Operator: Good day, ladies and gentlemen, and welcome to the WisdomTree Q2 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to WisdomTree. You may begin.

Jason Weyeneth: Good morning.

Before we begin, I'd like to reference our legal disclaimer available on 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 risk 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, 2016. 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 CFO, Amit Muni.

Amit Muni: Thank you, Jason, and good morning, everyone. Most of our operating data is already known, so I'll quickly go through the important items for the quarter. I'll then turn the call over to Jono for some closing comments.
Beginning to Slide 3. This quarter, we reported improved financial and operating results which were signs that flows are stabilized and are starting to grow.

Our U.S. AUM grew to $43.2 billion at the end of the second quarter due to positive inflows and market movement. As the middle chart reflects, we generated flows in most of all of our asset class categories, but experienced headwinds from DXJ outflows. As you can see in the chart on the right, the outflow trend in our 2 largest products seem to be stabilizing.
Turning to the next slide, we can dig a little deeper into our flows.

Our smart data dividend products suite continues to grow. Our Dividend Growth Fund, DGRW, had a record inflow quarter and our MidCap Dividend fund, DON, continued its momentum and is just under $3 billion in AUM. In addition, in June, we cross-listed our Global ex-Mexico fund, XMX, on to the Mexican Stock Exchange and are pleased to already see nearly $50 million of flows into the fund. This fund is uniquely positioned to fill a need for the Mexican Institutional marketplace. In the alternative category, our Put/Write EPS strategy continue to gather inflows this quarter.

In fact, 10 of our ETFs across a broad range of smart beta strategy saw greater than $50 million of inflows this quarter.
We are encouraged by these diversified flows as you can see further turning to Slide 5. Over the last 1.5 years, you heard us talk about the steps we are taking to diversify and broaden our flows into products that fit broad asset class -- asset allocation strategies in order to stabilize our asset base. As you can see from the chart on this slide, flows in AUM in our core strategic funds are continuing to grow. At the end of the first quarter of last year, 33% of our AUM were in core strategic funds.

Today, we are at similar asset levels but 46% of our AUM are in these core funds. In fact, these core funds have generated more than $3 billion in net flows since the start of 2016, representing a 16% annualized organic growth rate. While we are still -- we still have continue to work to do in this area to increase the level of flows, we are pleased to see diversification efforts starting to take form.
Now turning to the financials on the next slide. GAAP net income was $12.1 million or $0.09 for the quarter.

Excluding a one-time gain, adjusted net income was $7.8 million or $0.06 this quarter. We recorded an after-tax gain of $4.3 million associated with our ownership in Tradeworx, a trading and financial technology company that recently won the bid to build the Consolidated Audit Trail, which will be one of the largest databases ever created to track stock and option orders in U.S. market. Together with AdvisorEngine, we have a unique opportunity to collaborate with the technology leaders of both these organizations as we look for ways of using technology to deepen our relationship with advisors.
Turning to the next slide.

Expenses were up 3.5% to $41 million due to higher compensation as a result of flow levels for the first half as well as marketing and sales as part of our growth spending. Compensation as a percent of revenue of our U.S. business was approximately 29% for the first half, which is within the guidance range we had given at the beginning of the year. Based on our current trends, we still expect to be in this range.
Turning to the next slide, you can see margins improved.

Gross margins increased slightly to 82.4% due to higher average AUM and the full quarter effect of fund closures. We expect gross margins to be around these current levels. Note that we have slightly changed the way we calculate gross margins to only include advisory fee revenues in the denominator rather than total revenues. The prior periods, you can see in this chart, have been restated using this new method. On
the right you can see non-GAAP consolidated pretax margins stayed relatively constant at 27% over the first quarter.

Now turning to the next slide, we can view the highlights of our non-U.S. business. Non-U.S. AUM rose 42% so far this year to $1.5 billion, and total inflows were nearly $0.5 billion so far for the first half. We also have some exciting news around our Canadian business.

