WisdomTree, Inc.
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Good day, ladies and gentlemen. And welcome to the WisdomTree Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, WisdomTree Investor Relations, Stuart Bell. Please go ahead, sir.

[Stuart Bell:]

Thank you. 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, which are generally identified by terms such as believe, expect, anticipate, and similar expressions suggesting future outcomes or events. Forward-looking statements reflect our current expectations regarding future events and operating performance, and they speak only as of the date when made. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which may prove to be incorrect. Such statements should not be read as guarantees of future results and will not necessarily be accurate indications of whether or not, or the times at or by which, these results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in our forward-looking statements, including but not limited to, the risks set forth in this presentation and the Risk Factors section of the company’s annual report on Form 10-K for the year ended December 31, 2014. Now it is my pleasure to turn the call over to WisdomTree’s CFO, Amit Muni.

[Amit Muni:]

Thank you, Stuart, and good morning, everyone. Before getting into our results, let me give you a quick summary. This quarter we generated solid financial results despite operating in the challenging environment. Our ability reflects when market change has clearly been demonstrated this quarter. We won't let short-term volatility change our focus on executing our important long-term growth plans. To-date we have launched 13 new ETFs, including three yesterday. We continue expanding our sales force to go deeper and broader in channels where we compete and into new channels, and we look for strategic opportunities to expand our product offering such our acquisition of the GreenHaven Commodity ETFs we announced this morning. This is resulted in our ability to generate a 52% pretax margin on our U.S. business and a capital return through our usual quarterly dividend, plus the special dividend this quarter of $0.25 to reflect the operating efficiency of our business model. And lastly, this week has turned out well as we have taken in over $600 million so far. Now let’s get into the result for the quarter, beginning by first reviewing the U.S. ETF industry statistics. Turning to slide three, industry flows increased slightly from the second quarter to $44.3 billion. Fixed income and U.S. equities were the flow leader this quarter. Of note, three S&P 500 ETFs took in 77% of the flows in U.S. equity this quarter. You can see in the bottom that emerging market equities continued to experience outflows as it’s been the case for the last several quarters. On the next slide, you can review our operating results. Our AUM decreased to $53 billion at the end of the quarter primarily due to $7.6 billion of negative market movement and $700 million of net outflows. The markets response to the slowdown in China and the potential ramifications for global growth, particularly for exporting countries had a negative effect on our AUM and flow levels this quarter. As you can see, DXJ’s AUM declined 16% or nearly $3 billion due to negative market movement. Yet DXJ experienced modest outflows of $269 million or 1.5% of its AUM. HEDJ’s AUM declined 12% or $2 billion due to negative market movement. However, it had $818 million of positive net inflows. Even though HEDJ and DXJ follow a similar overall strategy, these fund flows into other funds don't always move together. Let’s also put the numbers into perspective. Since November 2012, when Japan started its stimulus, DXJ has taken in nearly $14 billion of net inflows. Since Europe started its stimulus in September of last, HEDJ has taken in over $18 billion. The outflows we have experienced to-date has been modest compared to the amounts we have taken in, which strengthens our conviction of the long-term strategic trend of currency hedging. And lastly, you can see the predominants of our outflows came from our emerging market equities, where we continue to experience the headwinds, as well as the overall industry. We continue to believe that the currency hedging is an important category for us and the industry. Turning to slide five, you can see in the chart, international equity AUM was $329 billion and more importantly, that amount is -- that is currency hedge has been growing and it’s now 18% of the total. In addition, year-to-date, about half of all the flows into developed equity markets have been in currency hedge products. We will continue to lean into currency hedging as we see a significant opportunity to be a leader in this category for the long-term. The next two slides reflect how we rank against the other asset managers. Turning to slide six on the left, WisdomTree was ranked third in inflows on a year-to-date basis against the other U.S. ETF sponsors and we continue to have the best organic growth rate of the top 10 ETF sponsors. Turning to the next slide, WisdomTree is also the third best asset gatherer compared to all ETF and mutual fund managers in the U.S. according to MorningStar. This translated into WisdomTree continuing to have the best organic growth rate versus the other publicly-traded asset managers. We believe this reflects the positive momentum behind the ETFs structure over mutual funds. On the next slide, we can show how our ETFs performed according to the MorningStar Peer Groups. These comparisons take into account fees and transaction costs, and reflect how our equity, fixed income and alternative ETFs performed against active and passive mutual funds and other ETFs. Since inception, 55% of our ETFs outperformed their peer group or 91% of the approximately $52 billion invested in the ETFs or funds that beat their peers. I'd like to update you on our European business. Our European AUM continues to grow reaching nearly $700 million at the end of the quarter. Volatility in the markets continue to attract clients to our Boost ETPs, and we continue to experience inflows into our European Equity theme UCITS. We are cross-listing additional funds into Switzerland and Italy to meet client demands. Now before turning to the financials, I want to talk about an important acquisition we announced this morning. Today we announced we acquired -- we entered into an agreement to acquire the GreenHaven family of commodity funds. Through this transaction we will be entering the U.S. commodities space and expanding our product offering into a new asset class. The two funds are the GreenHaven continuous commodity ETF, as well as the industry's first coal ETF. Total AUM of the funds are approximately $250 million and we will be paying $11.75 million in cash. The continuous commodity EPS tracks a broad basket of diversified commodities and follows a well-known industry benchmark with the long and strong performance track record. We believe we can grow these