Q1 2022 Wisdom Tree Investments Inc Earnings Call
Hello, and thank you for standing by and welcome to the wisdom tree first quarter.
Earnings Conference call at this time, all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to us.
For today, Jessica <unk> head of corporate Communications. Please go ahead.
Good morning, before we begin I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
A number of factors could cause actual results to differ materially from the results discussed in forward looking statements, including but not limited to the risks set forth in this presentation and in the risk factors section of the wisdom tree.
Annual report on Form 10-K for the year ended December 31st 2021.
We can treat assumes no duty and does not undertake to update any forward looking statements.
Now it is my pleasure to turn the call over to weaken tree CFO , Brian Mckeon.
Good morning, everyone and welcome.
I'm incredibly pleased to report another fantastic quarter with record AUM levels and strong organic growth in the wake of volatile market environment.
A successful quarter like this doesn't happen by accident.
Eric and John will impact, how we got here and the bright outlook ahead for us, but first I'll walk you through our first quarter results.
Our AUM at March 31st with $79 4 billion, which represents our second consecutive record quarter.
Our average AUM for the quarter was $77 8 billion, our fifth consecutive record quarter.
Our AUM has withstood a volatile market environment and is positioned to continue capturing market share as we experience a rotation towards value rising rates and inflation.
We benefited from positive market movement, and we generated $1 3 billion of inflows during the quarter, representing a 7% annualized organic growth rate.
Key contributors included $2 3 billion of flows from our U S business at almost $600 million from our European UCITS platform.
Our U S business has now generated positive inflows for six consecutive quarters and this is the second consecutive quarter of U S flows of roughly $2 billion.
Our UCITS platform has also generated positive flows for eight consecutive quarters.
These flows which mitigated outflows from certain commodity products highlight the breadth of our product lineup and demonstrate sustainable momentum.
Our AUM currently stands at $77 8 billion down from the end of the quarter as our inflows were offset by negative market movement.
In the month of April we have generated an additional $1 7 billion of flows continuing the positive trends witnessed over the course of the last 18 months.
Taking these additional inflows into consideration increases our annualized organic growth rate from 7% to 12%.
Next slide.
Revenues were $78 4 million a decrease of 1% from the prior quarter.
This decrease is largely a function of two fewer revenue days this quarter as our AUM was higher versus the prior quarter and our fee rate was essentially unchanged.
Adjusted net income was $14 1 million or nine cents a share.
This quarter, we recognized a noncash after tax loss of $17 million for our future gold commitment payments and $5 2 million and other net nonoperating losses.
Our adjusted net income also excludes $2 4 million of expenses incurred in response to an activist campaign by Etfs capital and Lion point.
Next slide.
Our adjusted operating expenses were up 3% for the quarter.
Compensation costs increased due to seasonally higher payroll taxes in connection with the payment of year end bonuses.
Our discretionary spending of 11.3 million is well controlled and 5% lower than the prior quarter.
Next slide.
Now just a few brief comments on our forecasted expense guidance.
Our compensation guidance, which contemplates hiring for our core business and digital assets ranges from $92 million to $102 million. It is unchanged from what was communicated last quarter.
If our strong organic growth persists, we would anticipate full year compensation costs to be toward the high end of our guidance range.
We continue to anticipate our discretionary spending ranging from $49 million to $57 million.
This range is influenced by our digital asset spend which includes professional fees marketing product development and other related expenses and it's dependent on the timing of the wisdom tree prime rollout and additional products and features to be launched.
The range also considers the impact of the pandemic on our sales related spending.
Guidance related to gross margin third party distribution fees and our tax rate are also unchanged from what was communicated last quarter.
Our contractual gold payments guidance is being adjusted upward to between 18 and $19 million.
Given the recent increase in the price of gold.
Next slide.
Now I would just like to comment on our capital management priorities.
Maintaining our dividend as our primary commitment.
We are also prioritizing managing and ultimately reducing our debt.
$175 million of our convertible notes are scheduled to mature in just over a year.
While not committing to anything at this time, we anticipate reducing our debt levels and partially refinancing a portion of these notes sometime between the latter half of this year and early next year.
The magnitude of any debt reduction will contemplate our capital needs and investment opportunity.
