Classified in: Business
Subjects: ERN, CCA

Eaton Vance Corp. Report for the Three and Nine Month Periods Ended July 31, 2018

BOSTON, Aug. 29, 2018 /PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $0.83 for the third quarter of fiscal 2018, an increase of 43 percent from $0.58 of earnings per diluted share in the third quarter of fiscal 2017 and an increase of 6 percent from $0.78 of earnings per diluted share in the second quarter of fiscal 2018. 

The Company reported adjusted earnings per diluted share⁽¹⁾ of $0.82 for the third quarter of fiscal 2018, an increase of 32 percent from $0.62 of adjusted earnings per diluted share in the third quarter of fiscal 2017 and an increase of 6 percent from $0.77 of adjusted earnings per diluted share in the second quarter of fiscal 2018. In the third quarter of fiscal 2018, earnings under U.S. generally accepted accounting principles (U.S. GAAP) exceeded adjusted earnings by $0.01 per diluted share to reflect the reversal of $1.3 million of net excess tax benefits recognized from the exercise of employee stock options and vesting of restricted stock awards during the period. In the third quarter of fiscal 2017, adjusted earnings exceeded U.S. GAAP earnings by $0.04 per diluted share, reflecting $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) and $3.5 million of structuring fees paid in connection with the initial public offering of Eaton Vance Floating-Rate 2022 Target Term Trust (2022 Target Term Trust) in July 2017. In the second quarter of fiscal 2018, U.S. GAAP earnings exceeded adjusted earnings by $0.01 per diluted share to reflect the reversal of $1.9 million of net excess tax benefits recognized from the exercise of employee stock options and vesting of restricted stock awards during the period.

Net gains and other investment income related to seed capital investments contributed $0.01 to earnings per diluted share in each of the third quarter of fiscal 2018, the third quarter of fiscal 2017 and the second quarter of fiscal 2018.

Consolidated net inflows of $3.7 billion in the third quarter of fiscal 2018 represent a 3 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 $9.1 billion and 9 percent annualized internal growth in managed assets in the third quarter of fiscal 2017 and net inflows of $4.4 billion and annualized internal growth in managed assets of 4 percent in the second quarter of fiscal 2018. Excluding exposure management mandates, the Company's annualized internal growth rate in managed assets was 8 percent in the third quarter of fiscal 2018, 11 percent in the third quarter of fiscal 2017 and 9 percent in the second quarter of fiscal 2018.

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 5 percent in the third quarter of fiscal 2018, 6 percent in the third quarter of fiscal 2017 and 7 percent in the second quarter of fiscal 2018.

Consolidated assets under management were $453.2 billion on July 31, 2018, up 12 percent from $405.6 billion of consolidated managed assets on July 31, 2017 and up 3 percent from $440.1 billion of consolidated managed assets on April 30, 2018. The year-over-year increase in consolidated assets under management reflects net inflows of $23.2 billion and market price appreciation of $24.4 billion. The sequential quarterly increase in consolidated assets under management reflects net inflows of $3.7 billion and market price appreciation of $9.4 billion in the third quarter of fiscal 2018.

"In the third quarter of fiscal 2018, Eaton Vance reached new highs in managed assets, revenue and profits, both on a U.S. GAAP basis and as adjusted," said Thomas E. Faust Jr., Chairman and Chief Executive Officer. "Our diverse range of leading investment franchises, strong investment performance and outstanding distribution and client service have enabled Eaton Vance to continue growing even as the investment industry landscape has turned more difficult."

Average consolidated assets under management were $446.0 billion in the third quarter of fiscal 2018, up 13 percent from $395.2 billion in the third quarter of fiscal 2017 and up 1 percent from $440.6 billion in the second quarter of fiscal 2018.

Excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 33.5 basis points in the third quarter of fiscal 2018, down 2 percent from 34.2 basis points in the third quarter of fiscal 2017 and up 1 percent from 33.3 basis points in the second quarter of fiscal 2018. Changes in average annualized management fee rates for the compared periods primarily reflect shifts in the Company's mix of business.

