Eaton Vance Corp. Report for the Three Months and Fiscal Year Ended October 31, 2016

BOSTON, Nov. 22, 2016/PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $2.12 for the fiscal year ended October 31, 2016, an increase of 10 percent from $1.92 of earnings per diluted share for the fiscal year ended October 31, 2015.

The Company had adjusted earnings per diluted share⁽¹⁾ of $2.13 for the fiscal year ended October 31,2016, a decrease of 7percent from $2.29 of adjusted earnings per diluted share for the fiscal year ended October 31,2015.For the fiscal year ended October 31,2016, adjusted earnings per diluted share differed from GAAP earnings by $0.01 as a result of the payment of $2.3 million of structuring fees in connection with the initial public offering of Eaton Vance High Income 2021 Target Term Trust in May. Adjusted earnings differed from GAAP earnings for the fiscal year ended October 31, 2015 as a result of the January 2015 payment of $73.0 million, or approximately $0.37 per diluted share, to terminate service and additional compensation arrangements in place with a major distribution partner for certain Eaton Vance closed-end funds.

The Company earned $0.57 per diluted share in the fourth quarter of fiscal 2016, an increase of 8 percent from $0.53 per diluted share in the fourth quarter of fiscal 2015 and an increase of 4 percent from $0.55 per diluted share in the third quarter of fiscal 2016.

The Company had adjusted earnings per diluted share of $0.57 in the fourth quarter of fiscal 2016, an increase of 8percent from $0.53 of adjusted earnings per diluted share in the fourth quarter of fiscal 2015 and up 2 percent from $0.56 of adjusted earnings per diluted share in the third quarter of fiscal 2016. Adjusted earnings differed from GAAP earnings by $0.01 per diluted share in the third quarter of fiscal 2016 as a result of the $2.3 million of closed-end fund structuring fees mentioned above.

Gains (losses) and other investment income related to seed capital investments contributed $0.05 and $0.01 per diluted share for the fiscal years ended October 31,2016 and October 31,2015, respectively. Gains (losses) and other investment income related to seed capital investments increased earnings per diluted share by $0.01 in the fourth quarter and third quarter of fiscal 2016, and reduced earnings per diluted share by $0.01 in the fourth quarter of fiscal 2015.

Consolidated net inflows of $19.3 billion in the fiscal year ended October 31,2016 represent a 6 percent annualized internal growth rate (consolidated net inflows divided by beginning of period consolidated assets under management). For comparison, the Company had consolidated net inflows of $16.7 billion and 6 percent internal growth for the fiscal year ended October 31,2015.

Consolidated net inflows of $4.8 billion in the fourth quarter of fiscal 2016 represent a 6 percent annualized internal growth rate. This compares to net inflows of $4.6 billion in the fourth quarter of fiscal 2015 and net inflows of $7.1 billion in the third quarter of fiscal 2016. 

"The positive organic growth Eaton Vance experienced in the first nine months of our fiscal year continued through the fourth quarter, as strong flows into Custom Beta strategies were supported by positive net sales of active strategies," said Thomas E. Faust Jr., Chairman and Chief Executive Officer. "Steady earnings progress over the course of the fiscal year positions the Company for continued improvement in fiscal 2017."

Consolidated assets under management were $336.4 billion on October 31, 2016, up 8 percent from $311.4 billion of consolidated managed assets on October 31, 2015 and up 1 percent from $334.4 billion of consolidated managed assets on July 31, 2016. The year-over-year increase in consolidated assets under management reflects net inflows of $19.3 billion and market price appreciation of $5.8 billion. The sequential quarter increase in consolidated assets under management reflects net inflows of $4.8 billion partially offset by market price declines of $2.9 billion.

Average consolidated assets under management were $320.9 billion for the fiscal year ended October 31,2016, an increase of 6 percent from $303.8 billion for the fiscal year ended October 31,2015. Average consolidated assets under management were $338.9 billion in the fourth quarter of fiscal 2016, up 11 percent from $306.4 billion in the fourth quarter of fiscal 2015 and up 4 percent from $324.9 billion in the third quarter of fiscal 2016.

