WisdomTree, Inc. (WT) Q3 2022 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the WisdomTree Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakes' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Jessica Zaloom, Head of Corporate Communications and Public Relations. 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 WisdomTree's annual report, on Form 10-K for the year ended December 31, 2021, as amended, and quarterly report on Form 10-Q for the quarter ended June 30, 2022. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it's my pleasure to turn the call over to WisdomTree's CFO, Bryan Edmiston.

Thank you, Jessica, and welcome, everyone. I'll begin by reviewing the results of the third quarter, and we'll then turn the call over to Jarrett Lilien for additional updates on our business. We've been operating against an incredibly challenging market backdrop with interest rate increases occurring at a pace not seen in decades to combat surging inflation and concerns over an imminent recession. Broad-based equity markets dropped into bear market territory during the quarter, contributing to a decline in our AUM from negative market movement. That said, our results have been remarkable considering the market conditions, as we have generated $1.7 billion of flows during the quarter and $8.7 billion year-to-date for October. Fixed income has been the primary contributor of our success with our Floating Rate Treasury product, USFR, generating over $2.8 billion of flows during the quarter and almost $9.7 billion year-to-date. However, not to be overlooked is the 13% annualized organic growth of our U.S. Equity product suite, which brought in $1.2 billion during the quarter and $2.5 billion year-to-date. Notwithstanding challenges we are experiencing in our commodity suite, we are delivering best-in-class annualized organic growth of 14% across our AUM with sustained momentum as evidenced by eight consecutive positive flowing quarters. Our AUM currently stands at $74.6 billion, an increase of 5% from the end of September, as our momentum continues having generated almost $1.8 billion of flows in October and having benefited from positive market movement. Next slide. Revenues were $72.4 million, a decrease of 6% from the prior quarter due to the impact of negative market movement on our AUM. Our average advisory fee also declined 1 basis point due to changes in our AUM mix. Adjusted net income was $9.3 million or $0.06 a share. Our non-GAAP results exclude a noncash after-tax gain of $78 million for our future gold commitment payments, resulting from an increase to the discount rate used to compute the present value of the annual payment obligations. Our non-GAAP results also exclude $6 million in other net non-operating losses. Next slide. Our adjusted operating expenses were down 3% for the quarter. This decrease was largely due to lower incentive compensation accruals as well as lower marketing and sales-related expenses. Next slide. Now a few updates regarding our expense guidance. As a reminder, last quarter, we had tightened the high end of our compensation guidance range by $3 million as we tempered our hiring plans. Our compensation guidance remains at $96 million to $99 million. Our discretionary spending guidance is being reduced and now ranges from $50 million to $51 million as we continue to balance expense management against our investments for growth. We had previously communicated a range of $51 million to $53 million. We currently anticipate gross margins of 78% to 79% for the year at current AUM and flow levels, an update from the 79% communicated last quarter. Our contractual gold payments guidance remains unchanged at about $17 million for the year, while our third-party distribution [Indiscernible] $8.5 million, given the impact of market volatility on the AUM on our platforms. And our adjusted tax rate was approximately 26% for the quarter. This included the impact of adjustments identified when finalizing our 2021 income tax returns. Going forward, we anticipate a normalized income tax rate of 22%, the high end of our prior guidance of 21% to 22%. That's all I have. I will now turn the call over to Jarrett.

