Q4 2019 Earnings Call
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Jason Weyeneth director of Investor Relations. Thank you. Please go ahead Sir.
Thank you and good morning, before we begin I'd like to reference our legal disclaimer available in today's presentation.
Recent station 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 in the risk factor section of Wisdomtrees annual report on Form 10-K .
Sure ended December 31st 2019, 18 within treat assumes no duty does not undertake to update any forward looking statement.
It's my pleasure to turn the call over to Wisdomtrees CFO on it Muni. Thank you, Jason and good morning, everyone I.
I quickly walk through the important items for the quarter.
Turning the call over the Jarrett Lilien to walk through our 2020 priorities and then I'll discuss expense guidance before finally, turning the call over to John off for some closing remarks, then open up the line for acuity.
So beginning on slide three.
Assets under management, where a quarterly record 63.6 billion at yearend, reflecting the combination of net inflows and continued strong global markets.
We generated 368 million of net inflows in the quarter, representing 2.5% organic growth.
Excluding 192 million of outflows from HEDJ and DXJ, Jay organic growth was 4.2%.
Hi, Jim do you actually outflows mark the lowest level of attrition in four and a half years.
That combined with the momentum we are seeing across our business and the key initiatives for 2020, we believe represents an inflection point for our growth trajectory.
For the full year net inflows totaled 572 million.
Excluding HEDJ and DXJ Jay net flows for the year were 3.3 billion or 7% organic growth.
It is encouraging that those two funds are no longer able to completely overshadow. The momentum we are generating other parts of our product platform. As total flows have been positive four of the past five quarters and the first quarter is off to a solid start.
Flows in the fourth quarter, well led by the strength of our domestic equity fixed income an emerging market phones.
Domestic equities generated inflows of 468 million representing over 11% organic growth.
And the ninth consecutive quarter of inflows.
Flows were spread across a number of products illustrating the strength breadth and positioning of our platform.
We generated fixed income flows of 220 million, representing 24% organic growth driven by Aggie, which remains very well position given the combination of top decile outperformance in the low interest rate outlook.
Along with our floating rate Treasury fund you SFR, we now have to core domestic fixed income products with 2.8 billion of combined to you when after having less than 400 million just two years ago.
For the third straight quarter, we saw strong inflows into our emerging market products, which generated a 193 million of inflows representing 13% organic growth.
Flows were led by demand for small caps and OS X state owned enterprise funds.
Demand for these two funds has continued in January with nearly 150 million of inflows.
Now turning to the financial results on slide four.
Revenues were just under 69 million up 2% for the quarter driven by higher average at U.M., partially offset by lower revenue capture due to you when mix shift.
On a GAAP basis, we had net income of 4.3 million or two cents per share.
Excluding non operating items adjusted net income was 10.1 million or six cents a share.
The primary difference between GAAP and adjusted results. This quarter was a 5 million after tax non cash charge for our future gold commitment payments, reflecting the increase in gold prices during the quarter.
We are currently pursuing an exit from our 50 million dollar investment in Advisorengine.
While the process is not yet finalized we estimate taking a noncash impairment charge of 22 to 30 million in the fourth quarter, which is not yet included in our financial results.
We hope to have a final amount by the time, we file our 10-K in March.
Given the process is ongoing we can't comment further beyond our prepared remarks today.
Let me emphasize we do not anticipate the exit of our investment will drive any asset attrition or change in our organic growth outlook.
Turning to margins on the next slide.
Our adjusted operating margin was 22% for the quarter, which was down two percentage points from the third quarter, primarily driven by elevated cost in Europe .
Gross margins for our U.S. list of products were 81.2% sub 40 basis points sequentially, reflecting scale benefits from higher average at your web.
Gross margins for international listed products declined 190 basis points to 70.7% near to midterm Mitt midpoint of our 70% to 72% guidance range.
The sequential decline reflected cost associated with preparing our product for Brexit as well as the impact from new market, making a fee arrangements in Europe .
On the next slide you can see the change that our expenses.