We've also bought back $68 million of stock over the last two years, representing over 13 million shares and we have liquidity for further buybacks to consider opportunistically.
Further stock buybacks may occur in connection with any convertible note refinancing however that will need to be balanced with optimizing our debt and investing strategically in our growth.
That's all I have I will now turn the call over to Jonathan.
Thank you Brian .
A successful quarter like this doesn't just happen overnight.
This is the result of many years of hard work behind the scenes to improve the diversification resiliency and growth prospects of the company.
If we were to go back in time, five or six years to the height of Dx G and H E. D. J wisdom tree was a U S only pick oriented ETF sponsor.
The sell off of those two funds was painful we deployed the excess earnings power from those funds into opportunities, which set the table with today's resilient AUM base and strong organic growth.
These investments can be grouped into three areas first data and technology.
Second solutions, including models and digital tools and third a vibrant complementary European business the.
The combination of these capabilities is driving more breath imbalance and consistency to our asset growth.
First we invested in our data and technology capabilities to improve operations and enhance distribution intelligence.
Through CRM investments and strategic platform partnerships, we now have a robust user database to better identify and target investors and advisors. We also modernized our technology platform, which enabled a seamless transition to remote first environment for our employees.
While better serving our clients.
Building off of our first investments in data and tech we.
We next bill and advisor solutions program to support broader and deeper product adoption.
Including our best in class solutions for model creation and trading for our a an independent broker dealer clients.
All of our efforts have resulted in excellent managed model franchise. That's the centerpiece of our solution strategy and will be one of the key drivers of organic growth going forward.
Lastly on Europe .
We acquired two companies and injected wisdom trees innovative culture to create a European platform that is transformative resilient and more than the sum of its parts. The boost transaction gave us comfort in local market product and local business operations philosophy.
Credible talent, that's still in place today.
And the E T F Securities acquisition brought a U M diversification and distribution pipelines into Europe's walled gardens.
In the year since we injected new life into the talent pool, and new products through the distribution pipeline to generate organic growth.
In terms of breadth and balance the success of our strategy was on display in Q1. It was a very strong quarter as the U S had strong flows and the AUM diversity from the European acquisition, along with the strong organic growth in UCITS platform, where each.
Each major reasons that our global AUM was up quarter over quarter, while so many indices were down.
The outlook for ETF industry growth remains incredibly robust and wisdom tree has never been better positioned to capture it because the strategy. We have executed against for years now is powering our growth of today and tomorrow.
I'll pause here and turn the call over to Jarrett with some more thoughts on all we've accomplished.
Thanks, John .
Starting with Q1 nine.
Not only did we generate over $1 3 billion of net inflows across the firm with nearly three times as many funds inflows and outflows, but our inflows outpaced negative markets and our AUM grew quarter over quarter to new record highs and this strength has continued in <unk>.
Paul with net flows of nearly 1.7 billion, taking our global E O M over 80 billion for the first time and.
And as Johnny has already highlighted a large part of today's success has been the work and investment that has taken place over the past several years star.
Starting with Europe back in early 2018, we closed the ETF Securities transaction.
We acquired a commodities franchise and EUM diversity that even today remains largely uncorrelated to the rest of our global product suite. We also got distribution pipes into the relatively walled garden.
Of European wealth management, which is a tough nut to crack from the outside.
Post acquisition with 19 billion of AUM in Europe , We got to work we invested in team, we improved product structures and pricing and we purged over 200 subscale funds that were a drag on profitability at the same time, we leveraged wisdom tree.
Core competencies to launch new funds and to create new products like UCITS in crypto, which have accounted for all of the organic growth in the European franchise. Since all told we took what could have been merely an accretive deal and we grew it to the over $30 billion in <unk>.
It is today and turned it into a launchpad for future European and global growth.
And at the same time, we were transforming the U S business into a broader and more diverse growth engine, making it stronger today than it has been at any other time in our history, we invest in our people to build a best in class team across sales marketing research product.
<unk> and corporate functions, we adapted a more robust product innovation process to better define product market fit and increase the odds of a successful.
Traction from new launches.