Thanks, Bryan. I will focus my comments on what have become consistent themes, our strong organic growth in ETFs and models, our strong operating leverage, and our progress and potential in digital assets and blockchain-enabled finance. Starting with growth, Q3 extended our quarterly net inflow streak to eight quarters in counting. In total, we have gathered over $8.8 billion of inflows year-to-date, an industry-leading 14% organic growth rate. This is a noteworthy streak, but the breadth and depth of our flows and strong product performance might be even more noteworthy as they position us for continued growth. Looking at flows, more than $9 billion of year-to-date fixed income inflows are only part of the story. In this past quarter and year-to-date, we have had inflows in six of eight of our major product categories. In addition to fixed income, our U.S. equity products have gathered over $2.5 billion in year-to-date net inflows, representing 13% annualized growth in this suite alone. In addition, our product performance continues to be outstanding, with over 80% of our U.S. AUM beating benchmarks and over 40% of our AUM in 4- and 5-star funds, while less than 7% is in 1 and 2 star funds. Contributing to our best-in-class organic growth is our Managed Models business. Our strategy is succeeding on two levels. First, with our platform partners such as Merrill Lynch and Morgan Stanley. And second, with our RAA and independent broker-dealer partners through our WisdomTree Portfolio and Growth Solutions offering. With our platform partners, engagement in activity remains high at both Morgan Stanley, where we just hit the 1-year anniversary of winning that mandate, and at Merrill Lynch, where we are a top performing and flowing manager with our multi-asset income mandate. In fact, I'm pleased to announce that we've been able to leverage our success at Merrill to win an additional opportunity to launch three additional models within our multi-asset income mandate that are expected to go live soon on their platform subject to final due diligence. When we won new mandates in the past, we've said that it typically takes 12 to 24 months before we start to see material flows. Given we are already on the platform and have high engagement with Merrill Advisors, I expect that time line will be greatly accelerated. We are seeing equal success with our RIA and independent broker-dealer partners. Our easy button solution that helps implement trade and rebalance model portfolios clears the major hurdle for RIA and IBD model adoption. Currently, that pipeline for this segment is 40 deep, and we are adding to it every day. As important as growth is operational efficiency. We have built a global ETP and models business that is extremely scalable and delivers robust incremental margins. Over the past several years, we've made many operational improvements and now have incremental margins well more than 50%. And this means, as markets normalize, WisdomTree will be one of the only asset managers with both a margin improvement story and an inflow story. We are also executing and delivering on our digital assets business. WisdomTree's core DNA is to provide best structured access to various asset classes. We seek to make hard to access and sometimes hard to trade exposures easy to access and easy to trade. Today's best structures are ETFs and ETPs, but the next evolution in asset management is the blockchain-enabled digital wrapper. Attacking this digital assets opportunity is consistent with our DNA. It's a natural extension of what we do today and it will be an important contributor and driver of future growth. As we have discussed before, our approach is to bring crypto mainstream and to bring mainstream exposures like fixed income, equities and commodities into the digital world through blockchain-enabled funds and tokenized assets. Regarding crypto, we have already broken ground with the launch of our crypto and crypto basket ETPs in Europe and our early direct index offering in the U.S. Regarding digital assets, again, we are working to provide tomorrow's best structured access to mainstream asset classes. ETFs are today's best structure. Blockchain-enabled digital assets are tomorrow's best structure. We've already minted gold in U.S. dollar tokens. We recently hit a key milestone with SEC approval for our digital treasury fund, and we are building out a full digital fund suite that includes recent filings for several fixed income funds as well as equity focused strategies from large captive thematic, basically everything a customer needs to build an entire portfolio. Taken together, our vision is fast becoming a reality. These are the first bricks in the foundation that will allow us to lead in the coming evolution in financial services, laying claim to the deepest exposures in the digital wrapper and positioning us to lead in an even larger opportunity, our expansion in the blockchain-enabled finance or spending, saving and investing or merge. All in all, our steady march continues. We continue to produce best-in-class organic growth on a platform with strong operating leverage and a vision that is fast becoming a reality, which will allow us to lead the next evolution in financial services. With that, let me now turn it over to Jon.