Turning to the next slide. Yesterday, we announced a strategic agreement with Questrade, the largest independent and fastest-growing online brokerage firm in Canada. Under our agreement, WisdomTree's Canadian ETFs will be commission free and get premier access on Questrade's trading platform. In addition, we will advise Questrade on how they can use WisdomTree ETFs to meet investment objectives in their fast growing robo-advisor. We also agreed to acquire Questrade 8 ETFs with approximately 7 million (sic) [ USD 71 million ] in AUM for $1.9 million in cash and merge them with our Canadian ETFs.

This price may change based on the closing AUM. There is no change to our previous guidance of $1 billion to $2 billion of AUM to get to breakeven. We are excited about this opportunity to partner with an entrepreneurial firm like Questrade and believe this will enable faster growth of our Canadian-listed ETFs.
Turning to the next slide, we can view our operating results so far this quarter. As of yesterday, our AUM was up to $44.1 billion and we're continuing to see diversified flows into several of our asset class categories.

However, Hedged Europe is out of favor.
So in closing, over the last several years, we have made the right investments to address the changing competitive landscape and position us for the long-term. As our AUM grows from here, the operating leverage in the business will lead to strong results and improve margins.
Thank you and let me turn the call over to Jono.

Jonathan Steinberg: Thank you, Amit.

Good morning, everyone. The asset management industry continues to evolve with ETF adoption accelerating globally. WisdomTree has made progress on several fronts designed to position the firm as a beneficiary of the secular shifts underway. Amit already touched upon progress, recent progress in improving our flows and in diversification as well as our recently announced strategic agreement with Questrade, which improves our scale and our growth outlook in Canada. In addition, I'd like to briefly touch on some of the other initiatives we're focused on to drive diversified growth and capitalize on the changing industry landscape.

During the second quarter, we went live with WisdomTree's model portfolios on AdvisorEngine's platform, and earlier this week we announced our models are now available on the investment platform. After a 3.5 year journey to build the portfolios and established track records, this marks the commencement of monetizing our model efforts. But this is just a beginning. We expect to have more platform placements and wins to share in upcoming months and quarters. Our open architectural approach of marrying low-cost data with WisdomTree's alpha-generating strategies, resonates with advisers and is highly marketable to their end clients.

Technology will be a key differentiator for asset managers to forge deeper relationships with financial intermediaries and succeed in the changing industry landscape. Successful firms will do far more than just deliver strong performing products and insightful research that will always remain important. Over the next few months, we've discussed our -- over the past few months, we discussed our technology initiatives and aspirations with many of you. We are focused on delivering technology enabled tools and services to intermediaries to improve their portfolio analytics and portfolio construction capabilities. In addition, through our investment in AdvisorEngine, we are able to offer intermediaries, a leading wealth management technology platform to digitize and modernize their businesses.

The AdvisorEngine platform currently has 48 clients managing over $23 billion with over $2.4 billion of assets already moved onto the platform. Those metrics are up considerably since our initial investment last November. The pipeline remains robust and feedback on the technology has been extremely positive.
Internally, we continue to harness Big Data and expand analytic capabilities to drive more effective distribution practices including our collaboration with IBM Watson, which we announced in June.
We believe we are amongst the industry leaders in embracing and developing technology to both enhance our internal effectiveness as well as deliver a better client experience.

We are in the early stages of rolling out a unique cutting-edge advisor solution program focused on empowering financial advisors to grow their practices more effectively, including aspects such as prospecting assistance and leadership skill development. The recently acquired Kredible is 1 example of a value-added service we can provide to financial intermediaries. Kredible is a technology enabled tool that helps advisors modernize and enhance their online presence. In today's environment, a strong online presence is critical for advisors to track new clients. While it is still early days and it is not enough, we are seeing signs, our investments are starting to pay off.

Recently launched funds are garnering flows in new asset classes. Our model portfolios are now live in position to raise assets and we're in a process of rolling out our advisor solution program to forge deeper and stronger relationships with our clients. The industry is rapidly changing and we believe we have made and will continue to make the necessary investments to drive accelerated diversified and profitable growth.
I want to thank you for your interest in WisdomTree, and we'd be happy to take your questions now.

Operator: [Operator Instructions] Our first question comes from Craig Siegenthaler with Crédit Suisse.