unique funds overtime with the strength of our distribution force. The transaction should close before the end of the year and it is expected to be accretive to our financial results. On slide 12, we can start to go through our financials. As I mentioned earlier, despite the challenging quarter we generated solid financial results. Revenues increased 71% in the third quarter of last year to $80.8 million and net income more than doubled from last year to $23.3 million. Earnings per share was $0.17 for the quarter. Turning to slide 13, as you can see from both charts the currency hedging category continues to make up a larger portion of our asset base and has contributed significantly to our revenue increase year-over-year. You also see how the headwind we are facing in the emerging markets category has negatively affected our AUM mix and revenues since last year. While asset classes will come in and out of favor over time, we believe building or acquiring an innovative and differentiated product set will help us weather the cycles. Our average revenue capture was 53 basis points in the quarter. On the next slide, we can review our key margin metrics. Gross margin for our U.S.-listed ETF business increased to 87.2% due to the significant increase in our AUM from last year. Sequentially, gross margins increased due to lower regulatory fees that are tied to inflow levels. We anticipate gross margins will be in the 85% to 87% range in the near-term. In the chart on the right, you can see our U.S. business had a 52.3% pre-tax margin on $60 billion of average AUM and our overall margin was 49%. I think you’ll agree that these are impressive margins given the market environment. Next, we will review our expenses on slide 15. Second quarter total expenses were $40.6 million. Lower AUM as well as net outflows contributed to a decline of $800,000 in fund-related expenses. Professional fees decreased by $127,000 due to lower staff recruiting fees in the U.S. and for our new Japanese office. Compensation expense increased $478,000 due to headcount-related growth as part of our strategic growth initiatives, higher stock-based compensation for awards granted to our sales force as part of their first half performance, partly offset by lower incentive compensations due to our inflow levels. Marketing and sales-related spending increased $271,000 due to an increase in sales-related activities. Other expenses increased $322,000 due to higher insurance costs, technology-related spending and property taxes. Operating expenses for the European business increased by $0.5 million due to higher headcount-related expenses as we continue to build out the team as well as higher fund-related costs. We ended the quarter with $41.2 million in expenses, up 1.5% from the second quarter. On the right you can see our compensation as a percent of revenue for our U.S. business was approximately 25% on a year-to-date basis. We are still tracking our U.S. compensation to be between 21% and 25% of revenues for the full year, but from where we stand now I expected to be close to the high end of the range. On the next slide, we can review our balance sheet and cash flows. Total assets grew to $292 million due to our strong cash flows. As you can see on the right, we generated $110 million of cash from our operating activities due to our record inflow levels. We spent $23.7 million to buy back approximately 1.2 million shares of stock we issued to employees as part of compensation, including 330,000 shares this quarter. We returned $32.9 million to our shareholders through our quarterly dividend and ended the quarter with $236 of cash. On the next slide, we can go through our taxes. As a reminder, while we recorded GAAP tax expense, we don't actually pay cash taxes due to our tax losses. The tax rate for our U.S. business increased slightly to 39% due to a change in how our revenues are spread amongst the various states. At the end of the quarter, we have about $61 million of pre-tax earnings that can be sheltered from paying cash taxes. At today's rate of growth, it is likely we will run through our remaining tax shields in the near-term. However, we continue to generate tax losses due to employees exercising options and investing in restricted stock. You can see the detailed information of that on the right hand side of slide 17. Now to give you an update on a few items. First, on our strategic growth plans for the rest of the year, as you remember we laid out several initiatives at the beginning of the year that we believe are important for our long-term growth. They encompassed a significant expansion of our sales force, continuing to launch funds, increase spending in marketing and sales, and lastly investments in technology. We estimated that this will cost us between $12 million to $16 million in 2015. To-date, we have spent approximately $8 million and I expect that we will wind up on the lower end or maybe even below the full range amount of guidance that we had given primarily due to timing. Second, on the buyout obligation for our European business. When we acquired Boost in April 2014, we agreed to acquire the remaining 25% we don't own at the end of 2017. The payout will be based on a formula that takes into account the AUM in the business, its profitability levels, and the trading multiple of WETF. Since the time of the acquisition we used this buyout formula as an approximation of the fair value of the buyout obligation. Now that we are nearly 50% through the deal term, we are updating the fair value method to better project what the potential payout could be. This change will likely result in a non-cash charge in the fourth quarter and in future quarters. While we are still working through the fair value model in light of the AUM growth we had already experienced in the business, we may take a non-cash charge of $1 million to $2 million in Q4 and each quarter going forward. And lastly, just as a reminder, we’ll be giving you our [2000] [ph] expense outlook on our next call in early February. Now I would like to share with you a slide that I think puts the third quarter into some perspective. If look at the next slide, we all know it was a challenging quarter for the entire industry. So relatively speaking, WisdomTree fared better than most of our public peers, yet at the same time generated the highest margins of our industry. We believe this is a reflection of our superior business model that can withstand adverse market conditions. Now before turning the call over to Jon, let me give you an update on where we are so far this quarter. The challenges of the third quarter carried over into the fourth. However, we have seen some recent encouraging trends. First, positive momentum in the equity markets contributed to an increase in our AUM, it’s $57.5 billion. Second, we entered this week with $715 million in net outflows. However, we have taken in over $600 million this week, again encouraging sign. Thank you. Now, let met turn the call over to Jon.

