WisdomTree, Inc. (WT) Q4 2022 Earnings Report, Transcript and Summary

Greetings. Welcome to WisdomTree's Fourth Quarter 2022 Earnings Call. At this time, all participants will be in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. At this time, I will turn the conference over to Jessica Zaloom, Head of Corporate Communications. Jessica, you may now begin.

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 is 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 fourth quarter, and we'll then turn the call over to Jarrett and Jono for additional updates on our business. Fourth quarter caps what's been a very successful year for WisdomTree. We generated net flows totaling $5.3 billion, with positive flows in both our U.S. listed and European-listed products. This was our strongest flowing quarter since 2015, and we closed out the year with $82 billion of AUM, our highest quarter end on record. Flows of $3.4 billion into our Floating Rate Treasury product, USFR, was the primary contributor. That was followed by flows across most other product categories, including our U.S. equity products with about $1 billion of flows as well as our commodity suite having turned a corner with $800 million of flows mostly into oil. We have overcome an incredibly challenging market backdrop, with negative market movement, impacting our AUM by almost $8 billion for the year. Notwithstanding the market declines, our revenues were essentially flat year-over-year as we generated over $12 billion of net flows, our strongest flowing year since 2015, representing annualized organic flow growth of 16%. USFR was a shining star, but not the only story. Our U.S. equity product flows have been consistently strong with positive net flows for 30 of the last 31 months and over $3 billion of flows during the year and annualized organic flow growth rate of 14%. We ended the year with sustained momentum as evidenced by nine consecutive positive flowing quarters. Our AUM currently stands at a record level, $87.2 billion, an increase of 6% from the end of December as our momentum continues, having generated almost $1.7 billion of flows in January and having benefited from positive market movement. Next Slide. Revenues were $73.3 million, essentially unchanged from the third quarter as our higher average AUM was offset by a 2 basis point decline in our average advisory fee due to changes in our AUM mix. Adjusted net income was $7 million or $0.04 a share. Our non-GAAP results exclude a non-cash after-tax loss of $35 million for our future gold commitment payments due to an update to the discount rate used to compute the present value of the annual payment obligations. Next Slide. Our operating expenses were up 7% for the quarter. This increase was largely due to higher incentive compensation accruals as well as higher seasonal marketing and sales-related expenses. We ended the year with compensation expense of about $98 million for the middle of our previously disclosed guidance and with discretionary spending of $49.4 million, the low end of our guidance range. Next Slide. Now a few comments on our 2023 expense guidance. This upcoming year will include a reinvestment into future growth initiatives, taking into consideration our anticipated national launch of WisdomTree Prime and continued focus on organic growth. We are forecasting our compensation expense to range from $96 million to $106 million. This guidance includes hires, both in sales and digital assets as well as year-end compensation adjustments and annualization of hires made in 2022. The range considers variability in incentive compensation with drivers, including the magnitude of our flows, our share price performance in relation to our peers as well as revenue, operating income and operating margin performance. Also, just a reminder that we experienced elevated seasonality in the amount of compensation we report in the first quarter as we recognized payroll taxes, benefits and other items in connection with the payment of year-end compensation. We estimate first quarter compensation expense to be approximately $27 million to $28 million. Discretionary spending ranges from $56 million to $59 million as compared to the $49.4 million recognized in 2022. This guidance includes a modest uplift for WisdomTree Prime marketing and other related costs. Our gross margin is anticipated to be 78% at current AUM levels. We would anticipate margin expansion, assuming continued organic flow growth. Our contractual gold payment expense is forecasted to be $18 million, assuming gold prices remain flat at current levels. As a reminder, this expense is based on us paying 9,500 ounces of gold on an annual basis and is measured based upon monthly average gold prices. Third-party distribution expense is forecasted to be approximately $8 million to $9 million and is dependent upon AUM growth on our respective platforms. Our adjusted tax rate is expected to be about 23%, taking into consideration a change in U.K. corporate income tax rate from 19% to 25%, which is effective in 2023. As a reminder, the UK rate increase is something that will impact all companies with the footprint in the United Kingdom. And in June of this year, $175 million of our convertible notes are coming due. While not setting stone, we're currently planning to reduce our debt by approximately $50 million and refinancing the remainder. Our interest cost is estimated to temporarily rise in 2023 to about $16 million as any debt reduction will occur midway through the year, coupled with a higher interest rate associated with our refinancing. Our normalized interest expense exiting 2023 is estimated to be about $14 million or $1 million lower versus what was recognized this past year. That's all I have. I will now turn the call over to Jarrett.

