Eaton Vance Corp. Fourth Quarter Earnings Conference Call Notification 

Eaton Vance Corp. Fourth Quarter Earnings Conference Call Webcast 

Eaton Vance Corp. Fourth Quarter Earnings Conference Call Slides

Press Release Tables

Summary of Results of Operations

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Net Income to EPS Reconciliation/ Operating Income to Adjusted Operating Income Reconciliation

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Net Income Attributable to Non-controlling Interests 

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Balance Sheet

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Asset Flows Table 1

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Asset Flows Table 2

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Asset Flows Table 3, 4 and 5

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Effective Fee Rates 

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Hexavest Table

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Contacts:
Laurie G. Hylton 617-672-8527
Daniel C. Cataldo 617-672-8952

Eaton Vance Corp. Report for the Three Months and Fiscal Year Ended October 31, 2017

Boston, MA, November 21, 2017 - Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $2.42 for the fiscal year ended October 31, 2017, an increase of 14 percent from $2.12 of earnings per diluted share for the fiscal year ended October 31, 2016.

The Company reported adjusted earnings per diluted share(1) of $2.48 for the fiscal year ended October 31, 2017, an increase of 16 percent from $2.13 of adjusted earnings per diluted share for the fiscal year ended October 31, 2016. For the fiscal year ended October 31, 2017, adjusted earnings differed from earnings under U.S. generally accepted accounting principles (GAAP) by $0.06 per diluted share to reflect $5.4 million of costs associated with the May 2017 retirement of $250 million aggregate principal amount of the Company’s 6.5 percent senior notes due October 2, 2017 (2017 Senior Notes), $3.5 million of structuring fees paid in connection with the $210 million initial public offering of Eaton Vance Floating-Rate 2022 Target Term Trust (2022 Target Term Trust) in July 2017 and $0.5 million to reflect increases in the estimated redemption value of non-controlling interests in affiliates redeemable at other than fair value. For the fiscal year ended October 31, 2016, adjusted earnings differed from GAAP earnings by $0.01 per diluted share to reflect $2.3 million of structuring fees paid in connection with the $215 million initial public offering of Eaton Vance High Income 2021 Target Term Trust (2021 Target Term Trust) in May 2016. Attachment 2 shows a reconciliation of GAAP earnings to adjusted earnings.

The Company earned $0.69 per diluted share in the fourth quarter of fiscal 2017, an increase of 21 percent from $0.57 per diluted share in the fourth quarter of fiscal 2016 and an increase of 19 percent from $0.58 per diluted share in the third quarter of fiscal 2017.

The Company had adjusted earnings per diluted share of $0.70 in the fourth quarter of fiscal 2017, an increase of 23 percent from $0.57 of adjusted earnings per diluted share in the fourth quarter of fiscal 2016 and an increase of 13 percent from $0.62 of adjusted earnings per diluted share in the third quarter of fiscal 2017. In the fourth quarter of fiscal 2017, adjusted earnings differed from GAAP earnings by $0.01 per diluted share to reflect increases in the estimated redemption value of non-controlling interests in affiliates redeemable at other than fair value. Adjusted earnings per diluted share matched GAAP earnings per diluted share in the fourth quarter of fiscal 2016. In the third quarter of fiscal 2017, adjusted earnings differed from GAAP earnings by $0.04 per diluted share to reflect $5.4 million of costs associated with retiring the 2017 Senior Notes and $3.5 million of structuring fees paid in connection with the initial public offering of the 2022 Target Term Trust, as mentioned above.

Net gains and other investment income related to seed capital investments contributed $0.04 and $0.05 to earnings per diluted share for the fiscal years ended October 31, 2017 and 2016, respectively. Net gains and other investment income related to seed capital investments contributed $0.01 to earnings per diluted share in each of the fourth quarter of fiscal 2017, the fourth quarter of fiscal 2016 and the third quarter of fiscal 2017.

Consolidated net inflows of $37.8 billion for the fiscal year ended October 31, 2017 represent an 11 percent annualized internal growth rate in managed assets (consolidated net inflows divided by beginning of period consolidated assets under management). This compares to net inflows of $19.3 billion and 6 percent annualized internal growth in managed assets for the fiscal year ended October 31, 2016. On the basis of net contribution to management fee revenue, the Company’s annualized internal revenue growth rate was 7 percent for the fiscal year ended October 31, 2017 and 1 percent for the fiscal year ended October 31, 2016.