And we launched the wisdom tree managed models initiative that has grown to the point, where roughly 12% of flows into U S. E. T. S. Today come from managed models like our experience in Europe hard work and investment are paying off with momentum increasing in 'twenty one of the past.
22 months generating inflows.
Taken altogether actions, we've taken over the last several years have diversified the business and positioned us for long term organic growth in both the U S and Europe .
Six straight quarters of firm wide organic growth and nearly 3 billion of inflows year to date would not have been possible without this concerted effort to innovate and improve.
So where do we go from here.
I fully expect a continuation of organic growth trends and think we will see accelerated growth for three key reasons.
First our product positioning and performance have never been better current AUM is levered to investment themes that are flowing and products that are performing second our managed models franchises entering its third year and its impact on flows is growing and third we are first mover.
And digital assets, which is a natural extension of our core business and has a massive addressable market digging a little further into each first our product positioning and performance is outstanding over two thirds of Valerie you M is currently levered to seems like inflation hedge.
Rising rates and the rotation from growth to value add to that nearly 80% of our U S. A U M is in the top two courthouses performance relative to Morningstar benchmarks with broad and deep inflows and solid momentum we feel our flows are.
Sustainable and at 2022 could show even better growth than last year.
Second our managed models franchise continues to gain significant traction we built this business from scratch with near zero assets in 'twenty 'twenty today and very early into our third year. We have over 2 billion in managed model, a wham with roughly 12% of.
Our U S E T. S. Lim is being driven by managed model strategies, which is up from the 10% we reported last year here.
Here, we have momentum with big partners like Merrill Lynch and Morgan Stanley and we have won two material mandates already this year with others in the pipeline on the other end of the spectrum.
We also launched wisdom tree portfolio and growth solutions on April 18th which includes customized model construction services. In addition to model trading services that will help us grow model flows in the mid and small or a market.
We're all we're very excited about the trajectory of our models franchise, and we see a long and lucrative growth runway ahead with the beauty of the models business being that once you win advisor mind share flows are recurring in nature and stackable on top of our current inflow profile.
Finally, and before I turn it back to John I want to discuss our digital assets opportunity.
Jargon like blockchain crypto Neo bank and digital wallets can sometimes be confusing, but our strategy is simple.
First it has to bring crypto exposures into the mainstream financial ecosystem through E. T. P's in separate accounts and second it has to bring mainstream financial assets onto the black chain in into the digital ecosystem through blockchain enabled funds and token is das said.
<unk> looked at this way digital assets are a natural extension of what we do delivering to our clients best structured access to various asset classes.
On the first part of our digital asset strategy, bringing crypto exposures to clients in the mainstream wealth ecosystem, we've launched several new crypto etp's in Europe , including both single exposures as well as baskets. Despite the challenging crypto market. We've continued to see very strong.
40% annualized organic growth year to date.
While the outlook for a bitcoin E T F. In the U S remains muted, even though Bloomberg did recently called wisdom tree. The dark horse candidate to gain first approval in 'twenty 'twenty. Two we've also successfully launched our separate account strategy for the U S wealth channel.
Now how big is that opportunity.
Considering that there are 30 trillion in assets in just the U S wealth channel alone so even a 1% allocation to crypto in just the U S would yield a 300 billion market opportunity for crypto exposures and the realistic opportunity could be multiples of that.
With strong client and advisor demand, we have a clear line of sight towards revenue growth in 2022 that will be even more meaningful in 2023, all in all our product positioning and performance had never been better our models business is gaining traction and we have first mover.
Managed and opportunity in digital assets I'm incredibly excited about the quarters and years ahead, but I've only scratched the surface of the future opportunity. So let me now turn it back to John out to discuss the second part of the digital strategy in more detail.
Thank you Jarrett.
It's easy to Miss significant change.
CBS radio way back in the day before the invention of TV CBS had a brilliant engineer who had the imagination to see the potential of television.
<unk> was first to market they executed well and even to this day CBS is a leader in broadcast TV.
Newspapers universally all newspaper organizations missed the significance of the Internet. They all saw their relationship with both information and the consumer too narrowly.
Today, not one newspaper group is relatively stronger since the development of the Internet.
Active mutual fund shops missed the significance of Etfs until Blackrock bought Ishares.