Thanks, Bryan and good morning, everyone. While many other asset managers struggled with the challenging markets, WisdomTree delivered its best year of net inflows since 2015 and exited 2022 with record AUM. Our 16% organic growth rate was best-in-class versus our publicly traded peers. Our product performance was and is outstanding with over 80% of our U.S. AUM beating benchmarks. Our managed models business continues to grow in significance with platform partners such as Merrill Lynch and Morgan Stanley and with RIA and independent broker-dealer partners through our WisdomTree portfolio and growth solutions offering. We continue to increase our efficiency and scalability in our global ETP and models business now delivers incremental margins well north of 50%. And we have staked out a first-mover advantage in digital assets and blockchain-enabled finance, now with a suite of 10 blockchain-enabled funds effective with the SEC in addition to our gold and dollar tokens. And this all sums up a highly successful 2022, but it also highlights why 2023 and beyond will continue to be strong. We have the products and solutions. We have the fund positioning and performance. We have the first mover positioning in digital assets and blockchain-enabled finance. And we have multiple years of momentum with global inflows for the past nine consecutive quarters, 30 of the past 31 months in the U.S. and then seven of eight of our major product categories over the past year. All in all, 2022 was another successful year, and we are confident and excited about 2023 and beyond. And with that, let me now turn it over to Jono.

Thank you, Jarrett. The momentum in our ETF franchise is incredible. WisdomTree was one of the only asset managers with net inflows in 2022. And as Jarrett said, best-in-class 16% organic growth. We exited the year with over $5 billion of inflows in the fourth quarter, our best quarter in nearly seven years. We expect our momentum to continue in 2023, and we are off to a strong start with year-to-date inflows of almost $1.7 billion. We expect strong and steady organic growth based on our strong fund performance, a shift in sentiment to value and our ever-expanding model franchise. 2023 looks to be even more exciting. In digital assets and blockchain-enabled finance, the pace of our progress is sped up. After years of engagement with the SEC around our process and protections, our first blockchain-enabled fund was declared effective in late September. Then roughly 2.5 months later, nine additional blockchain-enabled funds went effective with the SEC. We now have a broad investment suite of digital funds that span both fixed income and equities plus our gold and dollar tokens. These are the building blocks investors or consumers need to build holistic portfolios or to facilitate financial services inside WisdomTree Prime. As we refine our launch plans, our goal now is to launch WisdomTree Prime in the app stores in Q2. That's the significant go-live event. Investors and consumers should be looking forward to. We are on the precipice of a major shift in financial services into digital blockchain realm, and WisdomTree is well positioned to meet that opportunity. The beauty of our digital wallet is that it can be many things to various types of users and with a nimble blockchain-based tech backbone, WisdomTree Prime has the ability to evolve quickly to meet future use cases. I'm excited for all of you to try our platform later this year, and we look forward to sharing our successes in product development and feature enhancements with you throughout the year. And finally, the operations and strategy committee concluded at the end of last year. The committee dug deep into WisdomTree and generated a report for the Board. I'm pleased to report that the Board unanimously voted in support of both the executive management team and with the strategy of the firm. WisdomTree remains on track with incredible momentum and a tremendous opportunity ahead in ETFs, model solutions, digital assets and blockchain-enabled finance. I look forward to sharing our ongoing progress with you in 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.

Hello, and good morning, everybody. Similar to prior quarters, we're going to do some Q&A from the retail shareholders via the Say platform. The first question goes to Will Peck, Head of Digital Assets for WisdomTree. And the question is, who do you view as the major competitors to WisdomTree Prime? And what is the go-to-market strategy and competitive dynamics in digital assets given all the messy news flow over the past year?