Craig Siegenthaler: 5 out of 7 of your segments are now inflowing, and last year the number was 5 out of 7 were actually outflowing. What factors do you attribute to this broadening of organic growth?

Jonathan Steinberg: Hi Craig, this is Jono. It's interesting because this was not necessarily an easy quarter for us in light of the fact that you had very weak dollar environment and it seems like the dividend focus funds were out of favor, but we just have a very differentiated product, very strong performance numbers. But you're right, I mean, our international equities had positive inflows, U.S. equities had positive inflows, emerging markets had inflows, alternatives.

One of our 2 largest HEDJ had inflows, fixed income, and we even had inflows in currency hedging excluding DXJ and HEDJ. So you're right. It feels like it's stabilization. We've been working very hard with our team to broaden out the flows, but I think it's just hard work is paying off.

Craig Siegenthaler: And then just as my follow-up, you seen this rotation preference for your core strategic products, which have a longer-term holding period versus some newer technically ETFs like currency-hedge.

Was this driven by a certain channel like the RA channel? And did the DOL role and the technology changes to retail distribution also play a role here?

Kurt MacAlpine: Hey, Craig, it's Kurt MacAlpine here, WisdomTree's Head of Global Distribution. In terms of the flows, they are actually quite diversified across our client segment. So coming from the RA channel, the NFS channel, private wealth and other. So I would say it's a pretty good mix. I would say it's also a combination of client types.

We continue to see flows for clients where we had relationships with historically. Those that play very active roles in portfolio construction and we're starting to see signs of them adopting a broader set of our products, which is driving flows. We're also seeing our message in our value proposition resonating with new segments of clients and advisors that haven't used as historically. I would say that the DOL and other regulatory reforms is helping to drive advisors that have been slower to migrate their businesses from mutual funds to ETFs over there, and I feel like we're very well-positioned to continue to capture growth from both types of clients.

Operator: Our next question comes from Bill Katz of Citigroup.

William Katz: Just -- Jono, perhaps you could answer this one. As you think about this opportunity in both the model portfolios as well as of enhancing the advisor experience, could you talk a little bit about the way the fee rates and the incremental margins associated with the related volume? And underneath that with Questrade, is there an opportunity here for advisory revenues that sort of a new stream of revenue or is it really just more of a function of bringing assets in?

Jonathan Steinberg: Why don't we reverse order? Let's knock off Questrade first. Kurt, why don't you start with that one?

Kurt MacAlpine: Certainly. So essentially the Questrade, in addition to the acquisition of the ETF business from them, we have established strategic relationships with them in 2 distinct segments. One is the online brokerage part of their business, the other one is the robo-advisory business.

So in particular within the online brokerage portion of their business, this will really be giving us preferred access to access their client base with our research and our insights. That would be essentially communicating our thought leadership to their clients and ultimately driving flows at the individual strategy level. The second part of the relationship though is within their robo-advisory business where we will be a consultant or an advisor to their asset allocation provider. And now this is consistent, not exactly the same, but consistent with the efforts that Luciano and our investment strategy team have around building model portfolios as well. So I think in this particular instance, it wouldn't necessarily -- the primary benefit wouldn't be the advisory revenue but it's part of a broader addition we're making to focus on fee-based portfolios and model revenue.

Amit Muni: Hey, Bill. It's Amit. Regarding the question around models and margins, and how we're thinking about that. I think it's -- there's 2 pieces of revenue streams from that. First will be our ability to earn a strategist fee that we can earn when advisors do use our model, and second would be the underlying revenue from the flows into the model into the WisdomTree funds, and you've seen the gross margin that we earned from those flows.

So those are the basic 2 revenue streams from that.

Jonathan Steinberg: And I will just say that when you're selling models, you're selling multiple funds at a time. So there really is leverage and you probably will see operating leverage from these strategies on a going forward basis. We've been shouldering those investments for many of the last couple of quarters so anyway I hope that answers your question.

William Katz: Just a follow-up question.

More broadly, there seems to be a number of the newer entrants coming into the Smart Beta, and some of them are doing a very low price points. How do you think about sort of the pricing on 2 levels? One is on your back book, your existing book of business, and secondly as you think about incremental products in terms of the direction for the fee rates.