[Jon Steinberg:]

Thank you, Amit. Good morning everyone. First, we are encouraged by the positive inflows this week which Amit just reviewed as part of the fourth quarter update. The fourth quarter flows are not yet positive with $620 million so far this week led by HEDJ with $376 million and DXJ with $284 million is certainly welcome momentum. As already discussed, the third quarter was challenging certainly from a market movement flow perspective but we entered the quarter from a position of tremendous strength and record assets. The strong financial results we demonstrate, demonstrates the strength, scale and efficiency of our business. Not only can we add weather adverse markets, we -- our strong balance sheet and our strong cash generation means we can continue to invest in our core business, maintain robust capital return program and we can make strategic investments in new geographies like our recently opened Japan office and new asset classes like today's announcement of the acquisition of Greenhaven commodities. We continue to see so much opportunity, make no mistake. There is a revolution underway in asset management and ETS are leading the charge. The movement towards transparency of fees and transparency of holdings hallmarks to the ETF structure is common sense, universal and irreversible. It is amongst the reasons why the ETF industry is poised for massive future growth. We are continuing to invest in our platform. We are expanding our teams in the United States, Europe and Japan. We currently have 164 people worldwide, a record and we had 82 ETFs in the United States, also a record for WistdomTree after this week's three new fund launches. In summary, we are demonstrating an ability to profitably grow the business, reinvest for future growth and return surplus capital to our shareholders. With that, let's open up the call for questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Surinder Thind with Jefferies. Your line is now open.