Consolidated net inflows of $8.0 billion in the fourth quarter of fiscal 2017 represent an 8 percent annualized internal growth rate in managed assets. This compares to net inflows of $4.8 billion and 6 percent annualized internal growth in managed assets in the fourth quarter of fiscal 2016 and net inflows of $9.1 billion and annualized internal growth in managed assets of 9 percent in the third quarter of fiscal 2017. On the basis of net contribution to management fee revenue, the Company’s annualized internal revenue growth rate was 5 percent in the fourth quarter of fiscal 2017, 2 percent in the fourth quarter of fiscal 2016 and 6 percent in the third quarter of fiscal 2017.

Consolidated assets under management were $422.3 billion on October 31, 2017, up 26 percent from $336.4 billion of consolidated managed assets on October 31, 2016 and up 4 percent from $405.6 billion of consolidated managed assets on July 31, 2017. The year-over-year increase in consolidated assets under management reflects net inflows of $37.8 billion, market price appreciation of $38.2 billion and $9.9 billion of new managed assets gained in the acquisition of the business assets of Calvert Investment Management, Inc. (Calvert) on December 30, 2016. The sequential quarterly increase in consolidated assets under management reflects net inflows of $8.0 billion and market price appreciation of $8.8 billion in the fourth quarter of fiscal 2017.

"Eaton Vance finished fiscal 2017 on a strong note, with record consolidated assets under management and annual net flows and a new all-time high quarter earnings rate in the fourth quarter,” said Thomas E. Faust Jr., Chairman and Chief Executive Officer. “Favorable market performance and our continuing organic revenue growth position the Company for further earnings progress in fiscal 2018."

Average consolidated assets under management were $382.4 billion for the fiscal year ended October 31, 2017, an increase of 19 percent from $320.9 billion for the fiscal year ended October 31, 2016. Average consolidated assets under management were $413.9 billion in the fourth quarter of fiscal 2017, up 22 percent from $338.9 billion in the fourth quarter of fiscal 2016 and up 5 percent from $395.2 billion in the third quarter of fiscal 2017.

Excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 34.5 basis points for the fiscal year ended October 31, 2017, a decrease of 4 percent from 35.8 basis points for the fiscal year ended October 31, 2016. Excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 33.9 basis points in the fourth quarter of fiscal 2017, down 3 percent from 35.0 basis points in the fourth quarter of fiscal 2016 and down 1 percent from 34.2 basis points in the third quarter of fiscal 2017. Changes in average management fee rates for the compared periods primarily reflect the ongoing shift in the Company’s mix of business toward lower-fee mandates.

Attachments 5 and 6 summarize the Company’s assets under management and net flows by investment mandate and investment vehicle. Attachments 7, 8 and 9 summarize the Company’s ending consolidated assets under management by investment mandate, investment vehicle and investment affiliate. Attachment 10 shows the Company’s average annualized effective management fee rates by investment mandate.

As shown in Attachments 5 and 6, consolidated sales and other inflows were $168.3 billion for the fiscal year ended October 31, 2017, an increase of 35 percent from $125.1 billion for the fiscal year ended October 31, 2016. Consolidated sales and other inflows were $44.6 billion in the fourth quarter of fiscal 2017, up 27 percent from $35.1 billion in the fourth quarter of fiscal 2016 and up 12 percent from $39.8 billion in the third quarter of fiscal 2017.

Consolidated redemptions and other outflows were $130.4 billion for the fiscal year ended October 31, 2017, an increase of 23 percent from $105.8 billion for the fiscal year ended October 31, 2016. Consolidated redemptions and other outflows were $36.6 billion in the fourth quarter of fiscal 2017, up 21 percent from $30.2 billion in the fourth quarter of fiscal 2016 and up 19 percent from $30.7 billion in the third quarter of fiscal 2017.

As of October 31, 2017, the Company’s 49 percent-owned affiliate Hexavest, Inc. (Hexavest) managed $16.0 billion of client assets, up 17 percent from $13.7 billion of managed assets on October 31, 2016 and up 4 percent from $15.4 billion of managed assets on July 31, 2017. Hexavest had net inflows of $0.1 billion for the fiscal year ended October 31, 2017 versus net outflows of $1.1 billion for the fiscal year ended October 31, 2016. Hexavest had net inflows of $0.3 billion in the fourth quarter of fiscal 2017 versus net outflows of $0.1 billion in the fourth quarter of fiscal 2016 and net inflows of $0.4 billion in the third quarter of fiscal 2017. Attachment 11 summarizes assets under management and asset flow information for Hexavest. Other than Eaton Vance-sponsored funds for which Hexavest is adviser or sub-adviser, the managed assets and flows of Hexavest are not included in Eaton Vance consolidated totals.