For the U.S. segment operating expenses remained well controlled growing just 1% sequentially.
Fourth quarter compensation expense was 14.9 million, resulting in full year compensation in line with guidance. We gave last January .
As anticipated marketing and sales cost increase modestly in the quarter. However, our overall discretionary spending remained well controlled for the full year coming in sixmillion or 13% below our original guidance.
Third party distribution costs declined nearly 500000, reflecting the benefit from brokerage platforms cutting commissions to zero.
International segment expenses increased driven by higher phone cost due to higher average Jay you when.
Costs associated with Brexit and the new market, making arrangements that we have.
Marketing and sales expenses were up 1.1 million sequentially driven by cost associated with the launch of our big coin fund in Switzerland.
Launch in early January we believe the fund is the best execution in the market at 95 basis points. It is less than half the price of other bitcoin vehicles in the market and will drive attractive economics to us as it scales.
I'd like to turn the call over to our President and COO Jarrett Lilien.
Thank you I'm it and good morning, everyone.
Having been involved with wisdomtree for more than 11 years, including nine years on the board of directors and a little more than two years as a member of the executive team.
I've always viewed the company is standing for growth performance and innovation that has been the case historically and I believe that to be the case today.
I'd like to focus my remarks today around growth in performance before Johnno later discusses innovation.
To me successful growth means organically growing the top line, while managing expenses, such as you grow margins and have a bottom line that grows faster than the topline we can achieve that.
Wisdomtree is at an inflection point and is well positioned to capitalize on tailwinds that I expect we'll accelerate momentum we are enjoying and parts of our business today.
The Tailwinds I see that will also drive or 2020 priorities include potential rotation from growth to value.
Option of model portfolios continue to E T F penetration amongst advisors in the from strong performance track Records.
After more than a decade, where growth and momentum have outperformed value. We are seeing early sign said a rotation is beginning.
With our fundamentally weighted approach to many of our core strategies, we are essentially a value shop with an excellent performance track record.
And you can not short cut track record it must be earned over time.
Amongst our U.S. listed each yes, and Europe listed uses we have 35, four and five star Morningstar rated strategies within value categories. We have 15, four and five star strategies. Additionally, the lower for longer outlook for interest rates plays well to wisdom.
Trees sweet spot beyond our yield enhance aggregate bond fund aggie being extremely well positioned with top desktop performance across all time periods environment will push investors in search of income towards equities, where where our dividend weighted methodologies many of which are five star rated.
Are well positioned.
Regarding model portfolios advisers are increasingly turning to models as they look to allocate their precious time to the most value added activities such as managing client relationships and building their practices. Our model portfolio initiative has seen strong in building momentum.
During the fourth quarter, we generated over 250 million of net inflows into our models as you might have seen yesterday, we officially launched the Wisdomtree Professor Siegel models, we first DISA discussed last quarter at the TD Ameritrade National Conference. The budget has been tremendous.
And we believe the addition of Scott Welch, who joined our team toward the end of 2019 in the collaboration with Professor Siegel can further accelerate our model momentum and 2020 .
Big picture, we expect to see continued market share gains for each yes versus active mutual funds.
We've had considerable success in the R.A.H. channel and while our AIDS remain a key focus for Wisdomtree. We've also recently put distribution focused on the IB de channel, where EG f. adoption has been slower.
We estimate IB de advisor allocation to each yes, or roughly half that have already a's, but they are beginning to converge, particularly as more IBT advisors moved to fee based models in December we announced the no transaction fee relationship with LPL, where we are one of three ETF sponsors include.
In the program while it's early days were encouraged by the engagement with LPL advisors in the early momentum.
In addition to driving strong topline growth, we remain focused on driving efficiencies within the business in order to deliver strong bottom line growth a theme for 2000.
His divest to reinvest recall, we announced plans last fall to exit our Canadian operations and today, we disclosed our pursuit of an exit from our stake in Advisorengine. These decisions are driven by our prioritization of resource to drive growth in our commitment to remaining disciplined.