Excluding performance-based fees, annualized effective investment advisory and administrative fee rates on consolidated assets under management averaged 35.8 basis points in fiscal 2016, down 9 percent from 39.3 basis points in fiscal 2015. On the same basis, annualized effective investment advisory and administrative fee rates on consolidated assets under management averaged 35.1 basis points in the fourth quarter of fiscal 2016, down 7 percent from 37.7 basis points in the fourth quarter of fiscal 2015 and down 2 percent from 35.7 basis points in the third quarter of fiscal 2016. The decline in average advisory and administrative fee rates year-over-year primarily reflects shifts in the Company's mix of business.

On October 21, 2016, the Company announced the signing of a definitive agreement to acquire the business assets of Calvert Investment Management, Inc. ("Calvert"), a subsidiary of Ameritas Holding Company.  Based in Maryland, Calvert is a recognized leader in responsible investing with approximately $12.3 billion of fund and separate account assets under management as of September 30, 2016. Completion of the transaction is expected on or about December 31, 2016 and is subject to certain customary closing conditions.

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 investment advisory and administrative fee rates by investment mandate.

As shown in Attachments 5 and 6, consolidated sales and other inflows were $125.1 billion for the fiscal year ended October 31,2016, substantially unchanged from $124.8 billion for the fiscal year ended October 31,2015. Consolidated sales and other inflows were $35.1 billion in the fourth quarter of fiscal 2016, up 14 percent from $30.9 billion in the fourth quarter of fiscal 2015 and up 11 percent from $31.6 billion in the third quarter of fiscal 2016.

Consolidated redemptions and other outflows were $105.8 billion for the fiscal year ended October 31,2016, down 2 percent from $108.1 billion for the fiscal year ended October 31,2015. Consolidated redemptions and other outflows were $30.2 billion in the fourth quarter of fiscal 2016, up 15 percent from $26.3 billion in the fourth quarter of fiscal 2015 and up 23 percent from $24.5 billion in the third quarter of fiscal 2016.

As of October 31, 2016, the Company's 49 percent-owned affiliate Hexavest, Inc. ("Hexavest") managed $13.7 billion of client assets, down 1 percent from $13.9 billion of managed assets on October 31, 2015 and down 5 percent from $14.4 billion of managed assets on July 31, 2016. Hexavest-managed funds and separate accounts had net outflows of $1.1 billion in fiscal 2016 and $2.7 billion in fiscal 2015. Hexavest net outflows were $0.1 billion in the fourth quarter of fiscal 2016 and $0.5 billion in both the fourth quarter of fiscal 2015 and in the third quarter of fiscal 2016.  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 2016 vs. Full Year Fiscal 2015

In fiscal 2016, revenue decreased 4 percent to $1.3 billion from revenue of $1.4 billion in fiscal 2015. Investment advisory and administrative fees were down 4 percent, as the impact of lower average effective fee rates, driven by product mix, more than offset a 6 percent increase in average consolidated assets under management. Performance fees contributed $3.4 million in fiscal 2016 and $3.7 million in fiscal 2015. Distribution and service fee revenues collectively were down 7 percent, reflecting lower managed assets in fund share classes that are subject to these fees.

Operating expenses decreased 7 percent to $0.9 billion in fiscal 2016 from $1.0 billion in fiscal 2015. Lower distribution and service fee expenses were partially offset by increases in compensation, amortization of deferred sales commissions and other operating expenses. The decrease in service fee expense reflects lower average assets under management in funds subject to service fee payments. The decrease in distribution expense primarily reflects lower closed-end fund-related distribution expense following the fiscal 2015 first quarter payment of $73.0 million to terminate service and additional compensation arrangements in place with a major distribution partner. The increase in compensation expense reflects higher salaries and benefits attributable to an increase in headcount, higher stock-based compensation accruals and other compensation costs, offset by lower operating income-based and sales-based incentive accruals.  The 4 percent increase in other operating expenses reflects higher information technology, travel and other expenses, partially offset by lower professional services, communications and facilities-related expenses. The increase in amortization of deferred sales commissions largely reflects an increase in private fund commission amortization, offset by decreases in Class B share and Class C share amortization. Fund-related expenses in fiscal 2016 were substantially unchanged from fiscal 2015.