Thank you, Jarrett. As we've said before, ETFs are the best structured, transparent products that exist today, and I'm very pleased with the success of our ETF franchises having in the face of a difficult macro environment. It is a fact WisdomTree is 1 of the few providers with net inflows year-to-date. Jarrett did a great job showcasing how our success in solutions and models is improving the consistency and quality of our inflows. I'm thrilled with the expanded model lineup we've earned at Merrill, where our momentum is accelerating. Equally exciting is our early success from our expanded RIA outsourced CIO offering. Jarrett mentioned, but it's worth repeating, that our high-quality pipeline is growing quickly. I think our results now prove that WisdomTree has successfully evolved from individual ticker sales, though still important, to being a true solutions provider. Our confidence has never been higher regarding future model success. We've also made exciting progress towards the best structured transparent products of tomorrow. We recently received SEC approval of our first blockchain-enabled fund, the short-term digital treasury fund. We've minted a dollar token, a gold token and the product road map does not end there. We've recently filed for nine additional funds, building out a broad blockchain-enabled fund suite that includes several additional fixed income funds as well as equity focused strategies. I realized about four years ago, how WisdomTree strengths are uniquely aligned with what would be needed to succeed in blockchain financial services. I knew that it was in our DNA, our deep knowledge of regulation, our trusted brand, our special culture, our strength in compliance and our leadership in product innovation has driven this cost-effective early success. Our efficiency and effectiveness implementing our digital asset strategy has been noteworthy. It's been reported Facebook spent around $300 million attempting to bring a regulated, branded digital wallet with exposures to market and they failed. Since the start of our digital asset journey several years ago, WisdomTree has spent less than $20 million on tokenization and on WisdomTree Prime, our digital wallet. As we've discussed on prior calls, WisdomTree Prime is currently in beta testing and remains on track for a national rollout towards the end of Q1 next year. Additionally, I want to repeat what I said last quarter. Digital assets will begin generating revenue in 2023 without a significant uptick in cost versus 2022 levels. I'm very excited about where WisdomTree is headed. We have a tremendous and holistic opportunity ahead in both ETFs, models and Advisor Solutions business as well as an early mover in digital assets and blockchain-enabled financial services. So a week ago, we announced that WisdomTree is changing its name to WisdomTree Inc. and changing our ticker symbol to WT. By dropping investments from our name and dropping ETFs from our ticker, we are expanding our mission and recognizing the importance of this moment. This brand enhancement is less limiting in nature and a natural evolution as a company. Our momentum remains strong, and I look forward to sharing our ongoing success in the coming quarters. With that, operator, can you turn the call over to our Head of Investor Relations, Jeremy Campbell to take some questions from our shareholders.

Certainly, I'd like to hand the program over to Jeremy Campbell, Head of Investor Relations. Please go ahead, sir.

Thanks, Jonathan, and good morning, everybody. Similar to prior quarters, we are going to take a couple of questions from our direct shareholders of the UCITS platform. So the first question here is, how is WisdomTree thinking about the spot bitcoin approval process at this point? What is the next step? And what is the realistic path to getting a spot bitcoin ETF approved and launched?

Will Peck, Head of Digital Assets, will you take this call -- this question?

Yeah, happy to, Jon. So there has been some recent headlines recently on the spot bitcoin ETF. I think important to note is that this is for the U.S. We already have this product live in ETP format today in Europe. So in the U.S., look, our objective has always been to work productively with regulators. There's been a lot of news, some other providers are in the process of suing the SEC or kind of other things like that. That's certainly not part of our plan at all. We want to be working productively with them and we expect to be first or among the first to ultimately get there. I don't have an exact time line on what that might be right now. Clearly, the SEC still has concerns. But for us, it's important to be working with them productively to try and address that. On another note, we actually did get a very important approval from the SEC this past quarter for the WisdomTree Short-term Treasury Digital Fund. I know that was mentioned earlier in the remarks. For us, that's actually been one of the most important developments in the year for us. And yes, senior people at the SEC have actually recently kind of flagged that as one of the innovation-friendly things that they've been focused on and doing. So we're focused on engaging with them productively on lots of things. A Bitcoin ETF is included in that. And we think we'll get there someday, but there is no immediate time line on that right now, and we're focused on a number of other initiatives, including in digital assets with them. And Jarrett, I think you wanted to add a couple of points.

Yeah. Let me jump in as well. I think it's very important to distinguish between Bitcoin and blockchain-enabled finance. And a lot of people confuse the two. For us, crypto is interesting, but it's really only a use case for what can be done on the blockchain. A lot of people talk about crypto winter. Again, that may impact crypto, but the march towards blockchain-enabled finance, the much more exciting opportunity, is unwavering. We think blockchain-enabled finance is a place where we are leading, and it will change the way financial services are conducted. And really here, this is about the future. We have the opportunity to lay claim to the deepest exposures in the next evolution in asset management. This is a huge opportunity, and that one is completely on track.

Great. And question number two is along the lines of a couple of ones that kind of get blended together, but it's -- the first being, as equity markets have waned, have you seen interest in dividend products as investors search for yield. And the other one is how have fixed income products fared in this higher rate environment?

