Eaton Vance Corp. Second Quarter Earnings Conference Call Notification 

Eaton Vance Corp. Second Quarter Earnings Conference Call Webcast 

Eaton Vance Corp. Second 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 and Six Month Periods Ended April 30, 2017

Boston, MA,May 24, 2017 - Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $0.62 for the second quarter of fiscal 2017, an increase of 29 percent from $0.48 of earnings per diluted share in the second quarter of fiscal 2016 and an increase of 17 percent from $0.53 of earnings per diluted share in the first quarter of fiscal 2017. For all periods presented, adjusted earnings per diluted share equaled earnings per diluted share as determined under U.S. generally accepted accounting principles. See Attachment 2 for the definition of adjusted earnings per diluted share.

Net gains and other investment income related to seed capital investments contributed $0.02 to earnings per diluted share in both the second quarter of fiscal 2017 and the second quarter of fiscal 2016, and were negligible in the first quarter of fiscal 2017.

Consolidated net inflows of $12.9 billion in the second quarter of fiscal 2017 represent a 14 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 $2.1 billion and 3 percent annualized internal growth in the second quarter of fiscal 2016 and net inflows of $7.8 billion and annualized internal growth of 9 percent in the first quarter of fiscal 2017. On the basis of net contribution to management fee revenue, the Company’s annualized internal revenue growth rate was 7 percent in the second quarter of fiscal 2017, 1 percent in the second quarter of fiscal 2016 and 7 percent in the first quarter of fiscal 2017.

Consolidated assets under management were $387.0 billion on April 30, 2017, an increase of 21 percent from $318.7 billion of consolidated managed assets on April 30, 2016 and up 6 percent from $363.7 billion of consolidated managed assets on January 31, 2017. The year-over-year increase in consolidated assets under management reflects net inflows of $32.6 billion and market price appreciation of $25.8 billion over the twelve-month period, 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 $12.9 billion and market price appreciation of $10.3 billion in the second quarter of fiscal 2017.

"In the second quarter of fiscal 2017, Eaton Vance achieved record revenue and net inflows, with all reporting categories contributing positively to net flows,” said Thomas E. Faust Jr., Chairman and Chief Executive Officer. “Amid a challenging environment for investment managers, the Company continues to perform at a high level."

Average consolidated assets under management were $376.5 billion in the second quarter of fiscal 2017, up 22 percent from $309.5 billion in the second quarter of fiscal 2016 and up 9 percent from $344.9 billion in the first quarter of fiscal 2017.

Excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 34.7 basis points in the second quarter of fiscal 2017, down 4 percent from 36.1 basis points in the second quarter of fiscal 2016 and down 1 percent from 35.1 basis points in the first 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 asset 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 $39.0 billion in the second quarter of fiscal 2017, up 40 percent from $27.8 billion in the second quarter of fiscal 2016 and down 13 percent from $44.9 billion in the first quarter of fiscal 2017.

Consolidated redemptions and other outflows were $26.0 billion in the second quarter of fiscal 2017, up 1 percent from $25.7 billion in the second quarter of fiscal 2016 and down 30 percent from $37.1 billion in the first quarter of fiscal 2017.

As of April 30, 2017, the Company’s 49 percent-owned affiliate Hexavest, Inc. (Hexavest) managed $14.5 billion of client assets, up 2 percent from $14.2 billion of managed assets on April 30, 2016 and substantially unchanged from the $14.5 billion of managed assets on January 31, 2017. Hexavest had net outflows of $0.6 billion in the second quarter of fiscal 2017 and $0.3 billion in the second quarter of fiscal 2016. Hexavest net flows were negligible in the first 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.

Financial Highlights

Second Quarter Fiscal 2017 vs. Second Quarter Fiscal 2016

In the second quarter of fiscal 2017, revenue increased 16 percent to $374.6 million from $323.3 million in the second quarter of fiscal 2016. Management fees were up 16 percent, as a 22 percent increase in average consolidated assets under management more than offset lower average management fee rates. Performance fees were negligible in both periods. Distribution and service fee revenues collectively were up 13 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses increased 13 percent to $256.7 million in the second quarter of fiscal 2017 from $227.5 million in the second 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 $3.9 million of higher sales-based incentive accruals driven by strong product sales, higher operating income-based bonus accruals, compensation expenses in connection with the Calvert acquisition and higher salaries and benefits associated with other increases in headcount. The increase in distribution expense primarily reflects an increase in intermediary marketing support payments, driven by the increase in average managed assets and the acquisition of the Calvert business, as well as increases in Class A commissions and Class C distribution fees. The increase in service fee expense relates to higher average assets under management in fund share classes subject to service fee payments. 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, primarily attributable to the addition of the Calvert funds, 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. The increase in other operating expenses reflects higher information technology, communications, facilities and other corporate expenses, largely associated with the Calvert acquisition.

Expenses in connection with the Company’s NextSharesTM exchange-traded managed funds (Next-Shares) initiative were $1.8 million in the second quarter of fiscal 2017 and $1.9 million in the second quarter of fiscal 2016.

Operating income was up 23 percent to $117.9 million in the second quarter of fiscal 2017 from $95.8 million in the second quarter of fiscal 2016. Operating margin increased to 31.5 percent in the second quarter of fiscal 2017 from 29.6 percent in the second quarter of fiscal 2016.