It's hard to see the future and significant change doesn't happen very often.
But significant change is happening right now in financial services and wisdom tree is in the right place at the right time to see it and to execute against this massive opportunity.
Think about Eastman Kodak one of the truly great companies of early corporate America.
It's not that people are taking less pictures today in fact, just the opposite people are taking more pictures than ever Unfortunately for Kodak, they're taking those pictures with their mobile phone Kodak.
Kodak has been dis intermediate it out its significance.
Its wisdom tree belief that this is about to happen in financial services.
Why is wisdom tree well positioned to see this opportunity what's wisdom trees edge.
Before I answer those very important questions. Let me say this about wisdom tree the ETF business.
We've never had higher AUM, our AUM has never been more diversified and we have really strong momentum over the last 21 months.
Core business is very exciting Etfs will see trillions, and trillions and trillions of growth for decades to come and wisdom tree has never been stronger more competitive we're better positioned to grow within Etfs.
Now shifting gears.
Why wisdom tree, what's our edge.
First let me say.
We ask ourselves the right questions.
We aren't afraid to ask ourselves the hard questions, we do not hide from the truth.
When I was launching wisdom tree 20 years ago.
The question I was asking back then.
How to thrive in a vanguard world.
20 years later wisdom tree has 80 billion and a U N.
40 basis points of revenue capture 300 plus million dollars of revenue.
$50 million to $60 million and net profits. It was the right question, then and we executed beautifully.
But why wisdom tree now.
Again, we are asking the right questions.
In my opinion.
Des the hardest questions in asset management or one.
What can do to Etfs with Etfs to mutual funds and two.
What is our competitive response to zero fee beta which exist today.
That's the truth that we're willing to face.
Who is in a better position to answer the question.
What could do to Etfs, what etf's did to mutual funds.
The answer is no.
Nobody literally nobody is in a better position to answer that question than wisdom tree, that's our edge.
Our culture, our creativity, that's our edge.
Day Wisdom tree is 250 people worldwide 230 people in Etfs and 20 people in digital assets.
Whats so beautiful is everything that the 230 people do day to day is of relevance and transferable to bringing asset management onto the blockchain or edge is our efficiency.
And why the blockchain.
The technology is simply better than what exists today and the efficiencies are simply too large an opportunity to pass up.
We see financial services, not just asset management migrating towards blockchain Tech.
Youre seeing the fed and other central banks explore or commit to central bank digital currencies on blockchain, we see virtually all financial assets <unk> eventually coming to the blockchain liquid and illiquid assets, it's all coming.
And there will be spectacular winners and many who get disrupted and dis intermediate it out.
It is easy to envision a world where many of today's leading financial service companies looked like yesterday's newspaper groups.
Wisdom tree sees an opportunity to be a disruptor in asset management and an innovator more broadly in financial services being one of the rare companies that sees clearly the next big innovation being early and executing against that vision.
Everyone, who follows asset management understands the importance and advantages that come from being the first mover.
Vanguard with first in passive investing in the mutual fund wrapper.
I shares was first with a comprehensive passive suite of Etfs and everyone recognizes how valuable that franchise has become.
As I said.
Wisdom tree will be first in Britain passive onto the blockchain.
We see this as a once in a lifetime opportunity.
Difficultly, expanding our addressable market and aligning wisdom tree to the fastest growing segments within asset management.
Thing that we could not do in Etfs, because we simply got there too late.
Last quarter we.
We announced wisdom tree prime.
Wisdom tree Prime as a financial services mobile App.
Is a distribution channel.
In the late 19 nineties, when I first discovered Etfs when the rack will only had 40 billion in AUM worldwide. There were two observations or characteristics that gave me the conviction that Etfs, where the future first was the convenience of Etfs.
And the second was the recognition of the better functionality that Etfs deliberate.
Simply convenience and functionality matter.
Regarding the first point convenience.
Anyone with a brokerage account could buy an ETF without any paperwork that convinced me that Etfs and wisdom tree could quickly scale.
Do you know what is more convenient than a person with a brokerage account.
A person with a smartphone.
Nothing can potentially scale faster than a successful mobile app.
Almost 80% of the world have smartphones.