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 $38.0 billion in the third quarter of fiscal 2018, down 5 percent from $39.8 billion in the third quarter of fiscal 2017 and down 4 percent from $39.4 billion in the second quarter of fiscal 2018.  Excluding exposure management mandates, third quarter fiscal 2018 consolidated sales and other inflows were up 4 percent from the third quarter of fiscal 2017 and down 6 percent from the second quarter of fiscal 2018.

Consolidated redemptions and other outflows were $34.2 billion in the third quarter of fiscal 2018, up 11 percent from $30.7 billion in the third quarter of fiscal 2017 and down 2 percent from $35.0 billion in the second quarter of fiscal 2018. Excluding exposure management mandates, third quarter fiscal 2018 consolidated redemptions and other outflows were up 10 percent from the third quarter of fiscal 2017 and down 5 percent from the second quarter of fiscal 2018.

As of July 31, 2018, our 49 percent-owned affiliate Hexavest Inc. (Hexavest) managed $15.2 billion of client assets, down 1 percent from $15.4 billion of managed assets on July 31, 2017 and down 4 percent from the $15.8 billion of managed assets on April 30, 2018. Hexavest had net outflows of $0.8 billion in the third quarter of fiscal 2018 versus net inflows of $0.4 billion in the third quarter of fiscal 2017 and net outflows of $0.2 billion in the second quarter of fiscal 2018. Attachment 11 summarizes the assets under management and net flows of 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.

 

Third Quarter Fiscal 2018 vs. Third Quarter Fiscal 2017

In the third quarter of fiscal 2018, revenue increased 9 percent to $430.6 million from $393.7 million in the third quarter of fiscal 2017. Management fees were up 10 percent, as a 13 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees were $(0.4) million in the third quarter of fiscal 2018 versus $0.5 million in the third quarter of fiscal 2017. Distribution and service fee revenues collectively were up 1 percent, reflecting higher managed assets in fund share classes that are subject to these fees.

Operating expenses increased 6 percent to $288.3 million in the third quarter of fiscal 2018 from $272.7 million in the third quarter of fiscal 2017. Increases in compensation, amortization of deferred sales commissions, fund-related expenses and other operating expenses were partially offset by lower distribution expense. The increase in compensation expense reflects higher salaries and benefits associated with increases in headcount, higher operating income- and performance-based bonus accruals, and higher stock-based compensation, partially offset by a decrease in sales-based incentive compensation and lower costs associated with employee terminations. The increase in amortization of deferred sales commissions reflects higher commission amortization for private funds, partially offset by lower 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, partially offset by a $1.9 million decrease in fund expenses borne by the Company related to a one-time reimbursement made by the Company to certain funds in the third quarter of fiscal 2017. Other operating expenses increased 10 percent, reflecting higher information technology and facilities expenses, partially offset by lower travel and other corporate expenses. The decrease in distribution expense primarily reflects a decrease in closed-end fund structuring fees and lower marketing and promotion costs, partially offset by an increase in intermediary marketing support payments.

Operating income increased 18 percent to $142.3 million in the third quarter of fiscal 2018 from $121.0 million in the third quarter of fiscal 2017. Operating margin increased to 33.0 percent in the third quarter of fiscal 2018 from 30.7 percent in the third quarter of fiscal 2017. Excluding the $3.5 million of closed-end fund structuring fees paid during the third quarter of fiscal 2017, adjusted operating income was up 14 percent year-over-year and adjusted operating margin was 31.6 percent in the third quarter of fiscal 2017.

Non-operating income (expense) was negligible in the third quarter of fiscal 2018 versus $(6.0) million in the third quarter of fiscal 2017. The year-over-year change primarily reflects $5.4 million of costs incurred in connection with retiring the Company's 2017 Senior Notes in the third quarter of fiscal 2017, a $1.6 million increase in net gains and other investment income from the Company's investments in sponsored strategies, including consolidated sponsored funds, and a $0.3 million decrease in interest expense, partially offset by $1.2 million of net expense from consolidated CLO entities. The decrease in interest expense primarily reflects the retirement of the 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 26.2 percent in the third quarter of fiscal 2018 and 36.9 percent in the third quarter of fiscal 2017. The Company's effective tax rate in the third quarter of fiscal 2018 is discussed in greater detail in the section captioned "Taxation" below.

