Eaton Vance Corp. Report for the Three and Six Month Periods Ended April 30, 2014

BOSTON, May 21, 2014 /PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today reported adjusted earnings per diluted share⁽¹⁾ of $0.59 for the second quarter of fiscal 2014, an increase of 13 percent over the $0.52 of adjusted earnings per diluted share in the second quarter of fiscal 2013 and an increase of 2 percent over the $0.58 of adjusted earnings per diluted share in the first quarter of fiscal 2014.  Net income and gains on seed capital investments contributed $0.01 per diluted share in each of the compared quarters. 

As determined under U.S. generally accepted accounting principles ("GAAP"), the Company earned $0.59 in the second quarter of fiscal 2014, $0.50 in the second quarter of fiscal 2013 and $0.56 in the first quarter of fiscal 2014. Adjusted earnings differed from GAAP earnings in the second quarter of fiscal 2013 and the first quarter of fiscal 2014 due to increases in the estimated redemption value of non-controlling interests in affiliates redeemable at other than fair value, which reduced GAAP earnings by $0.01 and $0.02 per diluted share, respectively.  In the second quarter of fiscal 2013, adjusted earnings also differed from GAAP earnings due to the closed-end fund structuring fees recognized in connection with the $205 million initial public offering of Eaton Vance Municipal Income Term Trust during the quarter, which reduced GAAP earnings per diluted share by $0.01.

Adjusted earnings per diluted share were $1.17 in the six months ended April 30, 2014 compared to $1.01 in the six months ended April 30, 2013, an increase of 16 percent. The Company's GAAP earnings per diluted share were $1.15 and $0.89, respectively, for the compared semi-annual periods.

Net outflows of $0.9 billion from long-term funds and separate accounts in the second quarter of fiscal 2014 compare to net inflows of $6.6 billion in the second quarter of fiscal 2013 and net outflows of $1.1 billion in the first quarter of fiscal 2014. 

"Eaton Vance achieved record earnings in the second quarter and first six months of fiscal 2014," said Thomas E. Faust Jr., Chairman and Chief Executive Officer.  "While flows in the first half were disappointing, the rapid development of a number of newer franchises positions us for resumed organic growth."

Consolidated assets under management were $285.9 billion on April 30, 2014, an increase of 10 percent from the $260.3 billion of managed assets on April 30, 2013 and an increase of 3 percent from the $278.6 billion of managed assets on January 31, 2014.  The increase in ending assets under management from April 30 of last year reflects net inflows of $10.7 billion and market price appreciation of $14.9 billion.  The sequential quarterly increase in ending assets under management reflects market price appreciation of $8.2 billion offset by net outflows of $0.9 billion.

Average consolidated assets under management were $284.4 billion in the second quarter of fiscal 2014, up 12 percent from $253.5 billion in the second quarter of fiscal 2013 and up 1 percent from $282.3 billion in the first quarter of fiscal 2014. 

Attachments 5 and 6 summarize the Company's consolidated assets under management and asset flows by investment mandate and investment vehicle. Attachment 7 summarizes the Company's consolidated assets under management by investment affiliate.

As shown in Attachment 6, consolidated gross sales and other inflows were $22.8 billion in the second quarter of fiscal 2014, down 8 percent from $24.7 billion in the second quarter of fiscal 2013 and down 23 percent from $29.5 billion in the first quarter of fiscal 2014. Gross redemptions and other outflows were $23.7 billion in the second quarter of fiscal 2014, up 31 percent from $18.0 billion in the second quarter of fiscal 2013 and down 23 percent from $30.6 billion in the first quarter of fiscal 2014. 

As of April 30, 2014, 49 percent-owned affiliate Hexavest, Inc. ("Hexavest") managed $17.1 billion of client assets, an increase of 12 percent from the $15.3 billion of managed assets on April 30, 2013 and an increase of 6 percent from the $16.1 billion of managed assets on January 31, 2014. Net outflows from Hexavest-managed funds and separate accounts were $0.1 billion in the second quarter of fiscal 2014, $0.3 billion in the second quarter of fiscal 2013 and $0.4 billion in the first quarter of fiscal 2014.  Attachment 9 summarizes assets under management and asset flow information for Hexavest. Other than Eaton Vance-sponsored funds for which Hexavest is advisor or sub-advisor, the managed assets and flows of Hexavest are not included in Eaton Vance consolidated totals.