[Surinder Thind:]

Good morning guys.

[Amit Muni:]

Good morning, Surinder.

[Surinder Thind:]

I’d like to start with just your thoughts on capital return. How did you guys decide on a special dividend versus may be an increase to the quarterly dividend or perhaps balancing that against the share repurchases?

[Amit Muni:]

Sure, Surinder. When we think about capital return, the various tools that we have available to us and we are going to pick the best tool that we think at the time. When we looked at, maybe possibly doing a buyback versus doing a special, I think there were probably three things going on and that affected our decision to lean more toward the special dividend versus a buyback. There has been a lot of volatility in the markets. As you know, our stock was extremely volatile. There is a lot of macro uncertainty, what was going on with rates given the Fed meeting is coming up and then just particular, the thoughts we were going up against the close of our trading window, one we could actually buy back stocks. So when we looked at altogether, we felt the best way to return the excess capital back to our shareholders was through the special dividend.

[Jon Steinberg:]

Surinder, let me -- this is Jon. Let me just emphasize one thing. Our capital management program is so new that there really isn't enough history for you to make any assumptions. I'm sure that the components will shift over time depending upon market sentiment and circumstances. The only thing I would have you take away is WisdomTree's investor friendly approach to our capital management and how we are committed to being a capital issue firm.

[Surinder Thind:]

That’s helpful. And then maybe one additional follow-on question here. Can you maybe spread a little bit more color around the Greenhaven acquisition? Why is this the right transaction at this point, the timing of it and maybe how that fits into the big picture in terms of your outlook for the commodity space in general and how much -- how big that market might be relative to maybe the other markets?

[Amit Muni:]

Sure, Surinder. So we’re excited about the acquisition of Greenhaven. We’ve been talking about for quite some time that we do have a lot of hole in products set, which is particularly commodities and we've been looking at various ways to solve that. And we’ve felt in this case with the Greenhaven fund, it’s got a great track record because of a very well-known benchmark. It is already on platforms and commodities are out of favor right now. And we think, being able to get a product like this, that's very unique. It’s a broad-based basket and with the addition of our salesforce behind it, when commodities come back in favor, we think we could have a very unique product that could help diversify our product offerings and grow, I mean, at one point GCC was close to $1 billion in AUM when commodities were in favor, when it didn't really have the salesforce behind it. So we’re excited about the opportunity that over time we think it should be a very interesting product for us.

[Jon Steinberg:]

And Surinder, let me just add that one key to this was that commodities were out of trough making it sort of an affordable acquisition. Also just for your knowledge, GCC has never had a salesforce against it. And so we do think that this has some greater potential than they’ve been able to demonstrate on their own.

[Surinder Thind:]

Okay. That's very helpful. Thank you guys.

[Operator:]

Our next question comes from the line of Craig Siegenthaler from Credit Suisse. Your line is now open.

[Craig Siegenthaler:]

Thanks. Good morning.

[Jon Steinberg:]

Good morning Craig.

[Craig Siegenthaler:]

So if we go through a 6 to 12 month period where European equities outperform with the euro also rebounds versus the dollar. Internally do you view this as a positive scenario for HEDJ?

[Luciano Siracusano:]

Hi. This is Luciano speaking. A lot of HEDJ obviously has been driven by investor sentiment and expectations towards the euro. All I would say is that we've had some periods where the euro has strengthened and hedged has been able to maintain a good deal of its assets. So, I think that thesis still remains to be tested, what happens to hedged in a rising euro environment. Don’t forget when hedge is long the stops, it benefits from the European equity market going up. So, I think up to this point, we’ve seen hedged hold on to its assets even in the few periods where the euro had a short rally. But we’ve also diversified our product stuff. So there is plenty of other products that WisdomTree offers that would benefit very well from a European recovery and from a rising euro. We also have a portion unhedged offerings suite of European equity tests as well.