Full Year Fiscal 2017 vs. Full Year Fiscal 2016

In fiscal 2017, revenue increased 14 percent to $1.5 billion from $1.3 billion in fiscal 2016. Management fees were up 15 percent, as a 19 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees contributed $0.4 million in fiscal 2017 compared to $3.4 million in fiscal 2016. Distribution and service fee revenues collectively were up 9 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses increased 13 percent to $1.0 billion in fiscal 2017 from $0.9 billion in fiscal 2016, reflecting increases in compensation, distribution expense, service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses. The increase in compensation expense reflects higher sales-based and operating income-based bonus accruals, higher salaries and benefits associated with increases in headcount, partly in connection with the Calvert acquisition, and higher stock-based compensation. The increase in distribution expense reflects an increase in closed-end fund structuring fees and higher marketing and promotion costs, primarily driven by higher average managed assets and the acquisition of the Calvert business. The increase in service fee expense reflects higher average assets under management in fund share classes subject to service fee payments. The increase in amortization of deferred sales commissions reflects higher commission amortization for private funds, partially offset by lower Class B and Class C commission amortization. The increase in fund-related expenses reflects higher fund subsidies attributable primarily to the addition of the Calvert funds, higher sub-advisory fees paid, an increase in fund expenses borne by the Company on funds for which it earns an all-in fee and $1.9 million in one-time reimbursements made to the funds by the Company in fiscal 2017. The increase in other operating expenses reflects higher travel, communications, information technology, professional services, and other corporate expenses.

Expenses in connection with the Company’s NextSharesTM exchange-traded managed funds (NextShares) initiative totaled $7.4 million in fiscal 2017 and $8.0 million in fiscal 2016.

Operating income increased 17 percent to $482.8 million in fiscal 2017 from $414.3 million in fiscal 2016. Operating margin increased to 31.6 percent in fiscal 2017 from 30.8 percent in fiscal 2016. As shown in Attachment 2, excluding the $3.5 million and $2.3 million of closed-end fund structuring fees paid in fiscal 2017 and fiscal 2016, respectively, adjusted operating income was up 17 percent year-over-year and adjusted operating margin increased to 31.8 percent in fiscal 2017 from 31.0 percent in fiscal 2016.

expense totaled $13.6 million in fiscal 2017 versus $6.2 million in fiscal 2016. The year-over-year change reflects $5.4 million of costs incurred in connection with retiring the Company’s 2017 Senior Notes in fiscal 2017 and a $10.8 million decline in income contribution from a consolidated Collateralized Loan Obligation (CLO) entity, which was deconsolidated at the end of fiscal 2016, partially offset by a $6.9 million increase in net gains and other investment income from the Company’s investments in sponsored products and a $1.9 million decrease in interest expense. Net gains and other investment income in fiscal 2017 included a $1.9 million gain recognized upon the release from escrow of payments received in connection with the sale of the Company’s equity interest in Lloyd George Management (BVI) Ltd. in fiscal 2011. The decrease in interest expense primarily reflects the May 2017 retirement of the Company’s 6.5 percent 2017 Senior Notes and the April 2017 issuance of $300 million in aggregate principal amount of 3.5 percent senior notes due April 6, 2027 (2027 Senior Notes).

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 37.0 percent in fiscal 2017 and 37.7 percent in fiscal 2016.

Equity in net income of affiliates was $10.9 million in fiscal 2017 and $10.3 million in fiscal 2016. Equity in net income of affiliates in fiscal 2017 included $10.6 million from the Company’s investment in Hexavest and $0.3 million from the Company’s investment in a private equity partnership. Equity in net income of affiliates in fiscal 2016 included $10.0 million from the Company’s investment in Hexavest and $0.4 million from the Company’s investment in a private equity partnership.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $24.2 million in fiscal 2017 and $23.5 million in fiscal 2016.