Great, I'm going to start with the fixed income, the second segment first, because it's really been for WisdomTree. We've had $10 billion in fixed income flows year-to-date. So this has really just been a breakout year for WisdomTree's fixed income team, and it speaks to our core product development and innovation excellence. We identified an opportunity to launch the first-to-market beta instrument with Floating Rate Treasuries about eight years ago, and this has just been the star performing asset class this year, as rates have moved up. And we've captured that with the 1-week treasury getting 4% income. It's really attracting a growing set of buyers in that Floating Rate Treasury vehicle. But what's exciting for the team in fixed income and future opportunities is now our team has been talking about for the first time in a decade, there's now income back in fixed income. In the high-yield space, you can get over 8% yields while still screening for quality in a very systematic fashion and five years ago, WisdomTree launched proprietary quality screen, high-yield and investment-grade ETF. In the high-yield category, in particular, our high-yield ETF WSHY has performed well versus the traditional beta, high-yield ETF since it launched, even without a serious credit cycle that could demonstrate the value add of our focus on quality in that segment. So this looks like a really good setup for future performance, future flows of that high-yield category, again 8% yields there now. We also have very good core investment-grade fixed income. AGGY is a yield-enhanced aggregate fund at scale of over $1 billion in assets, higher duration than the traditional aggregate bond index and ETF. So if money does flow back to higher duration at some point, with our success in fixed income generally this year, we're now much better positioned, deeper client relationships to cross-sell these other bond ETFs really that we've been in our entire history as a firm. So it's a very exciting moment for fixed income stalwart. To come back to the equity question and the team talked about earlier, we've had $2.5 billion of equity inflows year-to-date for U.S. equities, which has been, again, a 13% annualized rate. And you had this 15-year stretch where growth stocks dominated value and that was largely a headwind for our firm going back to our inception, but this is completely reversed. And more specifically, the value strategy is focusing on dividends, and we focus on a lot on high dividend stocks just performed incredibly well. [Indiscernible] gets about the 4 and 5 stars. A few other ways to talk about the performance. We had 20 different ETFs in the U.S. within the top deciles of Morningstar peer groups and 75% of our -- all of our U.S.-listed AUM is in the top quartile. So you could see the whole approach is set up incredibly well across equity. You're seeing that in strong performance, which is catalyzing those strong inflows. And a few of the ETFs just to overemphasize the flow picture, in the 16-year history we've had for the original dividend suite, 2 of those ETFs are having their best flow year since we launched. DLN, large cap dividends, has taken $500 million this year, best year since we've launched. DHS is a high-dividend ETF. It's actually positive on our performance year-to-date when the SBR 100 is down 20%, highlighting again the strong relative performance, but globally, this strategy, we have it in UCITS form and ETF form has taken a $500 million this year. And so you can really see across the board from fixed income to equities, the improved track record, a very compelling macro environment for what we focus on at WisdomTree, we think, is going to support sales over the coming quarters.

Great. And the last question from our UCITS platform is, where do you see the opportunity to gather assets going forward and continue organic growth?

Jarrett, why don't you start there?