Equity in net income of affiliates was $2.8 million and $2.3 million in the third quarters of fiscal 2018 and 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 $6.0 million in the third quarter of fiscal 2018 and $7.5 million in the third quarter of fiscal 2017. The year-over-year change primarily reflects a decrease in income earned by consolidated sponsored funds.

Third Quarter Fiscal 2018 vs. Second Quarter of Fiscal 2018

In the third quarter of fiscal 2018, revenue increased 4 percent to $430.6 million from $414.3 million in the second quarter of fiscal 2018. Management fees were up 4 percent, primarily reflecting a 1 percent increase in average consolidated assets under management and the impact of three more fee days in the fiscal third quarter. Performance fees were $(0.4) million in the third quarter of fiscal 2018 and $(0.5) million in the second quarter of fiscal 2018. Distribution and service fee revenues collectively were up 3 percent, reflecting higher managed assets in fund share classes that are subject to these fees and the effect of three more fee days in the fiscal third quarter.

Operating expenses increased 2 percent to $288.3 million in the third quarter of fiscal 2018 from $281.6 million in the second quarter of fiscal 2018. Increases in compensation, distribution expense, service fee expense, amortization of deferred sales commissions and fund-related expenses were partially offset by a decrease in other operating expenses. The increase in compensation expense reflects higher salaries associated with increases in headcount and three more payroll days in the third fiscal quarter, higher stock-based compensation, primarily driven by an increase in employee accelerations due to retirements, and higher operating income-based bonus accruals, partially offset by decreases in payroll taxes and benefits, lower sales-based incentive compensation and a decrease in performance-based bonus accruals. The increase in distribution expense primarily reflects an increase in intermediary marketing support payments and higher Class A and Class C distribution fees, primarily driven by three more fee days in the fiscal third quarter, partially offset by lower marketing and promotion costs. The increase in service fee expense primarily reflects the impact of three more fee days in the fiscal third quarter and higher average assets under management in certain fund share classes that are subject to service fee payments. The increase in amortization of deferred sales commissions reflects higher private fund commission amortization, partially offset by lower Class C commission amortization. The increase in fund-related expenses reflects higher fund subsidies. Other operating expenses decreased 2 percent, primarily reflecting lower facilities, professional services, travel and other corporate expenses, partially offset by an increase in information technology expense.

Operating income increased 7 percent to $142.3 million in the third quarter of fiscal 2018 from $132.7 million in the second quarter of fiscal 2018. Operating margin increased to 33.0 percent in the third quarter of fiscal 2018 from 32.0 percent in the second quarter of fiscal 2018.

Non-operating income (expense) was negligible in the third quarter of fiscal 2018 versus $(5.3) million in the second quarter of fiscal 2018. The sequential change reflects a $7.4 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 $2.1 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 26.2 percent in the third quarter of fiscal 2018 and 26.7 percent in the second quarter of fiscal 2018. The Company's effective tax rate in the third and second quarters of fiscal 2018 is discussed in greater detail in the section captioned "Taxation" below.

Equity in net income of affiliates was $2.8 million in the third quarter of fiscal 2018 and $3.1 million in the second quarter of fiscal 2018. In the third quarter of fiscal 2018, substantially all equity in net income of affiliates related to the Company's investment in Hexavest. Equity in net income of affiliates in the second quarter of fiscal 2018 included $2.8 million from the Company's Hexavest investment and $0.3 million from the Company's investment in a private equity partnership.

As detailed in Attachment 3, net income (loss) attributable to non-controlling and other beneficial interests was $6.0 million in the third quarter of fiscal 2018 and $(0.2) million in the second quarter of fiscal 2018. The sequential change primarily reflects an increase in income earned by consolidated sponsored funds.

Taxation

On December 22, 2017, the Tax Cuts and Jobs Act (the 2017 Tax Act) was signed into law in the U.S. Among other significant changes, the 2017 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's income tax provision in the third and second quarters of fiscal 2018 was reduced by net excess tax benefits of $1.3 million and $1.9 million, respectively, related to the exercise of stock options and vesting of restricted stock during those periods. New accounting guidance adopted in the first quarter of fiscal 2018 requires these net excess tax benefits to be recognized in earnings.