Second Quarter Fiscal 2014 vs. Second Quarter Fiscal 2013

In the second quarter of fiscal 2014, revenue increased 7 percent to $354.1 million from revenue of $331.7 million in the second quarter of fiscal 2013.  Investment advisory and administrative fees were up 8 percent, reflecting a 12 percent increase in average consolidated assets under management and lower average effective fee rates. Performance fees contributed $1.0 million and $0.1 million to investment advisory and administrative fees in the second quarters of fiscal 2014 and 2013, respectively. Distribution and service fee revenues were collectively down 2 percent, reflecting lower managed assets in fund share classes that are subject to distribution and service fees.

Operating expenses increased 2 percent to $228.8 million in the second quarter of fiscal 2014 from $223.6 million in the second quarter of fiscal 2013, reflecting increases in compensation, fund-related and other expenses, offset by lower distribution and service fee expenses and reduced amortization of deferred sales commissions. The increase in compensation expense reflects increases in operating income-based incentives, stock-based compensation, higher employee headcount and increases in base salaries and benefits, offset by a decrease in sales-based incentives. The increase in operating income-based incentives reflects an increase in pre-bonus adjusted operating income. The decrease in sales-based incentives reflects lower sales in the second quarter of fiscal 2014.  The increase in fund-related expenses primarily reflects an increase in sub-advisory expenses for Company-sponsored funds managed by unaffiliated sub-advisors. Other expenses increased 5 percent, reflecting increases in travel expenses, information technology, professional fees and other corporate expenses.  The decrease in distribution expense reflects the non-recurrence of $2.7 million in closed-end fund-related structuring fees paid in the second quarter of fiscal 2013, offset by increases in intermediary marketing support payments and discretionary marketing expenses. The decrease in service fee expense reflects the decrease in average assets under management subject to service fees.  The decrease in amortization of deferred sales commissions largely reflects a decrease in Class B share amortization, offset by an increase in Class C share amortization. 

Operating income was up 16 percent to $125.3 million in the second quarter of fiscal 2014 from $108.1 million in the second quarter of fiscal 2013.  Operating margin improved to 35.4 percent in the second quarter of fiscal 2014 from 32.6 percent in the second quarter of fiscal 2013.

Non-operating expense was $7.2 million in the second quarter of fiscal 2014 compared to $2.2 million in the second quarter of fiscal 2013. The year-over-year change reflects a decline of $5.8 million in gains (losses) and other investment income related to the Company's investments in sponsored products, a $0.4 million decrease in income (expense) of the Company's consolidated collateralized loan obligation ("CLO") entities and a $1.2 million decrease in interest expense. 

The Company's effective tax rate, calculated as a percentage of income before income taxes and equity in net income of affiliates, was 38.3 percent in the second quarter of fiscal 2014. Excluding the impact of consolidated CLO entities' income (expense) borne by other beneficial interest holders, the Company's effective tax rate was 38.1 percent for the quarter. 

Equity in net income of affiliates increased to $5.2 million in the second quarter of fiscal 2014 from $3.4 million in the second quarter of fiscal 2013.  Equity in net income of affiliates in the second quarter of fiscal 2014 included $2.6 million of Company equity in the net income of Hexavest, $2.2 million of gains (losses) and other income on the Company's investments in sponsored funds, and $0.4 million of net income in a private equity partnership.  In the second quarter of fiscal 2013, equity in net income of affiliates included $2.1 million of Company equity in the net income of Hexavest, $1.2 million in gains (losses) and other income on the Company's investments in sponsored funds, and $0.1 million of net income in a private equity partnership.

Net income attributable to non-controlling and other beneficial interests was $3.1 million in the second quarter of fiscal 2014 compared to $7.4 million in the second quarter of fiscal 2013. As shown in Attachment 3, net income attributable to non-controlling and other beneficial interests included $0.7 million of non-controlling interest value adjustments relating to our majority-owned subsidiaries in the second quarter of fiscal 2013, and no such value adjustments in the second quarter of fiscal 2014. The year-over-year change also reflects an increase in the net income (loss) attributable to non-controlling interest holders of the Company's consolidated CLO entities and a decline in net income attributable to non-controlling interest holders of the Company's consolidated funds.

