WisdomTree, Inc.
Q1 2022 Earnings Call Transcript

Published: 29 Apr 2022

[Operator:]

Hello and thank you for standing by, and welcome to the WisdomTree First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Jessica Zaloom, Head of Corporate Communications. Please go ahead.

[Jessica Zaloom:]

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 WisdomTree’s Annual Report on Form 10-K for the year ended December 31, 2021. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now, it is my pleasure to turn the call over to WisdomTree CFO, Bryan Edmiston.

[Bryan Edmiston:]

Good morning, everyone, and welcome. I am incredibly pleased to report another fantastic quarter with record AUM levels and strong organic growth in the wake of viable market environment. A successful quarter like this doesn’t happen by accident. Jarrett and Jono will unpack how we got here in the bright outlook ahead for us. But first I’ll walk you through our first quarter results. Our AUM at March 31 was 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 is withstood a volatile market environment and it’s positioned to continue capturing market share as we experience a rotation towards the 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 include $2.3 billion of flows from our U.S. business and 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 have 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 are 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 $0.09 a share. This quarter we recognized the non cash after tax loss of 17 million for our future gold commitment payment and 5.2 million in other net non-operating 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 and 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 is dependent on the timing of the WisdomTree 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 margins, 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 million and 19 million, given the recent increase in the price of gold. Next slide. Now I’d just like to comment on our capital management priorities. Maintaining our dividend is 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 have 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 Jono.

[Jonathan Steinberg:]

Thank you, Bryan. A successful quarter like this doesn’t just happen overnight. It 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 DXJ and HEDJ, WisdomTree was a U.S. only ticker oriented ETF sponsor. Though the sell off of those two funds was painful, we deployed the excess earnings power from those funds into opportunities, which set the table for 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 of vibrant complementary European business. The combination of these capabilities is driving more breadth and balance 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 a remote first environment for our employees while better serving our clients. Building off of our first investment in data in tech, we next built an advisor solutions program to support broader and deeper product adoption, including our best in class solutions for model creation and trading for RIA and 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 WisdomTree’s 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 plus incredible talent that’s still in place today. And the ETF’s securities acquisition brought AUM diversification and distribution pipelines into Europe’s walled gardens. In the year since we injected new life into talent pool and new products through the distribution pipelines 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 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 WisdomTree has never in better position 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.

[Jarrett Lilien:]

Thanks, Jono. Starting with Q1, not only did we generate over 1.3 billion of net inflows across the firm with nearly three times as many funds inflowing and outflowing, but our inflows outpaced negative markets and our AUM grew quarter-over-quarter to new record highs. And this strength is continued in April with net flows of nearly 1.7 billion taking our global AUM over 80 billion for the first time. And as Jono 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, starting with Europe, back in early 2018, we closed the ETF securities transaction. With it, we acquired a commodities franchise and AUM 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 WisdomTree core competencies to launch new funds and to create new products like UCITS and 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 AUM it is today and turn 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 invested in our people to build a best in class team across sales, marketing, research, product, operations and corporate functions. We adopted 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 WisdomTree managed models initiative that has grown to the point we’re roughly 12% of flows into U.S. ETFs today come from managed models. Like our experience in Europe, hard work and investment are paying off with momentum increasing in 21 of the past 22 months, generating inflows. Taken all together, actions we have 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 and investment themes that are flowing and products that are performing. Second, our managed models franchise is entering its third year and its impact on flows is growing. And third, we are first mover in 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 our AUM is currently levered to themes like inflation, hedging, rising rates and the rotation from growth to value. Add to that nearly 80% of our U.S. AUM is in the top two quartiles of performance relative to Morningstar benchmarks. With broad and deep inflows and solid momentum we feel our flows are sustainable and that 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 2020. Today, and very early into our third year we have over 2 billion in managed model AUM with roughly 12% of our U.S. ETF flows being driven by managed model strategies, which is up from the 10% we reported last year. 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 WisdomTree 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 RA market. Overall, we are very excited about the trajectory of our models franchise, and we see a long and lucrative growth runway ahead with the beauty of the model 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 Jono, 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 is to bring crypto exposures into the mainstream financial ecosystem through ETPs and separate accounts. And second it is to bring mainstream financial assets onto the Blockchain and into the digital ecosystem through Blockchain enabled funds and tokenized assets. 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. And 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 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 ETF in the U.S. remains muted even though Bloomberg did recently called WisdomTree, the dark horse candidate to gain first approval in 2022, we've also successfully launched a separate account strategy for the U.S. wealth channel. Now, how big is that opportunity? Consider 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 have never been better, our model business is gaining traction and we have first mover advantage 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 Jono to discuss the second part of the digital strategy in more detail.