Jonathan Steinberg: So good question. So one of the reasons why we moved so quickly on products historically is so you can establish them. So in terms of our established products, I think we feel very good about our pricing.

I mean, just take, for example, DXJ and HEDJ. They are the asset leaders, the liquidity leaders, the thought leaders and they have very strong alpha over beta. So I feel that those are amongst the greatest position within the WisdomTree franchise. In terms of the new product, we've always said we might be launching new funds at low prices. So recently, we lowered the price on some emerging markets funds, and you should consider those were launched over the last couple of years.

We knew we were launching them in a unfavorable emerging market environment. None of them had any real assets, maybe $50 million at the most, but most of them were in like the $5 million to $10 million range. So those price cuts you can almost look at those as new fund launches, which I think really establishes them well for going forward. We really wanted to bring attention to them because they had -- some of those had really built certain very attractive differentiated performance and just positioned incredibly well in the marketplace. But we do make a distinction between new funds and established funds.

We feel good about our pricing in general, overall.

Operator: Our next question comes from Surinder Thind with Jefferies.

Surinder Thind: Just following up on the technology distribution. Can we talk a little bit about the competitive environment in terms of, it seems a lot of firms are pursuing technology as a means of distribution. So any color around how client conversations are going? And then it seems that some of the offerings are quite different from, let's say, the platform that you guys are offering versus maybe some of the solutions that others are? And maybe just some color around that would be helpful as well?

Kurt MacAlpine: Absolutely, I think -- so it's Kurt MacAlpine here again.

In terms of how we think about technology and working with our clients here, there's really 2 uses of it. I think you might be referring to the AdvisorEngine platform and how we're using that in our client conversations. But technology is also a core part of how we communicate our investment strategies to our clients and how we prioritize in segment clients that we're going after. So is there a particular area of those 3?

Surinder Thind: Yes, I mean -- correct. The first part of it was more about in terms of the robo angle piece of it, if that's how we want to characterize is as a distribution mechanism.

When you go and talk to the clients, how are you differentiating that conversation? Or what is that conversation in terms of what clients are looking for, in terms of selecting, let's say, your platform, or what you guys are offering versus perhaps a competitor offering? And then just how competitive it can be given that there seems to be a big rush in the field to try and maximize many relationships, perhaps early on in terms of a Greenfield opportunity versus taking your time to establish these relationships?

Kurt MacAlpine: Absolutely again. Thank you for clarifying. So as you think about AdvisorEngine relative to a traditional robo-advisor, I would say that there is 1 major distinction, which is an -- the AdvisorEngine platform is literally a digital and wealth management platform or solution for clients. It includes a robo-advisor, but it has many more components to it than that. So think of the platform as allowing an advisor to fully digitize their business.

So everything from initial prospecting through to customized billing can be done fully digitized and paperless from the client experience standpoint. So the other robos that I think you're referring to in the marketplace provide asset allocation services, trading and rebalancing, which is 1 segment of the AdvisorEngine platform, but only a small portion of what the platform ultimately delivers. So I would say that the traditional robo-advisor is targeting an advisor that is looking for a robo experience, I would say that the audience for AdvisorEngine is much broader. So any advisor that's looking to digitize and modernize their business is a potential client for AdvisorEngine. We can provide that digital experience to all clients and also provide a robo experience to clients that they want to on board in that particular manner.

So I think there's a number of different distinctions that allow us to have very broad conversations with advisors, regardless they are- whether they're looking for a robo solution or not.
In terms of the feedback and traction, you heard, Jono mentioned this earlier, we now have 48 clients on the platform, over $2.4 billion of assets. We're seeing very strong traction in both the RIA channel and the IBB channel, and we're having really good conversations in the private wealth and bank channel as well. So the momentum is great there. I expect to continue to see some meaningful wins going forward.

Jonathan Steinberg: This is Jono. You're right that there is a land grab and I sit before this audience today quite satisfied that we started these investments over many, many years so that we can be in this position to get our share of these new relationships. The most exciting time I've ever seen in our industry. So the DOL really was the -- maybe the straw that broke the camel's back that is forcing change at a pace that it's hard to imagine, and most firms will have trouble keeping pace with this. Technology without the ETFs is an unwinnable game, and the ETFs without the technology is really a Niche game.

