Eaton Vance Corp. First Quarter Earnings Conference Call Notification

Eaton Vance Corp. First Quarter Earnings Conference Call Webcast 

Eaton Vance Corp. First Quarter Earnings Conference Call Slides

Press Release Tables

Summary of Results of Operations

HTML

Excel

PDF

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

HTML

Excel

PDF

Net Income Attributable to Non-controlling Interests 

HTML

Excel

PDF

Balance Sheet

HTML

Excel

PDF

Asset Flows Table 1

HTML

Excel

PDF

Asset Flows Table 2

HTML

Excel

PDF

Asset Flows Table 3, 4 and 5

HTML

Excel

PDF

Effective Fee Rates 

HTML

Excel

PDF 

Hexavest Table

HTML

Excel

PDF 

 

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

Eaton Vance Corp. Report for the Three Month Period Ended January 31, 2018

Boston, MA, February 27, 2018 - Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $0.63 for the first quarter of fiscal 2018, an increase of 19 percent from $0.53 of earnings per diluted share in the first quarter of fiscal 2017 and a decrease of 9 percent from $0.69 of earnings per diluted share in the fourth quarter of fiscal 2017.

The Company reported adjusted earnings per diluted share(1) of $0.78 for the first quarter of fiscal 2018, an increase of 47 percent from $0.53 of adjusted earnings per diluted share in the first quarter of fiscal 2017 and an increase of 11 percent from $0.70 of adjusted earnings per diluted share in the fourth quarter of fiscal 2017. In the first quarter of fiscal 2018, adjusted earnings differed from earnings under U.S. generally accepted accounting principles (U.S. GAAP) by $0.15 per diluted share, primarily reflecting enactment of the Tax Cuts and Jobs Act (the Tax Act) and the adoption of new accounting guidance addressing the treatment of stock-based compensation plans. Adjusted earnings reflect the add back of the $21.7 million revaluation of the Company’s deferred tax assets and liabilities during the period relating to the reduction in the U.S. federal corporate income tax rate provided under the Tax Act, $3.0 million of tax expense recognized on the deemed repatriation of foreign earnings not previously subject to U.S. taxation, as required under the Tax Act, and $11.9 million of net excess tax benefit from stock-based compensation plans recognized from the exercise of employee stock options and vesting of restricted stock awards during the period. First quarter fiscal 2018 adjusted earnings also reflect the add back of a $6.5 million charge recognized upon the expiration of the Company’s option to acquire an additional 26 percent ownership interest in 49 percent-owned Hexavest, Inc. (Hexavest). Adjusted earnings per diluted share matched U.S. GAAP earnings per diluted share in the first quarter of fiscal 2017. In the fourth quarter of fiscal 2017, adjusted earnings differed from U.S. 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.

Net gains and other investment income related to seed capital investments were negligible in the first quarters of fiscal 2018 and fiscal 2017 and contributed $0.01 to earnings per diluted share in the fourth quarter of fiscal 2017.

Consolidated net inflows of $7.1 billion in the first quarter of fiscal 2018 represent a 7 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 $7.8 billion and 9 percent annualized internal growth in managed assets in the first quarter of fiscal 2017 and net inflows of $8.0 billion and annualized internal growth in managed assets of 8 percent in the fourth 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 first quarter of fiscal 2018, 7 percent in the first quarter of fiscal 2017 and 5 percent in the fourth quarter of fiscal 2017.

Consolidated assets under management were $449.2 billion on January 31, 2018, up 24 percent from $363.7 billion of consolidated managed assets on January 31, 2017 and up 6 percent from $422.3 billion of consolidated managed assets on October 31, 2017. The year-over-year increase in consolidated assets under management reflects net inflows of $37.1 billion and market price appreciation of $48.4 billion. The sequential quarterly increase in consolidated assets under management reflects net inflows of $7.1 billion and market price appreciation of $19.8 billion in the first quarter of fiscal 2018.

"While reported results were complicated by the effects of tax law changes and a newly adopted accounting standard, the first quarter of fiscal 2018 was another strong period of operating performance for Eaton Vance,” said Thomas E. Faust Jr., Chairman and Chief Executive Officer. “We continue to realize broad-based organic growth across our business."

Average consolidated assets under management were $433.5 billion in the first quarter of fiscal 2018, up 26 percent from $344.9 billion in the first quarter of fiscal 2017 and up 5 percent from $413.9 billion in the fourth quarter of fiscal 2017.

Excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 33.7 basis points in the first quarter of fiscal 2018, down 4 percent from 35.1 basis points in the first quarter of fiscal 2017 and down 1 percent from 33.9 basis points in the fourth 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 $44.0 billion in the first quarter of fiscal 2018, down 2 percent from $44.9 billion in the first quarter of fiscal 2017 and down 1 percent from $44.6 billion in the fourth quarter of fiscal 2017.

Consolidated redemptions and other outflows were $36.9 billion in the first quarter of fiscal 2018, down 1 percent from $37.1 billion in the first quarter of fiscal 2017 and up 1 percent from $36.6 billion in the fourth quarter of fiscal 2017.

As of January 31, 2018, Hexavest managed $16.7 billion of client assets, up 16 percent from $14.5 billion of managed assets on January 31, 2017 and up 4 percent from the $16.0 billion of managed assets on October 31, 2017. Hexavest had net outflows of $0.4 billion in the first quarter of fiscal 2018 versus negligible net flows in the first quarter of fiscal 2017 and net inflows of $0.3 billion in the fourth 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’s consolidated totals.

First Quarter Fiscal 2018 vs. First Quarter Fiscal 2017

In the first quarter of fiscal 2018, revenue increased 19 percent to $421.4 million from $355.0 million in the first quarter of fiscal 2017. Management fees were up 20 percent, as a 26 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees were -$0.5 million in the first quarter of fiscal 2018 versus $0.2 million in the first quarter of fiscal 2017. Distribution and service fee revenues collectively were up 7 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses increased 14 percent to $285.6 million in the first quarter of fiscal 2018 from $249.5 million in the first quarter of fiscal 2017, 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 operating income-based bonus accruals, higher salaries and benefits associated with increases in headcount and higher stock-based compensation, partially offset by a decrease in sales-based bonus accruals. The increase in distribution expense reflects an increase in intermediary marketing support payments, primarily driven by higher average managed assets, and higher marketing and promotion costs. 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 increases in fund subsidies, higher sub-advisory fees paid and an increase in fund expenses borne by the Company on funds for which it earns an all-in fee. Other operating expenses increased 14 percent, reflecting higher travel, communications, information technology, professional services, facilities and other corporate expenses.

Expenses in connection with the Company’s NextSharesTM exchange-traded managed funds (NextShares) initiative totaled $1.9 million in the first quarter of fiscal 2018 and $2.0 million in the first quarter of fiscal 2017.

Operating income increased 29 percent to $135.8 million in the first quarter of fiscal 2018 from $105.4 million in the first quarter of fiscal 2017. Operating margin increased to 32.2 percent in the first quarter of fiscal 2018 from 29.7 percent in the first quarter of fiscal 2017.

Non-operating expense totaled $1.7 million in the first quarter of fiscal 2018 versus $6.9 million in the first quarter of fiscal 2017. The year-over-year change reflects a $2.1 million increase in net gains and other investment income from the Company’s investments in sponsored products, a $1.6 million increase in income contribution from a consolidated warehouse-stage CLO entity that the Company began consolidating in the fourth quarter of fiscal 2017 and a $1.4 million decrease in interest expense. Net gains and other investment income in the first quarter of fiscal 2018 includes a $6.5 million charge to reflect the expiration during the period of the Company’s option to acquire an additional 26 percent ownership interest in Hexavest under the terms of the option agreement entered into when the Company acquired its Hexavest position in 2012. The decrease in interest expense primarily reflects the May 2017 retirement of $250 million aggregate principal amount of the Company’s 6.5 percent senior notes due October 2017 and the April 2017 issuance of $300 million in aggregate principal amount of 3.5 percent senior notes due April 2027.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 36.3 percent in the first quarter of fiscal 2018 and 37.3 percent in the first quarter of fiscal 2017. The Company’s effective tax rate for the first quarter of fiscal 2018 is further discussed under the “Taxation” section below.

Equity in net income of affiliates was $3.0 million in the first quarter of fiscal 2018 and $2.5 million in the first quarter of fiscal 2017. Equity in net income of affiliates in the first quarter of fiscal 2018 included $2.8 million from the Company’s investment in Hexavest and $0.2 million from the Company’s investment in a private equity partnership. Equity in net income of affiliates in the first quarter of fiscal 2017 included $2.4 million from the Company’s Hexavest investment and $0.1 million from the Company’s private equity partnership investment.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $10.5 million in the first quarter of fiscal 2018 and $3.6 million in the first quarter of fiscal 2017. The year-over-year change primarily reflects an increase in income earned by consolidated sponsored funds and a decrease in the Company’s ownership interest in certain consolidated sponsored funds.

First Quarter Fiscal 2018 vs. Fourth Quarter Fiscal 2017

In the first quarter of fiscal 2018, revenue increased 4 percent to $421.4 million from $405.7 million in the fourth 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 -$0.5 million in the first quarter of fiscal 2018 and -$0.3 million in the fourth quarter of fiscal 2017. Distribution and service fee revenues collectively were up 2 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses increased 7 percent to $285.6 million in the first quarter of fiscal 2018 from $267.3 million in the fourth quarter of fiscal 2017. Increases in compensation, distribution expense, amortization of deferred sales commissions and fund-related expenses were partially offset by decreases in service fee expense and other operating expenses. The increase in compensation expense reflects higher stock-based compensation, higher sales-based incentive accruals driven by strong product sales, higher salaries and benefits driven by increased headcount and year-end compensation increases, and higher operating income-based accruals. The increase in distribution expense primarily reflects the reclassification of certain service fee expense amounts into distribution expense, an increase in intermediary marketing support payments, primarily driven by higher average managed assets, and higher marketing and promotion costs. The increase in amortization of deferred sales commissions primarily reflects higher private fund commission amortization, partially offset by lower Class B and Class C commission amortization. The increase in fund-related expenses reflects higher fund subsidies and increases in sub-advisory fees paid. The decrease in service fee expense primarily reflects the reclassification of certain service fee expense amounts into distribution expense, partially offset by higher average assets under management in fund share classes subject to service fee payments. Other operating expenses decreased 2 percent, primarily reflecting lower professional services and travel expenses.

Expenses in connection with the Company’s NextShares initiative totaled $1.9 million in the first quarter of fiscal 2018 and $1.7 million in the fourth quarter of fiscal 2017.

Operating income decreased 2 percent to $135.8 million in the first quarter of fiscal 2018 from $138.4 million in the fourth quarter of fiscal 2017. Operating margin decreased to 32.2 percent in the first quarter of fiscal 2018 from 34.1 percent in the fourth quarter of fiscal 2017.

Non-operating expense totaled $1.7 million in the first quarter of fiscal 2018 versus $1.9 million in the fourth quarter of fiscal 2017. The sequential change reflects a $1.6 million increase in income contribution from a consolidated warehouse-stage CLO entity that the Company began consolidating in the fourth quarter of fiscal 2017, partially offset by a $1.4 million decrease in net gains and other investment income from the Company’s investments in sponsored products. Net gains and other investment income in the first quarter of fiscal 2018 includes a $6.5 million charge to reflect the expiration during the period of the Company’s option to acquire an additional 26 percent ownership interest in Hexavest under the terms of the option agreement entered into when the Company acquired its Hexavest position in 2012.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 36.3 percent in the first quarter of fiscal 2018 and 36.5 percent in the fourth quarter of fiscal 2017. The Company’s effective tax rate for the first quarter of fiscal 2018 is further discussed under “Taxation” below.

Equity in net income of affiliates was $3.0 million in the first quarter of fiscal 2018 and $2.5 million in the first quarter of fiscal 2017. Equity in net income of affiliates in the first quarter of fiscal 2018 included $2.8 million from the Company’s investment in Hexavest and $0.2 million from the Company’s investment in a private equity partnership. Equity in net income of affiliates in the first quarter of fiscal 2017 included $2.4 million from the Company’s Hexavest investment and $0.1 million from the Company’s private equity partnership investment.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $10.5 million in the first quarter of fiscal 2018 and $3.6 million in the first quarter of fiscal 2017. The year-over-year change primarily reflects an increase in income earned by consolidated sponsored funds and a decrease in the Company’s ownership interest in certain consolidated sponsored funds.

