Wealthfront Corporation (WLTH) Earnings

Management highlights

### Overall Platform and Client Growth - Total platform assets grew 19% year over year to a record $96.6 billion as of quarter end, rising further to $99 billion at the end of May. Investment advisory assets hit $51.7 billion, up 39% year over year, while cash management assets reached $44.9 billion, up 3% year over year. - Funded clients totaled 1.46 million, up 15% year over year, and funded accounts reached 1.9 million, also up 15% year over year. - Total net deposits for the quarter were $554 million, with $447 million in net deposits in May, including $342 million in investment advisory net deposits and $140 million in cash management net deposits. ### Product and Feature Launches - Cash management: Launched dynamic client-specific withdrawal limits up to $1 million per account, cash category goal tracking, and automated recurring transfers to cash categories. Completed a transition to a new bank provider to enable these higher withdrawal limits and early direct deposit for clients. - Investment accounts: Launched one-tap trading for individual stocks and ETFs, transitioning the offering to a more traditional brokerage experience. - Wealthfront Home Lending: Added a second takeout investor, launched general availability in Colorado and Texas, and delivered average mortgage rates at least 50 basis points below the national average. Rate lock volume grew 25% month over month in May despite rising overall mortgage rates, with over half of client activity completed end-to-end via mobile. ### Cross-Product Adoption Incentive - Launched a cross-product adoption incentive in early March that gives clients who set up monthly direct deposits of at least $1,000 and fund an investment account an ongoing 25 basis point increase to their cash APY. The incentive drove over 4,000 new account openings and pushed asset-weighted cross-product adoption to 63% as of late May, up 1.5 percentage points from pre-launch levels. Adopting clients bring in notably higher average net deposits than similar non-adopting clients. ### Profitability and Capital Allocation - Gross profit reached $80.5 million, up 6% year over year, with an 89% gross margin (down 1 percentage point year over year due to home lending startup costs, higher money movement costs, and higher data expenses). Adjusted EBITDA was $37.5 million, down 1% year over year, for a 41% adjusted EBITDA margin (down 3 percentage points year over year), in line with prior guidance. The company achieved a Rule of 40 score of 49, its 15th consecutive quarter exceeding the 40 threshold. - The company authorized a $100 million share repurchase program, repurchasing 3.1 million shares for $27 million during the quarter at an average price of $8.66 per share. It ended the quarter with $428 million in cash and cash equivalents and maintains a debt-free capital structure.

Guidance

- Adjusted EBITDA margin is expected to remain near 40% in the near term as the company continues to invest in home lending rollout and product incentives, matching the expectation set last quarter. Long-term, once home lending reaches steady state, margins will remain lower than pre-investment levels as a deliberate trade-off for faster long-term growth. - The adjusted free cash flow conversion ratio is expected to be lower in the fiscal second quarter of 2027 due to the annual timing of 35% of accrued employee annual bonuses being paid out in July. - No material changes to prior long-term strategic guidance; the company maintains its focus on measured, deliberate scaling of home lending and incremental AI product development, with no specific near-term revenue or margin targets updated.

Segment performance

Wealthfront reports total revenue of $90.5 million, up 7% year over year, across two core product segments, plus an early-stage home lending segment: 1. Cash Management: Revenue was $63.4 million, down 1% year over year, contributing 70% of total quarterly revenue. Average cash management balances rose 5% year over year to $45.1 billion, but the annualized cash management fee rate fell 4 basis points year over year to 58 basis points, in line with prior guidance. At May end, the run rate annualized cash management fee rate was 54 basis points, or 56 basis points on an effective federal funds rate (EFFR) neutral basis. 2. Investment Advisory: Revenue was $26.2 million, up 32% year over year, contributing 29% of total quarterly revenue. Average investment advisory balances grew 34% year over year to $50.2 billion, while the annualized advisory fee rate held roughly flat at 21 basis points year over year. 3. Wealthfront Home Lending: This segment is in early rollout, with startup expenses contributing to a modest reduction in overall gross margin, and has not yet generated meaningful revenue.

Risks & headwinds

- Macroeconomic and interest rate volatility creates uncertainty for home lending growth timing and volume: higher-than-expected mortgage rates may reduce overall industry demand, require faster geographic expansion to collect the same volume of learning data, and push back scaling timelines relative to initial expectations that assumed potential rate cuts. - Changes in effective federal funds rates directly impact cash management fee margins, creating quarterly variability in reported revenue and fee rates. - Future diluted GAAP share count will fluctuate based on changes in average share price, new stock grants, and forfeitures of outstanding equity awards. - Forward-looking product initiatives, including AI-powered advisory tools and home lending automation, carry execution risk and may not deliver expected client adoption or revenue growth.

Analyst Q&A

• Q: How is the cross-product adoption incentive performing, how much more cash do participating clients bring, and how is marketing driving uptake? /

  A: The incentive has been a strong top-of-funnel client acquisition driver alongside elevated organic traffic from large language model references that bring warm leads to the platform. Adopting clients bring several thousand dollars more in average net deposits than similar non-participating clients, and monthly cohorts of clients starting with cash are adopting investment accounts at higher rates than they have historically, a trend that has improved for six consecutive months.

• Q: What is Wealthfront's AI strategy, and what AI products should we expect in coming quarters? /

  A: The company's top priority is building AI tools that preserve and grow client trust, rather than just releasing generic AI-powered advisory capabilities. Long-term, Wealthfront expects to deliver holistic, natural language AI financial planning covering areas like tax planning, estate planning and trust planning, but will roll out capabilities incrementally, focusing on opportunities that improve client experience and build trust along the development path instead of launching a full end-to-end solution at once.

• Q: Is the home lending rollout on track relative to initial expectations, and what key operational learnings have emerged? /

  A: Initial timing was based on forecasts that included potential rate cuts, and higher current rates have altered the volume environment, with less refinance activity and more purchase demand. The rollout remains deliberate and on track for learning: rate lock volume grew 25% month over month in May, and a key operational priority is building automated RSU income verification, which is more important for Wealthfront's client base than the average mortgage borrower. The company remains confident it can deliver its core value prop of a fully digital mobile experience with rates at least 50 basis points below the national average.

• Q: How is deposit pricing competition evolving, and what does stable rates mean for cash outflows? /

  A: Deposit competition has softened in recent months, with more fintech and high-yield savings providers becoming more conservative on rates. Wealthfront's predictable pricing (only changing rates when the Fed changes rates, unlike competitors' ad-hoc adjustments) helps it retain and win clients. With rate cuts fully priced out of the 2026 forward curve, the environment is more favorable for cash balance retention, and May posted positive net cash management deposits, aligning with this trend.