The combination is really how WisdomTree expects to get back to our larger market share goals. But -- so thank you for the question.

Surinder Thind: Understood. And then 1 quick follow-up. Can we talk a little bit about the environment in Europe? A few quarters ago, you guys made a management change there and we saw a step up in flow activity in Q4, and it's kind of trended down since then at that point sequentially, quarter-over-quarter.

Any color there that you can provide in terms of what you're seeing and maybe the outlook going forward?

Jonathan Steinberg: This is Jono. So we did make some management changes. We had brought up very long-standing WisdomTree employees over to Europe and really had stabilized what was going on there, accelerated the growth. Unfortunately, one of those men had a personal family issue tragedy and we had to make an adjustment, so we announced a recently new head of that office who has hit the ground running but we hope to reestablish a faster growth going forward in Europe as well.

Operator: Our next question comes from Chris Shutler with William Blair.

Christopher Shutler: The flows into HEDJ have been pretty resilient despite of the move that we've seen in the Euro and even some of the headlines that we've seen around calling for the unhedged approach. So based on what you can see in your discussions with intermediaries and market makers, what's keeping those flows relatively consistent? Relatively neutral?

Jonathan Steinberg: There were people who just believe in currency hedging, and some -- but everybody has a different sort of outlook on things like the dollar, where just outlooks for the equities of those regions. But as you're saying, it really does feel like there's been stabilization to our largest funds. This quarter, in light of the negative FX environment, I actually am quite pleased with how those funds have held. Most of the money, you're right, has gone into unhedged Europe and unhedged Japan where we do have strong differentiated offerings, but we're obviously much stronger in the hedged categories.

But the currencies are very volatile and maybe this quarter or next quarter, it will be better. But it definitely feels to be a base making. And certain -- when we -- and certain investors position their portfolios for future expected changes, and I think that's partly what's going on.

Christopher Shutler: Okay, and then Jono, just a follow-up on that would be dynamically hedged funds. Looks like the international fund, the DDWM has seen some nice inflows over the last year.

I think it's a little over $400 million of AUM today. But the other 4 dynamically hedged, like Europe and Japan really haven't got any traction yet. So why do you think that is given the moves we have seen in the currencies?

Jonathan Steinberg: First of all, yes, DDWM is our flagship of dynamic currency hedging and it's really off to a very strong start. It's just under $500 million with very, very strong performance. We have, I think, a little more than $1 billion in currency hedging outside of DXJ and HEDJ.

We have 2 funds of about $500 million in assets and then another 3 with more than $100 million. But again, currency hedging just has been out of favor recently, and it's just hard to establish funds when sentiment isn't favorable. But I think we're well-positioned in those categories on a going forward basis when market sentiment does turn more favorable.

Operator: Our next question comes from Michael Cyprys with Morgan Stanley.

Michael Cyprys: Just curious as you're rolling out the technology enabled solution for advisors and the model portfolios, is there a particular part of the advisor markets that you're focusing on a bit more than others? I guess, where do you think your sweet spot is?

Kurt MacAlpine: It's Kurt MacAlpine here.

I think we designed the adviser solutions program. So essentially there's 4 components to what we're offering. There's portfolio construction services, there is asset allocation portfolios, there's a broader practice management program and then there is the AdvisorEngine platform. So we designed the program in a way to appeal to all advisor segments, now clearly different segments of the markets, so those that are more focused on generating alpha for their clients, for example, might gravitating more towards the portfolio of construction services or to customize the asset allocation models, for client segments that are more focused on servicing and supporting their clients. They might gravitate more towards the practice management or the AdvisorEngine components.

So we are in the midst of rolling this out, as we speak, but the feedback from the clients that we've tested with so far, is there's definitely appeal to different types of client segments. And I think we'll see how they use the components that we built, will differ based upon their preferences.