Okay, and efficient, which we did a good job of in 2019.
In addition to the initiatives I spoke about earlier other areas. We plan to invest in 2020 include the launch of a differentiated yes G. Suite later, this spring and our collaboration with security, which Johnno will detail more in a moment.
I'm. It will also discuss how we see our 2020 priorities impacting our expenses, but before he does let me say that we have a lot of momentum as we enter 2020 and again I believe we are at an inflection point, we've generated net inflows in four of the past five quarters income.
Routing Dx Jay in hedge which had been headwinds for over four years further our U.S. listed Dts have generated inflows for five consecutive months. The first such stretch since 2015, when Dx Jay in hedge were in fever.
While our European listed commodities products can at times exhibit lumpy in directional flows they've proven an ability to hold or grow our number one market share position in key sub categories.
Overall, our focus is growth performance in innovation, we will organically grow revenues margins and earnings we will continue to drive strategies. It outperformed their benchmarks and we will continue to innovate to propel our business forward I'd like now to turn the call back to admit to discuss our 2020.
<unk> expense guidance in more detail.
Thank you Gerry.
For discussing the 20, putting guidance I want to highlight a change we are making to our financial disclosure is going forward.
Effective in 2020 will be changing from reporting to operating segments to one segment.
We will continue to disclose operating data for our U.S. and European listed products separately, but we will be reporting our financial results on a consolidated basis only.
Recall that back in 2014, we were big we began reporting as two segments in order to provide greater transparency into the build out of our international operations.
Now that we are at scale, we manage the company has one global asset management business. Therefore, now is the appropriate time to change to one reporting segment.
Now with Gerets comments as background for our priorities for 2020, let me update you on our expense guidance, referring to the chart on slide eight.
[noise] compensation expense, including severance was 77.3 million for 2019 on a consolidated basis.
We expect compensation costs to be between 75, an 85 million for 2020.
Gross margins were 77.1%.
At current asset mix, we expect gross margins to be between 77 and 78% on a consolidated basis.
In the past, we guided third party distribution fees as a percentage of revenue.
Going forward, we think it will be more accurate to model. This on a dollar basis.
These fees were 7 million in 2019.
We expect 2020 to be flat to 2019, as we reinvest the savings from lower fees from the U.S. online brokers to existing and new global platform relationships.
We expect discretionary spending to be flat with 2019 51.5 million.
As a reminder, our goal payment expense is based on us paying 9500 ounces of gold year times, the average price of gold for the period.
Based on the spot price of gold at January 29, and assuming prices stay flat this expense would be 14.9 million.
And lastly, our consolidated tax rate is expected to declined slightly to 27% as we benefit from removing losses from our Canada business and a slightly lower UK tax rate.
Remember there will be seasonality in our expenses, particularly with higher compensation in the first quarter due to payroll taxes, lower marketing and selling expenses in the third quarter and higher fund costs in the second quarter due to rebalancings.
As we think about priorities for our capital it remains to return capital to our shareholders through dividends.
Pay down of our debt and maintain adequate dry powder for strategic organic and inorganic opportunities.
While we view our stock as highly attractive at current levels. Our current credit agreement precludes us from repurchasing stock until our debt balance is below a certain level.
As always we remain disciplined and focused on controlling expenses balanced with divesting and reinvesting into our core business to help drive future growth.
I'd like to turn the call over to John .
Thank you on it and good morning, everyone.
Wisdomtree has a history of innovation. It goes all the way back to 1999, when I wrote on the ETF structure and recognized it was the future of investing and a better technology than mutual funds globally. The Egypt structure has since attracted over six trillion dollars of investor money Wisdomtree was a pioneer or so.
Self indexing, bringing many first to market strategies to the industry and remains a leader in product innovation, including the December launch of a best in class Bitcoin ATP on the Swiss stock exchange.
Earlier this month, we announced an 8 million dollar investment in a company called secure ANSI.
Secure and see as a technology company, providing block chain based financial service infrastructure with a unique focused on regulatory compliance their core innovation is their patent pending compliance aware token.