Thanks a lot, Jeremy, and good morning, everyone. I'll start to answer this question a bit more broadly. Digital assets at WisdomTree is about – one term could be real-world asset tokenization that's certainly been a more topical term for a lot of people and bringing the benefits of blockchain technology to traditional real-world assets, right? And in that space, I'd highlight two firms as kind of competitors or peer firms or whatever you want to call them. That would be Circle and Paxos who's kind of a [indiscernible] and gold token issuer in the space, and engage in other aspects here. Specifically, within digital assets, obviously, WisdomTree Prime is a huge key component of it. WisdomTree Prime, like Jono said, it's an app that allows you to save, spend, invest using this new digital asset technology. Aspirationally, I'd highlight someone like Revolut as a competitor here. They've done a good job kind of combining those pieces together, I think. For us, it will take some time to kind of build out the full functionality of that. Whereas initially, we're going to have a very curated and user-friendly investor experience, combined with good cash management functionality is what we're striving for. And that kind of leads into the second part of the question in terms of our go-to-market strategy. It's really going to be articulating those areas where we're adding value for customers, we're laser focused on acquiring them and a high ROI way. Cost-effective acquisition where we have a hook. And in terms of the last part of the question on messy news flow, it's only a positive for WisdomTree. We think how we're different, how we can be a good counterparty for people both on the retail and institutional side. So no concerns there at all. And ultimately, our strategy and position is going to be about customers not but its on blockchain. So no concern there whatsoever.

All right. We'll move on to the next question. This one is going to be to Jeremy Schwartz, our Chief Investment Officer. We had a few questions kind of along the same line, so just kind of combining them here into this one. The question is, what do you think will be the biggest driver of flow growth in 2023 for both the ETF industry overall and for WisdomTree in particular? And will the rotation from growth to value hold up?

Well, thanks for those questions, everyone. For the industry at large, we continue to see ETFs taking market share from legacy structures. And you'll have active managers who like to equip that ETF and indexing do well riding bull markets but bear markets where their nimbleness and activeness can add alpha but flows really show the reverse. Investors use bear markets to liquidate their legacy positions. And that's basically exactly what happened across the globe last year. We saw ETF gaining market share really in most asset classes, we continue to see the long-term trend and structural advantages of ETFs remaining firmly in place for as far as we can see, yet we continue to innovate as well as just talking about in future structures. And so we're doing both continuing with ETFs for a long time and investing in the future. Now for us, in particular, in flows for WisdomTree, obviously, there are so many places, we're excited about in both the U.S. and Europe due to just such broad strength we have within the product set. I think on the major theme we're talking is that there's income back in fixed income, and we're having so many more consultations with clients about how they're managing cash and short duration exposures. Certainly, that floating rate treasury product we've talked about continues to remain attractive as they're essentially the highest yielding treasuries in the market because of the shape of the yield curve that looks to continue to be the case for some time, and we're going to continue to expand the scope of those discussions but we're broadening fixed income discussion to high-yield bonds, core bonds, our fixed income model portfolios and even digital funds of those models that are income based to capitalize on the yields we see at the short end of the curve. So all that has the potential to expand our fixed income AUM momentum this year, all very exciting trends. Within equities, there's a number of different styles, but I'd emphasize as a firm we have more diversification globally across varying styles than we've ever had before. If you took Europe, we have a very robust thematic lineup for the growth style, and that's complemented, of course, by our quality dividend value approaches. But what's exciting is, we're seeing traction on all those sides in the usage range across the style box there. Of course, we believe in value and dividends over the long run. That was our original launch, but we think there's some really compelling opportunities in high dividend stocks globally and that strong performance from last year with dividend funds with 15-year track record, that should be a very useful catalyst going forward. 2022 was the best year for many of our U.S. dividend ETFs in their history for flows and even performance. So we expect that to continue catalyst B flows for this year. The flagship equity was Quality Dividend Growth is now our largest ETF. It's coming up on 10-year history in a few months and had a great long-term track record, a great 2022, that is traveling globally to the European business and clients there, and we see that driving existing and future innovation for Europe as well. And finally, I have to talk about commodities. It's benefiting cyclically from China's reopening. You can see that in Q4 and continuing with a very strong January, that market leadership position we have with now the world's largest oil ETP as well as five of the six largest inflows to industrial metals, which are part of the energy transition story coming to our product set. I mean we're very excited about the single commodities but also broad-based commodities. We think there's opportunities to gain market share both for that asset class and within that asset class with our recent innovation. Just in short, you could hear, we believe our asset mix is very well positioned for this current macro. And then you can add model portfolios that are packaging all these solutions together, gaining more traction. We believe that's all stackable on top of the current product set, which is more stickier, more recurring. We're very excited about that managed model franchise growing in proportion to the business and helping flow growth pick up and be more resilient than it was in the past.