[Craig Siegenthaler:]

Got it. And just as my follow-up. You continue to see a nice ramp here in your European ETF flows. Can you provide any thoughts on when profitability will reflect here and turn positive?

[Jon Steinberg:]

Hey Craig. So, a lot of it -- it will depend on the types of product that taking the flows. The Boost ETP is our much more profitable for us than the use of fund. But let’s just rewind a little bit. In April of last year, when we acquired the business, we put in $20 million. We think that’s how much capital needs to get breakeven in about four years. And I say right now, we are on track with that. The business is about a little over $700 million of AUM as of this morning and it’s on track as what we had planned. So think about another three years from now, probably we are getting close to breakeven.

[Craig Siegenthaler:]

Thanks guys.

[Operator:]

Our next question comes from the line of Bill Katz with Citigroup. Your line is now open.

[Bill Katz:]

Okay. Thank you very much. I appreciate the nice update. Could you talk about margins for just a second? You mentioned -- you are probably right. The lower end of your strategic spend on timing and now you are saying you provide guidance as we get to the end of the year and early part of next year. Can you talk about from an initiative perspective of what you might -- the folks might be next year and what if any of these expenses might spill into next year as a result of that?

[Jon Steinberg:]

Sure, Bill. So, we will give more color to expense and strategic growth spending next year on our next call. But I wouldn't expect it to be that different than what we’ve done over the last couple years, right. Continuing to innovative on products, continuing to launch bonds. We will look at what headcount related initiatives that we will have but we will give more update then. As far as spillover, obviously the things that we're spending now. Headcount will obviously -- the ramp up that we are seeing there will spillover but of course we are hoping to see revenue generation from the expansion of our sales force. Our marketing and sales related spending, a portion of that is discretionary, a portion of that will carry over. Some of it will depend on market conditions and the like. So, again, we'll have to give you a little more updates once we have sort of full year thoughts on our next call.

[Bill Katz:]

Okay. And then just staying on that same theme. You did a very nice job defending the gross margin this particular, despite the volatility in AUM. So the underlying dynamics of that and beyond your intermediate term guidance you provide say how you are thinking about that longer term?

[Jon Steinberg:]

Sure. So, gross margin particularly this quarter increased. We have a particular expense that we pay. There is a regulatory fee that’s paid, that’s related to inflow levels. So when we have outflows, we don’t incur that expense. So, we see the benefit of that. As the AUM scales, we will see incremental increases in our gross margin but it will have to continue to scale at a higher point than what we are seeing now. And so, 85% to 87%, the guidance that we are giving is a good number that we think for the short-term and if we see changes to that, as we have done in the past, we will give you an update on how we see that gross margin changing.

[Bill Katz:]

Got you. If I could just ask one more, thanks for taking all my questions. There has been a ramp up in the number of players just entering the space and they’ve made some move. You talked about getting ready to launch some things in the next, this quarter I guess. And you are doing very well with DXJ and HEDJ. What’s your thoughts about stepping up marketing. Obviously, you put the infrastructure in place of sales people around the world. But just maybe stepping to marketing spend a little bit more to potentially accelerate market share gains?

[Amit Muni:]

Hi, Bill. I think we are a very effective marketer. We are making investments in marketing. Some of it you might not -- it's not necessarily what you will see on television. We do a significant demand of online marketing. We do a lot of events. So, we are really invested and covering the market I think extremely well. What I don’t think you will see though is us going away from marketing towards the advisor towards the retail investor. That’s a step up of magnitude when you go towards sporting events and things like that. I don’t see that in the near term as one of our focuses. So, if the assets continued to grow as a percentage, marketing should continue to decline but we should. In absolute terms, marketing will continue to grow.

[Bill Katz:]

Okay. Thanks for taking my questions, Amit.

[Operator:]

Our next question comes from the line of Adam Beatty with Bank of America Merrill Lynch. Your line is now open.

[Adam Beatty:]

Thank you and good morning.