Our calculations of adjusted net income and adjusted earnings per diluted share remove the effect of the net excess tax benefits recognized in connection with the new accounting guidance. On this basis, our adjusted effective tax rate was 27.1 percent and 28.2 percent in the third and second quarters of fiscal 2018, respectively. On the same adjusted basis, the Company estimates that its effective tax rate will be approximately 27.25 to 27.75 percent in the fourth quarter of fiscal 2018 and for the fiscal year as a whole. The Company's actual tax rates in the fourth quarter and for the full fiscal year 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 following table reconciles the statutory federal income tax rate to the Company's effective tax rate for the third and second quarters of fiscal 2018:

The Company continues to carefully evaluate the impact of the 2017 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-taxed income, foreign-derived intangible income and base erosion anti-abuse tax provisions.

Balance Sheet Information

As of July 31, 2018, the Company held $562.9 million of cash and cash equivalents and $257.9 million of investments in 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 2018, the Company used $186.1 million to repurchase and retire approximately 3.4 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 2.6 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, 2018. 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 6276355 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, when applicable, the add back of changes in the estimated redemption value of non-controlling interests in our affiliates redeemable at other than fair value (non-controlling interest value adjustments), 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 the 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 2017 Tax Act. Based on current law, the Company's fiscal 2019 statutory U.S. federal income tax rate will be 21 percent.

⁽³⁾Represents the Company's effective income tax rate, excluding the tax impact of stock-based compensation shortfalls or windfalls, which recently adopted accounting guidance requires to be recognized in earnings. 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. The Company estimates that its adjusted effective income tax rate for fiscal 2019 will be approximately 25.3 to 25.8 percent.

⁽⁴⁾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.

 

SOURCE Eaton Vance Corp.

These press releases may also interest you at 01:00 GSMA M360 Eurasia 2024 returns to Baku M360 Eurasia, hosted by the GSMA and with Host Sponsor Azercell, will return to Baku from 15-16 May 2024 at the JW Marriott Absheron Baku Hotel. M360 Eurasia convenes executives from leading corporations in mobile and vertical sectors, as well as... at 01:00 BlockFills Integrates with Institutional-Grade Connectivity Solution, Centroid Bridge: Providing Brokers a Centralized Environment for Price Management & Execution, Paired with BlockFills' 24/7 Digital Asset Liquidity Access BlockFills, a market leader in digital asset trading technology with 24/7 digital asset liquidity provision being among the firm's boutique of consultative fintech services, announced their full integration with Centroid Bridge of Centroid Solutions.... at 00:30 Catalyst Welcomes Northrop Grumman CEO Kathy Warden as New Board Chair Catalyst, a global nonprofit promoting gender equity and workplace inclusion, has named Kathy Warden, CEO of Northrop Grumman Corporation, Chair of its Board. She succeeds Accenture CEO Julie Sweet and is the fourth woman to chair the Board.  ... at 00:00 Health Carousel Introduces Innovative 'Full Circle of Support' Program to Elevate Employee Well-Being Health Carousel, renowned for its dedication to enhancing the healthcare staffing sector, today unveiled its groundbreaking 'Full Circle of Support' program. This initiative represents a significant investment in the total well-being of its... at 00:00 QuantumWork Advisory, an Allegis Group Company, Acquires Talent Tech Labs QuantumWork Advisory, a specialized global workforce advisory and transformation firm, has acquired Talent Tech Labs (TTL), a world-class research firm renowned for its in-depth understanding of the evolving workforce technology landscape. This... 17 avr 2024 WFES 2024: Sungrow Showcases its Advanced All-Scenario Renewable Energy Solutions in Abu Dhabi Sungrow, the global leading PV inverter and energy storage system provider, exhibited its cutting-edge and comprehensive renewable energy solutions at the World Future Energy Summit (WFES) 2024. Notably, Sungrow has achieved a remarkable milestone by... More news about Business...

News published on 29 august 2018 at 08:46 and distributed by: