Eaton Vance Corp. Third Quarter Earnings Conference Call Notification

Eaton Vance Corp. Third Quarter Earnings Conference Call Webcast

Eaton Vance Corp. Third Quarter Earnings Conference Call Presentation 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
Eric Senay 617-672-6744

Eaton Vance Corp. Report for the Three and Nine Month Periods Ended July 31, 2019

Boston, MA, August 27, 2019 – Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $0.90 for the third quarter of fiscal 2019, an increase of 8 percent from $0.83 of earnings per diluted share in the third quarter of fiscal 2018 and an increase of 1 percent from $0.89 of earnings per diluted share in the second quarter of fiscal 2019.

The Company reported adjusted earnings per diluted share(1) of $0.90 for the third quarter of fiscal 2019, an increase of 10 percent from $0.82 of adjusted earnings per diluted share in the third quarter of fiscal 2018 and an increase of 1 percent from $0.89 of adjusted earnings per diluted share in the second quarter of fiscal 2019. Earnings under U.S. generally accepted accounting principles (U.S. GAAP) matched adjusted earnings in both the third and second quarters of fiscal 2019 and exceeded adjusted earnings by $0.01 per diluted share in the third quarter of fiscal 2018, reflecting the reversal of net excess tax benefits related to stock‐based awards of $1.3 million.

Net gains and other investment income related to seed capital investments contributed $0.06 to earnings per diluted share in the third quarter of fiscal 2019, $0.01 in the third quarter of fiscal 2018 and $0.03 in the second quarter of fiscal 2019. Other income and expense amounts related to consolidated collateralized loan obligation (CLO) entities reduced earnings by $0.02 and $0.01 per diluted share in the third quarter of fiscal 2019 and fiscal 2018, respectively, and contributed $0.07 to earnings per diluted share in the second quarter of fiscal 2019.

Consolidated net inflows of $8.0 billion in the third quarter of fiscal 2019 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 $3.7 billion and 3 percent annualized internal growth in managed assets in the third quarter of fiscal 2018 and net inflows of $4.6 billion and annualized internal growth in managed assets of 4 percent in the second quarter of fiscal 2019. Excluding exposure management mandates, the Company’s annualized internal growth rate in managed assets was 5 percent in the third quarter of fiscal 2019, 8 percent in the third quarter of fiscal 2018 and 3 percent in the second quarter of fiscal 2019.

The Company’s annualized internal management fee revenue growth rate (management fees attributable to consolidated inflows less management fees attributable to consolidated outflows divided by beginning of period consolidated management fee revenue) was 2 percent in the third quarter of fiscal 2019, 5 percent in the third quarter of fiscal 2018 and 1 percent in the second quarter of fiscal 2019. These growth rates reflect the Company’s retrospective adoption of Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers, on November 1, 2018, which provides for management fee revenue to be recorded net of associated subsidy expenses.

Consolidated assets under management were $482.8 billion on July 31, 2019, up 7 percent from $453.2 billion of consolidated managed assets on July 31, 2018 and up 3 percent from $469.9 billion of consolidated managed assets on April 30, 2019. The year-over-year increase in consolidated assets under management reflects net inflows of $16.2 billion and market price appreciation of $13.4 billion. The sequential quarterly increase in consolidated assets under management reflects net inflows of $8.0 billion and market price appreciation of $4.8 billion in the third quarter of fiscal 2019.

"Eaton Vance’s distinctive array of investment strategies and services continued to attract strong investor interest in the third quarter of our fiscal 2019, propelling consolidated assets under management to a new record high,” said Thomas E. Faust Jr., Chairman and Chief Executive Officer. “Innovation, investment management excellence and outstanding distribution and service remains our formula for success in a changing asset management industry."

Average consolidated assets under management were $471.0 billion in the third quarter of fiscal 2019, up 6 percent from $446.0 billion in the third quarter of fiscal 2018 and up 3 percent from $456.2 billion in the second quarter of fiscal 2019.