Great. Thanks, Jeremy. And then the final question, we're taking from the Say platform from shareholders is going to go to our Chief Financial Officer, Bryan Edmiston. The question is, WisdomTree's revenues have been remarkably stable between $72 million and $78 million over the last four quarters. Why haven't you achieved consistent profitability?

Thanks, Jeremy. Yes, I would agree with the characterization that our revenues have been remarkably stable, especially taking into consideration the market environment this past year. Our AUM was negatively impacted by about $8 billion from market move this year, but we were able to overcome this headwind on strong and steady flows. As mentioned in our prepared remarks, we generated over $12 billion of flows this year, 16% annualized organic growth rate, best-in-class amongst our traditional asset manager peer group, and this is our strongest flowing year since 2015 and the momentum continued into 2023. Flows are the reason why our revenues are flat versus last year and not down. We estimate that negative market move impacted our revenue by over $20 million this past year. As it relates to the question of consistent profitability, I think this is referring to the fluctuations in our GAAP net income. The primary reason for the fluctuation is due to the deferred consideration we're carrying on our balance sheet and it relates to our contractual gold payments. When we acquired our European business back in 2018, we inherited this obligation and it requires that we make annual payments of 9,500 ounces of gold through the year 2058 and two-thirds of this amount, almost 6,400 ounces into perpetuity. So for accounting purposes, we have a large liability on our balance sheet, representing an obligation to make these payments essentially forever. As gold prices change, this impacts the value of this liability. Changes in the discount rate we used to present value. This obligation, will also change the value of this liability. That change in value is reported in our income statement as a gain loss on revaluation of deferred consideration, and it's a non-cash item. Over the last four quarters, we've had gains and losses ranging from $2 million to $78 million due to changes in value of this obligation. That's the main reason for the volatility observed in our P&L. It's essentially accounting noise, and we exclude this from our results when reporting our earnings per share on a non-GAAP basis.

Great. Thanks, Bryan. And operator, I'll turn it over to you to field some questions from the sell-side community that are dialed in.

Yes. Thank you. Our first question will be coming from the line of Dan Fannon with Jefferies. Please proceed with your questions.

Thanks. Good morning. I guess I wanted to follow-up a bit on that last point around profitability. You talked about record AUM. Even on an adjusted basis, you're putting up a $0.04 EPS number. So as we think about and understanding that there's some seasonality and your exit rate is going to be higher given the averaging effect with AUM. But broadly speaking, as you think about profitability going forward, are there things in the expense base that – or how we should think about incremental margin that can really get you to, frankly, where you were even a few years ago as we think about the margin and the kind of ongoing earnings profile?