[Jonathan Steinberg:]

Thank you, Jarrett. It's easy to miss significant change. CBS Radio way back in the day before the invention of television, CBS had a brilliant engineer who had the imagination to see the potential of TV. CBS was first to market. They executed well and even to this day CBS is a leader in broadcast television. 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 WisdomTree 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 has been dis-intermediated out at significance. It's WisdomTree's belief that this is about to happen in financial services. Why is WisdomTree well positioned to see this opportunity? What's WisdomTree's edge? Before I answer those very important questions, let me say this about WisdomTree's ETF business. We've never had higher AUM. Our AUM has never been diversified and we have really strong momentum over the last 21 months. The core business is very exciting. ETFs will see trillions and trillions and trillions of growth for decades to come and WisdomTree has never been stronger, more competitive or better positioned to grow within ETFs. Now shifting gears. Why WisdomTree? 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 WisdomTree 20 years ago the question I was asking back then, how to thrive in a Vanguard world? 20 years later WisdomTree has $80 billion in AUM, 40 basis points of revenue capture, 300 plus million of revenue, $50 million to $60 million in net profits. It was the right question they and we executed beautifully. But why WisdomTree now? Again, we are asking the right questions. In my opinion today, the hardest questions in asset management are

[A - Jeremy Campbell:]

Hey, thank you, Jono, and good morning everybody. We're going to start off the Q&A, just look we have for the past couple quarters using some questions directly from investors through the Say 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?

[Jeremy Schwartz:]

Well, first WisdomTree stance on beta is pretty known. You got to be first to market as Joho was just talking about there. Yet there's still a lot of opportunities for beta and I know the question was on equities, but I wanted to highlight a few – a few topics here. First is one of the beta products that we were first on floating rate treasuries, ticker is USFR, we were able to be first in line. We were able to issue that ETF the day, the 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 year and to the point on equities and having alpha, this is a ETF that with 2 billion of flows year-to-dates. Now we are second largest ETF, and it's really providing alpha for the bond market. You've got 500 fixed income ETFs here in the U.S. and if you look at them, basically all are showing negative of returns, some very negative returns with the aggregate bond market down 9% on the year. If you look at USFR, it's got small positive gains. So it's really one of the best fixed income ETF for this market regime. And you think about the fed cycle we've had a single fed hike at 20 basis points. Next week we're likely to get two hikes, 50 basis point hikes next week, and maybe a string of 50 basis point hikes. So the momentum in that could accelerate over the coming 18, 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 the year of dividend stocks. The S&P 500 its 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, our $3 billion large cap dividend strategies only down 1% on the year. And so investors are responding to this relative performance. We've seen about $1.5 billion come into net in-flows across 30 separate dividend strategies approximately six of those dividend strategies have seen more than $100 million net on the year, 11 of those approximately 30 ETFs have taken more than $50 million on the year. So I think you're seeing dividends shine and you're seeing performance follow. So for this market regime of higher rates inflation, the fed, we like value quality as Jarrett and Bryan were talking about and the dividend orientation has been particularly well suited for this macro regime.

[Bryan Edmiston:]

And Jeremy, maybe I can pile on there as well as. As Jarrett saying, our product suite is incredibly well positioned. Its performance is great. Anything that is good for our 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 our individual products, also very good for our managed models business.

[Jeremy Campbell:]

Great. And then the second question is how is the company preparing for an upcoming recession? So first I'm going to ask Jeremy to put his global CIO hat on and look at it from a product lens. And then maybe Bryan can chime in about our business itself?

[Jeremy Campbell:]

That's great. We've been working to diversify our product offerings for really any market regime. We started off in 2006 really with equities and value based equities. I just talked about USFR, the floating rate treasuries for ultra short duration and this new rising rates cycle. If you go to – into a recession, I think you would want 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 tilt on core bonds. We have $1 billion in the U.S. strategy, tickered AGGY, Aggy. And in Europe it's been a five star performer for the European version. So if you were to have a declining rate cycle with a recession, I think we're very well positioned for that rotation to longer duration assets. We also had quality screened fixed income credit strategies, and so under the stress of recession, you would think we're also well positioned for a shift to higher quality in the fixed income market. And to get in equities we don't just have value seven, really nine years ago. We launched a quality tilt on top of dividends, and now it's our largest ETF DGRW 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 enhanced, but I guess one final point is we've been launching more in the mega trend and thematic area. You think about declining growth rates for the economy, things that have secular long-term growth behind it would be prized, and that's why we've been trying to diversify in this mega trend lineup. Even just this week very exciting launch out of Europe. They launched an ESG mega trend for a recycling and de-carbonization which is one of the things that you think have long-term secular growth despite a recession. And so I think you could – you could look at things like that for growth oriented strategies during recessions that our mega trend family is perfect for that.