As shown in Attachment 10, excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 31.8 basis points in the third quarter of fiscal 2019, down 4 percent from 33.0 basis points in the third quarter of fiscal 2018 and unchanged from 31.8 basis points in the second quarter of fiscal 2019. Changes in average annualized management fee rates from the third quarter of fiscal 2018 primarily reflect shifts in the Company’s mix of business. Average annualized management fee rates for prior year periods have been restated to reflect the retrospective adoption of ASU 2014-09 on November 1, 2018 as described above.

Attachments 5 and 6 summarize the Company’s consolidated 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 management fee rates by investment mandate.

As shown in Attachments 5 and 6, consolidated sales and other inflows were $40.8 billion in the third quarter of fiscal 2019, up 7 percent from $38.0 billion in the third quarter of fiscal 2018 and up 11 percent from $36.8 billion in the second quarter of fiscal 2019.

Consolidated redemptions and other outflows were $32.8 billion in the third quarter of fiscal 2019, down 4 percent from $34.2 billion in the third quarter of fiscal 2018 and up 2 percent from $32.2 billion in the second quarter of fiscal 2019.

As of July 31, 2019, the Company’s 49 percent-owned affiliate Hexavest Inc. (Hexavest) managed $13.4 billion of client assets, down 12 percent from $15.2 billion of managed assets on July 31, 2018 and down 4 percent from $13.9 billion of managed assets on April 30, 2019. Hexavest had net outflows of $0.6 billion in the third quarter of fiscal 2019 versus net outflows of $0.8 billion in the third quarter of fiscal 2018 and net inflows of $0.2 billion in the second quarter of fiscal 2019. Attachment 11 summarizes the assets under management and net flows of Hexavest. Other than Eaton Vance-sponsored funds for which Hexavest is the adviser or sub-adviser, the managed assets and flows of Hexavest are not included in Eaton Vance consolidated totals.

Third Quarter Fiscal 2019 vs. Third Quarter Fiscal 2018(2)

In the third quarter of fiscal 2019, revenue increased 1 percent to $431.2 million from $428.7 million in the third quarter of fiscal 2018. Management fees were up 2 percent, as a 6 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees were $0.1 million in the third quarter of fiscal 2019 and $(0.4) million in the third quarter of fiscal 2018. Distribution and service fee revenues were collectively down 5 percent, reflecting lower managed assets in fund share classes that are subject to these fees.

Operating expenses increased 3 percent to $294.1 million in the third quarter of fiscal 2019 from $286.4 million in the third quarter of fiscal 2018. Increases in compensation, service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses were partially offset by a decrease in distribution expense. The increase in compensation reflects higher salaries and benefits associated with increases in headcount and higher stock-based compensation, partially offset by lower sales-based incentive compensation and operating income-based bonus accruals. The increase in service fee expense reflects higher Class A and private fund service fee payments, partially offset by lower Class C service fee payments. The increase in amortization of deferred sales commissions reflects higher private fund commission amortization. The increase in fund-related expenses reflects higher sub-advisory fees paid. Other operating expenses increased 6 percent, primarily reflecting increases in information technology spending, facilities expenses and travel expenses, partially offset by a decrease in other corporate expenses. The decrease in distribution expense primarily reflects lower Class C distribution fee payments, partially offset by an increase in marketing and promotion costs.

Operating income decreased 4 percent to $137.1 million in the third quarter of fiscal 2019 from $142.3 million in the third quarter of fiscal 2018. Operating margin decreased to 31.8 percent in the third quarter of fiscal 2019 from 33.2 percent in the third quarter of fiscal 2018.

Non-operating income totaled $5.5 million in the third quarter of fiscal 2019 and was negligible in the third quarter of fiscal 2018. The year-over-year change reflects a $7.7 million increase in net gains and other investment income from the Company’s investments in sponsored strategies, including consolidated sponsored funds, partially offset by a $2.2 million decrease in income contribution from consolidated CLO entities.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 25.5 percent in the third quarter of fiscal 2019 and 26.2 percent in the third quarter of fiscal 2018. The Company’s effective tax rate is discussed in greater detail in the section captioned “Taxation” below.