Great. All right. I see really three main areas for continued organic growth, and those would be digital assets, our ETF lineup and managed models. Just taking those 1 at a time, digital assets, we just covered it. But really, again, a huge opportunity to own the deepest exposures and what we see as the next evolution in asset management, so a very large opportunity. In terms of our ETF lineup, Jono also just covered that. But I'd just reiterate, we've got best-in-class organic growth. We've got breadth and depth of our flows. We've got outstanding fund performance, and that gives us momentum that we see continuing. And an example of that, in the third quarter, we had net inflows of $1.75 billion. October already has net inflows of $1.9 billion. So momentum is there and it's continuing. Managed models. We also spent a little time talking about that on the prepared remarks, but let me go into that a little more because this is also very exciting. It's one of the most important macro trends in all of wealth management. And again, as I said earlier, our strategy is succeeding on two levels: first, with platform partners, such as Merrill Lynch and Morgan Stanley, but then second, with RIAs and independent broker-dealer partners and through our portfolio and growth solutions offering. And here, we help implement trade and rebalance model portfolios and growth for all of that is really threefold. We want to get to have more partners. So we want more wealth management partners. We want more of our models on those platforms with our partners. And then we want to grow our mind share with the advisors that are on all of those platforms. And those are the three areas of focus. But just touching on our pipeline, it's robust and it's growing every day. We mentioned in the prepared remarks at Merrill, we've got new models being launched there later this year. So that's an example of an existing relationship where we're doing well. We've got traction, and now we're adding existing -- sorry, additional models. Yesterday, we had a press release on a new partnership with Private Advisor Group. We're a preferred partner for their 750 advisors and $29 billion in assets. And we got to be a preferred partner after a rigorous due diligence process where they evaluated our investment management capabilities, our technology and our distribution support. So again, another piece and evidence of great success. And then our Portfolio and Growth Solutions offering, we've got a pipeline of 40 firms there, generally between the size of $100 million to $750 million where there, we have a different approach and get a large sort of meaningful portion of those firms assets. So all in all, this is working. We've got a long runway for growth. And a really important point is model inflows are recurring in nature. As you establish these relationships, new money comes in, it builds in the models. It's stackable on existing flows, and it's also sticky. It tends to stick around. So very excited about organic growth. And again, through those 3 areas: digital assets, our ETF lineup and managed models.

Thanks, Jarrett. Jonathan, feel free to open it up for some questions from our sell-side analysts.

Certainly. [Operator Instructions] Our first question comes from the line of Dan Fannon from Jefferies. Your question please.

Thanks. Good morning. I guess just to follow up on the managed model discussion. Can you talk about what the AUM is today within this channel? I know you've mentioned some big firms. And then how are discussions kind of going with other larger platforms? Or is it -- you can't really be on all of them because there's some -- you're on some, are you precluded from getting on other platforms given your existing relationships?

Jarrett, do you want to take that first?

Sure. So in the past, we've talked about asset levels and ratios of new flows being around 12%. Those ratios and asset levels are holding. In terms of the partner opportunities, yes, we have other partner opportunities. So I was saying a second ago that the pipeline across the board is pretty robust, and there are no restrictions so far as we are one 1 platform, there are no restrictions on being in another. So a big area where we are expecting to see it continue to contribute to our growth. And if I didn't mention it, we had on our AUM levels, we were at zero in this initiative early in 2020. We're now over $2 billion today.

Thank you. Next question?

Certainly And our next question comes from the line of Brennan Hawken from UBS. Your question please?

Good morning. Thank you for taking question my Will's comments suggested that the spot bitcoin ETF efforts are not finished. So could you help us understand what your next steps here are? Have you received feedback and -- from the SEC? And can you share any of that? And why are the concerns that bitcoin is not considered a security that is traded on an exchange, a structural impediment to a spot ETF in the U.S.?

Will, why don't you take that?

Yeah. I mean, so I think the -- maybe just restating what I think you said in terms of the concerns with the spot bitcoin ETF approval in the U.S. So the SEC's biggest concern so far has been around the potential for market manipulation. There -- in their rejection letters, they consistently referenced that, price discovery for the bitcoin spot market happens on venues that they don't have oversight over or that no U.S. regulator has oversight over, which has the potential for market manipulation. I think you can really get into the weeds on this, you can point to examples in the past. You can talk about how price discovery happens on the futures markets. That could be -- we could definitely spend a lot of time talking about that. But I mean, big picture, I think like I said in my earlier remarks, we're not planning on joining great skilled lawsuit or anything like that. We want to keep working productively with the SEC. And in past media interviews, I've said this, it can't just be WisdomTree as a single asset manager alone, there's going to need to be some kind of ecosystem development with an evolution here. But the next steps are just continuing to be on that journey, engaging with members of the SEC and DC more broadly on this topic. But also, like I said, it's not stopping us from doing other things in the digital asset space, like we did with WTSY and we found the SEC and regulators to be open to that kind of responsible innovation in other formats.

Yeah. And let me -- let me just add one thing. The Bitcoin ETP has nothing related to WisdomTree Prime launching. So that's not going to be a deterrent from our launching that product. Just wanted to get that out there that they're unrelated.