Fourth Quarter Fiscal 2017 vs. Fourth Quarter Fiscal 2016

In the fourth quarter of fiscal 2017, revenue increased 17 percent to $405.7 million from $346.8 million in the fourth quarter of fiscal 2016. Management fees were up 18 percent, as a 22 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees were -$0.3 million in the fourth quarter of fiscal 2017 versus $0.6 million in the fourth quarter of fiscal 2016. Distribution and service fee revenues collectively were up 9 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses increased 13 percent to $267.3 million in the fourth quarter of fiscal 2017 from $235.7 million in the fourth quarter of fiscal 2016, reflecting increases in compensation, distribution expense, service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses. The increase in compensation expense reflects higher sales-based and operating income-based bonus accruals, higher salaries and benefits associated with increases in headcount, partly in connection with the Calvert acquisition, and higher stock-based compensation. The increase in distribution expense reflects an increase in intermediary marketing support payments, primarily driven by higher average managed assets and the acquisition of the Calvert business. The increase in service fee expense reflects higher average assets under management in fund share classes subject to service fee payments. The increase in amortization of deferred sales commissions reflects higher commission amortization for private funds, partially offset by lower Class B and Class C commission amortization. The increase in fund-related expenses reflects higher fund subsidies attributable primarily to the addition of the Calvert funds and an increase in fund expenses borne by the Company on funds for which it earns an all-in fee. The increase in other operating expenses reflects higher travel, communications, information technology, professional services, facilities and other corporate expenses.

Expenses in connection with the Company’s NextShares initiative totaled $1.7 million in the fourth quarter of fiscal 2017 and $2.0 million in the fourth quarter of fiscal 2016.

Operating income increased 24 percent to $138.4 million in the fourth quarter of fiscal 2017 from $111.2 million in the fourth quarter of fiscal 2016. Operating margin increased to 34.1 percent in the fourth quarter of fiscal 2017 from 32.0 percent in the fourth quarter of fiscal 2016.

Non-operating expense totaled $1.9 million in the fourth quarter of fiscal 2017 versus $6.5 million in the fourth quarter of fiscal 2016. The year-over-year change reflects a $1.3 million increase in net gains and other investment income from the Company’s investments in sponsored products, a $1.5 million decrease in interest expense and a $1.8 million decrease in expense allocation from a consolidated CLO entity, which was deconsolidated at the end of fiscal 2016. The decrease in interest expense primarily reflects the May 2017 retirement of the Company’s 6.5 percent 2017 Senior Notes and the April 2017 issuance of the Company’s 3.5 percent 2027 Senior Notes.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 36.5 percent in the fourth quarter of fiscal 2017 and 39.0 percent in the fourth quarter of fiscal 2016.

Equity in net income of affiliates was $2.9 million in the fourth quarter of fiscal 2017 and $2.5 million in the fourth quarter of fiscal 2016. In the fourth quarter of fiscal 2017, substantially all equity in net income of affiliates related to the Company’s investment in Hexavest. Equity in net income of affiliates in the fourth quarter of fiscal 2016 included $2.3 million from the Company’s investment in Hexavest and $0.2 million from the Company’s investment in a private equity partnership.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $7.5 million in the fourth quarter of fiscal 2017 and $1.2 million in the fourth quarter of fiscal 2016.

Fourth Quarter Fiscal 2017 vs. Third Quarter Fiscal 2017

In the fourth quarter of fiscal 2017, revenue increased 3 percent to $405.7 million from $393.7 million in the third quarter of fiscal 2017. Management fees were up 4 percent, as a 5 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees were -$0.3 million in the fourth quarter of fiscal 2017 versus $0.5 million in the third quarter of fiscal 2017. Distribution and service fee revenues collectively were down 1 percent, reflecting lower managed assets in fund share classes that are subject to these fees.

Operating expenses decreased 2 percent to $267.3 million in the fourth quarter of fiscal 2017 from $272.7 million in the third quarter of fiscal 2017. Decreases in compensation, distribution expense, and fund-related expenses were partially offset by increases in service fee expense and other operating expenses. The decrease in compensation expense reflects lower sales-based bonus accruals, a decrease in stock-based compensation and lower costs associated with employee terminations, partially offset by higher operating income-based bonus accruals. Costs associated with employee terminations totaled $0.4 million in the fourth quarter of fiscal 2017 versus $3.0 million in the third quarter of fiscal 2017. The decrease in distribution expense reflects a decrease in closed-end fund structuring fees and lower marketing and promotion costs. The decrease in fund-related expenses reflects lower fund subsidies, a decrease in fund expenses borne by the Company on funds for which it earns an all-in fee and $1.9 million in one-time reimbursements made to the funds by the Company in the third quarter of fiscal 2017. The increase in service fee expense reflects higher average assets under management in fund share classes subject to service fee payments. Other operating expenses increased 4 percent, reflecting higher travel, information technology, professional services and facilities expenses.