Regarding the second point functionality.
Wisdom tree Prime will be one of the easier and most approachable places for a user to hold crypto, but also a place where crypto and traditional passive exposures will sit alongside each other our first all with additional utility and functionality like payments.
Can be launching wisdom tree prime in beta testing this quarter and rolling out nationally by year end is very exciting and very timely.
In my opinion, having a robust mobile financial App strategy is simply table Stakes in 2023.
Some people may use wisdom tree Prime is a neo bank of.
Others may use wisdom tree crime as an R. I E.
Regardless of how different consumers use it one thing is crystal clear.
By being first in <unk>, the underlying exposures and by being made it to the blockchain in our design wisdom tree will deliver unique and better functionality and by being a first mover generate faster organic growth in 2023, and better economics for all wisdom tree.
<unk>.
These are exciting times and wisdom tree future is now.
Thank you.
Operator, please turn the call over to Jeremy Campbell, our head of Investor Relations. So we can start answering questions.
Hey, Thank you Donna and good morning, everybody, we're going to start off the Q&A just like we have for the past couple of quarters using some questions directly from investors to the C technologies platform.
So the first question, we're going to ask is to Jeremy Schwartz. The question is do you expect to see inflows into non beta equity strategies as we move through this phase of the cycle.
Well first we can free stance on data is pretty well known you have to be first to market and as John was just talking about there.
Still a lot of opportunities for data.
And I know the question was on equities, but I will highlight a few a few topics here first is.
What are the data products that we were first on floating rate treasuries Kickers USF far we were able to be first in line, we're able to issue that ETF. The day, the traditional floaters and that was an amazing accomplishment to be first there and this is still a vehicle that we have to educate clients on that they even exist and what they are.
But this has been one of the most exciting stories this here and pointing on equities and having Alfa. This is ETF that with $2 billion of flows year to date is now our second largest ETF and it's really providing alpha for the bond market, you've got 500 fixed income ETF.
Here in the U S and if you look at that basically all are showing negative return some very negative returns with the aggregate bond market down 9% on the year and you look at <unk> got small positive gains. So it's really one of the best fixed income Etfs or this market regime.
And you think about the fed cycle, we've had a single.
Fed hike of 25 basis points next week, we're likely to get too high.
<unk> 50 basis point hike next week, and maybe a string of 50 basis point hikes. So.
Mentum and that could accelerate over the coming 18 to 24 months with this fed cycle, but in equities I think what you see is gross stocks were in favor for much of the last decade. This has been a year of dividend stocks. The S&P 500 has been down about 10% on the year and you have high.
Dividend baskets like DHS, one of our original funds from 2006 up 7% on the year D. L. Ryan our $3 billion of large captive strategy is only down 1% on the year.
So investors are responding to this relative performance, we've seen about a billion and a half come into net inflows across 30 separate dividend strategies approximately six of those different strategies have seen more than $100 million net on the year 11 of those are approximately 32 you have to take.
More than $50 million on the year, So I think youre seeing dividends shine.
And Youre seeing performance followed so for this market regime of higher rates of inflation, the fed we like value quality and as Gary and Brian We're talking about and the different orientation has been particularly well suited for this macro regime.
And Jeremy maybe I can pile on there as well.
As Gerry, saying, you know our product suites incredibly well positioned its performance is great anything that is good for individual products is also good for our managed models initiative, which is essentially a collection of our individual products and.
So basically another important growth initiative, what's good for individual products also very good for our managed miles business.
Right and then the second question is how is the company preparing for an upcoming recession. So first mass the Jeremy to put his global CIO hat on it and look at it from a product lines and then maybe Brian can chime in about our business itself.
That's great we've been working to diversify our product offerings for really any <unk>.
Market regime, we started off in 2006 really with equities and value based equities I just talked about USF, our floating rate treasury for ultra short duration.
The rising rate cycle, if you will.
Into a recession I think you had one longer duration assets and further quality screens.
And I'd say seven years ago, you saw us launch enhanced core bond strategy that we also now have launched in Europe that is again systematic modern alpha telephone on core bonds, we have a $1 billion in the U S strategy take.
A G G y AGGY.