Expenses in connection with the Company's NextShares™ exchange-traded managed funds ("NextShares") initiative totaled $8.0 million in fiscal 2016, an increase of 8 percent from $7.4 million in fiscal 2015.

Operating income increased 3 percent to $414.3 million in fiscal 2016 from $400.4 million in fiscal 2015. Operating margin increased to 30.8 percent in fiscal 2016 from 28.5 percent in fiscal 2015.  As shown in Attachment 2, adjusted operating margin decreased to 31.0 percent in fiscal 2016 from 33.7 percent in fiscal 2015.

Non-operating expense totaled $6.2 million in fiscal 2016 and $31.1 million in fiscal 2015. The year-over-year reduction in non-operating expense primarily reflects an increase of $12.4 million in gains and other investment income related to the Company's investments in sponsored products and a $12.5 million favorable change in income (expense) of the Company's consolidated CLO entities. The Company deconsolidated its last consolidated CLO entity in the fourth quarter of fiscal 2016.

The Company's effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 37.6 percent in fiscal 2016 and 38.8 percent in fiscal 2015.

Equity in net income of affiliates decreased to $10.3 million in fiscal 2016 from $12.0 million in fiscal 2015. 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 a private equity partnership. Equity in net income of affiliates in fiscal 2015 included $10.9 million from the Company's investment in Hexavest, $0.3 million from the Company's investments in sponsored funds and $0.8 million from a private equity partnership.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $23.5 million in fiscal 2016 and $7.9 million in fiscal 2015.

Fourth Quarter Fiscal 2016 vs. Fourth Quarter Fiscal 2015

In the fourth quarter of fiscal 2016, revenue increased 2 percent to $346.8 million from $341.5 million in the fourth quarter of fiscal 2015. Investment advisory and administrative fees were up 3 percent, as an 11 percent increase in average consolidated assets under management more than offset lower average effective fee rates and reduced performance fees. Performance fees contributed $0.6 million in the fourth quarter of fiscal 2016 and $2.0 million in the fourth quarter of fiscal 2015.  Distribution and service fee revenues collectively were down 5 percent, reflecting lower managed assets in fund share classes that are subject to these fees.

Operating expenses increased 2 percent to $235.7 million in the fourth quarter of fiscal 2016 from $230.5 million in the fourth quarter of fiscal 2015. Increases in compensation and fund-related expenses were partially offset by decreases in distribution expense, amortization of deferred sales commissions and other operating expenses. The increase in compensation expense reflects higher salaries and benefits associated with an increase in headcount, higher operating income-based and sales-based incentive accruals, and higher stock-based compensation. The increase in fund-related expenses reflects higher sub-advisory fees paid and increased fund expenses borne by the Company on funds for which it earns an all-in fee.  The decrease in distribution expense reflects lower marketing and promotion costs. Other operating expenses decreased 2 percent, reflecting lower professional services, communications and facilities expenses, partially offset by higher travel and other expenses.

NextShares-related expenses decreased 11 percent to $2.0 million in the fourth quarter of fiscal 2016 from $2.3 million in the fourth quarter of fiscal 2015.

Operating income of $111.2 million in the fourth quarter of fiscal 2016 was substantially unchanged from $110.9 million in the fourth quarter of fiscal 2015. Operating margin decreased to 32.0 percent in the fourth quarter of fiscal 2016 from 32.5 percent in the fourth quarter of fiscal 2015. 

Non-operating expense totaled $6.5 million in the fourth quarter of fiscal 2016 compared with non-operating expense of $13.7 million in the fourth quarter of fiscal 2015. The year-over-year reduction in non-operating expense primarily reflects a favorable change of $5.0 million in gains and other investment income related to the Company's investments in sponsored products and a $2.2 million favorable change in income (expense) of the Company's consolidated CLO entity.

The Company's effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 39.0 percent in the fourth quarter of fiscal 2016 and 40.2 percent in the fourth quarter of fiscal 2015.