Compliance, particularly Kyi C and am Mel is in many ways at the core of financial services secure NCS identity and compliance framework can support the issuance trading in servicing of all types of asset classes on the block chain.
We believe their technology will be critical in getting regulatory approval for issuing digital securities and other digital financial instruments.
Working with secure and see Wisdomtree will be suit pursuing the launch of Tokenized versions of existing Wisdomtree EPS covering core building blocks and asset classes like gold and treasuries.
We would be the first to do this this would represent one of the best use cases, a block chain in traditional financial services.
I think this is a very big deal.
These issuances will have a near term market opportunity within the existing digital asset ecosystem, but longer term there is even greater potential we believe financial services will adopt block chain.
Our initiatives combined with our investment and secure ANSI positions wisdomtree to be a true leader in digital assets.
At a time that many of our competitors or taking transparency added BTX. We're focused on improving what is already the best and most compelling structure in asset management.
For shareholders. It is early days and involves regulatory approval, but this positions wisdomtree at the cutting edge, a block chain and digital assets with a potentially massive market opportunity that could open up new revenue streams going forward the implications for wisdomtree extend beyond our current business model. We believe we have the.
Right vision and the right partner to lead the Revolution in block chain enabled digital assets and regulated financial services.
At the same time, our focus on the existing core ETF business remained steadfast as Ahmed and Jarrett highlighted we have a lot to be excited about in the near term macro sentiment appears to be shifting more in wisdomtrees, favre and aligning with our value tilted fundamentally weighted approach.
After a challenging decade.
We're seeing strong momentum in our model portfolio business at a time when industry demands accelerating and we are driving strong operating efficiencies in our business, allowing us to invest in key initiatives, while still being mindful of shareholder resources and overall costs. Despite the recent pressure our stock there was a lot to be.
Optimistic about thank you for your interest in Wisdomtree and we'd be happy to take your questions now.
As a reminder to ask a question if you will need to press star one on your telephone to withdraw your question press the pound key please standby well, we compile the Q and a roster.
Our first question comes from the line of Craig Siegenthaler from Credit Suisse. Your line is now open.
Thanks, Good morning, everyone and.
First one on the invest in see currency.
I wanted to see how wisdomtree could individually leverage is block chain technology and does listen treat have exclusive access or can the tech be sold or license to third party manager step.
Hi, Craig This is John Oh, we have very strong per commercial protections.
Within the EPA PTP structure, very very strong and the technology is a very flexible and very broad so it will.
Lead it has many applications in financial services beyond just asset management.
I'm not sure I understood. The very first part of your question. So if I if I didn't touch on it you might just repeat the first part yeah, sorry, John I just wanted to see like maybe specifically how wisdomtree is as an individual business is going to leverage yes, and then also can your larger competitors and I'm not going anywhere.
He names, but can they also license or pay see currency to use that technology Tim.
Okay. So it is early days ER and there's some work to be done so I don't want to get too far ahead of myself, but if the industry evolves in line with our vision. There are many use cases for this technology that can transform our business and move us beyond just earning DCF advisory fees and again, what I would say with respect.
Two.
Atps, a with respect to securities.
Technology, we have very strong commercial protections.
Got it thanks, Jonathan just from my follow up here Advisorengine I know theres not a lot you can talk about in terms the sale, but a couple of years ago is really explain that advisor engine was going to be a really critical component of your U.S. wealth strategy. So.
Listen this just this just wasnt sure, which country, but many of your larger U.S. asset managers, our competitors had very similar efforts to leverage digital BTB platforms to better penetrate U.S.. While so my question to you and it's not just wisdomtree, but also I think for some of your competitors to but what is really changed here.
Craig.
I wish we could talk a little bit more about some of our thinking around the the exit process, but since this since it is still ongoing.
Our very limited on what we can say so but again, let me just reiterate what I said in my prepared remark that we don't see any negative effect on this on our growth at a negative consequences.
For the last time, we get to your conference at the end of February we can talk a little bit more but will you have to just bear with us.
Thank you both.
Thank you. Our next question comes from the line of Dan Fannon from Jefferies. Your line is now open.
Hey, Good morning, this is actually James steel filling in for Dan.
So my first question is just on the third party distribution I think that we were modeling that to be quite a bit lower going forward just following the.
Zero Commission development. So could you just walk us through kind of your thinking and reinvesting that and kind of what you see the growth potential there as.
Sure. So has jarrett Jarrett referenced in his remarks at the initiatives one of the main initiatives that we have in 2020, if they go deeper.
Some of these platforms.
I'd be d. is one of the ones that we referenced as an area that we want to continue to invest in and so this overall overall theme of divesting and reinvesting to help spur further growth is the primary reason why we want to take some of the savings that we're getting from.
On the online brokers reinvesting those savings back into other areas that we can see stronger organic growth not only here in the U.S., but also internationally and this is John So you know we did announce.
A commission free trading program with LPL in the fourth quarter and expect to see more IBT.
Announcements going forward. So that's how you get to a net net number that's the same.
Understood. Thank you and then just as a follow up.
And I understand if this isn't something that you can go into any further I appreciate the commentary on the organic growth expectations. Following the advisor engine divestment bit is this is there any expense impact of this and if so is that included in the 2020 guidance.
Yes anything related to to that has already been incorporated into our into the guidance that we gave for a.
For next year.
Great. Thank you.
Thank you. Our next question comes from the line of Robert Lee from KBW. Your line is now fan.
Hi, Good morning. This is Jeff Dresdner on for Robley I'm, just really quick question on on fee pressure in regards to some of your newer products are just wondering.
Perhaps the price point that those that those are at I know you mentioned that you have the bitcoin.
The between fund its at a higher price went on and on average are the price points coming at much lower and where do we see the fee rate going forward.
Thank you.
Hi, So this is John so.
Our bid point Eightp at 95 basis points is more than half the less than the next offering in the marketplace, but still well above the average fee capture that we have are these have been very steady most of the change in mix is.
Sentiment driven so some of the domestic fixed incomes could be at a lower price point, but in general.
What's important is that everything is priced appropriately.
And that you're after fee performance is driving alpha and really will really well position there from a performance standpoint.
Maybe add to that to.
A big area of our competition is still much higher price active mutual funds and we're still.
Early days as I mentioned in the prepared remarks, with our Asian Ibds still hold a lot of mutual funds.
And so there is really the focus where were actually even at our fee level were pretty pretty inexpensive.
And then I'll add to that.
We believe in active in a fully transparent approach and whether it's our or multi factor or our smart beta or a modern alport were truly transparent active.
That's how we approach performance and we think again better than mutual funds and better than the Nontransparent ETF set our.
Discussed so again very comfortable with the way, we're approaching fees and.
Alpha.
Okay. Thank you.
Thank you. Our next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is now fan.
Hey, good morning, Thanks for taking the question maybe just on your distribution strategy as you're out looking sold from here what if any appetite is there for helping advisors with practice management software and be the technology is there any sort of appetite.
For that as we look forward from here.
That's an important part of ours strategy and it's even in a very important part of why I believe our models will be so successful in our are showing so such momentum today is that for us. It's about the combination of proprietary thought leadership proprietary tech.
Tools attached to our models and attached to our EPS and when you think about it.
The collaboration with Professor Seagulls, a Great example, where.
He's represents great thought leadership, we then have a number of proprietary tech tools that help advisors.
With their portfolios and their models and the analysis and construction and then you get to a model that is.
Open architecture, but includes predominantly our EPS, which have the great performance. So you're exactly spot on that you know the combination of leadership proprietary tech tools that are around things that help advisors be better and then our superior product.
That's the formula that we're looking to leverage in 2020.
And this is a German based on sort of global head of research just to add to mean quick thoughts to that.
