know, through direct indexing and tax loss harvesting, the Custodial Account tax optimization that exists has been a core focus for us and a core value driver to clients. So building that offering or building tax-aware related offerings at low cost and being able to provide them to clients with low minimums is sort of how we built our investing business. And I would expect us to remain continued, continue our focus on that as our investment product offerings and cash management offerings expand over time. It's certainly an area of interest, but nothing specific to say at this time.

Great, thank you. [Operator Instructions] Our next question comes from the line of Ryan Tomasello from KBW. Your question, please.

With the market pricing in higher odds of a rate cut here over the near term, I was hoping you can talk about how you would expect your user base to respond to a potential potential cut here of 25 bps if that's meaningful enough. Sorry, a hike of 25 bps and if that's meaningful enough you think to drive a material change in the deposit trends on the cash side of the business? And on a related topic, if you can just talk about how you're thinking about promotions and incentives in the back half of the year, particularly to capitalize on a potential re-hike.

Yes, thanks for the question. History has told us that rate increases have been beneficial for our cash net deposit trajectory. That said, it's not only the direction, but also larger macro conditions that can influence cash net deposit flows, and the comparative interest in cash versus investing. So, you know, in the last significant rate increase cycle of 2022, 2023, the U.S. equity market performed less well than it has in recent history. And so we'll have to see how that plays out this time. On sort of trends moving forward, like June, September is a quarterly income tax payment month. For some of our clients, that can impact figures on the margins as well. So, you know, I think sort of my summary would be history tells us that rate hikes are good for cash net deposits, but there are some other factors that will be different.

We don't know exactly how that's going to play out, and we've stayed focused on building a hedged business model that can grow with cash, grow with investing, and now grow with mortgage, sort of regardless of where the macro environment goes. And then on the cross-product adoption incentives, we've had roughly 7,500 new account openings attributable to the incentive. The strongest benefit that we've seen is from new to Wealthfront clients who've adopted the incentive and really broadened and deepened their relationship with Wealthfront more quickly than prior cohorts. We think that's a benefit to the clients because it helps them build wealth for both cash and investing and in a more automated way. And it's obviously a benefit to Wealthfront because we get to help them manage more of their money. The subset of clients that have adopted this incentive is quite attractive. The unit economics of the incentive are very good.

We see higher average cash balances, higher propensity to refer new clients to our platform, and slightly larger investment net deposits when compared to similar new clients that have not adopted the cross-product adoption incentives that we've had. So we're pleased with the early results. It's an area that we're going to continue investing in and see if we can continue to drive new client adoption of these incentives to grow relationships more quickly.

And then looking at the investment advisory fee rate, I realize you disclose the fee rate in the press release, but if I calculate that using a monthly on a monthly average asset basis, it implies about a 2% decrease in the fee rate from last quarter from 21.7 bps to 21.3. That's an acceleration from the rate of decline that we've been seeing in recent quarters. So can you just talk about the drivers there, I assume from incentives and maybe adoption of lower fee rate products? And just overall how you're thinking about the trajectory of the investment advisory fee rate over time as option of other products in that bucket widens.

Hey, Ryan, it's Alan. I'll take this one. So what we talked about in the prepared remarks around the fee rate was there was a special one-time incentive that went along with the launch of the Custodial Account that was a $100 deposit into a Custodial Account. And so that's mainly what you're seeing in terms of the fee rate decline for this quarter. And, you know, on a go-forward basis, I would say that, you know, our — our philosophy is it's still the best interest of our clients to be in our Wealthfront portfolio, the automated index investing account. And so regardless of what kind of door clients come in, I think, one, they'll most likely have some type of perhaps experience with individual stocks that would lead them to decide to automate and diversify. And or as they become more sophisticated, they'll also self-select that. So we see that continuing to be the primary weighting of our assets over the long term and keeping that fee pretty stable on the investment advisory side.

So that's our go-forward plan. And that's what we've seen. It's been fairly stable. And we launched stock investing, direct indexing, bond ladders, all these things over the last three years. And we've still seen a pretty stable investment advisory fee rate due to the fact that, again, a majority of our clients still the Wealthfront portfolio or eventually, you know, get their money in there.

Great, thank you. [Operator Instructions] Our next question comes from the line of Dan Perlin from RBC Capital Markets. Your question, please.

I wanted to just revisit the cross-asset adoption here again. I think it seems like it's been trending on a 50 bps kind of from the first quarter to the June update and to kind of what I think I just heard and I think I think I also heard you guys talk about adding, I don't know, 7,500 new accounts as a result of the incentives. So like how much, is that about half of the incremental account growth? And if it is, like what else is driving that as you see it within your platform?

So, I'll start them and see if Alan wants to add anything. When we talk about new account growth associated with the incentive, we're talking about folks who already have Wealthfront accounts adding an additional account. So that'll be different than the new clients that are taking the Wealthfront account disclosed in the monthly metrics. I think, yeah, I don't think we disclose the total new or total account numbers. What we're seeing is it's a really good way to get the types of clients that we want to serve and our best clients to both set up some type of recurring deposit or direct deposit into the platform and to diversify the relationship that we have with them. We've seen that take different forms over the course of the quarter as the macro environment has shifted a little bit. So we've seen some elevated inflows into bond products in the last month or two.

As the yield curve has normalized, the bond products have become net slightly more attractive, and getting an additional adoption of those products has been helpful. We've also seen S&P 500 Direct do well, and the kind of core leader of our diversified Wealthfront portfolio has been a consistent kind of high asset product and an area of focus. So I think you can't do the kind of straight comparison of new accounts to new clients, but the cross-product adoption has been good. The one thing I would say about our asset-weighted cross-product adoption numbers is it's gotten better in the last quarter, but it actually is because investment assets have increased, the percentage of assets in investment only products has also increased. So those are clients that tend to be tenured clients and only have adopted investment accounts from Wealthfront. And as those clients continue to add to their accounts and grow with the market, we've actually seen the percentage of invest-only assets grow as well. So asset-weighted cross-product adoption for both cash and invest has gone up in the quarter, but maybe less than you might expect because invest-only has grown too.

Yep, that's a good point of distinction. Just quickly on the competitive environment, anything that you would call out relative to what you've seen over the past several months? I know in prior quarters you kind of alluded to the fact that it felt like maybe it had picked up a little bit, but I'm not sure if that's a trend that you're continuing to see from here.

Yes, thanks. I mean, the primary competitor that we have for new clients is the sort of underconsumption of high-quality financial products. These might be folks that have a bank account but aren't doing much else with their money. And so helping them earn more on their savings and invest for the long term is really the focus. You know, we've benefited from primarily client referrals as a way to grow new clients, but we've also benefited, as we've talked about in past quarters, from, you know, positive recommendations or referrals from large language models that are unsolicited, unadvertised, and that's been beneficial. And what we've seen, I think, is, you know, the summer is normally a quiet period. We've seen the effects of the quality of the products and the distribution that we have that's focused on our clients fighting against what's normally a summer slowdown. It's something that we'll continue to watch and see how it evolves, but we've been, I think, pleased with the new client ads over what's normally a quiet summer period.

That's great. [Operator Instructions] Our next question comes from the line of Alex Markgraf from KBCM. Your question, please.

First, great to see the Custodial Account launch. I guess just, David, I'm curious if you have any sort of data points you might be able to share about sizing the opportunity within the existing base or any observations on early interaction with that account would be helpful that I would follow.

Yes, I think the sort of biggest surprise for us was the number of folks that opened multiple Custodial Accounts. Maybe we shouldn't have been surprised. We did see a number of clients open more than one Custodial Account for multiple children. I think the interest was relatively broad-based. The incentive that Alan talked about, I think got that product in front of a lot of clients. And we saw relatively sophisticated clients adopt the product because of their understanding of the value of the product, the favorable tax treatment for doing tax gain harvesting to be able to reduce the cost of, or taxes that the client ultimately pays when their child needs the money in the future. You know, I don't think that Custodial Accounts is ever going to be a significant asset growth driver, but it's a really important, I think, broadening of relationship.

And when you look at sort of the range of products that we've built over the last number of years to support families growing their wealth, I think it shows a broader strategy, right? You can go back to to joint accounts and trust accounts, the joint cash experience, the shared views, where couples can view their finances together and choose what to share with each other, depending on how they personally arrange their finances. I think you can look at 529 accounts, you can look at Custodial Accounts, as ways of sort of helping save for the future of the family. And mortgage, I think, is another product that works well with the sort of narrative of growing with clients as they have kids and their financial lives become more complicated, being there to support them. Support them through those transitions. There's a lot more for us to do as we build out more to support clients going through everything from getting their first job out of school, getting married, having kids, and forward in the future. But it's an area of focus for us and Custodial Accounts is one step along that journey.

That's great. And then maybe just sort of on a related note, as you think about addressing more of the client wallet, if you will, and some of the monetization opportunities around that, does that, and just sort of translating to potentially higher LTV, does that allow you all to sort of lean in on the marketing side more so than in the public? past, you know, be more aggressive or competitive with incentives.

I mean, we've seen some success with incentives, and I would expect that we continue to deploy incentives where it makes sense to do so. You know, we've done everything from existing client incentives to drive behavior as well as new client incentives, new account type incentives, where it makes sense to do that. That's one of the things that we've talked about for some time as a use of capital that we're interested in is deploying incentives to broaden and deepen our relationship with existing clients and attract new clients to the platform. The referral incentive has obviously been vital to growth in an area that we've really focused both our product offering on doing well on referrals, but also capitalizing of putting our clients who are referring their friends, family, and co-workers with the best possible offer in hand to be able to go recognize them, the product that they use and like to their folks that they know. I think that our payback periods on our incentives are among the lowest of the marketing stack that we have. And so we continue to experiment with new incentives and update our incentive offers for both behavioral characteristics and new client offers as we see opportunities in the marketplace.

Thank you. And our next question comes from the line of James Yaro from Goldman Sachs. Your question, please.

You talked about a 55 basis points cash management fee rate at the end of August. I was hoping you might be able to comment generally on the outlook for the cash management fee rate and more specifically how the cash management fee rate could evolve potentially if we see if we were to see higher rates.

Hey, James. Alan here. I'll take that. So, I think it's obviously something difficult for us to, you know, opine on in terms of how it will evolve with different rates. We do, as we mentioned before, think that a rate increase is obviously a very nice organic moment of delight for clients. And we've seen historically that that does lead to a slight bump in deposits. However, as we mentioned as well, September is a month, I'm sorry, of taxes, payment for some clients, but and then there's the AP, to APR conversion, which helps us in this case, very slightly. So that could be around a basis point with every 25 basis point increase roughly. So that would obviously be beneficial.

The market for sweep deposits has become a little more favorable for us. So we're getting a little better pricing as well again on the margins. But then again, if, you know, we're very successful with the incentive, we could see near-term pressure on fee rate because, obviously that has a payback to it. So, you know, there's a lot of puts and takes there. We've given what was at the end of August as just kind of a guide. And what I think that says is on the incentive is we're seeing gradual uptake of the incentive, and some of that is by design as we've been doing it in a measured way to really look at the behavior and make sure that it has good unit economics, and we'll look at ways to explore doing more of that over the back half of the year. So there's a lot of, you know, puts and takes there and, you know, I think for us, we're going to have to see how it plays out, but I can't give you specific guidance for the rest of the year or into the future.

Okay, understood. You've mentioned a target for a 40% adjusted EBITDA margin in the near term and you put up over a 41% margin this quarter. Any thoughts that you might be able to offer on the longer term margin profile of the company?

Sure. I mean, I still think that in the long term, you know, we can be over 40%. I think what, you know, is going to happen in the near term is there will be a headwind from home lending. However, the kind of higher rates has given us more time to invest, and as David mentioned, become more efficient, both in terms of, you know, building in-house products that make our people more efficient in designing out vendors. But it is something that's going to take a lot of scale in order to really start seeing the incremental margin improvements. But, you know, with a business like ours that is from a headcount footprint, extremely small from a physical footprint, almost non-existent over the long term with our ability to develop, automate, and all those things, we're going to have a very high EBITDA margin. But there's near-term headwinds as we invest. And we think that that is a good trade because it just opens up a very large total addressable market.

It helps our clients in different parts of their lives and provides a really good hedge for the business to be able to grow really in most, if not all, environments.

Understood. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to David for any further remarks.

Thanks. I want to thank everyone for joining the call and for your continued interest in Wealthfront. I look forward to staying in touch and updating you on our progress in the months ahead. Thanks all. Bye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, everyone, and thank you for standing by. Welcome to Wealthfront's First Quarter 2027 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

Now it's my pleasure to hand the conference to the Vice President of Investor Relations, Matthew Moon. Please proceed.

Good afternoon, everyone, and thank you for joining us today to discuss Wealthfront's Fiscal First Quarter 2027 financial results, which reflect the quarter ended April 30, 2026. On the line are David Fortunato, our Chief Executive Officer and President; and Alan Imberman, our Chief Financial Officer and Treasurer.

After prepared remarks, we will open the line for Q&A. During the course of today's call, we may make forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance that they will be or prove to be correct.

To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Wealthfront files with the Securities and Exchange Commission, including our most recent Form 10-Q.

Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute or in isolation from GAAP measures. Reconciliations of non-GAAP financial measures to comparable GAAP measures can be found in our press release accompanying this call, which is posted to our Investor Relations website at ir.wealthfront.com.

And with that, I will turn the call over to David.

Good afternoon, everyone. In our fiscal first quarter 2027, we continued to deliver on our objective of becoming the leading tech-driven platform for digital natives seeking to turn their savings into wealth. We believe we make the best practices of personal finance accessible at low fees through automation and intuitive and convenient through user-friendly design.

At scale, this drives high margins, allowing us to share savings with clients, creating and engendering trust, driving asset retention and low-cost word-of-mouth growth, which once again drives high margins. This flywheel enables us to reinvest in and enhance our core cash management and investment advisory product offerings, supports our organic build-out of Wealthfront home lending and future product innovations and most importantly, helps our clients save more on every paycheck, earn higher returns on their savings and borrow at lower rates. In other words, grow their wealth.

We remain grounded in our belief that the best way to build deep long-term client relationships is to continue to delight clients by offering them more value than they can find anywhere else and focusing on their long-term financial outcomes. This informs our product development strategy and keeps us focused on our road map regardless of short-term market conditions.

At quarter end, total platform assets grew 19% year-over-year to a record $96.6 billion, with investment advisory assets of $51.7 billion, up 39% year-over-year and cash management assets of $44.9 billion, up 3% year-over-year. We ended the quarter at roughly 1.46 million funded clients, up 15% year-over-year and roughly 1.9 million funded accounts, also up 15% year-over-year, reflecting 1.3 funded accounts per funded client. Total net deposits in the quarter were $554 million. This includes $577 million in cash management net withdrawals in April, primarily due to tax seasonality.

Recall, our clients are net cash taxpayers, highlighting the attractive financial profile of our average client, and this monthly result was consistent with the expectation we set last quarter for cash management net withdrawals in April of this year to exceed the $538 million in net withdrawals realized in April of last year.

These are, of course, net figures and specific to activity realized directly on our platform. Looking more broadly, this March and April, a period we refer to as tax season, we estimate our clients made over $3 billion in combined tax payments from their Wealthfront cash accounts and from their linked external accounts with the latter including amounts that were initially withdrawn from Wealthfront accounts prior to tax payment in addition to payments from funds held in linked accounts.

Clients directly paid tax authorities over $500 million from their Wealthfront cash accounts during the year's tax season, up 40% year-over-year, indicating growing trust in our liquidity offerings. This has likely been the result of significant investment into our platform over the years made to deliver positive tax time experiences to our clients. For example, clients increasingly utilized our leading low-cost portfolio line of credit, or PLOC rates in order to fund tax obligations with tax dollar payments funded with PLOC balances up roughly 2x year-over-year.

We also recently invested in dynamic withdrawal limits, increasing client-specific limits up to $1 million per account. This new client-specific limits enabled more of our clients to fully satisfy their tax obligations in a single tax payment out of their cash accounts, strengthening our position as an attractive primary operating account option for our clients. It might be counterintuitive, but we want our clients to pay their taxes from their cash accounts given our ability to drive delightful tax time experiences, which we believe will lead to us receiving a disproportionate share of their future savings over time.

We've also experienced strong uptake in our cross-product adoption incentive launched in early March. Recall, this incentive provides clients who direct deposit at least $1,000 per month and also fund an investment account with an ongoing 25 basis point increase to their cash APY. This directly led to over 4,000 new account openings and helped drive asset-weighted cross-product adoption to roughly 63% as of May end, up 1.5 percentage points versus the level realized immediately prior to launch at February end.

In the early days, we've also been encouraged by the fact that, on average, new adopters of the incentive have consistently brought on a notably larger amount of net deposits in each month since launch than that of similar clients that have not adopted the incentive. We also continuously invest in our core products. In cash management, we launched cash category goals and recurring cash to category transfers.

Cash category goals allow clients to more easily track their progress towards personalized financial targets within specific cash sub accounts. Our new recurring cash to category transfer feature provides clients another option to better achieve those goals on an automated basis. On investment accounts, we shipped one tap to invest in the stock investing account to streamline the purchase and sale of individual stocks and ETFs as we continue to transition this account to a more traditional brokerage offering.

Wealthfront Home Lending added a second takeout investor in the quarter and launched general availability in Colorado in early April and in Texas in early May. As a reminder, we're running a similar playbook for home lending that we have successfully deployed in our cash and investing businesses. that is using technology to deliver a better digital experience and a better rate with transparent fees. While we are still in early days, the initial client feedback and data supports our conviction in our ability to deliver on these objectives.

While anecdotal, I'd like to share a couple of specific client comments to bring the experience to life. One of our clients raised about the self-serve capability relative to his prior experiences. That is the ability to independently explore the latest mortgage rates without having to call up a mortgage banker or broker every time he wanted to open the fridge as he described it. Another client enjoyed the ability to track the progress of his application in real time in-app.

The fact that our application process can be handled entirely through mobile completely end-to-end is a differentiator, and we've seen more than half of Wealthfront Home Lending clients interacting with the flow via mobile. This is all while continuing to deliver on our objective of providing clients home mortgage rates at least 50 basis points better than the national average on average in the states in which we operate today. As we noted last quarter, we are deliberately rolling this service out at a measured pace in order to maximize learnings to optimize long-term client outcomes.

We are building an automated solution from the ground up. So the fact that we've been able to increase rate lock volume by roughly 25% month-over-month in May amidst this build-out is a feat that I'm particularly proud of, especially in the face of rising mortgage rates. Currently, we are focused on automating the decisioning process of client prequalifications, starting from the application intake process all the way through approval, and we plan to share more details with you all in the coming quarters.

Taking a step back, since the early days of Wealthfront, we have been saying that we can utilize technology to provide digital advisory solutions at a level similar to or better than traditional solutions provided by financial advisers. AI has and will certainly continue to play a role in achieving this goal. We're confident in our ability to continue to build solutions, including AI solutions that automate and improve the personal financial experience for our clients so long as they continue to build client trust.

In order to determine which AI solutions best achieve our trust and wealth building goals, we need to experiment and test these solutions with our clients. We are entering that phase now, and we'll share more with you over time as we learn more.

With that, I'd like to turn it over to Alan to go over the financials.

Thanks, David. Starting with the income statement. Revenue came in at $90.5 million, up 7% year-over-year. Cash management revenue was $63.4 million, down 1% year-over-year due to a lower annualized cash management fee rate of 58 basis points, down 4 basis points year-over-year and within the expected 57 to 58 basis points range we had communicated last quarter. The lower fee rate was partially offset by higher average cash management balances measured as the simple average of beginning and end of quarter figures, up 5% year-over-year to $45.1 billion.

The year-over-year decline in the annualized cash management fee rate was driven primarily by the fee rate loss in converting APY to an APR given the lower Fed funds rate as well as the new cross-park adoption incentive introduced in early March that impacted 2 months of the quarter. As David noted, we estimate that in the first few months in market, this incentive has notably increased net deposits brought to the platform from new adopters relative to similar nonadopters, reflecting early success in deepening relationships with adoptive clients.

To help inform your models, the run rate annualized cash management fee rate at May end was 54 basis points. On an EFFR-neutral basis, the run rate annualized cash management fee rate at May end was 56 basis points. The 54 basis points, however, includes the recent impact of the effective Fed funds rate declining by 2 basis points within its target range with this decline having started on May 7.

Investment advisory revenue was $26.2 million, up 32% year-over-year, primarily due to average investment advisory balances of $50.2 billion, up 34% year-over-year, while the annualized investment advisory fee rate of 21 basis points was roughly flat versus the same period last year. Asset growth was driven by both strong markets and net deposits over the trailing 12-month time frame.

Gross profit was $80.5 million, up 6% year-over-year, reflecting a gross profit margin of 89%, down roughly 1 percentage point year-over-year due in part to start-up expenses associated with Wealthfront Home Lending, higher money movement costs and higher data and other cost of revenue expenses.

Total GAAP expenses of $75.9 million were up 46% year-over-year, which recall does not incorporate an apples-to-apples comparison of share-based compensation as share-based compensation prior to the IPO did not incorporate dual-trigger RSU expense given that the second of the 2 dual trigger conditions was not satisfied until the IPO occurred.

Adjusted operating expenses, that is expenses excluding share-based compensation, were $58 million, up 16% year-over-year due primarily to higher product development expense. The adjusted product development expense increase was due to higher personnel-related expenses, primarily increased headcount and higher cloud computing expense. Adjusted EBITDA of $37.5 million was down 1% year-over-year and reflected an adjusted EBITDA margin of 41%, down 3 percentage points year-over-year, consistent with the expectations that we communicated last quarter, including the impact of continued investment into incentives and to rolling out home lending.

We continue to demonstrate significant operational and financial discipline, delivering a Rule of 40 metric of 49% for the quarter. This is our 15th consecutive quarter exceeding the Rule of 40 and underscores a business model designed to successfully and consistently balance top line growth with structural efficiencies of our automated platform. GAAP net income was $12.8 million, and GAAP earnings per share was $0.07. Taking a moment on share count. Our GAAP weighted average diluted shares outstanding in the quarter was 175.5 million.

This includes the impact of 3.1 million open market repurchases executed throughout the quarter as well as the treasury method impact of outstanding RSUs and options. The future impact of these awards on our diluted share count for the purposes of recording GAAP financials may fluctuate meaningfully period-to-period depending on our average share price in those periods. We provided a table on the back of our presentation to illustrate what our GAAP weighted average diluted share count could have been in the first quarter under different average share prices with important caveats noted on that page.

Beyond share price, our GAAP weighted average diluted share count in future periods will be impacted by new grants, forfeitures and the change in unamortized stock-based compensation expense. Net cash provided by operating activities was $22.7 million and adjusted free cash flow was $42.7 million. This results in an adjusted free cash flow conversion ratio, that is adjusted free cash flow as a percentage of adjusted EBITDA of 114%.

Our robust cash flow generation and significant proceeds raised through the IPO helped facilitate the recent transition of our clients' cash accounts to a new bank provider. This bank provider unlocked the ability to administer the higher client-specific withdrawal limits of up to $1 million that David mentioned, which led to improved tax time outcomes for our clients.

As a result of this transition, we now initially fund our clients' early direct deposit payments and are subsequently reimbursed when the client receives their direct deposit at most just 2 days later. Therefore, this quarter and going forward, we will be presenting free cash flow adjusted for this change in direct deposit receivables in combination with the change in funded instant withdrawal receivables, given that both activities have no impact to our cash profitability, but will continue to impact quarter end figures simply due to timing.

The early direct deposit, in particular, consistently incurs in larger quantities near typical pay cycles, including at the end of each month. The cumulative change in these short-term receivables was $21 million quarter-over-quarter. Once again, this does not have a material impact to the cash profitability of the business, but does provide our clients with additional days of interest income generation at our leading APY.

Looking ahead, recall, we pay out 35% of accrued annual cash bonuses to our employees each July, so we anticipate a lower adjusted free cash flow conversion ratio in the fiscal second quarter relative to this quarter. In March, we received Board authorization for a $100 million share repurchase program during the first -- in the fiscal first quarter of 2027, we repurchased 3.1 million shares for roughly $27 million as part of this repurchase program at an average price of $8.66 per share.

We are comfortable deploying our cash for share repurchases because of our robust free cash flow generation, our debt-free capital structure as well as the multi-decade opportunity to compound wealth with new and existing clients who are in the wealth accumulation phase of their lives. Even with the strong repurchase activity, we ended the quarter with cash and cash equivalents of $428 million, which excludes the receipt of temporary client funding receivables referenced earlier.

As a reminder, our long-term capital priorities are to invest in organic product-led growth, including in infrastructure and automation to evaluate opportunities to repurchase shares and to assess M&A with a preference to build versus buy. Any remaining capital would be added to our surplus reserves in order to bolster resilience and durability. Closing with current trends, today, we published May metrics. Total platform assets ended May at another month-end record of $99 billion, Total net deposits were $447 million, including $342 million in investment advisory and $140 million in cash management.

The continued resilience and positive market sentiment in May drove the strongest month in total cross-product flows from cash to invest since January 2026, helping drive asset-weighted cross-product adoption to roughly 63%, up roughly 1.5 percentage points since February end immediately prior to the launch of the cross-product adoption incentive.

Looking ahead, while we remain in a dynamic macro backdrop, we have built a diverse product suite that allows our clients to build wealth through a multitude of environments. We make money when our clients do, and this product suite as well as continued organic investments puts us in a strong position to continue to grow with our clients over the long term.

With that, let's move to Q&A.

[Operator Instructions] It comes from Devin Ryan with Citizens Bank.

First question on the new cross-product adoption incentive. Good to hear about some of the early uptake, 4,000 account openings related to that. That's about 10% of the new account growth in the quarter. So just love to hear about how the marketing is going for that and whether you could maybe lean in more to accelerate that element of new accounts? And just -- and if you can also just give us a sense of how much more cash these customers are bringing on platform relative to the average since you guys highlighted that as well.

Devin, thanks for the question. So May was a good month for client acquisition on a relative basis. We saw good positive trends in client acquisition. I think the kind of 2 key top of funnel drivers were the direct deposit incentive. And on top of the kind of natural growth from the direct deposit incentive, I would add that we tend to see a few thousand dollars more on an average net deposit basis from clients who adopt the direct deposit incentive.

And on aggregate, recent cohorts are adopting -- who start with cash are adopting investment accounts at a higher rate than they have been. And that's been a number that's been improving for over the last 6 months on a monthly cohort basis. So that's been great to see. The other thing that we've noticed is elevated organic traffic from large language models that are referencing Wealthfront as a solution. to folks that are engaging. And so the elevated traffic has also been a positive change for getting clients on board and coming in as sort of warm leads to Wealthfront.

Got it. And then as a follow-up, just big picture on AI. You kind of alluded to looking at, obviously, potential opportunities over time. And it would be great just to hear a little bit more about the strategy and what we should expect in the coming quarters? Are there specific products that you'll be launching? Or is it more just more deeply integrating AI into what you're already doing?

Obviously, I appreciate you have a culture of automation and a lot of what you're doing is already effectively connected to AI. But I would love to hear more about kind of client-facing or products that are tailored around that and whether we should expect anything in the coming quarters around that.

Yes. So I mean the first thing I would say is the base and foundation of our business is client trust and growing client trust in Wealthfront and our offerings. And so when clients think about their futures, we want to make sure that everything that we do builds trust as the technology capabilities and what we're able to offer clients evolve. I would say it's not very difficult to build tools using large language models that provide automated financial advice to clients.

What is more difficult and more important from our perspective is to use those tools in a way that achieves the trust-building objectives that we have. I think if you look a number of years down the road, the expectation that we have would be that a digital solution can provide using a natural language interface and a variety of financial models, a holistic financial plan for a client. They can talk a client through difficult scenarios.

They can help with tax, they can help with the state and trust planning. Some of those are capabilities that we have today. Some of those are capabilities that we'll need in the future. But when we think about that future, what we're going to do is, as we build towards what we believe is the long-term solution, focus on identifying areas where we can both build client trust and improve the business along the way to get those solutions out to clients incrementally. We're thinking about sort of the value of the integral of the features that we release over time and maximizing that along the path.

Our next question comes from Daniel Perlin with RBC Capital Markets.

Alan, I just wanted to make sure I heard you correctly. You said the May end cash management fee was running around 54 basis points as it takes into consideration, I think, current run rate incentives and then I think the Fed funds kind of curve. Is that equivalent to the 58 basis points that you guys just posted? Or are we closer to the 56 you also referenced? I just want to make sure I fully appreciate what you're trying to tell us there.

Yes. Dan, so what I was referencing is, yes, so what we would calculate May revenue on would have been a 54 basis effective annualized cash fee rate. But you have to recall, so the color there was that the Fed funds dropped 2 basis points. And so on an EFFR-neutral basis, had that not dropped on May 7 is when the first drop happened, it would have been a 56 basis points.

And so if you were trying to compare the 58 for the quarter, you would want to compare it to 56 since there was no EFFR drop during the quarter. So that's on a more comparable basis. But yes, it's a comparable number in terms of its representation.

Got it. Yes. No, that's super helpful. Can you guys also just dovetailing on some of the last kind of questions that were asked. The payback period as you think about these incentives that you put in the market, obviously, you've talked about clients coming in with higher balances. And to that extent, I would suspect they're fairly sticky. But I'm just wondering, what's the payback period? Or is that even a measurement stick that you guys think about just at these levels?

I think it's too early to get into specifics of how we would look at the payback period. But again, we're profitable on these clients that are coming in because a 25 basis point incentive on the cash management assets, we're still making a 30-ish basis point fee on the cash that they're bringing on the platform. We're driving cross-product adoption. And so there's an investment advisory revenue piece associated with it.

So we're still profitable bringing these clients on board even with the incentive. And then as they're growing faster, both in cash and investing, we would expect that, that pays back in the future, but too early to get into specifics of that payback time.

It comes from Ryan Tomasello with KBW.

This one is for Alan. I guess last quarter, you provided some guardrails on near-term margin expectations. So any update you can provide there? And then I guess, zooming out, as you balance continued investment in the core brokerage platform and also in newer initiatives like mortgage, how are you thinking about the path to margins over the next several years? And specifically, the key milestones or timing we should be watching for a return to positive operating leverage in the business?

Ryan, yes, so I would say that nothing has really changed since what we provided last quarter, which was before kind of really heavily investing and getting closer to rolling out home lending, we were in the kind of 45% to even 47% EBITDA margins. But as we invest in that, we expected margins to get closer to 40%, and that seems to be the case here for the near term. It's hard to talk about future milestones and timing going forward because, obviously, the momentum we're going to have with home lending is somewhat rate dependent, as I'm sure you appreciate.

And so -- but what we did and have been consistent in talking about is as that ramps up and does become steer state, it is a slightly lower margin profile, and it takes a while to get to kind of steady state in the way we look at it. And so we would expect margins to be lower than kind of what they were prior to home lending as we get in that steady-state environment. But what it does is it opens up a bunch of different things for Wealthfront.

One, it's a great dynamic macro hedge in low rate environment. It offers a large total addressable market. But even better, it helps us evolve with our clients and gives them an opportunity again to share the savings with them that we can get by doing a totally digital automated experience. And so there's obviously the trade-off of margin for growth. And I think we're happy to make that trade.

And then I guess, Switching gears more broadly on mortgage. I appreciate the commentary you gave in prepared remarks, but can we just double-click on how that rollout and time line to scaling the mortgage product is tracking relative to the expectations you set out several months ago? And I guess, any interesting operational learnings that have emerged so far or unexpected bottlenecks?

I guess, David, it sounds like the use of the word deliberate and measured pace, I can appreciate just how tactical you're trying to be with getting that right, but just trying to understand how it's tracking relative to the initial guidepost you laid out.

Yes. So I'll start and then maybe Alan can chime in. I think I used some of the same terms last quarter, so I'm not trying to portray a difference there. the environment has changed, right? Rates have gone up. To get the same level of learnings in a higher rate environment, you're going to see more purchase, less refi volume, and you're probably going to have to go a little bit broader a little bit earlier to continue having the volume in the funnel that you want to be able to evaluate the digital experience and the rate benefit that we're giving to clients.

I think I mentioned in the prepared remarks that we did 25% month-over-month increase in rate lock volume in May as we started ramping up a little bit. We'll see how the sort of forward macro outlook evolves in the mortgage space. We still think there is seasonality that we would expect to see in terms of demand for mortgages kind of industry-wide.

And we still see our clients purchasing homes and engaging with -- they're born short one unit of housing and they need housing and our clients are in the market. I think there's a lot of learnings that we have around specifics of the flow and our clients.

As an example, being able to automate RSU income verification is something that's more important for our client base than it might be for the average mortgage borrower, and that's something that we're investing in and working on. Ultimately, the goal is to be able to, at scale, deliver a great digital experience and at least 50 basis point better rate than they would get on average.

We feel confident in our ability to deliver those things. And we're going to see how the macro environment evolves and how our technology capacity evolves as we start to scale up a little bit more.

Yes. And then kind of on the timing, obviously, when we came up with the timing, it was based on kind of expectations that included potential rate cuts in the forecast. Now there's potential for even a rate increase next year. So it's going to be macro dependent. As David mentioned, counterintuitively, as rates go up, we actually need to expand broader to get more data, but that doesn't necessarily mean we get as much uptake because rates are so high unless people are refinancing.

So it's difficult call to see exactly where we're going to get on timing relative to what we thought, call it, 6 to 9 months ago. But we're really happy with the progress we are making and just the long-term nature of this investment and what it will do for our clients and our business.

Our next question comes from the line of James Yaro with Goldman Sachs.

This is Matthew in for James. Congratulations again on the strong results. Could you please contextualize for us the deposit pricing competition you're seeing in the market today? And how has that evolved over the course of the year and versus your expectations?

Yes. I mean the competitive environment for deposits has changed in the last few months. We've seen high-yield savings institutions and more of the fintech players be a little bit more conservative on rates. I think that the thing to keep in mind that's important is when we look at like our investor sentiment surveys, which we run monthly, we tend -- we run them towards the end of the month.

So like end of month February, investment sentiment was quite good. I would say there was a fair amount of uncertainty in the market. People weren't sure.

But in general, it was a reasonably positive level of investment sentiment. Late March, we saw a really steep and sharp decline in investment sentiment. And then we saw part of the way recovery in April and a further recovery in May. And so when we think about the flows with cash and investing, it's primarily dominated by investor sentiment and changes in investor sentiment. So we get some recurring flows into the investment platform through recurring deposits.

We get recurring flows into the cash platform from both recurring deposits and direct deposits. I would say we feel good about where our rate is. We'll see how effective Fed funds evolves over time. I would point folks to a speech that the New York Fed system open market accounts manager gave a couple of weeks ago, talking about the supply reserves in the system and how he's thinking about it, which I think is a useful framework to keep in mind. But we've seen less competition from a rate perspective in the past few months.

That's super helpful. Just kind of piggyback on that, how would you think about the cash outflow trends now that rate cuts are pretty much fully out of the forward curve for 2026? Would you expect to see less attrition of cash balances? I know you mentioned very strong cross-product adoption.

Yes. I don't know -- I mean, I would definitely say it's a more favorable environment than one where cuts are happening and expected. I think going back to your previous question, too, one of the things that clients really like about our -- the way we price is that it's predictable. So we only change rates when the Fed does, except when we gave back the 5 basis points previously when rates went up, which is obviously a delightful moment relative to the competition, which will change it kind of ad hoc and even within weeks of each other.

And so some of that, I think, helps us from a stability perspective, win business and retain business and to your -- kind of directly to your question, obviously, in an environment where rates are at a pretty good level and not declining, we would expect to see good trends in cash. May was positive as a reminder. But we do have the cross-product adoption incentives.

So we are encouraging that. We're seeing really good results as we laid out in the prepared remarks. And so we've built the business to be resilient no matter which side of the house clients want to grow their wealth on. And we think the environment is conducive for that currently. But obviously, market conditions can change.

One moment for our next question, and it comes from Alex Markgraff with KeyBanc Capital Markets.

Just a couple for me. First, just sort of on the client acquisition side of things. I'm curious if there's anything or how we should think about Wealthfront sort of showing up in consideration of private company liquidity events just as we think about some higher profile or potential higher profile activity this year. So just a question there on the client acquisition side and kind of showing up in the right place around those.

And then two, just on the incentives, I'm clear, the direct deposit incentives, that's a sort of perpetual incentive applied to those accounts. Is there any off-ramp to those? And then maybe just in that same vein, how are you thinking about maintaining that incentive? And when might you look to off-ramp and stop offering that?

I mean we like the way the incentive is performing now. We think it provides broader ecosystem adoption of Wealthfront. We like the investing flows and the cash flows that it's leading to. We have obviously the ability to change it in the future, but we're not looking to make changes to that incentive at the moment.

On your first question, I would say that if you think about what Wealthfront strategy historically and generally has been, it's to try to help people early in their financial journey. And then as they experience liquidity events or gain wealth over time through savings, we want to help them do the best job that we possibly can in growing their wealth.

And so the benefit that we have is we have a number of clients who are clients of some of the companies that I suspect you're anticipating having liquidity events this year and next. And our goal is really to grow with them and to help them grow their wealth, both through investing and cash management as we continue to offer more features, we think we'll be able to facilitate growing their wealth for many decades to come. But the strategy is quite different than what you might see from a traditional wealth manager trying to acquire clients at a point of wealth generation. We're really seeking to acquire clients very early in their journey and then grow with them for the long term.

I think we've had some success with the companies that you're thinking of. We'll see how that plays out. I would also just note, though, that most of these companies are going to have lockups that are going to impact the timing of even the possibility of liquidity reaching an outside account.

Yes. I would add to the nature of those companies, the employees working there who are going to experience liquidity events are most likely looking for an experience with their financial solutions, their financial adviser that looks more like what we offer rather than incumbents. And so I think we're well positioned from that standpoint of having the products that we have and probably already have many clients, as David mentioned, working at those companies to evangelize us for others as that occurs. So we feel good about the position we have there.

And as I see no further questions in the queue, I will conclude the Q&A session and pass it back to David Fortunato for closing comments.

Thank you. I want to thank everyone for joining the call and for your continued interest in Wealthfront. We look forward to staying in touch and updating you on our progress in the months ahead. Thank you all, and have a great rest of your day.

Thank you for standing by,and welcome to Wealthfront's Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Matt Moon, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today to discuss Wealthfront's Fourth Quarter and Full Year Fiscal 2026 financial results, which reflect the periods ending January 31, 2026.

On the line are David Fortunato, our Chief Executive Officer and President; and Alan Imberman, our Chief Financial Officer and Treasurer. After prepared remarks, we will open the line for Q&A.

During the course of today's call, we may make forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance that they will prove to be correct. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Wealthfront files with the Securities and Exchange Commission, including our most recent Form 10-Q.

Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute or in isolation from GAAP measures. Reconciliations of non-GAAP financial measures to comparable GAAP measures can be found in our press release accompanying this call, which is posted to our Investor Relations website at ir.wealthfront.com.

And with that, I will now turn the call over to David.

Thank you, and good afternoon, everyone. Fiscal 2026 was another successful year in which Wealthfront continued to deliver on its long-term objective of becoming the leading tech-driven platform for digital natives to turn their savings into wealth. We believe we make the best practices of personal finance accessible at low fees through technology and intuitive and convenient through user-friendly design and automation.

At scale, this drives high margins, allowing us to share savings with clients, creating and engendering trust, driving asset retention and low-cost word-of-mouth growth, which once again drives high margins. This flywheel enables us to offer feature enhancements such as our recent ongoing cash APY increases that I will describe in more detail later on and more broadly, helps our clients save more on every paycheck, earn higher returns on their savings and borrow at lower rates.

We remain grounded in our belief that the best way to build deep, long-term client relationships is to continue to delight clients by offering them more value than anyone else and focusing on their long-term financial outcomes. This informs our product development strategy and keeps us focused on our road map regardless of short-term market conditions. At fiscal year-end, total platform assets grew 17% year-over-year to a record $94.1 billion with investment advisory assets of $48.7 billion, up 29% year-over-year and cash management assets of $45.4 billion, up 7% year-over-year.

Funded clients ended the year at roughly $1.42 million, up 17% year-over-year. And funded accounts of roughly $1.84 million, up 16% year-over-year, reflecting 1.3 funded accounts per funded client. Total net deposits in the year ended January 31, 2026, were $6.7 billion, including $0.4 billion in net outflows in the fourth quarter.

Fourth quarter figures reflected a cash-to-invest transition environment that resulted in the second best quarter of total investment advisory cross product flows, including a second consecutive record quarter of net cross account transfers from cash to invest. This helped drive annualized organic investment advisory growth to 11% in the quarter, the highest since the market enthusiasm post-U.S. election in the quarter ended January 2025, with monthly annualized organic growth accelerating throughout the quarter, ending at 15% in January.

Recall, annualized organic growth is calculated as total net deposits in a given period, multiplied by an annualization factor based on actual day counts in that period divided by prior period ending assets.

As we'll discuss further, cash management net flows began to normalize in mid-January, roughly 4 weeks after reducing the client rate on December 19 and prior to the 5 basis point increase to the client APY on January 30. Net outflows from cash management were $145 million in February, a significant improvement from the $840 million in net outflows in January. Since February 16, cumulative cash management net deposits have been positive. However, we expect withdrawals due to tax time seasonality to begin later this month and continue up until the April 15 federal tax deadline.

On the product development side, we continue to accelerate our product velocity. For example, in the fourth quarter, we bolstered both our cash management and investment advisory offerings, enhanced operability between both -- interoperability between both and began to offer early access to Wealthfront Home Lending. For cash management, we introduced automated dividend sweeps from investment advisory accounts to cash management accounts and increased daily withdrawal limits up to $1 million for qualified clients.

In December, we began a measured rollout of our proprietary Wealthfront Treasury Money Market Fund or WLTXX. It offers an attractive after-tax yield alternative for clients and their cash, particularly for clients living in states with high income taxes given the state tax exemption on U.S. treasury interest income. As of the end of February, prior to general availability, the money market fund had just over $85 million in AUM.

For investment advisory, we expanded availability of fractional shares into automated investing accounts and automated bond portfolios, helping to reduce cash drag and tracking error relative to our target portfolios. We also introduced dividend reinvestment plans as well as a broader list of stocks and ETFs that can be traded in the stock investing account. We continue to see strong uptake, particularly among younger clients in this investment account.

In November, we launched early access to home lending, starting in Colorado and have since expanded to Texas and California with a full rollout to these states as well as early access in additional states expected to come later this year. We believe we can use technology to deliver a better digital experience and a lower rate, and we are deliberately scaling at a measured pace in order to maximize learnings to optimize our long-term outcomes.

We aim to provide our clients home mortgage rates at least 50 basis points better than the national average. While we are in early days, we're proud to have delivered on this objective on average in the states in which we operate today.

Beyond new product initiatives, we've increased the base APY on all cash management accounts by 5 basis points to 3.3% on January 30. Over the course of the past several months, the effective federal funds rate gradually stabilized higher within its target range allowing us to pass more savings along to our clients. We could have simply taken this benefit for ourselves, but consistent with our business model, we are constantly looking for ways to give back to our clients to deliver better financial outcomes and build trust.

Our focus for Wealthfront Cash is to offer the best cash account experience for young professional savers. In this vein, we launched an incentive in early March in which clients that direct deposit at least $1,000 per month who also have a funded investment account will receive an ongoing 25 basis point boost to their cash APY. We expect this incentive to deepen existing client relationships as well as drive cross-product adoption for those clients using one of the cash management or investment advisory accounts today. We also anticipate new clients to diversify into both of these account types more quickly.

Closing with current trends, today, we published February metrics. As discussed earlier, when looking at intra-month trends, cash management net outflows peaked in mid-January prior to our 5 basis point increase to the client base APY. Cash management net outflows significantly improved to only $145 million in February versus $840 million in January. Investment advisory net deposits were $416 million, implying an annualized organic growth rate of 11%. Total net deposits were therefore, $271 million in February and along with market appreciation led us to another month-end record of total platform assets of $95.2 billion.

In turbulent times like these, the time-tested performance of a low-cost diversified index portfolio with the added benefit of automated tax loss harvesting becomes more apparent. Aggregate investment account returns, most notably our automated investment account benefited in January and February from the relative outperformance of international equities, contributing to a 2.8% month-over-month growth in January and 1.7% month-over-month growth in February.

Crucially, this performance stands in stark contrast to the returns of speculative asset classes that often falter when market conditions tighten. While others chase fads, our flagship automated investing account is engineered to mitigate volatility and maximize after-tax outcomes. We believe the value of this product is even greater when you consider the strong year-to-date tax losses we've harvested for our clients. February tax loss harvesting dollars were the highest since the widespread market volatility realized immediately before, during and after Liberation Day last year.

With that, I'll turn it over to Alan to go over the financials.

Thanks, David. Starting with the income statement and a high-level overview for the year. Revenue for fiscal 2026 reached a record $365 million, up 18% year-over-year. Adjusted EBITDA for fiscal 2026 also hit a new record of $170.7 million, up 20% year-over-year, reflecting an adjusted EBITDA margin of 47%, up 1 percentage point year-over-year.

Moving now to the fourth quarter. Revenue came in at a quarterly record of $96.1 million, up 16% year-over-year. Cash management revenue was $69.7 million, up 12% year-over-year due to both higher average cash management balances measured as the average of beginning and end of quarter figures and a higher annualized fee rate. The average cash management balance in the fourth quarter was $46.2 billion, up 10% year-over-year, and the annualized cash management fee rate was 60 basis points, up 1 basis point year-over-year.

When the Fed reduces the Fed funds target rate, we typically wait until the Friday of the following week to reduce the APY we offer our clients. This creates temporary fee compression because the interest rate we receive from banks reprices lower immediately, while the interest rate we pay to clients remains constant for a 1-week grace period. Additionally, in a declining rate environment, the fee rate is negatively impacted by the inherent mathematical impact of converting annual percentage rates, or APR to annual percentage yields or APY. The inverse of this is true in an increasing rate environment.

As David noted, we launched a new incentive in early March in which clients who direct deposit at least $1,000 per month and also have a funded investment account will receive an ongoing cash yield increase of 25 basis points. As a result of both the direct deposit incentive and the 5 basis points passed along to clients at the end of January, we now expect our first quarter annualized cash management fee rate to be in the range of 57 to 58 basis points.

Because April is tax season and our clients are net cash taxpayers, we anticipate significant seasonal cash management net outflows to begin in the back half of March and continue up until the April 15 federal tax filing deadline. For context, net cash management outflows in April 2025 were $537 million, and we would expect this figure to be larger this year given the increase in total cash management assets.

It may seem counterintuitive, but we are delighted to see tax-related outflows because it reflects the highly attractive financial profile of our clients and also means our clients are comfortable using the cash account to meet near-term liquidity needs, indicating use of the account as a primary operating account that generally gets replenished over time and are typically stickier over the long run.

Investment advisory revenue was $25.8 million, up 31% year-over-year and surpassed $100 million in annualized revenue for the first time due primarily to a 30% year-over-year increase in average investment advisory balances to $47.3 billion. Our annualized investment advisory fee rate was roughly flat at 22 basis points versus the same period last year. Asset growth was driven by both strong markets and net deposits over the trailing 12 months with organic net deposit growth accelerating throughout the quarter, ending at 15% annualized growth in January.

Net cross account transfers from cash to invest in the quarter set a new record for the second consecutive quarter, reflecting the compelling combination of a broad suite of investment products, overarching platform incentives and targeted life cycle marketing campaigns currently in place.

Gross profit came in at a quarterly record of $86.6 million, up 17% year-over-year, reflecting a gross profit margin of 90%. Total GAAP expenses of $310.7 million included $248.3 million in stock-based compensation expense, of which $239 million reflected dual-trigger equity award expense recognized in connection with our IPO. GAAP expenses also included $5.3 million in employer taxes related to these dual-trigger equity awards.

Adjusted operating expenses, that is expenses excluding share-based compensation and employer taxes due to IPO-related equity awards were $57.1 million, up 15% year-over-year due primarily to higher product development and general and administrative expense, partially offset by lower marketing expense. Adjusted EBITDA of $44.2 million was up 22% year-over-year and reflected an adjusted EBITDA margin of 46%, up 2 percentage points year-over-year.

As we continue to invest in incentives and scale home lending, we expect adjusted EBITDA margins to decline sequentially but remain above 40% for the first fiscal quarter 2027. We continue to demonstrate significant operational and financial discipline, delivering a Rule of 40 metric of 62% for the fourth quarter. This is our 14th consecutive quarter or more than 3 years exceeding the Rule of 40 and underscores a business model that has successfully and consistently balanced robust top line growth with the structural efficiencies of our automated platform.

GAAP diluted net income was negative $134.8 million and GAAP diluted earnings per share was negative $1.31, both of which include the one-time impact of dual trigger equity awards satisfied in connection with our IPO of $239 million. We believe that our adjusted EBITDA is a strong proxy for cash flow.

For the fourth quarter, net cash provided by operating activities was $33.3 million and free cash flow was $33 million. This results in a free cash flow conversion ratio, that is free cash flow as a percentage of adjusted EBITDA of 75%. January, however, is a seasonally lower free cash flow month period as we pay out the majority of our accrued annual cash bonuses to our employees in that period.

For the fiscal year, net cash provided by operating activities was $152.2 million and free cash flow was $151.1 million. This resulted in an annual free cash flow conversion ratio of 88%. Note, both quarterly and annual free cash flow figures are not adjusted for IPO-related expenses. Therefore, conversion ratios are lower than they otherwise would have been had the IPO not occurred.

Driven primarily by this robust free cash flow generation over the course of the year and over $130 million in net cash proceeds raised in our IPO in December, we continued to strengthen our debt-free balance sheet, ending the period with cash and cash equivalents of $440.8 million. At quarter end, we had roughly 186.5 million diluted shares outstanding.

In March, we received Board authorization to implement $100 million in share repurchases. We believe repurchasing our stock is attractive at current levels given our robust free cash flow generation, our debt-free capital structure as well as the multi-decade opportunity to compound wealth with new and existing clients.

Over the long-term, our excess capital priorities are invest in organic growth, including infrastructure and automation while also comfortably exceeding minimum capital requirements, evaluate opportunities to repurchase shares and assess M&A with a preference to build versus buy. Any remaining capital would be added to our surplus reserves in order to bolster resilience and durability.

Regarding February metrics, total platform assets ended at another month-end record of $95.2 billion, consisting of $50 billion in investment advisory assets and $45.2 billion in cash management assets. Total net deposits were $271 million. And recall, February only has 28 days in the month. Investment advisory net deposits were $416 million, reflecting organic growth of 11% annualized.

We continue to successfully drive cash to invest flows, bringing asset-weighted cross-product adoption that is assets held by clients with both cash management and investment advisory accounts to roughly 61.5% at the end of February, up over 1 percentage point since the end of December. Cash management net flows began to normalize in mid-January, 4 weeks after reducing the client rate on December 19 and prior to the 5 basis point increase to the client APY on January 30.

Net outflows from cash management were $145 million in February, a significant improvement from the $840 million in net outflows in January. Since February 16, cumulative cash management net deposits have been positive. However, we expect withdrawals due to tax time seasonality to begin later this month and to continue up until the April 15 federal tax deadline.

In closing, our business is designed to be aligned with the interest of our clients. Simply put, we succeed only when they do. We believe that as long as we continue to deliver products that truly delight our clients, they will engage more broadly with us, entrust us with more of their wealth and recommend our platform to their friends, family and coworkers. We are deeply committed to this long-term journey alongside them. With that, let's move to Q&A.

[Operator Instructions] Our first question comes from the line of Ken Worthington of JPMorgan.

I want to dig further into the rollout of mortgages and see how that's going. So what kind of reception are you getting from your customers in Colorado, where that offering is more seasoned? And can you see based on the transfer of assets to title companies, how your penetration of eligible customers is looking thus far?

Ken, yes, so we're progressing, I think, well. The thing that we're optimizing for, we talked a little bit in the prepared remarks, is less about directly trying to capture all of the volume that we reasonably can in Colorado and really maximizing the learning that we have, both with our infrastructure and with the client experience.

So as we've launched first in Colorado with the early access period and then in Texas and California, we're really focused on making sure that the experience that we're delivering to clients is good. There are things that we have to improve, and we are working on. We've already rolled out a bunch of improvements with more to come.

On the rate basis, we feel very good about overpromising -- sorry, underpromising and overdelivering on the quality of rate that we're giving folks. We're still seeing significant home volume across the country. I think the stat that I saw was more than $400 million of wires to escrow and title companies in our Q4 went off the platform, which obviously is a significant chunk of the outflows that we saw.

We have a bunch of things that we need to improve on the digital experience. We're making quick progress, but it's a huge area of focus for us. As we continue to expand the early access period, the real constraint that we have is that the experience that we're offering to clients is one that we feel good about, and we feel the clients will feel good about for the long-term. We're not trying to build a transactional mortgage experience. We're trying to build a long-term relationship with clients, of which mortgage is just one step.

Perfect. And then maybe to follow up, same topic. How do you see the ramp and the rollout to other states and the further penetration in existing states? How does that look as you move through the rest of the year? Is this really kind of an experimental year where we don't -- you wouldn't expect things to kind of juice and really ramp. It's just sort of getting the infrastructure? Or do you expect things to really kind of ramp as we move throughout the year and as you get more comfortable with the offering?

So we certainly expect to go general availability in Colorado first. That will happen sometime this year. I would expect that we go general availability in Texas and California at some point this year. And I would expect that we launched early access periods in additional states. Exactly what percentage of our client base will be covered by general availability, I'm less sure of.

Our ability to roll out automation features and balance scaling headcount versus scaling through technology is the kind of core dance that we're doing where we're trying to really scale with technology and limit headcount growth where needed, except where we are very confident in the volumes that we are seeing, and that's a credible strategy to be able to build sustainable volume over time.

Our next question comes from the line of Ryan Tomasello of KBW.

Regarding the cash management fee rate guide for 1Q, I believe you said 57 to 58 bps. Is that a reasonable baseline for the remainder of the year? Or how should we think about the potential for additional compression there to the extent these incentives you're offering continue to see strong uptake?

Ryan, thanks. The one thing I would say is the competitive environment has certainly evolved a bit over the last 6 months. And what we have seen is after the 5 basis point change and the direct deposit incentive, I think we feel much better about where we are in the competitive environment, and we're seeing that with the transition in cash net flows. As for the -- how we think about the fee rate going forward, I'll let Alan take that.

Yes, Ryan. So the -- I would say the 57 to 58 is just the first quarter guide. It will really depend on the uptake as to how the rest of the year goes. The thing we like about incentives such as the direct deposit incentive is that we will only have to pay the extra rate when people give us more money or take on this additional incentive by performing the action of direct deposit and funding an investment account.

And so as more people adopt it, we do expect to see potentially further degradation in the fee rate, but that would also signal that we have more clients building deeper relationships across the platform with us. And so that's the balance we're looking for there.

Okay. I appreciate that. And then on the account growth, is it possible to isolate the specific trends within the investment advisory side of the business? Obviously, the trends on net deposit organic growth have been quite positive, but I would assume that there's also underlying positive trends on just the actual account growth side within investment advisory. Any color you can provide there?

Yes. I mean the investment account growth, especially as cash-only clients add investment accounts is a key focus for us in any transition environment, and it has been probably the most significant focus inside of the company over the past 3 or 4 months. We focus on the flows because that's what ultimately leads to asset growth and therefore, revenue growth because of our monetization strategy.

But the way that we achieve that flow growth is both growing with clients over the long-term and getting more clients to adopt investment products. It's too early to know exactly what the impact will be from the direct deposit incentive that we're trying. I think we're looking forward to being able to talk more about that as we get additional data in. But we've been pleased with the early response.

Obviously, direct deposit takes some time to come through, and there's a little bit of a lag. So we haven't had a direct deposit cycle since that incentive launched. But the past incentives that we've run around investment account adoption, along with the macro environment in January and February being more conducive to investment have helped our focus on investment cross-product adoption and new client investment growth as well.

Our next question comes from the line of Devin Ryan of Citizens Bank.

A question, another on just kind of cash account. And just some of the outflows kind of late last year, earlier this year, do you have a sense of whether that money was going toward other online banks paying higher rates? Or was it going to brokerages or maybe just bill pay without kind of gross flows? Just love to get a sense of that.

And then do you have a sense of the remaining balances that are maybe more pure rate chasers and like how much of that is remaining? I appreciate that's probably difficult to quantify, but I would love to just get some thoughts on that and some of the behavior that you did see kind of late last year and early this year?

Sure. I'm happy to give a high-level answer and then if Alan has anything he wants to add, he can chime in. So what we saw, I think, broadly consistent with what we had discussed previously, and that's that as rate cuts occur, the larger number of rate cuts that occur in consecutive succession leads to more folks evaluating what they're doing with their cash. So we had 3 cuts in a row.

It takes several weeks for cash net flow activity to normalize post Fed rate cut, which I think we've talked about before. We normally have a really good idea sort of 4 to 6 weeks after a rate cut has gone through. One of the interesting things that we saw in January, was both January is a seasonal high period for investing, which I think amplified some of our desire to drive additional cash to invest adoption because January is a great period for folks to reevaluate their finances and think about opening investment accounts. And so we did lean into that in January. And I think some of what you see in the January numbers is that.

The other thing I would point out is that the gross versus net distinction in cash flows, especially because of the liquidity features that we offer, free wires, free instant transfers, the ability to send money to escrow and titled companies to buy a home. We do, do a lot of gross flows for cash management. We did a calculation where we look at the recapture rate of those gross flows by client in the quarter, and we are recapturing a majority of the gross withdrawals that we saw from clients in our Q4. That's consistent with what we have seen in prior periods.