Yeah. And where I wanted to jump in is, again, let's not miss the forest for the trees. Crypto is interesting. But the real opportunity is blockchain-enabled finance. That's what WisdomTree Prime is about. So holdups on the crypto ETF approval don't do anything to the opportunity that we're working on for blockchain-enabled finance. We've got the one fund approved. We've got nine more filed. We've got great momentum here, and it's a mistake to confuse crypto, which is a use case for the blockchain. It's a big mistake to confuse that with the broader opportunity that we're really pursuing in blockchain-enabled finance, and that's WisdomTree Prime.

Yeah. They're clearly separate, one's a functional rail and the other is sort of an asset class thing. Anyway, on that point, though, I'd love to ask another. You have your first blockchain-enabled fund that's received SEC approval. So are you now in a position where you might be more comfortable to try to explain the benefits of using those rails. I think it's interesting and at least ironic, if not more significant than that, that treasuries are like 1 of the most traditional asset classes and yet it's being administered on 1 of the most innovative and new platforms. And so how should we think about potential operational or efficiency improvements and benefits that you can garner through this new and unusual administration?

Will or Jarrett, if you want to start on this one? I may come in over the top, of course, but you guys want to start?

Yeah, let me start. Yeah, I'll start. So some of the things we really liked about ETFs, we think ETFs are better than mutual fund. Liquidity, transparency, standardization, right? ETFs have greater liquidity than mutual funds do, total transparency to the underlying holdings and standardization, right? The experience of a -- the largest institution in the world and the experience of a single day trader are very similar with this. Anyone with a brokerage account can access ETFs. You're seeing these same qualities but only enhance with the potential for tokenization and digital assets. And one thing I'll kind of -- maybe on the liquidity point, just add a little bit more on. I think a lot of people when Bitcoin first came out, saw it as, oh, look at this gold like asset, et cetera. I think a lot of people who are experienced in market structure look at this and remarked at how there's an asset that can be settled with near finality on a peer-to-peer basis on a 24/7, 365 basis. For the securities markets broadly, for asset markets broadly, that is profound, right? Like that is a huge innovation in terms of how we exchange value. That has lots of implications moving from the system today, which is highly intermediated, which has T plus two settlement times to one where settlement times can come down much further. More and more people can participate in financial markets, more financial inclusion and less cost. So that's what we're seeing with tokenization digital assets and that's why we've embarked on this. So WTSY is just the first step on kind of this journey in terms of unlocking a lot of these use cases and demonstrating the potential of this. One very specific example that you'll be able to do with WTSY today, this peer-to-peer transferability, right? Transferring securities from one account to another is a very cumbersome process that no one would ever do, right? And to be able to unlock that for something as simple as a short-term treasury fund allowing peer-to-peer is an innovation that we think is constructive. Another one would be connecting it more closely to other elements in financial services, right? Payments today and your brokerage count are on two totally different tech stacks. If you wanted to move value from one to another, you're talking about like a seven-day time line, and it just isn't something you would do. In the future, this is all one tech stack, right? We're diving in the future today with what we're doing with we simply try [ph]. All one tech stack, much quicker and faster exchange of value, which we think moves savings and payments much closer to investments, which we think is a constructive benefit, will lower cost, enhance user efficiency for users. So those are just a few of the examples of what we're seeing. I blogged about it if you want to take a look at that, and we'll be demonstrating this more too soon as we go live increasingly and nationally later in Q1.

Jarrett, did you have more to add or was that good?

Just a couple of things. I mean I think it's important that this is compelling for the end customer. Will covered it all. But you look at our first digital treasury fund, it's at zero expense ratio. So there's just immediate value to the consumer, but also the utility, the fact that you can spend, save and invest in basically the same asset is new. And it's a profound difference in the financial services experience where the consumer directly benefits. And then there's, of course, benefit on our side. We cut out a lot of middlemen. We cut out a lot of unnecessary expense. We diversify our revenue streams. So it enables us to succeed and thrive in a world where there's today fee pressure. So compelling for the consumer, compelling for WisdomTree.

Thanks, Jarrett. Jeremy, do you want to give us the next question?

Certainly. And our next question comes from the line of Keith Housum from Northcoast Research. Your question please.