If you think about from how we distributed products in the past a lot of it was individual ticker sales, which led to a lot of lumpy flows and I think where a lot of the discussions now are these models. So you're getting much more diversified we think longer terms sticky.
Asset trends and.
To emphasize on the technology tools, we've been investing and building out our own technology team with a lot of infrastructure internally and I really we're getting very positive feedback that we had some of the world class leading tools on our website to help people understand portfolios, how do they fit in their portfolios, where the characteristics of all of our funds and that led.
I guess being better partners to our clients. In addition to all the speakers.
And sort of help we can give this advisor experience is a key part of the model platform and we think we have some of the best advisor experienced in addition to the best investment content for people.
Great. Thanks for that it's very helpful. Just as a follow up question, John you mentioned developing a tokenize version.
Yes, just hoping you could talk a little bit more about that how you're thinking about what the use use case. There is your views around that and what it would take to bring something like that to market what needs to happen.
So we hope to be first to market with tokens on the block chain that are regulated securities again, I treasuries in gold or our first efforts I would say that secure NCS compliance token will be the gateway onto the block chain from.
Regulated financial services and the way that we can meet the regulatory ER necessities for these tokens to be viewed as secure securities.
I think we have that chance to be first so the use cases from a sort of a digital security standpoint is profound as long as you can do it in a compliant manner, but it'll take a little bit of time for us to share more of the vision.
Okay. Thank you.
Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank. Your line is now fan.
Hi, this is actually roll into ROI.
Brian.
Maybe going back to strategic priorities for the air could you give a little bit more detail about how these priorities have changed for 22.
The recent Pos and has your thinking around the possibility of pursue strategic alternative channels.
Including the possibility of the sale.
I can take the first piece on how.
Priorities might have changed.
And I say actually it's about getting back to basics and back to our core competencies.
Again in prepared remarks, I mean, one of the things we have that really differentiates us is.
Suite of products.
With great long term track records and again, something you can't short cut.
You have to earn it.
We've done that so we don't have to search for silver bullet, we've got all the silver bullets, we need and so now it's about leveraging that.
What we're doing to accelerate that is the addition to some of the stuff Jeremy mentioned around technology solutions thought leadership, but it's really about leveraging the core competencies that we have and building upon the momentum.
We've been showing.
In the last month in the last quarters.
With respect to being a part of a larger organization. We do believe that strategies that we havent place will lead to very strong.
Growth as an independent company, we obviously like to see.
Faster organic growth.
And feel that were at that inflection point from a standpoint of being held back by the funds like DXJ and HEDJ. We would have had the in 29 gene a over $3 billion of net flows if those funds had just been neutral.
But we do we're very cognizant of the fact that we have to create shareholder value. We have not created shareholder value for a while and I would say that our investment in security really makes us continues to make us a very attractive organization in many ways, but at the moment, we're very committed to pursuing.
Our plans as an independent company.
Alright, thank you.
Thank you. Our next question comes from the line of Mike Carrier from Bank of America. Your line is now open.
Hi, guys is actually Sean comment on for Mike.
First we are just wondering if you guys are seeing more traction on the flows from the online broker platform since they went to the zero commissions and then.
More specifically from fidelity.
You know.
On.
Merritt trade and Schwab, we were we were zero Commission already so we continue to have good flows there we've got relation great relationships with both parties and that continues.
Bigger picture, we are seeing wider flows I think the zero Commission environment has been.
You know on balance it's been good for Ts and really levels, the playing field so on balance of positive.
Do you know a dope ends up the.
Our a channel that all custodied at fidelity and.
You know the.
Just very again playing into the solutions program.
Just gives us over a wider net deficient.
And we're seeing selective and our A's adopt our programs.
This is Jeremy again, just to emphasize what Jerry talked about this strategic shift away from mutual funds to each yes. We are hearing feedback from clients on these platforms, who are still and mutual funds and have to pay transaction fees on the mutual funds and are not happy with that and they are we think to the point on just accelerating a doctor VGF.
We think theres a lot more to come from that advantage that etcetera were funds today.
Okay, and then just on the third party distribution fees.