Equity in net income of affiliates decreased to $2.5 million in the fourth quarter of fiscal 2016 from $2.7 million in the fourth quarter of fiscal 2015.  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 a private equity partnership. Equity in net income of affiliates in the fourth quarter of fiscal 2015 included $2.4 million from the Company's investment in Hexavest, $0.2 million from the Company's investments in sponsored funds and $0.1 million from a private equity partnership.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $1.2 million in the fourth quarter of fiscal 2016 compared with a net loss attributable to non-controlling and other beneficial interests of $1.4 million in the fourth quarter of fiscal 2015.

Fourth Quarter Fiscal 2016 vs. Third Quarter Fiscal 2016

In the fourth quarter of fiscal 2016, revenue increased 2 percent to $346.8 million from $341.2 million in the third quarter of fiscal 2016. Investment advisory and administrative fees were up 2 percent, reflecting a 4 percent increase in average consolidated assets under management, a 2 percent decline in average effective fee rates and reduced performance fees. Performance fees contributed $0.6 million in the fourth quarter of fiscal 2016 and $2.7 million in the third quarter of fiscal 2016. Distribution and service fee revenues were substantially unchanged.

Operating expenses increased 1 percent in the fourth quarter of fiscal 2016 from the third quarter of fiscal 2016. Increases in compensation, service fee expense and fund-related expenses were mostly offset by lower distribution and other expenses. The increase in compensation reflects higher salaries and benefits related to increased headcount and higher operating income-based and sales-based incentive accruals, partially offset by lower stock-based compensation. The increase in service fee expense reflects higher average assets under management in fund share classes subject to service fee payments. The increase in fund-related expenses primarily reflects increases in sub-advisory fees paid and higher expenses borne by the Company on funds for which it earns an all-in fee. The decrease in distribution expense primarily reflects the $2.3 million of structuring fees paid in connection with the May 2016 closed-end fund offering. Other operating expenses decreased 3 percent, primarily due to lower communications, information technology and other expenses, partially offset by higher travel expenses.

NextShares-related expenses decreased 15 percent to $2.0 million in the fourth quarter of fiscal 2016 from $2.4 million in the third quarter of fiscal 2016.

Operating income was up 4 percent to $111.2 million in the fourth quarter of fiscal 2016 from $106.7 million in the third quarter of fiscal 2016. Operating margin increased to 32.0 percent in the fourth quarter of fiscal 2016 from 31.3 percent in the third quarter of fiscal 2016. Adjusted to remove the structuring fees paid in connection with the May 2016 closed-end fund offering, operating income in the fourth quarter of fiscal 2016 was up 2 percent from the third quarter of fiscal 2016 and operating margin in the current quarter was unchanged.

Non-operating expense totaled $6.5 million in the fourth quarter of fiscal 2016 compared with $4.1 million of non-operating expense in the third quarter of fiscal 2016, reflecting a $0.5 million decline in gains and other investment income related to the Company's investments in sponsored products and a $1.8 million decrease in income (expense) of the Company's consolidated CLO entity.

The Company's effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 39.0 percent in the fourth quarter of fiscal 2016 and 38.8 percent in the third quarter of fiscal 2016.

Equity in net income of affiliates decreased to $2.5 million in the fourth quarter of fiscal 2016 from $3.0 million in the third quarter of fiscal 2016. In the fourth quarter of fiscal 2016, $2.3 million of equity in net income of affiliates was from the Company's investment in Hexavest and $0.2 million of net income was from a private equity partnership. In the third quarter of fiscal 2016, substantially all of the $3.0 million in equity in net income of affiliates related to the Company's investment in Hexavest.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $1.2 million in the fourth quarter of fiscal 2016 and$2.9 million in the third quarter of fiscal 2016.

Balance Sheet Information

Cash and cash equivalents totaled $424.2 million on October 31, 2016, with no outstanding borrowings against the Company's $300 million credit facility. Included within investments is $85.8 million of holdings of short-term debt securities with maturities between 90 days and one year. During fiscal 2016, the Company used $253.0 million to repurchase and retire approximately 7.3 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 2.9 million shares remain available. The Company deconsolidated its last consolidated CLO entity in the fourth quarter of fiscal 2016.

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, 2016. 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 dialing 855-859-2056 (domestic) or 404-537-3406 (international) or by accessing Eaton Vance's website, eatonvance.com. To listen to the replay, enter the conference ID number 17569828 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.