Hey, Dan. Thanks for the question. Let's focus on our expenses generally for 2023. This upcoming year includes a reinvestment into our future growth initiatives, taking into consideration our launch for WisdomTree Prime and continued focus on our organic growth. We're coming off a year, again, where we had 16% annualized flow growth, and we want to build on that momentum. So when we're thinking about expenses for 2023, we are earmarking spend for planned hires in sales and distribution. We have a number of product launches in the pipeline and marketing dollars that we're allocating to WisdomTree Prime. But when you look through it, our discretionary spending guidance reflects a modest uplift versus where we finished the year. And the primary reason for that is from WisdomTree Prime marketing spend. Our compensation has a wide range to account for variability in incentive compensation. What we've shared is our current guidance, and we'll either reinforce it or refresh it every quarter. We came in towards the low end of our range this past year on discretionary spending as we took steps to control our spend given the volatility in the markets. We think of ourselves as being disciplined when it comes to spend, and we have various levers to pull where necessary. And we also have incremental margins north of 50%. So any meaningful margin expansion as our business continues to scale, whether it's through continued organic growth or a more favorable market environment will result in margin expansion. We're controlling costs where we can. We're not looking to sacrifice growth. Our spending is targeted towards maintaining and accelerating our momentum off the back of what we achieved in this past year.

Thanks, Bryan. It's helpful. Go ahead if there's more comment.

No, no. Go ahead, Dan.

Yes. So just then to follow up, thinking about mix and kind of the growth you're seeing, fixed income being somewhat lower fee. And so generally, I wanted to get a sense of your outlook for fees within the product sets where you're growing. You generally haven't led with price. You've been a premium product. So I assume that still continues. But as you think about demand trends and where you're seeing the most interest, the overall fee rate just given what mix is we should – it still seems like it's skewed lower but wanted to get some color there.

Thank you, Dan. So I'll take it. This is Jono. Entirety of our fee rate decline last year really came from just a mix in shift. We haven't been cutting fees. So the growth in floating-rate treasuries, which went from $2 billion in AUM to $13 billion of AUM at 15 basis points had an effect on our revenue capture. But that's still a big win for growth and revenue, although it is a drag on the fee rate. So I just would say that the way it's been going – it's just really a very successful outlook. And we're not undercutting with USFR. It's in line with the other participants. So market sentiment will shift. So more equities, higher fee rates. We have other things that would have higher fee rates as well. We'll just have to see how it is. We don't really predict for you how it will – the fee rates will play out or what market segments will, how they'll be affected. What we do, do, though, on a daily basis is to update our AUM and give you our daily revenue capture, so you can track us in real time. But really, we consider fees to be some – one of our strengths actually at WisdomTree.

And if I could just add a couple of things. This is Jarrett. USFR, as Jono said, because it was such a great flowing fund, it did drag down the average capture rate, but what a success. And you really have to look at USFR. For some clients, it was the best fixed income holding in their portfolios. For others, it was the best cash holding you could have in your portfolio. And what's great about it for us is not only did it bring us revenue and great flows but it puts us right there for great conversations with our clients as the environment changes to possibly other fixed income products or as JR said earlier, there's income back not only in fixed income, but we've got our dividend paying funds with fantastic yields. So there can also be pivots as the environment changes to our other equity products. And also as people put cash to work, it puts us in line for great discussions. So USFR was a great success for 2022, and we expect it to lead to greater successes in 2023 as well.

Great. Thank you.

The next question is from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Hey, good morning. Thanks for taking the question. I wanted to circle back on WisdomTree Prime. It sounds like the launch may have been pushed out maybe a month or two. Just curious where in second quarter, you guys are looking for that to launch, kind of what's led to a little bit of an extension. I think previously, you guys were thinking about March. And then just on the WisdomTree product itself on the Prime side, when you launch that, can you maybe you can expand upon what the product set and functionality will have at the time of launch? And how you see that extending, expanding over the next 12 months?

Will, why don't you take a first shot at that?