Good morning. I was hoping you guys provide probably a little bit more color on the beta version of Prime so far in terms of -- any statistics in terms of number of beta users you have, a number of transactions. But help us understand, I guess, create some confidence that the Beta Prime is heading towards a national role in the first quarter?

Okay. Will, you want to start?

Yes, sure. So we're not disclosing any kind of metrics at this point in time on beta. Everything is on track for the Q1 launch. The WTSY regulatory approval was a great hurdle that we cleared. So we're quite excited about that. So no specific color on the beta testing beyond it's been successful so far, and we're on track for our broader rollout in Q1.

Okay. Understood. Appreciate it. In terms of, I guess, the European versus the U.S. ETF portfolios, I think there are two different trends here. We're seeing obviously great funding flows to the U.S. in part because of the USFR. But -- and obviously, Europe is not doing so well, probably more because of commodity exposure. Is there the opportunity to do more of the European treasury type -- fixed income funds out there. Are you trying to have a success, but how do we think about that economy between the two different segments?

Will or Jeremy who wants to start?

This is Jeremy. I'll start. So when we acquired the ETF Securities platform, they were -- we were excited because they were a leader in commodities and actually, for an inflation environment or elevated inflation over the coming years, we still do like a lot of that. Gold in particular has had some challenges with the strong dollar this year. That's been one of the headwinds rising real interest rates, the Fed hiking cycle. You could get a more supportive backdrop for the sort of their large exposure to gold as the Fed pivots from a very aggressively hiking rates. So that will be something we look to potentially next year some time, at least in the second half of next year. But they are -- they've been diversifying from the commodity focus, and they are seeing very good flows to things like the quality dividend growth franchise that has been our U.S. largest ETF, DGRW in the U.S. They have the same exposure. It's growing adoption over in Europe. The high dividend ETF that I mentioned earlier, also in Europe is resonating. And they've been focused on thematics or we've been focused on thematics in Europe. And we do think there's a long-term opportunity as sectors have shifted to more very specific execution, and we have a very robust thematic lineup globally, but sort of, you could say, leading out of Europe. And so it helps diversify the firm. And we're continuing to focus on all of the above in terms of -- you've got equity, fixed income, commodities. They've got the crypto exposures. It's a very robust global lineup. And as a firm, we're very globally diversified for many different environments.

Great. Thank you.

Jarrett, you just want to add? I guess not. Next question?

Certainly. [Operator Instructions] And our next question comes from the line of Michael Cyprys from Morgan Stanley.

Good morning. Thanks for taking my question. On the blockchain-enabled digital treasury fund, I was hoping you could talk a little bit about the distribution strategy. How you plan to go about getting customers to invest in this digital wrapper? What do you envision as the customers here? Are these -- and retail customers are these advisors? How different is the customer set from those that you have sold products to in the past?

Good question. I think Will and Jarrett, why don't you guys field this?

Yeah. I'm happy to start again. So initially, the customers for the digital funds will be -- will only be available through WisdomTree Prime as infrastructure and that's with requirement with the D2C wallet application that we've been referring to over time, and I think this could happen fairly quickly. We expect distribution opportunities to grow outside of WisdomTree Prime, but there is no current like immediate time line on that happening. But over time, we see a lot of assets migrating into the structure, and we're going to be very well placed to serve them. So whether that's with financial advisors, institutions and the like, that's all on the road map, and it's something that we think we're particularly well suited for given our existing distribution.