And we think it shows the value of the cash management account really sustaining even as clients reach goals, maybe they are purchasing a house or putting a down payment down, maybe they're buying a car. They come back to the cash account, and we do recapture a significant chunk of those assets.

I think the sort of high-level question that you asked about what are folks doing with their money is, there are folks that are doing some of all of the things that you described with their money. It's our job to be the best place for our clients to invest for the long-term, the best place to save for the long-term. We want to deliver the best mortgage experience that they can get anywhere as well.

It will take us time to do some of those things, especially the mortgage, but that's really what the focus of the business is, is leading with product and delivering the best product and the best value to our clients across their sort of broad financial needs.

Okay. Great detail. I guess a follow-up here on the repurchase authorization, $100 million buyback. Can you talk a little bit about kind of expectations kind of pacing intent there? I think it's a strong signal. Obviously, the company has a lot of liquidity here. So in theory, even potentially more behind that. So I just love to get a sense of like how much a signal versus intent to actually step in and buy shares here down from the IPO price?

Devin, it's Alan. What I would say is that we think the shares are extremely attractive at the current price. We are in a position, as you mentioned, to have a very strong balance sheet and free cash flow generation such that we can make this investment and we'll compare our ability and our willingness to repurchase against, obviously, other opportunities that we have to invest in. But we do think that we will be purchasers of our shares, especially at the current levels.

Our next question comes from the line of Dan Perlin of RBC Capital Markets.

I guess I just wanted to kind of circle back a little bit on the home lending side. And I guess the broader context is, I heard everything you said in your prepared remarks, but how do you think that rollout product reception and expectations as you think about the ensuing year are going relative to when you kind of addressed investors around the IPO. It sounds pretty consistent, but it also sounds like there's some nuanced differences maybe. So I just want to make sure I understand that.

Sure. So I think we know a lot more about the areas that we need to improve to deliver the best digital experience that we can to clients, and we're putting in focused work on those areas and gradually expanding as we go. We understand a lot more about the operational challenges and where we need to invest to drive operational efficiency so that we can do so as efficiently as possible with as a digital back-end experience as we can.

The result of those things is, we want to build like we have with cash, like we have with investments, a sustained low-cost advantage in being able to deliver the products so that we're able to share the savings with clients and get them the best financial outcome. So there's a lot more that we understand with the volume of loans that we've done so far. We will continue to learn and prioritize both the operational efficiency and digital experience wins as we move along, continuing to let people off the early access lists and go general availability in Colorado first.

I think our understanding and our learnings are generally consistent with what we have communicated in the past. We obviously have a lot more detail now from operating in the space, operating in more states and doing more loans than we have in the past.

Yes. No, that's great. Just a quick follow-up. So it was really good to see like the net deposits turned positive in February and this pivot from cash management to investment advisory as you guys have telegraphed was kind of taking place. I think the question that I have is like you've got this -- we're kind of in a weird dynamic right now where the environment may or may not produce kind of lower rates in the near-term, it might be sustained for longer.

I'm just wondering how you guys think about positioning yourselves maybe more in the near-term in an environment where that might be the case. It might be an unfair question because it's impossible to answer, but it does feel like there's a lot more volatility and around expectations for rates. So just how you're posturing maybe as we go through the next, I guess, couple of quarters?

Yes. So I think we feel good about our competitive positioning after the 5 basis point change on the 25 basis point direct deposit incentive. Obviously, we don't know what the market is going to do in the future. We don't know what rates are going to do in the future. We do think that we're well positioned from the investment side because of our focus on global diversification. That's put us in a good position over the last few months.

And what we've really seen resonating with clients is in uncertain environments, investing with global diversification is a real selling point. we sort of don't think about positioning ourselves based on what's going to happen over the next few months, but we feel good about our position because of the investments we've made over the last few years in cash investment and home lending. Also that if rates come down, we feel like we're in a good position to help clients continue to invest or invest more.

We feel like we're in a good position to be able to help them buy homes that have become more affordable at lower interest rates, while also helping them continue to save for the long-term and get access to liquidity as needed using tax advantage tools like the Wealthfront Money Market Fund.

As we've continued to build out our offering, our goal is really to help clients across the broadest range of financial situations be able to put their savings and investments to work. And that's been the focus, and we feel good about the position because of the diversity. We can't predict the future, but we can prepare for it, and that's what we've done.

Our next question comes from the line of James Yaro of Goldman Sachs.

Could you just update us on the success of the match programs in the invest business so far? How much has this been driving the flows in that side of the business? And perhaps if you could just also comment on the ROIs there and how you structure that to ensure strong ROIs?

James, so I would say we're constantly experimenting with incentives. The most successful incentives that we have done for cash to invest adoption have actually not been the deposit matches. It's been other types of incentives that we've run to encourage cash to invest adoption. We're, I think, happy with the initial response to the direct deposit incentive having driven a fair amount of investment account opening. It's still early, and so we'll have to see how that evolves over time. We'll have to see how that evolves with new clients.

And if the cross-product adoption rate early in the client tenure improves as we expect it to. I think generally, our incentives have been successful at -- with the second best quarter in our history at cross-product flows of cash to invest and a second record quarter of net cross account transfers from cash to invest. But I don't think that the -- we haven't overly focused on match as the driver of those. We've looked at a variety of incentives and are pursuing the ones that we feel deliver the best overall outcome to the company and to our clients.

Okay. That's super helpful. I just wanted to ask a bigger picture one. So let's say we get to a terminal Fed funds of roughly 3%, which obviously, there's uncertainty as to whether we'll get there. But how would you think about the right way to model the mix of your client assets across cash versus investment advisory? In other words, what percentage of client assets would you expect to be cash versus investment advisory?

James, it's Alan here. Yes. I think it's a difficult question in the sense that there's more going on than just the level of rates. It's clients are accumulating more wealth. And as we have shown in our prospectus, as clients obtain a certain level of cash, they start putting incremental dollars to work and investing. And so you start to see the investment account, which grows faster as well, really continue to grow. And that's what we've seen over the past few quarters, and we didn't discuss this last time, but investment advisory assets have now overtaken cash assets pretty clearly.

And so when we're modeling it, I think it depends on -- as well as younger clients coming in do start with cash because they're early in the journey in savings. So I think you have to have more variables than just the level of rates. I think you have to have variables around clients that are coming in and then our existing clients and their behavior. And again, we have control over that in some of the incentives that we offer. And so that's probably what I would -- how I would think about it.

Our next question comes from the line of Alex Markgraff of KBCM.

Maybe a couple here. I guess just first, David, from a product standpoint, if I look at the releases in calendar '25, pretty busy. Just sort of curious how you think about calendar '26 or fiscal '27 using the sort of digestion year versus carry-forward of velocity framework. And then, Alan, just sort of as a follow-on to that, maybe just some comments on spend priorities in the context of David's comments would be helpful.

Alex, I guess we -- our focus as a sort of product development and technical organization is to be able to build automated products so that we can continue to focus most of our technical talent on delivering new products to clients and improving our existing products. We have a lot left to build.

I would say that our -- one of the things that we've seen over the past couple of years is that our road map only ever gets longer of things that we want to focus on and we want to get out to our clients as we continue to build a deeper understanding of our clients' financial situation through both the qualitative and quantitative research that we do into their financial lives.

We continue to have new ideas and be excited about those ideas. And so the focus that we have really is on prioritizing and focusing on the things that we think will make the biggest impact to our clients' financial outcome and have the biggest impact on our business, but we really want to continue to accelerate product velocity, if anything, to continue to get products out to clients and improve the existing product experience so that Wealthfront is delivering the best value of any provider in the space.

Yes. What I would say, to add to that in terms of kind of the spend, I mean, as I mentioned in the prepared remarks, the investment in home lending as well as our incentives are really where we're putting a lot of kind of resources. We continue to work on incentives and really strengthening the core as well while we invest in home lending. And so that's -- that really hasn't changed.

We continually look at our business model flywheel and kind of prioritize around that. And so we're continually trying to figure out ways to automate, to generate savings, share those savings with clients to help their financial outcomes, build that trust, get them to refer us and grow with word of mouth and some of that is used through incentives. And so we'll continue to use that as kind of our framework for how we invest.

Awesome. I appreciate that. And then Alan, maybe just a quick follow-up, more sort of model mechanics question on the money market fund, understanding there are a lot of sort of factors that determine the ramp of that. But just as we see that sort of mix into the model, just a reminder on how that sort of affects the revenue lines would be helpful.

Yes. So it will be inside of cash management. It is -- we're in a fee waiver period right now. I think starting March 1, the fee is 0.25% on the management fee. And then in terms of -- as David mentioned, it offers a really good after-tax yield for folks in states with high income tax. And so we'll have to see in terms of how it -- the growth once we roll it out general availability, but that's where it will fit, and that's kind of the monetization on the product.

[Operator Instructions] And as there are no further questions in queue, I would now like to turn the conference back to David Fortunato for closing remarks. Sir?

Thank you. I want to thank everyone for joining the call and for your continued interest in Wealthfront. We look forward to staying in touch and updating you on our progress in the months ahead. Thanks all.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, ladies and gentlemen, and welcome to Wealthfronts' Fiscal Third Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Matthew Moon, Vice President, Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us today to discuss Wealthfronts' Third Quarter 2026 financial results, which reflect the quarter ended October 31, 2025. On the line with me are David Fortunato, our Chief Executive Officer and President, and Alan Imberman, our Chief Financial Officer and Treasurer. After prepared remarks, we will open the line for Q&A.

During the course of today's call, we may make forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance that they will proved to be correct. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Wealthfront files with the Securities and Exchange Commission, including the final prospectus filed in connection with our IPO.

Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute or in isolation from GAAP measures. Reconciliations of non-GAAP measures, financial measures to comparable GAAP measures can be found in our press release accompanying this call, which is posted to our Investor Relations website at ir.wealthfront.com.

With that, I will now turn over the call to David.

Thanks, Matt. Last month, we took the company public in what was a significant milestone in the 17 years since we were founded in 2008. Though we are now a public company, what drives us forward every day remains the same, serving our clients who have entrusted us with their wealth. Throughout the IPO process, we had the opportunity to take a number of stakeholders through our long-term strategy and vision in detail. Since many of you on the call today are new to that story, we wanted to begin with a refresh of Wealthfront and the long-term vision and strategy that we are pursuing.

Wealthfront began with the insight that advancements in technology could make intelligent investing, effortless. We strive to deliver on this insight by prioritizing technology in everything that we do. We've built fully automated services that enable a better client experience, drive faster product and feature velocity and have generated high gross margins at or around 90% in recent years. This allows us to pass along savings to our clients, delivering better financial outcomes, which in combination with a digital-first user experience, establishes, maintains and grows trust. This trust leads to strong retention, deeper client relationships and low-cost client growth via word of mouth. This combination has driven adjusted EBITDA margins to over 40% for the last 10 quarters, which has allowed us to reinvest in the business to continue this flywheel.

The average age of our clients is 38 years old and over 3/4 of our funded clients are born after 1980, a group that we define as digital natives. As of the end of calendar 2024, U.S. digital natives represented $16 trillion in U.S. household net worth or roughly 10% of the total U.S. household net worth. Contrary to popular belief, digital natives have been saving and investing at a rate roughly double that of prior generations, making them the wealthiest generation at their current ages, adjusted for inflation. As a result, this $16 trillion in household net worth is projected to grow at an 11% CAGR over the next 2 decades, even excluding the well-documented benefit of the anticipated generational wealth transfer. This overarching secular trend underpins our long-term strategy, help digital natives who are expected to be the wealthiest generation ever turn their savings into wealth, by continuing to service their needs at a low cost in a digital technology-first manner that they've come to expect from services they use throughout their daily lives.