Michael Cyprys: Great. And then just curious your thoughts around the competitive environment, just following up on some of the points from earlier you've mentioned. And as you just described, the advisor platform is quite broad relative to say the traditional robo with your end-to-end solutions that you're offering for advisors.

I guess, the question is who do you see yourself competing against the most? Is it Aladdin for Wealth -- who else is out there? And what's compelling for your value proposition of what you're offering? What are you doing differently from say Aladdin for Wealth, some of the others that give you the conviction that you guys can win?

Kurt MacAlpine: Absolutely. So I think it depends on the technology platform that you're talking about. So I would say that the AdvisorEngine platform itself is really competing head-on with the robo-advisors that are offering a narrower solution than what we are, but also the more traditional platforms in the space as well. If you think about our portfolio construction services and the new tools that we're rolling out there for people to evaluate our intellectual property relative to other products in the market. I would say that that's a close proxy for Aladdin for Wealth as you're describing.

I think what's unique about the tools that we're bringing to market is, is we've designed it with technology and research in mind. So these tools when they roll out in the coming weeks will be available for advisors to use on their own on our website on the advisor site. They'll be able to build custom portfolios, evaluate those portfolios, save those portfolios for future reference. They will be able to stress test them understand the fact of exposure. So we really built it both around optimizing the investing experience but then also delivering in the manner that is really tech forward or tech savvy relative to other solutions that you're seeing in the marketplace.

Operator: Our next question comes from Michael Carrier of Bank of America Merrill Lynch.

Jeffrey Ambrosi: This is actually Jeff Ambrosi filling in for Mike. Just on your currency-hedged products, I know you guys mentioned you guys are the leaders there in terms of liquidity, which I think is very important. So I guess I'm just trying to understand or why -- to get your thoughts on I guess competing iShares products, which seems to have had inflows in the quarter. So just, I guess, why are they gaining share over your products?

Jonathan Steinberg: Hi, this is Jono.

So as I said earlier, most of the money has gone into the unhedged version. So what you're seeing is small trades both on our side and on their side having sort of an exaggerated effect on market share. But again, it's not just that we're the liquidity leader, we're also the performance leader. We think that if the categories turn, if market sentiment turns positive, we'll start to show our strong market share again. But I think little trades are exaggerating the numbers in the short term.

Jeffrey Ambrosi: Got it. Okay. And then I guess, just on the -- looking at the dividend and I guess cash flow from operations. Looks like it's about $5 million ahead this year. So I guess, just the outlook for the dividend?

Amit Muni: Right.

So from a -- on a cash earnings basis, the AUM levels today cover the dividend. The dividend is important to us and we don't see any changes to that.

Operator: Our next question comes from Robert Lee with KBW.

Robert Lee: I guess, my first question is just kind of maybe also capital management question. There's been some news out there that capital providers to the industry from starting the ETF has been either more selective or pulling back to some degree.

I mean, can you maybe touch on -- and you've been able to launch ETFs without having much seed capital, if any. So do you envision in that, any changes in that? As you think about new product launches, that there may be some increased need to provide more of your own seed capital?

Jonathan Steinberg: Thanks for your question. This is Jono. The market making business has, it's a very challenging business. It's been in decline for many, many years.

So as an industry trend, the amount of seed available has been -- the launch of funds has been declining for steadily, for a decade. There are still participants who think this is a good business for them, and we are very good in deep relationships with them. We're known as having high conviction fund launches and we support our funds often with marketing and research and so our relationships with the seeders and market makers is very, very strong. But we do again -- so we haven't had to use capital to seed our own funds. It's not the norm in our industry.

But if that -- if it changes, then we're in a very good position. And if that were to be the case, the 90 funds that we have become more valuable, because it will get harder and harder to launch and more expensive to launch new funds. So there is a positive to this dynamic. But again, it really goes back to the original idea of moving fast and establishing yourself. Because really, we had a clear vision of what we're saying seeing today is what we expected to see years ago.

This is where we thought this was going? This is what we built the company around. So we feel good about our relationship with the seeders.

Robert Lee: Great. And maybe just a follow-up on the distribution. I mean, do you have the ability to track the growth in new relationships as well as increased penetration of existing ones.