Expenses in connection with the Company’s NextShares initiative totaled $1.7 million in the fourth quarter of fiscal 2017 and $2.0 million in the third quarter of fiscal 2017.

Operating income increased 14 percent to $138.4 million in the fourth quarter of fiscal 2017 from $121.0 million in the third quarter of fiscal 2017. Operating margin increased to 34.1 percent in the fourth quarter of fiscal 2017 from 30.7 percent in the third quarter of fiscal 2016. Excluding the $3.5 million of closed-end fund structuring fees paid during the third quarter of fiscal 2017, adjusted operating income was up 11 percent sequentially and adjusted operating margin was 31.6 percent in the third quarter of fiscal 2017.

Non-operating expense totaled $1.9 million in the fourth quarter of fiscal 2017 versus $6.0 million in the third quarter of fiscal 2017. The sequential change reflects $5.4 million of costs incurred in connection with retiring the Company’s 2017 Senior Notes in the third quarter of fiscal 2017 and a $0.3 million decrease in interest expense, partially offset by a $1.6 million decrease in net gains and other investment income from the Company’s investments in sponsored products. The decrease in interest expense primarily reflects the retirement of the Company’s 6.5 percent 2017 Senior Notes in the third quarter of fiscal 2017.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 36.5 percent in the fourth quarter of fiscal 2017 and 36.9 percent in the third quarter of fiscal 2017.

Equity in net income of affiliates was $2.9 million and $2.3 million in the fourth and third quarters of fiscal 2017, respectively, substantially all relating to the Company’s investment in Hexavest.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $7.5 million in both the fourth and third quarters of fiscal 2017.

Balance Sheet Information

Cash and cash equivalents totaled $610.6 million on October 31, 2017, with no outstanding borrowings against the Company’s $300 million credit facility. Included within investments is $213.5 million of holdings of short-term debt securities with maturities between 90 days and one year. During fiscal 2017, the Company used $126.2 million to repurchase and retire approximately 2.9 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 6.1 million shares remain available. The Company began consolidating a new warehouse-stage CLO entity in the fourth quarter of fiscal 2017.

Conference Call Information

Eaton Vance Corp. will host a conference call and webcast at 11:00 AM eastern time today to discuss the financial results for the three months and fiscal year ended October 31, 2017. To participate in the conference call, please dial 866-521-4909 (domestic) or 647-427-2311 (international) and refer to “Eaton Vance Corp. Fourth Fiscal Quarter Earnings.” A webcast of the conference call can also be accessed via Eaton Vance’s website, eatonvance.com.

A replay of the call will be available for one week by calling 800-585-8367 (domestic) or 416-621-4642 (international) or by accessing Eaton Vance’s website, eatonvance.com. To listen to the replay, enter the conference ID number 4999047 when instructed.

About Eaton Vance Corp.

Eaton Vance is a leading global asset manager whose history dates to 1924. With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates offer individuals and institutions a broad array of investment strategies and wealth management solutions. The Company’s long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today’s most discerning investors. For more information about Eaton Vance, visit eatonvance.com.

Forward-Looking Statements

This news release may contain statements that are not historical facts, referred to as “forward-looking statements.” The Company’s actual future results may differ significantly from those stated in any forward-looking statements, depending on factors such as changes in securities or financial markets or general economic conditions, client sales and redemption activity, the continuation of investment advisory, administration, distribution and service contracts, and other risks discussed in the Company’s filings with the Securities and Exchange Commission.

(1)Although the Company reports its financial results in accordance with GAAP, management believes that certain non-GAAP financial measures, specifically, adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share, while not a substitute for GAAP financial measures, may be effective indicators of the Company’s performance over time. In calculating these non-GAAP financial measures, net income attributable to Eaton Vance Corp. shareholders and earnings per diluted share are adjusted to exclude items management deems non-operating or non-recurring in nature or otherwise outside the ordinary course of business. These adjustments may include the add back of adjustments made in connection with changes in the estimated redemption value of non-controlling interests in our affiliates redeemable at other than fair value (non-controlling interest value adjustments), and, when applicable, other items such as closed-end fund structuring fees, special dividends, costs associated with retiring debt and tax settlements. Management and our Board of Directors, as well as our outside investors, consider these adjusted numbers a measure of the Company’s underlying operating performance. Management believes adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share are important indicators of our operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results, and may provide a better baseline for analyzing trends in our underlying business.