[Bryan Edmiston:]

Yes. 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'd say we have a number of levers at our disposal to manage our expenses. Incentive compensate 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.

[Jeremy Campbell:]

Great, thanks. And operator, I'll turn it back over to you. And let's answer some questions from the analyst community.

[Operator:]

Thank you. Our first question comes from Girard Sweeney with KBW. You may proceed with your question.

[Girard Sweeney:]

Hi, good morning. I'm calling in on behalf of Rob Lee. Just wanted to ask about expense guidance. No change from last quarter, but any areas you see inflation having the most impact?

[Jonathan Steinberg:]

Bryan?

[Bryan Edmiston:]

Yes. Let me talk about that. So compensation is one are I'd say operating as a remote first company really is been an advantage for us. We've been able to make hires at levels that we've previously budgeted at. So that's something that we would be looking at and considering. On the non-compensation side I would say that's a mixed bag. We're under contract with many of our providers and others were not and you may see rates go up at that point in time as well, or I'm sorry, fees. But that's we've contemplated that when giving our guidance and it's something that we continue to keep on.

[Girard Sweeney:]

Okay. Thank you. And then one quick follow up. Can you give any other updates on the amount of portfolio launches with broker dealers and any more you plan to sign up? And if you begin – if you begin to ramp soon?

[Jonathan Steinberg:]

Hey, Jarrett maybe you could start and Jeremy, if he doesn't get everything maybe you want to add to it, but at least Jarrett you start.

[Jarrett Lilien:]

Sure. Yes. The manage models initiative is one of our priorities and it's one of the real success stories over the last couple of years as we've built it and grown it. When you're looking to grow the business, there are really two victories you need to score. One is, the first victory is partnering with some of the major platforms. So as we've discussed on past quarters we're 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 advisor you see them adding more of their clients to 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 organize? How do you build a model? How do you run a model? Because you might not want one off the shelf, you want to customize it and add your firm's sort of view to it. And then once you construct a model, how do you execute the model? How do you rebalance the model? So I refer to that in the prepared earlier this month, we launched a new service, WisdomTree Portfolio Growth 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 end with RAAs with this portfolio and group solutions initiative. So more to come, you're seeing building momentum and we expect it to keep going.

[Girard Sweeney:]

Thank you for that and have a great day.

[Operator:]

Thank you. Our next question comes from Michael Cyprys with Morgan Stanley. You may proceed with your question.

[Michael Cyprys:]

Hey, good morning, Jarrett, Jono, and Bryan. Thanks for taking the question here. Just hoping you could expand a little bit on some of the commentary around the bringing passive to the blockchain. Maybe you could just give us an update on where that stands to talk about some of the action steps that you're taking here and over the next 12 months, what sort of timeframe could we see and what sort of regulatory hurdles do you guys face and how do you think about overcoming any of those? Thank you.

[Jonathan Steinberg:]

Sure. Thanks, Mike. Will, do you mind – Will Peck, Head of Digital Assets, Will, do you mind taking the first crack at this?

[Will Peck:]

Yes, certainly. So the next step is really what we've disclosed in terms of our guidance for the year on the progress here. We're going into beta for WisdomTree Prime in Q2, and that will be really the beta for some initial of these tokenized assets as well. And then we've got our blockchain enabled fund. We've 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 big steps on that. There are some regulatory conversations in the background nothing that we could kind of disclose further on and we think we're well on our way in accordance with what we talked about at the end of the year.

[Michael Cyprys:]

Maybe if I could just follow-up on the WisdomTree 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 you're thinking about it. Maybe you could just talk a little bit about that go-to-market strategy. How you're thinking about building brand and marketing around this particular offering to drive adoption? Thank you.

[Jonathan Steinberg:]

Sure, Will, why don't you again, begin?

[Will Peck:]

Yes. And to talk about lean marketing principles. I mean, as Jono has said on the last call, we're not having Matt Damon do a commercial on the 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 that and scale distribution quickly. But we've been doing marketing for a long time Jono has. And we've got a great kind of strategy there to do it in a cost effective way going forward.

[Michael Cyprys:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Brennan Hawken with UBS. You may proceed with your question. Your line is now open, Brennan Hawken.

[Brennan Hawken:]

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 its improved here your quarter-to-date, but you have any additional color around what drove some of that? And why we wouldn't have seen more demand?

[Jonathan Steinberg:]

Jarrett, not Jarrett. Jeremy, maybe you would start Jeremy Schwartz.