Today, we service our clients primarily through our Cash Management Account and Investment Advisory Account offerings. In Cash Management, we offer an account that combines the features a client would expect of both the checking and savings account. Over time, we continue to provide incremental value without charging additional fees and today provide an industry-leading APY on as little as $1 with up to $8 million in FDIC insurance for individual accounts and $16 million for joint accounts through our program banks. Free instant withdrawals, free wire transfers and paycheck access up to 2 days early, among other features.

In Investment Advisory, we offer several products across the risk spectrum, the largest of which is our Automated Investing product. This diversified portfolio of low-cost index funds aims to excel at the three things clients can control to reliably improve their long-term after-tax returns, fees, taxes and diversification. This product does so on an automated basis at a cost of 25 basis points, roughly 75% less than traditional advisory offerings, while also providing automated tax loss harvesting benefits that have generated over $1 billion in tax savings for our clients that reflect an average client benefit of over 7x their lifetime advisory fees. We are continuously innovating and prioritize our product development process, not by chasing the latest fads, but by listening to our clients and their financial needs.

In the third quarter, we originated our first Home Mortgage. And as we scale, we intend to offer clients access to low transparent rates and no hidden fees. We currently have licenses that cover the states of residents of the majority of our clients, and we began this gradual rollout of the product in the fourth quarter, starting with clients in Colorado. Taking out a mortgage has historically been a cumbersome process. We believe we can use technology to deliver a digitally seamless product while also providing our clients a more attractive rate relative to the industry average. Our average client is reaching the home buying stage of their lives and with our clients having sent over $2.5 billion in wires to escrow and title companies from our platform alone in calendar year 2025, it is clear that it is our clients who are the ones buying homes in the U.S. We believe that we have the opportunity to capture a meaningful share of this volume over time.

We also launched Nasdaq-100 Direct in the quarter, the first ever product to offer retail investors the tax benefits of direct indexing in combination with tracking the performance of the NASDAQ 100 Index. Wealthfront's Nasdaq-100 Direct is available for 12 basis points annual advisory fee, a fee lower than leading exchange-traded product offerings in the space with the added benefit of automated tax-loss harvesting. This product went from idea to launch in less than 8 weeks, highlighting the accelerating pace of product velocity exhibited by our talented engineering team. Turning to the quarter with key performance highlights.

Total platform assets of $92.8 billion represented a quarter-end record and were up 21% year-over-year, driven by Cash Management assets up 14% year-over-year to $47 billion and Investment Advisory assets up 31% year-over-year to $45.8 billion. Growth included total net deposits of $1.6 billion in the quarter and $9.7 billion in the trailing 12-month period. Funded Clients ended the quarter at roughly $1.38 million, up 20% year-over-year with Funded Accounts of roughly $1.78 million, also up 20% year-over-year, reflecting 1.3 funded accounts per funded client.

During the third quarter, the Fed started to reduce the Fed funds target range, cutting the range by 25 basis points at each of the September and October meetings and by another 25 basis points at the December meeting. As Alan will describe in more detail when discussing recent monthly trends through December, this rate cutting cycle has resulted in an expected gradual migration of assets from cash to invest that has slowed the pace of Cash Management asset growth but has continued to support growth in total platform assets, including to 2 consecutive month-end records at both November and December-ends. This dynamic is playing out as expected and reflects the intentional balance of our business model. That is when interest rates decline, we expect to see a slowdown in Cash Management asset growth, but an increase in Investment Advisory asset growth and vice versa.

These transition periods are not new to us, and we prepare for them principally through our product development philosophy. For example, we launched Stock Investing in early 2023 amidst a more muted retail trading environment because we wanted to be prepared for the next upswing in activity. We launched automated bond ladders in 2024 amidst an inverted yield curve because we knew that the yield curve would eventually normalize. And we launched Home Lending in late 2025 amidst muted industry origination activity because we knew that our average client was nearing typical home buying age. Every product addition was considered with transition periods in mind in order to be on the shelf and available to our clients when the transition eventually came about. We are better positioned today than ever to take advantage of the current transition period with the combination of a broad suite of investment products, overarching platform incentives and targeted life cycle marketing campaigns in place.

Ultimately, we are most focused on asset retention and cross-product adoption during these transition periods, and this focus has already led to Q3 being the second best quarter of total cross-product flows to Investment Advisory in the company's history, including the best quarter of net cross account transfers from cash to invest in the company's history. We're encouraged to see these trends remain strong thus far in the fourth quarter.

With that, I'll turn it over to Alan to go over the financials.

Thanks, David. Starting with the income statement. Revenue came in at a quarterly record of $93.2 million, up 16% year-over-year. Cash Management revenue was $68.8 million, up 14% year-over-year, primarily due to higher average Cash Management balances measured as the simple average of beginning and end of quarter figures. The average Cash Management balance in the third quarter was $46.8 billion, up 18% year-over-year and the annualized Cash Management fee rate was 58 basis points, down 2 basis points or 3% year-over-year.

On the fee rate, when the Fed reduces the Fed funds target rate, we typically wait until the Friday of the following week to reduce the APY we offer our clients. This creates temporary fee compression because the interest rate we receive from banks, reprices lower immediately, while the interest rate we pay to clients remains constant for a 1-week grace period. Additionally, in a declining rate environment, the fee rate is negatively impacted by the inherent mathematical impact of converting annual percentage rates, or APR to annual percentage yields or APY. The inverse of this is true in an increasing rate environment.

Investment Advisory revenue was $24.2 million, up 26% year-over-year, primarily due to average Investment Advisory balances of $43.7 billion, up 28% year-over-year, while the annualized Investment Advisory fee rate of 22 basis points was flat versus the same period last year. Asset growth was driven by both strong markets and net deposits over the trailing 12-month timeframe, including our best quarter of net cross account transfers from cash to invest in the company's history.

Gross profit came in at a quarterly record of $83 million, up 15% year-over-year, reflecting a gross profit margin of 89%. Total GAAP expenses of $61.8 million were up 22% year-over-year, while adjusted operating expenses, that is expenses excluding share-based compensation, were $53.7 million, up 11% year-over-year due primarily to higher product development expense, partially offset by lower marketing expense. Adjusted EBITDA of $43.8 million was up 24% year-over-year and reflected an adjusted EBITDA margin of 47%, up 3 percentage points year-over-year. Incremental adjusted EBITDA margin was 66%, thanks to our highly efficient low marginal cost infrastructure.

We continue to demonstrate significant operational and financial discipline, delivering a Rule of 40 metric of 63% for the third quarter. This is our 13th consecutive quarter of more than 3 years or more than 3 years, exceeding the Rule of 40 and underscores a business model that successfully and consistently balances robust top line growth with the structural efficiencies of our automated platform.

GAAP net income was $30.9 million, up 3% year-over-year, and GAAP earnings per share was $0.21. Our adjusted EBITDA is a strong proxy for cash flow. Net cash provided by operating activities was $41.5 million and free cash flow was $41.3 million. This results in a free cash flow conversion ratio, that is free cash flow as a percentage of EBITDA of 94%. Driven by robust free cash flow generation, we continue to strengthen our debt-free balance sheet, ending the quarter with cash and cash equivalents of $266 million. Furthermore, we significantly enhanced our financial flexibility during the period by expanding our revolving credit facility to $250 million from $50 million previously. Cash balances do not include net cash proceeds from activities related to our IPO in December of over $130 million, which in combination with cash generated from operating the business, brings our cash and cash equivalents to over $400 million today.

A couple of housekeeping items for your models related to the IPO. First, the completion of our offering satisfied the performance condition for all time-vested dual-trigger RSUs, which will result in a onetime noncash stock-based compensation charge that will contribute to total stock-based compensation in the fourth quarter ending January 31, 2026, in the range of $245 million to $250 million. Second, our post-IPO fully diluted share count is approximately 189 million shares.

With the quarter wrapped, I want to spend a moment on our inaugural monthly metrics report, which we published alongside today's earnings release for the trailing 13 months through December. We will not be providing quarterly guidance, but will instead provide these monthly metrics as the quarter progresses with metrics for the first 2 months reported intra-quarter and with metrics for the final month reported alongside earnings for that quarter.

Total Platform Assets continue to hit records in November and December, ending at $93 billion in Total Platform Assets in December, a new month-end record. Cash Management asset growth was moderated by recent reductions in the Fed funds target range in September, October and December. Due to the lagging impact of our 7-day rate grace period, clients felt the end of October rate cut in November. The December rate cuts made it 2 consecutive months of rate cuts for clients. However, these headwinds were more than offset by growth in Investment Advisory assets, primarily due to net deposits, representing double-digit annualized organic Investment Advisory growth in December. November and December figures include the continuation of strong cross-product adoption and net cross account transfers from cash to invest. Keeping assets within the ecosystem during transition environments is a key part of our strategy.

Assets moving from Cash Management to Investment Advisory will lower revenue in the short term due to the lower relative fee rate for Investment Advisory assets, but due to faster investment asset growth will benefit clients and Wealthfront in the long term. We continue to execute against this objective with asset-weighted cross-product adoption, that is assets held by clients with both Cash Management and Investment Advisory accounts, ending December at 60%, up nearly 1 percentage point versus the end of the third quarter. As David noted, the natural hedge between Cash Management and Investment Advisory is an intentional feature of our business model, enabling us to grow and retain platform assets throughout various transition periods, and transition periods are not new to us.

In just the last 6 years, we have experienced and seen mostly consistent continuous growth in Total Platform Assets throughout transition periods, including the COVID-19 pandemic, which included a swift bear market followed by a market recovery and low interest rates, the aggressive rate hiking cycle to combat inflation, which led to another bear market in 2022, and more recently, the 100 basis points of Fed rate cuts at the end of '24, the tariff shock early in '25 and 75 basis points of Fed cuts at the end of 2025. Each transition plays out differently, but the fundamental aspect of a transition is a mix shift in asset allocations. The expanded breadth of our product suite, coupled with continuous feature enhancements and new platform incentives gives us confidence in our ability to grow Total Platform Assets through the current easing cycle.

Furthermore, we believe the recent launch of Home Lending provides a critical strategic offset as a lower rate environment typically stimulates mortgage and refinancing demand. This product allows us to capture a larger share of our clients' balance sheets precisely when Cash Management tailwinds moderate. Our business is fundamentally aligned with the interest of our clients. Simply put, we succeed only when they do. We believe that as long as we continue to deliver products that truly delight our clients, they will engage more broadly with us, entrust us with more of their wealth and recommend our platform to their friends, family and coworkers. We are deeply committed to this long-term journey alongside them.

With that, let's move to Q&A.

[Operator Instructions] First question comes from the line of Devin Ryan with Citizens Bank.

Good to talk David, congrats on the first earnings call here. I guess we want to start on the mortgage offering. And just love to get a sense of any of the early learnings as you guys are just starting to roll this out, kind of what you're hearing from customers? Is it as you expected kind of prior to rolling it out?

And then if you can just remind everybody here kind of where you feel like on the product differentiation itself, like what the experience benefits are of Wealthfront versus whatever else is in the market right now?

Yes. So thanks, Devin. The fundamental offering really is a great digital experience and a great rate that will be better than they'd find elsewhere. We've made good progress. We originated our first home mortgage in the third quarter and started letting clients off the wait list in November. We initially started in Colorado. We've expanded and are letting clients off the wait list now in Texas and California. It's still early days, and there's still a lot left to learn. We've continued to work to expand our license coverage and now support a majority of our clients. We still have a long way to go.