Non-operating income totaled $1.2 million in the second quarter of fiscal 2017 versus $7.5 million in the second quarter of fiscal 2016. The year-over-year change primarily reflects an $11.0 million decline in income contribution from the Company’s consolidated Collateralized Loan Obligation (CLO) entity, which was deconsolidated at the end of fiscal 2016, and a $0.7 million increase in interest expense recognized in the second quarter of fiscal 2017 related to the issuance of $300 million in aggregate principal amount of 3.50 percent ten-year senior notes due April 6, 2027 (2027 Senior Notes), partially offset by a $5.5 million increase in net gains and other investment income from the Company’s investments in sponsored products. The increase in net gains and other investment income includes a $1.9 million gain recognized in the second quarter of fiscal 2017 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. (Lloyd George Management) in fiscal 2011.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 37.5 percent in the second quarter of fiscal 2017 and 35.0 percent in the second quarter of fiscal 2016.

Equity in net income of affiliates was $3.1 million in the second quarter of fiscal 2017 and $2.4 million in the second quarter of fiscal 2016. Equity in net income of affiliates in the second quarter of fiscal 2017 included $3.0 million from the Company’s investment in Hexavest and $0.1 million from the Company’s investment in a private equity partnership. Equity in net income of affiliates in the second quarter of fiscal 2016 included $2.2 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 $5.7 million in the second quarter of fiscal 2017 and $14.5 million in the second quarter of fiscal 2016.

Second Quarter Fiscal 2017 vs. First Quarter Fiscal 2017

In the second quarter of fiscal 2017, revenue increased 6 percent to $374.6 million from $355.0 million in the first quarter of fiscal 2017. Management fees were up 6 percent, as a 9 percent increase in average consolidated assets under management more than offset lower average management fee rates and the effect of three fewer days in the fiscal second quarter. Performance fees were negligible in the second quarter of fiscal 2017 and contributed $0.2 million in the first quarter of fiscal 2017. Distribution and service fee revenues collectively were up 4 percent on a sequential quarterly basis, as higher managed assets in fund share classes that are subject to these fees more than offset the effect of fewer days in the fiscal second quarter.

Operating expenses increased 3 percent to $256.7 million in the second quarter of fiscal 2017 from $249.5 million in the first quarter of fiscal 2017, reflecting increases in distribution expense, service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses. The increase in distribution expense primarily reflects higher intermediary marketing support payments, driven primarily by the increase in average managed assets, including as a result of the Calvert acquisition. 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 private fund commission amortization, partially offset by decreased Class B and Class C commission amortization. The increase in fund-related expenses primarily reflects increases in fund subsidies related to the addition of the Calvert funds and increases in sub-advisory fees paid, partially offset by a decrease in fund expenses borne by the Company on funds for which it earns an all-in fee. The increase in other operating expenses is primarily due to higher information technology, travel, professional services, facilities, communications and other corporate expenses, partly associated with the Calvert acquisition.

NextShares-related expenses were $1.8 million in the second quarter of fiscal 2017 and $2.0 million in the first quarter of fiscal 2017.

Operating income was up 12 percent to $117.9 million in the second quarter of fiscal 2017 from $105.4 million in the first quarter of fiscal 2017. Operating margin increased to 31.5 percent in the second quarter from 29.7 percent in the first quarter.

Non-operating income totaled $1.2 million in the second quarter of fiscal 2017 versus $6.9 million of non-operating expense in the first quarter of fiscal 2017, reflecting an $8.8 million increase in net gains and other investment income from the Company’s investments in sponsored products, partially offset by a $0.7 million increase in interest expense recognized in the second quarter related to the issuance of the 2027 Senior Notes. The sequential increase in net gains and other investment income includes a $1.9 million gain recognized in the second quarter upon the release from escrow of payments received in connection with the sale of the Company’s equity interest in Lloyd George Management in fiscal 2011.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 37.5 percent in the second quarter of fiscal 2017 and 37.3 percent in the first quarter of fiscal 2017.

Equity in net income of affiliates was $3.1 million in the second quarter of fiscal 2017 and $2.5 million in the first quarter of fiscal 2017. In the second quarter, $3.0 million of equity in net income of affiliates was from the Company’s investment in Hexavest and $0.1 million from the Company’s investment in a private equity partnership. In the first quarter, $2.4 million of equity in net income of affiliates was from the Company’s investment in Hexavest and $0.1 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 $5.7 million in the second quarter of fiscal 2017 and $3.6 million in the first quarter of fiscal 2017.

Balance Sheet Information

Cash and cash equivalents totaled $663.5 million on April 30, 2017, with no outstanding borrowings against the Company’s $300 million credit facility. Cash and cash equivalents includes $297 million of net proceeds from the issuance of the 2027 Senior Notes in the second quarter of fiscal 2017. On May 5, 2017, the Company used the net proceeds from the 2027 Senior Notes to redeem all of the outstanding $250 million aggregate principal amount of its 6.50% Senior Notes that mature on October 2, 2017 and to pay accrued interest, fees and expenses associated with the redemption. Included within investments is $66.6 million of holdings of short-term debt securities with maturities between 90 days and one year. During the first six months of fiscal 2017, the Company used $79.0 million to repurchase and retire approximately 1.9 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 7.0 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 and six months ended April 30, 2017. To participate in the conference call, please dial 866-521-4909 (domestic) or 647-427-2311 (international) and refer to “Eaton Vance Corp. Second 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 22442485 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.