[Jeremy Schwartz:]

Yes. And certainly what you're seeing is performance has been very, very strong across commodities. And so some of the flow that you see out of Europe can be counterbalancing and cyclical there, where people are sure taking some of the gain, given that commodities have been the strongest performers. One of our broad commodity funds, WCOA, sort of enhanced broad commodities up 25% on the year. You're seeing positive flows there as a representation of a modern alpha approach trying to provide some out performance. Some of the things like beta where, where spiked in large ways, you did see people cash in on some of those gains. But I think in a lot of the ways we are believers in the longer-term trends, there's been a lack of investment in commodities, and this could be very early innings on part of the sort of shift to this inflation narrative and commodities generally. And so I think we're extremely well positioned both with beta and these active approaches on top of that for the future there.

[Brennan Hawken:]

Okay. Thanks for that. And then second question is more on the digital asset strategy. So you laid out that the spend here on this effort for 2022, which is certainly contained 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 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?

[Jonathan Steinberg:]

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 seeing any revenue. Next year, it will at least have the revenue contribution. But there's certainly some as we spoke about from an earlier question about marketing and lean marketing principles, there are two elements to marketing is 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 you'll find your price point that you're willing to invest against a lifetime value user. But again, all of this is we feel very manageable of so much of our expenses of our core business are the historical ETF business is of relevance to what we're doing. That's why I tried to make that comments in the opening statements about the efficiencies of what we're doing. So though there, we're not prepared to give guidance on 2023, we're highly confident that it'll be well managed.

[Bryan Edmiston:]

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 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.

[Brennan Hawken:]

Fair enough. When you think about just Jono your response sort of like fired up another question. So forgive me, but when you think about like what you would expect based on your current expectations for this platform. Are there any parallels you can draw to other established firms that are out there and how they think about 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 case study that you could point to, you think might be particularly relevant or you serve as a decent parallel for what you're looking to do here?

[Jonathan Steinberg:]

Yes. Let's talk case study. So I saw you on your UBS Digital Asset Day, and one of the things that's the company, one of the things that we noticed, or I noticed when you were speaking was the frustration and siloed nature of crypto assets versus traditional all other services that these firms were following. So I do not want it to be missed by you. We are actually going to be first where crypto and traditional assets will sit seamlessly together. And that, so being native to the blockchain in our design will give us functionality. That is the others do not yet have, and will not be easy to replicate. So many of the firms that you had on your Digital Asset Day, so much of their investment is on the old rails. All of the neo banks, all – 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 and really drive users into next year.

[Brennan Hawken:]

Okay. Well, I look forward to continuing to hear more details about these efforts. Thanks a lot.

[Operator:]

Thank you. Our next question comes from Keith Housum of Northcoast Research. You may proceed with your question.

[Keith Housum:]

Good morning, guys. Hey, just following up on the same line of questioning. with one of those guys that have concerns about the investment in WisdomTree Prime based on, I guess, our knowledge and we see in the world in terms of security and the hacking of digital wealth are out there. With the $9 million to $14 million, you guys are suggesting terms of expenses this year. What are the efforts around security? Are you guys using your own internal sources for security and testing, or are you guys outsourcing some of that? I mean, how can you ensure that this digital wallet will be able to withstand hacking efforts that are sure to come?

[Jonathan Steinberg:]

Will, why don't you start there?

[Will Peck:]

Yes, I mean, I think a lot of the recent hacks you're 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 hack in a headline and think it is something to do close to what we do, or like a Coinbase does. And it's just not accurate. It's totally different things. I mean, in terms of how we're securing WisdomTree 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 aspects and the private keys associated with them. So feel very 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.

[Keith Housum:]

Great. I wish you guys luck there. In terms of this follow-up question, in terms of like the marketing expense. I know this was lower in the quarter. Is it safe to assume that, as the year ramps up, especially with your WisdomTree Prime efforts, we should expect like marketing some of the other discretionary costs of probably ramp up quite a bit here in the second half of the year?

[Bryan Edmiston:]

Yes. I…

[Jonathan Steinberg:]

Sorry, go ahead, Bryan.

[Bryan Edmiston:]

Correct. And look, our guidance is a fairly wide range. It's about 49 million to 57 million. And a lot of that is depends on the timing of the rollout. So if the rollout happens toward the end of the year, then the expenses may a bit lower if it happens sooner or sooner than we're anticipating, then the expenses may be a bit higher. Putting aside digital, we also are mindful of our sales related spending. There's a range there as well, and that all has to do with whether or not the pandemic cooperates with us or not.

[Keith Housum:]

Great. Thank you.

[Operator:]

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.

[Jonathan Steinberg:]

I think that's all we have. I just want to thank all of you for your time and attention, and we'll speak to you next quarter. Have a good day.

[Operator:]

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