The opportunity size is relatively large. We've sent just from Wealthfront Cash Management accounts, $2.5 billion in wires to title and escrow companies in calendar year '25. You can make some assumptions on the typical down payment to get to an opportunity size, which we believe is both large, and we have the ability to take advantage of. As we exit the holiday period, we're still in a relatively low seasonal period for Home Lending, but early results are promising, and we're continuing to stay focused on building for the long term. This is not a journey that's going to take us a few months to be at sort of our peak. We think it's going to be the course of multiple years, give us the opportunity to build an amazing experience for our clients and for prospective clients in the future.

That's great. And then as a follow-up, just on the monthly you're providing, obviously, would be very helpful to have this. So I appreciate that. In terms of the December month, can you share anything around just the customer trends? I know the market is a bit more volatile, but a bit of outflow. So any sense of kind of the dynamics there? And then just kind of momentum in deposit gathering here kind of early in the new year and expectations there would be helpful.

Yes. Thanks. So we saw three consecutive Fed rate cuts continue to grow total assets on back-to-back month ends for November and December month-ends. When interest rates decline, we expect to see a slowdown in Cash Management Assets and an increase in Investment Advisory Asset growth. Ultimately, our focus is on continuing to grow Total Platform Assets. The internal focus over the last few months and generally during any transition period is on incentivizing cross-product adoption of investment accounts and retaining client assets on the platform as clients with both accounts are the ones that are most likely to bring more assets to the platform over time.

The build-out that we've done over the last few years of investment offerings, we think, has put us in a great position to be able to help folks adopt investment products in their journey. And I think we've executed cross-product adoption quite well during the recent Fed cutting cycle. Alan mentioned that asset-weighted cross-product adoption is up above 60% at December-end. It's up 2% year-over-year from December 2024, but the total assets that are covered by clients with both Cash and Investment Management accounts has grown by more than $10 billion in that period because we have grown assets while growing asset-weighted cross-product adoption as well. So we feel pretty good about the results that we've gotten from driving cross-product adoption. We think that sets us up well for growth going forward in the future. And it gives us a good opportunity to continue to expand with Home Lending as we build broader and deeper relationships with these clients.

Our next question comes from the line of Ryan Tomasello with KBW.

I wanted to drill down into the customer acquisition strategy in mortgage, specifically, how you think Wealthfront is positioned to meet customers before they engage with agents? Who, as I'm sure you know, like tend to control a lot of that referral process on the mortgage side. And if you could also just remind us the structure of the mortgage business, including the partnership with United Wholesale and just the ownership structure? That would be helpful.

Yes. Thanks, Ryan. The first thing I would say is folks join Wealthfront really to save and invest, and they often have goals in mind. Our financial planning interface gives clients the ability to plan for retirement, plan for sending kids to college. It also helps them plan for buying a home. And that's one of the goals that clients engage with most frequently. So we have reasonable visibility into what clients are looking to do with their savings on the platform, and that gives us pretty early visibility that they might be focused on buying a home and engagement with that goal, changing the number of bedrooms they're looking for or in what markets they're looking to buy a home is a great early indicator that they are more actively engaging in the home buying process.

That gives us the opportunity to really present the ease of the experience that we offer, if we can support those clients in their home states, get them prequalification letters, which generally clients will pull even before they significantly engage with a realtor. So they start to understand what they can afford and the realtor will often ask for that prequalification letter early in the process. We think that gives us a great opportunity to be able to engage with clients very early in their home buying process, even kind of before the home buying process would normally be considered to have started. And as we're able to build that, we also have the ability to add incentives for the home lending process. We have nothing that we've rolled out yet, but it is something that we're actively looking at to provide incentives to help clients save for a down payment on the platform and then actively engage with our home buying experiences as well. Ultimately, we think if we deliver a great experience to clients, that will lead to word-of-mouth growth for the home lending product like it does for our Cash Management and our Investing product as well.

And then on the ownership structure, we are working to revisit the -- or revise the ownership structure to have Home Lending -- the Home Lending subsidiary fall under the Wealthfront Corporation umbrella. The ownership structure that we have was formed intentionally to limit exposure of personal financial information of the LPs and GPs of the equity owners of Wealthfront as a private company. That disclosure was required by various state laws. The primary issuance via the IPO helped ameliorate these ownership thresholds. And once fully remediated, we do plan to restructure ownership of the Home Lending subsidiary.

All that said and discussed in the S-1, it's important to note that the relevant management and financing agreements that Wealthfront Corporation has today gives Wealthfront Corporation the ability to direct the activities of Wealthfront Home Lending and absorb and fund all benefits and losses of Wealthfront Home Lending.

Great. Appreciate all that detail. And then in terms of the product development pipeline, as you think about ways to bolster asset retention, curious if the company would consider offering a more traditional self-directed investing product, basically to add another funnel on the Investment Advisory side of the business to recapture potential outflows on the cash side in a less favorable rate environment.

Yes. So our Stock Investing product is the closest product that we have today to a kind of standard self-directed account. It's been the second most popular product for account openings over the last few months behind our automated investment account in terms of number of clients getting started there. It is an area of very active focus for us to continue to improve that product experience and give clients who do want to engage with the Stock Investing product, a great experience at being able to self-direct their investment choices.

We also see it as an aggregation opportunity to help consolidate existing client assets on the platform so that they can see everything and manage everything in one place. So if you think about sort of our focus areas for investment, we're obviously continuing to do a lot of work on our automated investment account and see opportunities to drive additional value with the product offering there. And I would say our other focus on investing is really in the self-directed Stock Investing account.

Our next question comes from the line of Dan Perlin with RBC Capital Markets.

And again, let me offer my congratulations on your inaugural quarter here post the IPO. The question I have to start with is you've had historically just a very high referral rate, very organic in nature to drive a lot of new clients and obviously asset gathering. But now that you've done the IPO, you've got a brand out there clearly that's going to be more obvious to people. I'm wondering what that go-to-market motion might look like? Would you be willing to kind of step up investments there? Especially at a time when investors are potentially coming out of the cash accounts and moving into the advisory space?

Yes. I mean the first thing that I would say is the business does follow some seasonal patterns and trends. So as we enter Q1, Q1 is historically -- or calendar Q1 is a solid time for sign-ups, sort of around the same period that people are focused on going to the gym, they're also focused in making improvements to their finances. Over 50% of our new clients in the last 2 years have been through referrals, and we continue to see referrals be a primary way to bring folks onto the platform.

We did make some incentive changes recently, which give us a little bit of flexibility in the way that we do some of our paid marketing. So we added a benefit for new clients joining the platform that are not referred, and then we increased the benefit to the referral product from 50 basis points to 75 basis points, which continues to reserve the best incentive that we offer to existing clients that are referring their friends, family and coworkers, but at the same time, provides an incentive to folks that are either visiting the website organically or the app organically or are engaging through our paid channels. So I think you can sort of see from that, we are both trying to drive incentives, which optimize our ability to convert clients coming in through organic and paid channels, while still trying to make sure that the referral channel is the most valuable channel to come in both for clients and it obviously is the most valuable channel for us because folks tend to come in with higher asset levels and adopt more products more quickly if they come in through the referral channel.

Yes. Super efficient, and you guys have been very successful in doing that. The other quick question I have, maybe for Alan is just as we think about the gross margin implications to the extent there is any as you move kind of from the Cash Management account into Advisory, anything to kind of flag for investors as we move forward in that potential rate cycle?

Thanks, Dan. On a margin basis, actually, the Investment account is just as profitable, if not more incrementally profitable than Cash Management, and that's primarily due to the fact that the Cash Management account has really the only true variable cost associated with it. Obviously, on an absolute dollars basis, the Cash Management account because of the higher fee rate will generate a higher gross profit margin dollars. But on a pure relative margin basis, investment accounts are just as profitable. And so the gross profit margin shouldn't be as impacted.

[Operator Instructions] Our next question is from Alex Markgraff with KBCM.

Congrats on the transaction. David, maybe one, just to better understand some of the asset retention story. Could you just give us a sense of the client experience from a life cycle marketing standpoint? You mentioned some incentives just as to sort of what the client sees and feels as they're making those decisions on asset allocation at this point in time?

Yes. I mean one of the things that I think that we think is important in understanding both our clients and clients of other platforms is the jobs to be done framework. And so the jobs that our clients hire us to do is to turn their savings into wealth and build wealth over the long term. We think that puts us in a position where the life cycle marketing, sort of the ongoing messages that we provide to clients, both in-app and over e-mail and through our content marketing is focused on growing clients' wealth overtime.

And so when there are Fed rate cuts, we want to orient clients to other opportunities that exist in product. And the diversity of products that we have gives us the ability to offer products like the automated bond ladder account for folks that might not be ready to sort of put more of their money into equity markets. The automated bond portfolio, which is a little bit higher yielding and a little bit higher risk than the bond ladder product, up to our automated investment account, which we think is the best way to build wealth over the long term, along with some more self-directed style offerings, which we would include the Direct Indexing products and the Stock Investing Account.

The incentives that we've used has been some experimentation around accelerating that adoption. We've had good early results in December with incentives to drive additional cross-product adoption. I think we've seen both asset flows and account opening accelerate as a result of that. I think we're quite happy with the incentives. We think it puts us in a much better position. And ultimately, we've achieved record assets as of the beginning of this weekend. So I think we crossed $94 billion at the beginning of the weekend because of the cross-product adoption that we've been able to drive and the continued engagement with the platform more broadly.

Understood. I appreciate the color there. Maybe just one on -- I know there was an earlier question on client growth, but maybe just to come back to that. I think as you all have shared in filings and in the deck here, obviously, a very large opportunity ahead of the company. Maybe just curious, stepping back, how you think about -- or Alan, any comments on how you think about deploying acquisition dollars in the near term? Understanding there's some seasonality in the very near term, but maybe stepping back a little further, just talk about how you think about client growth and the opportunity at hand given it is so large?

Yes. What I would say is we're still in a transition environment mostly focused on cross-product adoption. So from cash to invest, we've grown clients quite strong over the past few years in the high rate cycle intentionally. And now during a transition environment, the most important thing is incentivizing and executing on cash to invest. And even outside of that, as David mentioned before, our most important client acquisition strategy and obviously most efficient and effective is the referral channel. Some of that comes with incentives, and so we can use capital to put to work there as well.

But that's where you're going to see kind of our focus. We've been that way really since inception is on the referral. So we'll continue to look out for opportunities around paid and do some of our normal paid spend. But during this environment, it's cash to invest and still we're always looking at the referral channel.

We have a question coming from the line of Rob Ryan with Wells Fargo.

Other than the automated investing program, all of your products on the investment side are fairly new, either brand new or maybe less than 3 years old. So what has been the product uptake for the new investment products? Has this changed over time? And where did these new products stand in terms of contribution to total October 31 investing platform assets? And because of the differences in the fee rates, in a way, wouldn't it kind of be good if we saw a bit of a downtick in your average management fee rate?

Yes. Thanks for the question, Rob. I would start by saying our goal is to grow total platform assets. And so if clients want to engage with some of the direct indexing products, that's great. If they want to engage with the automated investing account, that's great. We think that we can offer all of these products profitably over the long term. That said, most new clients and most new assets on the investment side of the business join us for the automated investing account. The other products help us in different macro environments and different transition environments, and they help drive cross-product adoption of cash first clients to investment accounts over time.

Each of the categories, so the Automated Bond Ladder, the Automated Bond Portfolio, the Direct Indexing Accounts and the Stock Investing Accounts are over $1 billion in assets, each. So we have seen good relative growth of all of those products. But the fastest absolute growth that we've seen continues to be in our automated investment account, which provides a globally diversified tax-efficient investment option that takes care of all of the difficult choices that a client might have to make in their asset allocation without them having to think about it.

And I'm not showing any further questions. I would now like to turn the call back to David Fortunato for any further remarks.

I want to thank everyone for joining the call and for your continued interest in Wealthfront. We look forward to staying in touch and updating you on our progress in the months ahead. Thank you all.

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