[Jon Steinberg:]

Good morning.

[Adam Beatty:]

Just a follow-up on GreenHaven, struck by their commodity focus and Boost also having some commodity products. Not sure if you see maybe some marketing synergies there, maybe other synergies in terms of the overall WisdomTree out, kind of universe of product offerings. Just would like to get your thoughts on that. Thanks.

[Jon Steinberg:]

I think we are excited that we are building out commodity exposures and you are right that much of Boost’s increase in AUM is on leveraged commodity exposures. I'm not sure that there is real marketing synergy but there is sort of knowledge synergy as we continue to put emphasis and build physical, mental, personnel support within the space. So, I think that’s where we will see the synergy.

[Adam Beatty:]

Excellent. That makes sense. Thanks. And just maybe a follow-up around competition. Kind of what you've seen so far, the fee rate continues to be kind of strong so no pressure there maybe. But have you seen others, kind of in the institutional marketplace, in your sales efforts or what have you and would you see the impact if any so far?

[Jon Steinberg:]

There is a couple of things with respect to competition. So, first, if you're talking -- taking the competition from the perspective of new entrants, I would say fundamentally nothing has changed. The players already in the market today, which includes WisdomTree, they’re the ones that are moving the fastest, the most aggressive. So that dynamic really hasn’t changed. Though when you see things like Legg Mason getting into the business and Goldman Sachs getting into the business, you can only see that there is just this increasing critical mass, which is helping to just expand the price. We’re excited about that. Now the way that we compete is always through innovative product. I mean, when you talk about the compression, low fee beta and sort of commoditization of indexing was a reality from day one. That’s why we chose the business model that we have and by that I mean, self indexing. So again, we always compete through innovation. Innovation differentiated product, we try to be first to market. So from a fee standpoint, we’re not immune to the pressures but we have to be amongst the best positioned of all of the asset managers if not the single best positioned for this dynamic.

[Adam Beatty:]

Great. That’s very helpful. Thanks for taking my question.

[Jon Steinberg:]

Thank you.

[Operator:]

Our next question comes from the line of Robert Lee with KBW. Your line is open.

[Robert Lee:]

Great. Thanks for taking my questions. Good morning. All of my questions have been asked but maybe one kind of -- another one on the competitive universe. Just kind of curious, I mean, obviously, we’ve seen increased product offerings and Smart Beta, currency hedged during the U.S. But can you maybe talk about if you’re starting to see more of that kind of globally in Europe and particularly in the Smart Beta spaces? Obviously, it feels like it’s much less -- I will use the word mature in more immature market. But if you can maybe, comparing compressed, kind of the new product competitive environment in the two markets?

[Jon Steinberg:]

So, your two questions was not so easy to hear, so let me just reiterate. So your question really dealt with and you might want to mute your phone. The question dealt with product competition in Smart Beta, Currency Hedge, maybe with respect to Europe. And what I would say is WisdomTree has been very, very early in both of those trends. It's nice to see the market acceptance and you are seeing marketing acceptance now. When you say Smart Beta, Smart Beta is a catch phrase, virtually for just innovation. It certainly means alternative weighting systems. And it's also incorporating things like hedging out durational currency as well. These innovations are really being accepted around the world, which is very, very positive for WisdomTree. Again, like I talked about people entering the ETF market, people entering Smart Beta and Currency Hedge is also very constructive for expanding the total pie. I think that these are very, very positive exposures that are offering choice to the market and plays to some of our strength. So in one sense, competition is a challenge. In another, it is very constructive for WisdomTree’s message. And I don't think the dynamic has particularly changed much over the last few quarters.

[Robert Lee:]

Greate. That’s was all I had. Thanks for taking my question.

[Jon Steinberg:]

Thank you.

[Operator:]

Our next question comes from the line of Chris Shutler with William Blair. Your line is now open.

[Chris Shutler:]

Hey, guys. Good morning.

[Jon Steinberg:]

Good morning, Chris.