In Europe , it's been a five star performer for the European version. So if you were to having declining rate cycle with a recession I think we're very well positioned for that rotation to longer duration asset. We also have quality screened fixed income credit strategies. So under the stress of a recession you would think we're also well positioned.
For a shift to higher quality in the fixed income market and again in equities.
We don't have to have value seven.
Nine nine years ago, we launched a quality tilt on top of dividend and that's our largest ETF D. Var W. In the U S that screening for quality holds up particularly well during recession. So I think across equities and bonds you see our full product positioning has been enhanced but I guess one final.
Point is we've been launching more in the Mega trend and thematic area or do you think about declining growth rate for the economy things that have secular long term growth behind it.
Would be would be price and that's why we've been trying to diversify in this megatrend lineup. Even just this week a very exciting launch out of Europe , They Washington, ESG Mega trend for your recycling and de Carbonization, which is one of these things that you think have long term secular growth despite a recession.
And so I think you said you could look at things like that for growth oriented strategies, especially that our megatrend family is perfect for that.
Yeah, and I would just add on to that as it relates to our expenses just keep in mind that our fund management costs and third party distribution fees are highly variable. So if our AUM were to decline these costs would decline as well.
I would say we have a number of levers at our disposal to manage our expenses incentive compensation would be something to look at as well as our hiring plan our marketing and sales expenses are also discretionary in nature that said, our AUM and organic growth have been resilient in the wake of recent market volatility.
And as we previously noted is more diversified than it ever has been in the past so even in the wake of a future recession, we may not need to pull these levers.
Great. Thanks, and operator, I'll turn it back over to you adult what's answer some questions from the analyst community.
Okay.
Thank you.
Finder to ask a question you will need to press star one on your telephone to withdraw your question first of all Keith. Our first question comes from Gerard Sweeney with <unk>. You May proceed with your question.
Hi, good morning, I'm, calling in on behalf of probably just wanted to ask about expense guidance no change from last quarter, but any areas you see inflation, having the most impact.
Brian .
Yeah, Let me let me, let me talk about that so.
Compensation is one area and I'd say operating as a as a remote first company really its been an advantage for us we've been able to make hires at.
Levels that we previously budgeted budgeted at so that's something that we would be looking at and considering.
On the non compensation side I would say that said you know a mixed bag, we are under contract with many of our providers and others. We're not and you may see rates go up at that point in time, as well or I'm sorry fees.
But thats we.
<unk> that when giving our guidance and it's something that we continue to keep our eye on.
Thank you and then one quick follow up can you give any other updates on the model portfolio lunches with broker dealers and any more decline to sign up and we'll keep you can begin to ramp down.
Hey, Garik, maybe you could start and Jeremy if he doesn't get everything maybe you want to add to it but at least.
You start.
Sure.
Yeah. The managed models initiative is.
One of our priorities and it's one of the.
The real success stories over the last couple of years as we've built and grown it.
When you're looking to grow the business. There are really two victories do you need to score.
One is is the first victory is partnering with some of the major platforms. So as we've discussed in past quarters.
We were on the platform with Merrill Lynch and Morgan Stanley .
And others.
And so once you win that first victory the second victory.
Is now you've got to go out and win advisor mind share, which takes time, but once you do those flows become recurring in nature.
As you'll see us, adding more advisors per each platform and then within each adviser you see them, adding more of their clients too.
Two our models. So it's just something that starts to build upon itself.
With a high quality of flows.
Directly to your question we've got.
Others in the pipeline we've won two other major mandates already this year and have a strong pipeline and that's only half the story that's going after the upper end of the market on the other side of the market.
This is one of the biggest trends in wealth management right now is centralized managed models.
If you're big you have the resource to do it if you're smaller.
It can be hard.
How do you.
Organized how do you build a model how do you run a model.
Because you might not want want one off the shelf you want to customize it and add your firms sort of view.
View to it.
And then once you construct a model.
How do you execute the model how do you rebalance the model so.
Referred to that in the prepared remarks earlier. This month, we launched a new service wisdom tree portfolio gross solutions, where we're providing that kind of an easy button for managed models, where we will help.
Our clients.
Customize their models, but then run the models and so we really have.