Yes. And hopefully, everyone can hear me all right. Thanks for the question. Yes, I think a slight extension in terms of the date of going in the App Store, some of that's just in terms of our beta testing process, technology build. So just a slight extension there, no kind of significant changes by any means. The other thing I'd add is, this is a regulated product. We're dealing with state-by-state money transmitter regulators and they've certainly had their hands full with some of the news flow last year, which may just cause a slight delay in terms of their ability to grant us licenses and things like that. So that's the answer on the slight delay side. In terms of the functionality side, so we've got nine funds launched, digital funds launched today as well as the dollar and gold token. And we've also filed for some other funds that you can check on the prospectuses that have been filed with the SEC, which should hopefully give you a sense of kind of the breadth of this curated investor experience that we're going to be offering through the app. So very curated, user-friendly investing experience covering all asset classes, whether that's U.S. equities, whether that's commodities like gold or whether that's crypto as well and certainly a strength in fixed income which gets into the second point of where we think we're really adding value, which, especially with rates are where they are today, cash management being something that people can really use this for and using this investments fund style of investing [indiscernible] Sorry for the background noise. And so in order to get a great cash management experience. So that's where we're adding value, and it's something that we're quite excited for.

Great. And just a follow-up on that, if I could, on WisdomTree Prime. Could you maybe just expand on how much of the expenses in 2022 or the run rate, how much of that was coming from or related to WisdomTree Prime. And when you think about your outlook for expenses in 2023, how much of that or the growth is related to WisdomTree Prime? Just trying to get a sense of how much of it's adding to the expense base.

Michael, I'll take that one. It's Bryan. Yes. Look, our digital spend is embedded in our comp and discretionary spending guidance. From recollection, our guidance last year, it was about $11 million to $12 million. We'd say it's high teens this year. And the primary reason for that difference is just the planned uplift in spend for marketing. We've been disciplined in our spending and if we were to see a significant uptick in the future, it should be because of success that we're seeing on the platform.

Great. Thank you.

Our next question is from the line of Brennan Hawken with UBS. Please proceed with your question.

Good morning. Thanks for taking my question. I know there's a lot of focus on Prime understandably, but I'd actually like to jump in the DeLorean and go back to the future today. We've seen Japanese and European markets really perform well in the year-end and then so far year-to-date. And that's been coupled with some weakness emerging in U.S. in U.S. dollar. So is it a better market for your currency-hedged products, the international ones, hedge and DXJ. It seems like the flows are negative and have been negative. But have you considered ramping marketing for those products? Are you beginning to see more interest? And there are a lot of firms that are advocating for the continued outperformance of those international markets. So is there an opportunity maybe to partner with some of those firms?

Jeremy, why don't you take the market-related question?

Thanks for that, Brennan. We are definitely seeing strong performance across the board. And last year was a very strong performance for all those international strategies you talked about. Europe, we've seen some interest in Japan this year. The U.S. investor base has interestingly pivoted to this view of a weak dollar. Now so much for the last 90 days was the dollar was rolling over as rates were dropping. Today, you have this big move back in the dollar because of a very strong employment report. So the currencies move around. We continue to talk about solutions for managing risk, whether it's fully hedged solutions or dynamically hedged solutions. They're smaller funds in the dynamics of the hedge space, but we did see some nice growth in those last year. And so we continue to be well positioned for both sides of that trade, whether it's a weaker dollar or a stronger dollar. We continue to have that opportunity. And what you're seeing year-to-date is, if you look at the – just in January, our flows have actually been coming from some of the other funds that you probably talked about in the past, emerging markets, high dividends are leading. International high dividends are doing incredibly well this year to start the year. So we are talking a lot more about the valuation opportunities. I mentioned that in my first comments that we're excited about high dividends globally. We see them as compelling opportunities for asset allocation, and we have a robust lineup, whether it's hedged or not hedged.

And just adding that too on a sort of back to the future comment. If you went back to the sort of go-go years with hedge and DXJ, the company was much different. There were a much smaller number of funds, and we were much more concentrated. So I agree with you. There is a great opportunity in those funds. But what's really exciting about now is the breadth and depth our product suite. And so it doesn't have to be hedge and DXJ. If those run, that's fantastic. But again, we have unbelievable performance across the products. We're really well positioned for this market, and we have any number of funds that can take in flows. So it's a much, much stronger story than it was back in those days.

Sure. And thanks for humoring my bad joke. Switching to Prime, you've been beta testing for a while. What have been the big lessons learned from the beta testing process? And how has that informed your plans for the rollout?

Will?