And what I -- I think what I mean by that is, you have an advisor, wherever they may sit, uses one of your ETFs, can give the ability to track and use the DXJ and that it's going to use multiple others. I'm just trying to get a sense of, how the penetration of existing relationships versus incremental new relationships in terms of expanding your products usage.

Kurt MacAlpine: Absolutely not. It's Kurt MacAlpine here. It's a great question.

So I would say with a high degree of confidence we have the ability to do it. So in the ETF structure, the data isn't perfect by any means, but through the combination of the robust database that we built the relationships we have with various platforms where we've receive information looking at the 13-F filings and other things, we can understand that a very high degree of confidence who has the strategies -- for our existing clients, what strategies do they hold and where we're starting to see them diversify? And then also we can certainly see new clients that haven't done been business with WisdomTree, starting to do business. And I would say, as you look at the growth that we've experienced, it's actually coming from both. So we're excited about continuing to do more business with our existing clients and using DOL and a lot of the investments that we've been making as a catalyst to bring new advisers to start using WisdomTree products.

Robert Lee: And then maybe just one last follow up.

Understanding the expense guidance for the year is pretty much unchanged, but if we look further out, whether it's the investments you're making, or had in data analytics, new platforms you're joining up with, such as AdvisorEngine and others, part of the challenge is always getting visibility, because there are competitors out there. Can you envision as you look to 2018 and beyond that there maybe a need for, I'll call it another step up in infrastructure spend or spend on distribution just to accommodate all and position yourself to best leverage all of these new distribution points?

Amit Muni: Hi, it's Amit. No, I mean that's -- one of the reasons why we have been making the investments over the last several years is because we saw this trend coming. So that's why we took the spending levels down this year. The investments we've made fully position us so that we can see accelerated growth going forward.

We don't see the incremental growth and spending where we sit today to increase significantly, we've made those investments. And that's why we're really positioning the business that the operating leverage will increase as we exit 2017 and the AUM continues to rise as a result of those investments that we're making.

Operator: Our next question comes from Keith Housum with Northcoast Research.

Keith Housum: I guess first question regarding Questrade the acquisition of those ETFs I know your international guidance for the last few years remains unchanged at $9 million to $13 million, but the acquisition of these funds -- I'm assuming they are still money losing right now does that materially contribute to the losses that were happening in the international area this year?

Amit Muni: No, so there will be no change to our guidance. we still think it's about $1 billion to $2 billion for the Canadian market business to get to breakeven.

What the Questrade transaction does is really just accelerates our ability to grow our funds in that market. So no change in guidance.

Keith Housum: Okay. And I guess, you guys are talking about technology now for many quarters. As you guys kind of think into the future, when do you think you'll start recognizing revenue, I guess, from [indiscernible] basis.

At what point of time does it material? Are we talking 2 years out? 3 years out?

Amit Muni: Well, you know this is going to -- it's a build. There are certain aspects that may be accelerated, other aspects of it that may take over time. Remember the goal of all of this is to deepen our relationship with advisors would be an end goal, as seeing more flows, more diversified flows and more stable flows. So you see the operating leverage that we have in our business when we see the increased flows, there are very attractive gross margins. So it's a long trend that we are seeing.

So some of that will be more immediate and some of that you'll see over time.

Jonathan Steinberg: But then also we have been operating in a very challenging market sentiment environment towards some of our strengths. So that's also one of the thing that's holding back our market share gains.

Keith Housum: So when it comes to the technology and advancements,will you guys be recognizing some revenues, you think, next year from this?

Kurt MacAlpine: I think we'll recognize -- yes, because we -- some of it will be later this year, some of it will be in '18.

Jonathan Steinberg: Yes, I think we already starting to see some flow and wins from the technology investments that we've been making over time.

And to Kurt's point, when we talked about the database, well, that was a multiyear project to get ourselves where we are today. But quite frankly, it's hit a level of maturity where it really now is affecting the sales team in a very positive way. In terms of the investments that we've made on staffing for the models. Models are now live and up on a number of platform. So again, we are in a position to start, I guess, harvesting some of the investments.

Operator: Our next question comes from Mac Sykes with Gabelli.