A two pronged attack here going on the large end with major platforms and then on the smaller end and the mid size and with our Ace with this portfolio grew solutions.
Initiatives, so more to come Youre seeing building momentum and we expect it to keep going.
Great. Thank you for that.
Have a great day.
Thank you. Our next question comes from Michael Cyprus with Morgan Stanley You May proceed with your question.
Hey, good morning, John and Brian . Thanks for taking the question here, just hoping you could expand a little bit on some of the commentary around the upbringing passive to the blockchain, maybe you could just give us an update on where that stands talk about some of the action steps that you're taking here over the next 12 months, what sort of timeframe could we see and what sort of regulatory or her.
<unk> do you guys space and how do you think about overcoming any of those thank you.
Sure. Thanks, Mike.
Will do you mind will pack head of digital assets, we'll do you mind, taking the first crack at this.
Yes, certainly so the next step is really what we've disclosed in terms of our guidance for the year on the progress here were going into beta for wisdom tree Prime in Q2 and that will be really the beta for some initial dis <unk> assets as well.
And we've got our blockchain enabled fun.
We have filed with the SEC no specific guidance on when that might get approved but kind of overall guidance for the second half of this year.
So those are really the two next steps on that there are some regulatory conversation in the background nothing.
Nothing that we can kind of disclose further on and we think we're well on our way in accordance with what we talked about at beginning of the year.
Maybe if I could just follow up on the wisdom tree Prime maybe you could just talk a little bit about the customer acquisition strategy. It would seem that this is a direct to consumer approach if I'm not mistaken in terms of how youre thinking about it maybe you could just talk a little bit about that go to market strategy.
As Youre thinking about building brand and marketing around this particular offering to drive adoption. Thank you.
Sure why don't you again begin.
Yes.
Can you talk about lean marketing principles I mean, as John has said on the last call, we're not having that game into a commercial on Super Bowl anytime soon.
But just using very cost effective getting a lot of learnings from our digital marketing and growing from there certainly there'll be business development deals as part of this over time.
And scaled distribution are quickly, but we've been doing marketing for a long time, John who has we've got a great kind of strategy there to do it in a cost effective way going forward.
Great. Thank you.
Thank you. Our next question comes from Brennan Hawken with UBS you May proceed with your question.
Okay.
Your line is now open.
Sorry about that the old mute got me good morning, Thanks for taking the questions.
So first question is on commodity flows.
A little surprising to see the weakness in the first quarter just given what we saw in some of those commodity markets.
So could obviously it's improved here.
Here quarter to date, but do you have any additional color around what drove some of that and Ah why we wouldn't have seen more demand.
Yes.
Oh, not Jarrett, Jeremy maybe you would store Jeremy Schwartz.
Yeah, and then certainly what you're seeing.
For me, it's been very very strong across commodities and so some of the flow that you see out of Europe can be.
Enter balancing and cyclical there where people are taking some of the games given that commodities had been the strongest performers.
One of our broad commodity fund W. W Co op.
<unk> broad commodities up 25% on a year youre seeing positive flows in <unk>.
The reputation of a modern alpha approach trying to provide some outperformance some of the.
Things like way, all data, where it spiked in large ways you did see people cashing on some of those gains.
But I think in a lot of ways.
Believers in the longer term trends have been a lack of investment in commodities and this could be very early innings on part of the sort of shift to essentially inflationary and commodities generally.
So I think we're extremely well positioned both with data and these active approaches.
On top of that that debt.
For the future there.
Okay. Thanks for that.
And then second question is more on the digital asset strategy you laid out the spend.
Here on this effort.
For 2022, which is certainly.
Contained in and.
Very moderate, but when we think about going beyond 2022, and your aspirations for this venture.
How should we think about what that kind of investment would look like going forward is this just the beginning are or is this really the large part of the investment we're going to see and what do you think that J curve is going to look like.
So I'm not sure who let me just first start. So this is the hardest year to show because we show in our guidance, we ramped up expenses from the prior year without yet really seen any revenue next year will at least have the revenue contribution but there.
Certainly as we spoke about from an earlier question about marketing and lean marketing principles. There are two elements to marketing its going to be around.