Equity in net income of affiliates was $2.2 million and $2.8 million in the third quarters of fiscal 2019 and 2018, 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 $6.3 million in the third quarter of fiscal 2019 and $6.0 million in the third quarter of fiscal 2018. The year-over-year change primarily reflects an increase in income earned by consolidated sponsored funds.

The Company’s weighted average basic shares outstanding were 109.1 million in the third quarter of fiscal 2019 and 114.6 million in the third quarter of fiscal 2018, a decrease of 5 percent. The year-over-year reduction reflects share repurchases in excess of new shares issued upon the vesting of restricted stock awards and the exercise of employee stock options. On a diluted basis, the Company’s weighted average shares outstanding were 113.5 million in the third quarter of fiscal 2019 and 122.7 million in the third quarter of fiscal 2018, a decrease of 8 percent. The decline in weighted average diluted shares outstanding further reflects a decrease in the dilutive effect of in-the-money options and unvested restricted stock awards due to lower market prices of the Company’s shares.

Third Quarter Fiscal 2019 vs. Second Quarter Fiscal 2019

In the third quarter of fiscal 2019, revenue increased 5 percent to $431.2 million from $411.9 million in the second quarter of fiscal 2019. Management fees were up 5 percent, primarily reflecting a 3 percent increase in average consolidated assets under management and the impact of three more fee days in the fiscal third quarter. Performance fees were $0.1 million in the third quarter of fiscal 2019 and $1.8 million in the second quarter of fiscal 2019. Distribution and service fee revenues were collectively up 7 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses totaled $294.1 million in the third quarter of fiscal 2019 compared to $284.7 million in the second quarter of fiscal 2019, reflecting increases in compensation, distribution expense, service fee expense, amortization of deferred sales commissions and other operating expenses, partially offset by a decrease in fund-related expenses. The increase in compensation expense reflects higher salaries and stock-based compensation, driven by increases in headcount and three more payroll days in the third fiscal quarter, higher operating income-based bonus accruals and increased sales-based incentive compensation, partially offset by decreases in payroll taxes, benefits and performance-based bonus accruals. The increase in distribution expense reflects higher marketing and promotion costs and an increase in up-front sales commission expense, partially offset by lower Class C distribution fee payments. The increase in service fee expense reflects higher Class A and private fund service fee payments. The increase in amortization of deferred sales commissions reflects higher private fund commission amortization. The increase in other operating expenses primarily reflects increases in information technology spending, facilities expenses and travel expenses, partially offset by lower professional services and other corporate expenses. The decrease in fund-related expenses primarily reflects a decrease in fund expenses borne by the Company, partially offset by higher sub-advisory fees paid.

Operating income increased 8 percent to $137.1 million in the third quarter of fiscal 2019 from $127.2 million in the second quarter of fiscal 2019. Operating margin increased to 31.8 percent in the third quarter of fiscal 2019 from 30.9 percent in the second quarter of fiscal 2019.

Non-operating income totaled $5.5 million in the third quarter of fiscal 2019 versus $20.3 million in the second quarter of fiscal 2019. The sequential change reflects a $14.5 million decrease in income contribution from consolidated CLO entities and a $0.4 million decrease in net gains and other investment income from the Company’s investments in sponsored strategies, including consolidated sponsored funds.

The Company’s effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 25.5 percent in the third quarter of fiscal 2019 and 25.1 percent in the second quarter of fiscal 2019. The Company’s effective tax rate is discussed in greater detail in the section captioned “Taxation” below.

Equity in net income of affiliates was $2.2 million and $2.7 million in the third and second quarters of fiscal 2019, 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 $6.3 million in the third quarter of fiscal 2019 and $11.3 million in the second quarter of fiscal 2019. The sequential change primarily reflects a decrease in income earned by consolidated sponsored funds.