[Chris Shutler:]

So, first, Amit, on the comp expense, could you just help us think through the sequential increase from Q2 to Q3 of about $500,000 in the U.S. Just trying to understand the magnitude of impact that the various factors you laid out had to the headcount growth, the stock-based comp and the lower incentive comp? And probably, more importantly, trying to think out, I know you are not giving guidance on ’16. But can you help us frame kind of the baseline level of comp before we get into the all the incentive stuff? Thanks.

[Amit Muni:]

Sure. So, let me take that last piece first. So conceptionally speaking, we’ve always said, all of our expenses should decline as a percentage of revenue as our revenues continue to scale, that just the way our business model works. This year, we’ve made a significant increase in our headcount as we have planed to do particularly in sales and so, some of that -- a lot of that is going to carry forward into 2016. So a lot of this will really have to depend on sort of where we end up for the year and what our plans are for 2016 to really see if that trend will continue on the comp line, maybe it stays flat for awhile, maybe it will come down a little bit, maybe not as much, what we have seen in the past. But you’ll have to wait till our next call, so I can give you a little bit more clarity on that. As far as the sequential change Q2 to Q3, yeah, so we have some ups and downs. We don’t give too much inside guidance of what's moving in there, but just to talk a little bit about the components. So, yes, we did have an increase in headcount this year and we are seeing the full quarter effect of that carry forward into Q3. And then, we had the stock compensation increase. We had a great first half performance in current equity, so we saw an up-tick in that in Q3 expenses. And then offsetting some of that is a decrease in our incentive comp because of the fact that we had outflows in Q3. So those are the three main components. And, I guess, I think the key is to just think about full year -- on a full year basis the number that we’re talking about the 21% to 25%, I think, are going to be close to the high-end of that range.

[Chris Shutler:]

Okay. Thanks. And then, I also want to touch on the capital allocation again. When did do your repurchase window close in the quarter?

[Jon Steinberg:]

Two days prior, a couple of days prior, a few days prior to the Fed meeting.

[Chris Shutler:]

Okay. So, okay, make sense. If you do have a period there then from late August to lets call it mid-September when the stock was in kind of that 15 to 19 range. And I guess, the expectation would have been that given the buyback you would have bought back more stock then.

[Jon Steinberg:]

Yeah.

[Chris Shutler:]

Not really a question more of an observation.

[Jon Steinberg:]

Yeah.

[Chris Shutler:]

And then, on, I guess, lastly, just wanted to touch on the GreenHaven acquisition. I mean, should we view that more as just acquiring a couple of unique ETFs in the commodity space or is this in fact the start of a much more material effort in commodity?

[Jon Steinberg:]

No. I think that we have been talking about for quite some time that we knew we had a hole in the commodities bucket in our products that and we were looking for a very unique way of filling that and this was one way of filling it. A broad basket of commodities we think is to be very -- is very unique and we worked well when paired up with our other products. So I wouldn’t say this is some sort of shift, its just we think a very good way to add a product in the asset allocations place.

[Chris Shutler:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open.

[Alex Blostein:]

Great. Thanks. Good morning everybody. A couple questions for you guys around the ETF industry and some of the regulatory observations, both in the U.S. and Europe. I guess, on the U.S. front, given how close you are marketing and financial advisors, just curious what you are hearing on the DOL front, whether or not people started to reposition their businesses already. Do you think that's going to come? What does it mean for your business? What does it mean for the ETF industry? So that's question number one, and then I have another one for Europe.

[Jon Steinberg:]

The potential of the DOL fiduciary were being established, I’m not sure people have started to reposition their portfolios. But you could -- we would internally review that as extremely positive for the ETF industry. And consistent with the trends that you're seeing, that it’s really in the interest -- best interest of investors to be in the most transparent, most liquid, most tax efficient structures. And I mean it's really just sort of common sense that this will continue. But regulatory catalysts really focused the advisors attention and so you might actually see accelerated growth from something like that, if it were to take place.