Your cost of acquisition and you'll have learnings from users and understand better or a little bit over time, what is the lifetime value of that user and youll find your price points that you're willing to invest against our lifetime value user.
But again all of this is we feel very manageable, it's so much of our expenses.
Our core business, where are the historical ETF business is of relevance to what we're doing that's why I tried to make that comment in the opening statements about the efficiencies of what we're doing so.
We are not prepared to give guidance on 2023, we're highly confident that.
It'll be well managed.
So.
Let me just add to that I mean, I would just say if we're going to see meaningful expense growth going forward, it's going to be coupled with.
Revenue growth that you'll also be able to see so let's just not ignore.
Ignore the fact that we have a baseline expense growth in 2022. So if we're building off that it's due to the success of the platform.
Fair enough when you think about.
Just John Oh, your response sort of like fired up.
Another question.
So forgive me, but when you think about like what.
What you would expect based on your current expectations for this platform are are there any parallels you can draw two other.
Established firms that are out there and how they think about the value of the customer and how that's evolved as they've continued to add on different products or capabilities or whatnot.
Is there a is there a case study that you could point to that you think might be particularly relevant or you serve as a decent parallel for what you're looking to do here.
Yeah, Let's talk case studies. So I saw you on your UBS digital asset and one of the things that's probably the company towards this.
One of the things that we noticed or I noticed when you were speaking was the the frustration and siloed nature of crypto assets versus traditional all other <unk>.
Services that these firms were following so I do not want it to be missed by you were actually going to be first where crypto and traditional assets will fit seamlessly together and.
And that so being native to the blockchain and Org design will give us functionality that is the others do not yet have and will not be easy to replicate.
So you many of the firms that you had on your on your digital asset day.
So much of their investment is on the old route all of the neo banks or many of the mobile app firms. They are just playing really on yesterday's technology and it will impact them going forward I think we have.
A truly exciting use case that will that we can build off of.
Before the end of the year and well.
It really drives users into next year.
Okay, well I look forward to continuing to hear more details about these efforts. Thanks a lot.
Yes.
Thank you. Our next question comes from Keith household with Northcoast Research you May proceed with your question.
Good morning, guys. Just following up on the same line of questioning I guess, you can private company with one of those guys that have concerns about the investment there was some true prime based on I guess, our knowledge and we see it in the world in terms of security in the hacking of digital Walther out there with the 9% to $14 million you guys are suggesting in terms of expenses this year.
What are the efforts around security or are you guys using your own internal sources for security and testing are you guys outsourcing some of that I mean, it's how can you ensure that this digital wallet will be able to withstand hacking efforts that are sure to come.
Well why don't you start there.
I mean, I think one of the recent tax Youre seeing are for things that are totally unrelated to what we're doing for like smart contract bridges and things like that where people see crypto hacking a headline and think it has something to do close to what we do or like a coinbase does.
It's just not accurate it's totally different things I mean in terms of how we're securing wisdom tree Prime we've got our own security team in house, we've got great outside relationships, one with currency, one, which we have not announced yet that are the best in the business in terms of securing digital assets in the private keys associated with them so feel.
Comfortable on the security front, I mean, you always need to be vigilant, but I think that is something that we are going into eyes wide open and are very very well set up to do that.
Great I wish you guys luck there in terms of this follow up question in terms of the marketing expense I noticed it was lower in the quarter is it safe to assume that as the year ramps up, especially with your wisdom tree Prime efforts, we should expect like marketing and some other discretionary costs will probably ramp up quite a bit here in the second half of the year.
Yeah.
I would work.
Sorry go ahead, Bryan correct and look our guidance is our guidance is a fairly wide range, it's about 49% to $57 million.
And a lot of that is.
It depends on the timing of the rollout so if the rollout happens towards the end of the year than the expenses, maybe a bit lower.
Happens sooner or sooner than we were anticipating that the expenses, maybe a bit higher putting aside digital we also are mindful of our sales related spending.
There is a.
A range, there as well and that all.
It has to do with whether or not the pandemic cooperates with us or not.
Great. Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Jonathan Steinberg for any further remarks.
No I think that's all we have I just want to thank all of you for your time and attention and we will speak to you next quarter have a good day.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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