The Company’s weighted average basic shares outstanding were 109.1 million in the third quarter of fiscal 2019 and 110.4 million in the second quarter of fiscal 2019, a decrease of 1 percent. The sequential reduction reflects share repurchases in excess of new shares issued upon the vesting of restricted stock awards and the exercise of employee stock options. On a diluted basis, the Company’s weighted average shares outstanding were 113.5 million in the third quarter of fiscal 2019 and 114.2 million in the second quarter of fiscal 2019, a decrease of 1 percent. The change in weighted average diluted shares outstanding in the third quarter of fiscal 2019 also reflects an increase in the dilutive effect of in-the-money options and unvested restricted stock awards due to higher market prices of the Company’s shares.

The income tax provision for the third quarter of fiscal 2019 and the second quarter of fiscal 2019 includes $1.1 million and $0.7 million, respectively, of charges associated with certain provisions of the Tax Cuts and Jobs Act (2017 Tax Act) taking effect for the Company in fiscal 2019, relating principally to limitations on the deductibility of executive compensation.

The Company’s income tax provision was reduced by net excess tax benefits related to the exercise of employee stock options and vesting of restricted stock awards during the period totaling $0.6 million in the third quarter of fiscal 2019, $1.3 million in the third quarter of fiscal 2018 and $0.3 million in the second quarter of fiscal 2019.

The Company’s calculations of adjusted net income and adjusted earnings per diluted share remove the tax impact of stock-based compensation shortfalls or windfalls recognized in connection with the accounting guidance adopted in the first quarter of fiscal 2018. On this basis, the Company’s adjusted effective tax rate was 25.9 percent in the third quarter of fiscal 2019, 27.1 percent in the third quarter of fiscal 2018 and 25.3 percent in the second quarter of fiscal 2019. On the same adjusted basis, the Company estimates that its effective tax rate will be approximately 25.9 to 26.4 percent for the balance of fiscal 2019 and for the fiscal year as a whole. The Company’s actual adjusted effective tax rate for fiscal 2019 may vary from this estimate due to changes in the Company’s tax policy interpretations and assumptions, additional regulatory guidance that may be issued and other factors.

Balance Sheet Information

As of July 31, 2019, the Company held cash and cash equivalents of $527.7 million and its investments included $250.1 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 nine months of fiscal 2019, the Company used $244.8 million to repurchase and retire approximately 6.2 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 7.6 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 nine months ended July 31, 2019. To participate in the conference call, please dial 866-521-4909 (domestic) or 647-427-2311 (international) and refer to “Eaton Vance Corp. Third 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 6673747 when instructed.

About Eaton Vance Corp.

Eaton Vance Corp. (NYSE: EV) provides advanced investment strategies and wealth management solutions to forward-thinking investors around the world. Through principal investment affiliates Eaton Vance Management, Parametric, Atlanta Capital, Hexavest and Calvert, the Company offers a diversity of investment approaches, encompassing bottom-up and top-down fundamental active management, responsible investing, systematic investing and customized implementation of client-specified portfolio exposures. As of July 31, 2019, Eaton Vance had consolidated assets under management of $482.8 billion. Exemplary service, timely innovation and attractive returns across market cycles have been hallmarks of Eaton Vance since 1924. For more information, 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, when applicable, the add back of closed-end fund structuring fees, costs associated with special dividends, debt repayments and tax settlements, the tax impact of stock-based compensation shortfalls or windfalls, and non-recurring charges for the effect of 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)Prior period revenue and expenses have been restated to reflect certain classification adjustments from the Company’s retrospective adoption of ASU 2014-09 on November 1, 2018. The adoption of the new revenue recognition accounting standard had no impact on operating income or earnings per share.

(3)The Company’s statutory U.S. federal income tax rate for fiscal 2019 is 21 percent based on the 2017 Tax Act. The Company’s statutory U.S. federal income tax rate for fiscal 2018 was 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 2017 Tax Act.

(4)Represents the Company’s effective income tax rate, excluding the tax impact of stock-based compensation shortfalls or windfalls. Management believes that the Company’s adjusted effective income tax rate is an important indicator of our operations because it excludes 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.

(5)Reflects the impact of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted by the Company 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.