[Alex Blostein:]

Got you. And then on MiFID IIs, we’ve got some final rules couple weeks ago or a precursor to final rules maybe a couple weeks ago. But obviously, one of the big changes is ETF's trading over-the-counter to exchange listed. Help us think through that framework, and what it means for the ETF industries there. Does that accelerate growth in ETF adoption in Europe in any sort of way or is it more just more of a market structure shift, and doesn't necessarily impact the asset gathering component of it? Thanks.

[Amit Muni:]

Hey Alex. We think it is positive but what it does, there is lot of the ETF trading that’s happening off the exchanges. So there is question of how much liquidity are there -- is there in ETFs? Can I get this trade done? We think putting it on to an exchange platform having met liquidity available for everyone so people can see it. We think this is a growth driver for the ETF industry in Europe.

[Alex Blostein:]

Got you. And you know, actually, one more, if I could squeeze this in -- looks like you guys are listing three different ETFs, doing ETFs on BATS; and they have been, obviously, pretty competitive on the pricing front. Is that a start of future -- should we view that, I guess, as a change in how you view different listing venues? What kind of benefits are you guys getting from listing on BATS, aside from obviously just the pricing? And should we think of that as a source of potential cost savings, going forward?

[Amit Muni:]

Sure, Alex. Yes. Obviously, it is very normal that BATS got some pretty attractive pricing for listing ETFs on their exchange. They are making a big push for that. I would say, if anything, it just really is about diversifying, where our products are listed. We have a big offering on NYSE. We have a good number of funds listed on NASDAQ. And we think from a diversification standpoint, it is good to -- there are trading venue that’s out there for ETFs. It’s really nothing more special than that.

[Alex Blostein:]

Okay. Thanks.

[Operator:]

Our next question comes from the line of Mac Sykes with Gabelli. Your line is open.

[Mac Sykes:]

Congratulations on the acquisition. My question around that is, as we begin the -- as you begin bringing on these commodity funds, how does that impact your compliance costs, operations, etcetera? Is this really a material dynamic change at all?

[Jon Steinberg:]

No. So today we are already a commodity pool operator because of two of our ETFs. So no, there is really no change really from a compliance perspective for us as result of that.

[Amit Muni:]

And because of that, I would say the integration risk is extraordinarily low, no people, two funds, bolts on to our infrastructure.

[Mac Sykes:]

Great. Thanks. Nice quarter.

[Amit Muni:]

Thank you.

[Operator:]

And our next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is open.

[Michael Cyprys:]

Hi. Good morning. I just have a two-part question. I'm curious if you could first share your latest thoughts about increasing penetration among the different distribution channels. And then secondly, certainly a lot of flows going to ETFs the past couple of years, but the distributors don't collect the 12b-1 fees and mutual funds certainly have been challenged on the flow side. So just curious what trends you are seeing from the distributors wanting to take a greater share of economics from the ETFs?

[Jon Steinberg:]

So ETFs are taking market share. They’re taking market share because it’s just common sense that the newer structure has greater appeal both to the end customer but also to the financial intermediary, who is working in a fee-based model allowing them to make unbelievably precise allocations using these terrific new tools that ETFs represent. In terms of platform access, the industry has always wanted a greater access to the revenue streams of our industry. You have seen some success from distributors, some of the -- like the Schwab’s and Fidelity’s of the world. We will have to wait and see. What I would just say is, what is most important to me with respect to your question is that we don't move this pristine nature of the fee structure. One of the things I think people really fail to recognize in terms of this attractiveness is the transparency of the fee model. So you have fees certainty with almost every ETF. It has a unitary fee. And so there is no like hidden cost to it. It is buyer’s confidence. We want to make sure that we maintain as much of that as possible as in industry. And so that's really the most important thing to me. And then the last point is, however it evolves because of the scale and strength that we have, we are able to participate in the industry, however it evolves.

[Michael Cyprys:]

Okay. Thanks.

[Jon Steinberg:]

Thank you.

[Operator:]

Thank you. I’m showing no further questions. I would like to turn the call back to WisdomTree for any further remarks.

[Jon Steinberg:]

I just want to thank all of you for your time and attention this morning and we will speak to you in 90 days.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.