I'd just add, if you look back just trying to size the opportunity a little bit and talk about -- a little bit about distribution. But we got -- we've launched our first ETF 16 years ago. We were innovators. We were considered pioneers, but we were nonetheless 13 years late to the party. And therefore, others got to claim the deepest exposures in the new wrapper being ETFs. Today, it's a much different story. We're actually a little early to the party. But we are claiming the deepest exposures in this new wrapper, but being early to the party, some of the world needs to catch up with us. And so right now, as securities, others need to be regulated to be able to sell our product. And so as Will said in the beginning, it will be through our wallet. Now I think marketing will have a big role in how we sell, but the compelling value also, I think, will sell. And if you think about it in today's world, a lot of people and Will touched on these comments earlier, but you sit in cash in a brokerage account earning zero or you sit in a checking account at a bank earning close to 0. And when you actually want to move that money around, you physically have to move it from one environment to another environment. And one of the really exciting things about blockchain-enabled finance is those worlds are merged or unified. And so you look at something like our Digital Treasury yielding 3.5%, 4%, that can be your source of spending. That can be your source of investing. You don't -- you no longer have to sit there in a different account, in a different environment, earning next to zero. So this is going to, I hope, sell itself, because the value proposition is so compelling. But as -- certainly as the rest of the world catches up, as regulation catches up, we'll broaden out how we distribute. Michael, it's also being early gives us a nice opportunity to do business development to platforms and to institutional investors as well. I'm sorry. Did I interrupt you, Michael?

Yes, that's great. Can I just ask a follow-up question just around how much in resources would you plan to put up against customer acquisition? How would you sort of quantify that? Is that sort of embedded into the sort of current run rate with the spend that you have already on the discretionary side, I think it's been about $10 million or so of investments. How do we think about that growing into next year, as you look to grow customers? And maybe you could talk a little bit about how you're planning to spend that, whether it's on marketing, advertising and such?

So I'll take this. We'll give you more guidance next quarter, but roughly what we've said in the last 2 quarters -- in the earlier comments as well as last quarter is that, we're rolling out WisdomTree Prime, and we're not expecting a significant increase in WisdomTree's overall expenses. So it is -- I think that should be comforting to many of the analysts. Rolling out nationally, but the cost base should not be significantly changing, but we'll have to give you more next quarter.

Okay. Thank you.

Thank you. And our final question for today. One moment for our final question. Comes from the line of Michael Brown from KBW. Your question please.

Hi, good morning. Thanks for taking my question. So you clearly have an early-mover advantage on the digital and blockchain front here. And I just wanted to hear how you anticipate the competitive landscape to evolve. I guess I can't help but think about some of the bigger players here with large investment budgets that they seem determined to catch up could likely throw some money at a digital initiative to try and catch up to what you've already been building out and to continue to roll out. So what are you seeing from competitors at this time? And how do you expect that competitive landscape to evolve?

So I'll take this. I certainly expect over time that there will be more competitors. This is because it is so compelling. I'm expecting really financial services broadly to move on to the blockchain. So far, we've seen more from broad competitors. They're more in an exploratory mode. I think that they're investigating. They have to come up with their own use cases and business models and how they'll exploit the new technology. And so it's not quite so easy because there's a blurring of definitions. And so it does take a little bit of creativity, but we're not expecting to be alone, but we are pleased with our -- that we seem to be early, if not amongst the very earliest. And we're also excited that many, who are discussing this now seem to be coming to conclusions that we came to maybe 3 years ago, and we've been very quickly with our conclusions, started creating our use cases and putting those ideas into motion. Let's see if these other firms can navigate their legacy issues. There's a significant amount of disruption coming to existing business models. And so it takes a lot of conviction to really tackle this with energy. Jarrett, did you have anything you're going to add?

Yeah. Just really quickly and mostly reiterating what you said. But this isn't as simple as developing an app, WisdomTree Prime is our app, and that does take time. But as you've heard, there was over three years of efforts with regulators. As you've seen with press releases recently, we've been building an operational ecosystem of partners with people like Stride Bank and Galileo. So there's work on product. You've seen us launch a product. We've got 9 more filed. There's functionality. There's client experience. So this is a real effort that we've undertaken. We've been working on it for really three-plus years, leveraging very well our existing infrastructure and people, but this isn't something that can be repeated quickly.

And just to double click on that last point of Jarrett's. We have 25 roughly people in digital assets and 250 people in the ETF business. But what the 250 people do is of great relevance to the digital asset efforts. And without them, you wouldn't be able to accomplish nearly as well where as quickly as cost effectively as we are doing in digital assets. So really, we keep saying that this is holistic, but we mean it. We're really well positioned to be the company to try to exploit this opportunity. Any more questions?

I'll leave it there. Thank you. Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jonathan Steinberg, CEO for any further remarks.

No further remarks. We just want to thank you for your support and attention, and we'll talk to you next quarter. Have a great day, everybody.

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