Yes. I mean no, huge lessons learned. It's really just a matter of making sure that our operations and processes are working right, whether that's ACH onboarding, connectivity through PLAT, customer CIP, customer identification, customer service, things like that. It's really just making sure that as we've designed it, it's working as expected. And that when there inevitably comes up, things you need to tweak or fix that we're able to do that in kind of a controlled beta testing environment. So in terms of the experience, I think it's confirmed everything we hypothesize about it, and it's really just a matter of us kind of making sure that we're trying at all the operations and doing it with live money.

Excellent. Thanks for taking my questions.

Thank you. [Operator Instructions] The next question is a follow-up from Michael Cyprys with Morgan Stanley. Please proceed with your question.

Hey, thanks for taking the follow-up. Just on WisdomTree Prime, with the marketing strategy and approach this year, maybe you could expand upon what we can expect to see from WisdomTree with respect to marketing, advertising. How you think about the strategy there? It seems like that's a meaningful component of the expense uplift. And then as you think about WisdomTree Prime looking out over the next 12 months, what does success look like for you?

Again, Will, I think maybe you should take this.

Sure. I'll start [indiscernible] on marketing. We're trying to embrace lean marketing principles. So making sure, like I said, that we've got a high ROI on the channels that we're using. So that could be things like digital marketing. Certainly we've also had success with TV advertising in the past. And that's something that hopefully you'll be seeing a social presence for sure as well. That will allow us to really tap into the users that we're identifying [indiscernible] directed investors, bold bugs is another category of people who are certainly resonating with so far. So that's in terms of the marketing strategy. And sorry, can you remind me of the second part of the question – it was in terms of success, six to 12 months down the road, I mean it's really just about acquiring this initial phase of users and then really having great product sets and features. So we're not disclosing any KPIs or metrics today on that, but it's certainly [indiscernible] confident we can adjust the marketing spend we have today and the product build that we've got right now. And last, we want to be getting metrics [indiscernible] and attrition as well, and that's something that we can certainly look to refine our assumptions on, make sure that those are being borne out and give more data on later this year.

And Michael, this is Jono. The only other thing I would just add to Will's answer is, and it ties to your first question about being in beta. When we launch in the App Store, we'll start getting reviews, and it's important that it's a – that we could get good reviews so that there's a potential for sort of a viral campaign that's possible that – from the app store. So and that's really why we have been testing it and making sure that it works so well when we launch it initially. But those reviews will be an important piece of our story going forward.

Great. Thank you. And just one more, if I could. Just on the model franchise. You guys were alluding to that, supporting some of the strengths in terms of flows. Maybe you could just update us on some of the initiatives. And if you're able to quantify what the contribution is across the models? Thanks.

Sure. Jarrett, why don't you start there?

Sure. It's main – well, the initiatives are pretty simple. Again, it's a two-pronged approach. We're going after the large platforms such as Merrill and Morgan Stanley, and we'll look to add other large platforms. And I hope we'll be able to announce those shortly. With existing platforms, like we've seen with Merrill, it's about further penetration, both in getting to more advisers, which we've been successful in doing but also in getting more models on the platform, which we've been successful in doing. And then on the RIA and IBD side, there, its models, again, but it's a slightly different approach there. It's replicating the wirehouses, click to implement ability or that sort of easy button we're providing that for RAAs and IBDs and that's going quite well with a really nice pipeline where we're adding new groups to that pipeline weekly and bringing on more AUM there. Definitely, the models business is growing, but so is the rest of the business and the models business is generally keeping that same pace, about 12% of flows are going into the models. And I'd add another really good thing, it makes sense, but I've mentioned a couple of times today about the performance in our product suite. It's also, as you'd imagine, it's showing up in our model suite as well. And that just adds to the momentum. So at this point, the foundation is there and now it's just focus, blocking and tackling and execution and continuing the momentum that we've got in the business.

Great. Thank you.

Thank you. We have reached the end of the question-and-answer session. I will now turn the call over to Jonathan Steinberg for closing remarks.

Just wanted to thank all of you for your time today and for your interest in WisdomTree, and we'll speak to you next quarter. Thank you, everybody.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.