Are you guys expecting any additional fees from the online brokers or are they comfortable with the current agreements in place.
So Rick arrangements that we had with them was the revenue share.
But also to pay for data.
So all the while the brokers are still sort of working through how they're going to modify their programs. We are expecting some level of fees that we will pay for for data, which we think is very important as part of our.
Data intelligence function that we use around our distribution capabilities to better target segments.
Visors.
Okay. Thank you.
Thank you. Our next question comes from the line of Brennan Hawken from UBI, Yes airline is now fan.
Good morning, guys. Thanks for taking my question recognizing you can't say much about the advisorengine side, given the pending transaction.
You had said that you didnt expect that impact your growth outlook. So could you maybe update.
Yes on the other digital and solutions efforts that you have going and what the impact that those efforts are having on your organic growth.
Well, we've got a number of those.
And they have many different shapes and forms we've touched on a lot of it some are individuals with with various seems and thought leadership positions. Some of it or is technology and again, a great suite of proprietary tools.
These do have a big impact on the future.
Jeremy talked about it it's you know today, it's not about.
Individual ticker sales, it's about relationships and what we're about is trying to make.
Our customers better is to make advisors better and we're doing that with our solutions with our proprietary thought leadership and proprietary technology tools. So a very important part and definitely showing impact.
From building broader deeper relationships with our clients. Let me just add so the solution that were most focused on is the outsource CIO, which drives the model portfolio flows Jared did give a number that was new up 200.
50 million of model flow into fourth quarter, and then obviously, we think with our long history of collaboration with Professor Siegal.
These new Siegel models, or probably or best execution in the outsourcing iOS space and with the addition of Scott Welch, who joined US recently from dynasty as their CIO.
We do really feel that that is the solution that is most tangible to organic growth, we're very comfortable well positioned in that space.
Great. Thanks for that additional color.
And then thinking about the balance sheet could you maybe be a bit more specific in what changed.
Regarding the balance sheet that caused the the covenant and now the a the curtailed or halted buyback is it the pending loss from invite the advisorengine sale that that is going to doing retained earnings what which part of it was a played out there and what are the metrics that are.
That are related there.
Sure, but no it's nothing new just as part of our credit agreements as any credit agreement. There is certain covenants that we have in place on that allow us to do and not do things at our current earnings power. We are above the the leverage threshold that would allow us to do buybacks. It's about 100, if we can.
Current earnings power, we need to get our debt down to about 150 million and then we would be able to open up capacity to do buyback. So it's just the existing.
Covenants that are in place when we took on the below.
Got it thanks for that.
Thank you. Our next question comes from the line of Keith So from Northcoast Research. Your line is now fan.
Great. Thank you. Good morning, guys. If we look at the 2020 expense guidance can you guys give us a little bit of expectations in terms of growth when you're looking at your compensation guidance, you're 70 $585 million range.
Sure. So various factors go into what drives our compensation, we set up targets at the beginning a use of the year around revenues flows market share.
I think the way you know if I were you the way to think about it now you know sort of the middle of the range.
It's probably a reasonable way to start.
And then as we see the year progress we can give some more granularity if we think it's it's trending up or down from that midpoint.
So.
At the midpoint are you expecting just the same gross inflows you had over the past years I the way to think of it.
We don't give a topline guidance.
But there are various factors that go into what drives that I.
I think thinking about it at the mid range is as a good way to go right now.
Okay, and then as a follow up as I look at your investment security.
How exactly as curious to get a monetize I guess their technology I'm getting the precious more than just through the Ts.
Yes. So there are an infrastructure play so they'll have lots of potential for licensing broadly within financial services and quite frankly, even beyond financial services, but their core initial push is in financial services and.
So it is beyond just asset management, yes.
Okay. That's me primarily licensing the technology, okay, great. Thank you.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Jonathan Steinberg Wisdomtrees CEO for closing remarks.
I just want to thank you all for your time and interest in Wisdomtree and we will speak to next quarter. Thank you have good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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