Macrae Sykes: I think, more broadly should we think of innovation going forward seeing around enhancing your bundled offering versus launching new vehicles? And then at 30,000 feet, how much single fund innovation is left in the industry just given what you see in terms of fund flows and firm's focus on bundled solutions?

Jonathan Steinberg: So I think -- this is Jono. It's a combination of both, and on the product side we see opportunities for innovative new fund launches. It happens to be really one of the great core competencies of the firm, and that will continue to be very, very important over time. But then the bundled solutions are a way to get leverage, increase market share and also communicate in a way that many advisors would prefer.

So the combination of both are very, very important and we're just making sure that we can do it all.

Macrae Sykes: We know that DOLs impacted, the mutual fund that have been sharing agreements with some other platforms. So does that change the, or alter the ecosystem with ETFs at all?

Kurt MacAlpine: It's Kurt here again. Not yet, to be honest. The mutual fund industry as a whole has been accustomed to paying revenue share for a long period of time.

Fortunately, or unfortunately, given access, the ETF industry hasn't been subject to that and we haven't seen any signs of that changing. If anything, what we're hearing but not a part of is changes to how revenue sharing is getting generated and impacting the mutual fund firms. But I suspect as that continues to evolve as a result of DOL and other change that, that the platforms are making, this will just continue to create more and more opportunities for ETF to gain market share as platforms start to levelized the playing field between the 2 structures.

Operator: Our next question comes from Bill Katz with Citigroup.

William Katz: Just to make sure if I heard you correctly.

I apologize, a couple of calls going simultaneously today. You mentioned that there is an opportunity for some operating leverage here. So if you could expand on it a little bit here. So if kept your comp to revenue, in the U.S. comp to revenue guidance flat, despite the first half of the year which was sort of argue for potential sedimentation in that margin.

So how do you think about the drivers for margins, and maybe you can give any comments as we talk about '18 is going to be helpful?

Amit Muni: If you think about our gross margins, right? We have very attractive incremental model, the business model that we built on having most of the operations on our ETFs being outsourced. We get tremendous amount of leverage from that and that, that you see that being translated into our gross margins. We do expect to see that the AUM levels continue to rise, increases into that gross margins, we think it will be around the 82ish range, maybe a little bit higher than that as the AUM levels starts to rise. And then we've given you the comp guidance, we think where that will be. And then the second piece of it is the, how much of it we need to put back into the business or the incremental profits that we get? We made a lot of investments in the past couple of years into expanding our distribution capabilities, to get to diversifying our product set, to get into different geographies and different technologies.

So that's why we can take down the level of growth investments that we need to do in future period so that -- as we exit 2017, we do expect to see as AUM rises from those efforts, our margin start to improve as we've seen in the past.

Operator: Our next question comes from Michael Cyprys with Morgan Stanley.

Michael Cyprys: Just want to hear some of your thoughts around the partnership that you recently announced with IBM Watson. If you could just talk about that, what that entails and how do you see that helping drive future growth for the business?

Kurt MacAlpine: Absolutely. Thanks for the question.

It's Kurt here. In terms of the partnership with IBM Watson, we were the first and currently only asset manager globally that's using IBM Watson within their distribution force. So essentially, the partnership is structured around

3 things: we're trying to help better understand, which clients we should be talking to, so how do we prioritize the clients that we reach out to from a distribution standpoint; we're looking to better understand the way that they prefer to engage so what's the optimal way to engage with them based upon their personal preferences; and we're looking to better understand what we should be focusing on these conversations. We've talked a lot today on the call about. Is it a product? Is it a model? Is it a solution? And each client has different needs.

Some are looking for very tactical solutions, some are looking for buy and hold, others are looking for models. And the capability that we built will allow us to more effectively target a client with an offering that best meets their needs.

Operator: And I'm not showing any further questions of this call. And at this time I would like to turn the call over to Jonathan Steinberg for closing remarks.

Jonathan Steinberg: We just want to thank all of you for your time this morning, and we look forward to speaking to you again next quarter.

Thank you. Have a good day.

Operator: Ladies and gentlemen, that concludes today's presentation. You may now disconnect. And have a wonderful day.