Taxation

On December 22, 2017, the Tax Act was signed into law in the U.S. Among other significant changes, the Tax Act reduced the statutory federal income tax rate for U.S. corporate taxpayers from a maximum of 35 percent to 21 percent and required the deemed repatriation of foreign earnings not previously subject to U.S. taxation. Because the lower federal income tax rate took effect two months into the Company’s fiscal year, a blended federal tax rate of 23.3 percent applies to the Company for fiscal 2018 (see table below). The Company estimates that its effective tax rate will be approximately 27.0 to 27.5 percent for the balance of fiscal 2018, and approximately 29.25 to 29.75 percent for fiscal 2018 as a whole. The Company’s actual tax rates in fiscal 2018 may vary from these estimates due to, among other things, changes in the Company’s tax policy interpretations and assumptions, as well as additional regulatory guidance that may be issued.

The Company’s income tax provision for the first quarter of fiscal 2018 includes a non-recurring charge of $24.7 million to reflect the estimated effect of the Tax Act. The non-recurring charge is based on current interpretation of the tax law changes, and includes $21.7 million from the revaluation of the Company’s deferred tax assets and liabilities, and $3.0 million for the deemed repatriation of foreign-sourced net earnings not previously subject to U.S. taxation. The increase in the Company’s effective tax rate for the first quarter of fiscal 2018 resulting from this charge was offset by an income tax benefit of $11.9 million related to the exercise of stock options and vesting of restricted stock during the period, and the net income attributable to redeemable non-controlling interests and other beneficial interests, which is not taxable to the Company. The following table reconciles the statutory federal income tax rate to the Company’s effective tax rate for the first quarter of fiscal 2018:

The Company continues to carefully evaluate the impact of the Tax Act, certain provisions of which will not take effect for the Company until fiscal 2019, including, but not limited to, the global intangible low-tax, foreign-derived intangible income and base erosion anti-abuse tax provisions.

Balance Sheet Information

As of January 31, 2018, the Company held cash and cash equivalents of $533.3 million and its investments included $207.5 million of short-term debt securities with maturities between 90 days and one year. There were no outstanding borrowings under the Company’s $300 million credit facility at such date. During the first quarter of fiscal 2018, the Company used $36.3 million to repurchase and retire approximately 0.7 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 5.4 million shares remain available.

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 ended January 31, 2018. To participate in the conference call, please dial 866-521-4909 (domestic) or 647-427-2311 (international) and refer to “Eaton Vance Corp. First 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 6877337 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 U.S. GAAP, management believes that certain non-U.S. GAAP financial measures, specifically, adjusted net income attributable to Eaton Vance Corp. shareholders and adjusted earnings per diluted share, while not a substitute for U.S. GAAP financial measures, may be effective indicators of the Company’s performance over time. Non-U.S. GAAP financial measures should not be construed to be superior to U.S. GAAP measures. In calculating these non-U.S. 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, tax settlements, tax impact of stock-based compensation shortfalls or windfalls and non-recurring charges for the effect of the U.S. tax law changes. Management and our Board of Directors, as well as certain of 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 useful baseline for analyzing trends in our underlying business.

(2)Statutory U.S. federal income tax rate is a blend of 35 percent and 21 percent based on the number of days in the Company’s fiscal year before and after the January 1, 2018 effective date of the reduction in the federal corporate income tax rate pursuant to the Tax Act. Based on current law, the Company’s fiscal 2019 statutory U.S. federal income tax rate will be 21 percent and the fiscal 2019 operating effective income tax rate is estimated to be approximately 25.0 to 25.5 percent.

(3)This amount reflects the impact of Accounting Standard Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted in the first quarter of fiscal 2018. The Company anticipates that the adoption of this guidance may cause fluctuations in the Company’s effective tax rate, particularly in the first quarter of each fiscal year, when most of the Company’s annual stock-based awards vest.