Second Quarter Fiscal 2014 vs. First Quarter Fiscal 2014

In the second quarter of fiscal 2014, revenue decreased 2 percent to $354.1 million from revenue of $360.3 million in the first quarter of fiscal 2014.  Investment advisory and administrative fees were down 2 percent, reflecting a 1 percent increase in average consolidated assets under management, offset by lower average effective fee rates and a reduction in the number of fee days. Performance fees contributed $1.0 million and $0.1 million to investment advisory and administrative fees in the second quarter of fiscal 2014 and the first quarter of fiscal 2014, respectively. Distribution and service fee revenues were down 3 percent in aggregate, reflecting lower managed assets in fund share classes that are subject to distribution and service fees.

Operating expenses decreased 3 percent to $228.8 million in the second quarter of fiscal 2014 from $236.1 million in the first quarter of fiscal 2014, reflecting decreases in compensation, distribution and service fee expenses, reduced amortization of deferred sales commissions and lower other operating expenses. The decrease in compensation expense reflects a decrease in sales-based incentives, due to lower sales, and a decrease in base salaries, reflecting fewer payroll days in the current quarter. The decrease in distribution expense reflects a decrease in Class C share distribution fees and discretionary marketing expenses.  The decrease in service fee expense reflects lower average assets under management subject to service fees.  The decrease in amortization of deferred sales commissions reflects a decrease in Class C share amortization. Other expenses decreased 2 percent, reflecting a decrease in information technology expenses, offset by an increase in professional expenses and communication expenses.

Operating income was up 1 percent to $125.3 million in the second quarter of fiscal 2014 from $124.2 million in the first quarter of fiscal 2014.  Operating margin improved to 35.4 percent in the second quarter of fiscal 2014 from 34.5 percent in the first quarter of fiscal 2014.

Non-operating expense was $7.2 million in the second quarter of fiscal 2014 compared to $6.1 million in the first quarter of fiscal 2014, reflecting a $1.2 million decrease in gains (losses) and other investment income related to the Company's investment in sponsored products. 

Equity in net income of affiliates increased to $5.2 million in the second quarter of fiscal 2014 from $3.3 million in the first quarter of fiscal 2014.  Equity in net income of affiliates included $2.6 million of Company equity in the net income of Hexavest, $2.2 million of gains (losses) and other income on the Company's investments in sponsored funds and $0.4 million of net income in a private equity partnership in the second quarter of fiscal 2014.  In the first quarter of fiscal 2014, equity in net income of affiliates included $2.8 million of Company equity in the net income of Hexavest, $0.6 million of gains (losses) and other income on the Company's investments in sponsored funds and $0.1 million of net losses in a private equity partnership.

Net income attributable to non-controlling and other beneficial interests was $3.1 million in the second quarter of fiscal 2014 compared to $5.4 million in the first quarter of fiscal 2014. As shown in Attachment 3, net income attributable to non-controlling and other beneficial interests in the first quarter of fiscal 2014 included $2.4 million of non-controlling interest value adjustments relating to our majority-owned subsidiaries.

Weighted average diluted shares outstanding decreased 1.5 million shares, or 1 percent, in the second quarter of fiscal 2014 from the first quarter of fiscal 2014.  The decrease reflects share repurchases and a decrease in the dilutive effect of in-the-money employee stock options due to a lower average price of the Company's Non-Voting Common Stock.  During the second quarter of fiscal 2014 the Company issued 0.4 million shares of restricted and unrestricted Non-Voting Common Stock in connection with granting incentive equity awards and the exercise of employee stock options; over the same period, the Company purchased and retired 2.4 million shares of its Non-Voting Common Stock.

Balance Sheet Information

Cash and cash equivalents totaled $311.9 million on April 30, 2014, with no outstanding borrowings against the Company's $300 million credit facility.  Included within investments is $192.5 million of short-term debt securities with maturities between 90 days and two years.  During the first six months of fiscal 2014, the Company used $135.3 million to repurchase and retire approximately 3.5 million shares of its Non-Voting Common Stock under its repurchase authorizations.  Approximately 5.3 million shares of the current 8.0 million share repurchase authorization remain unused.

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, 2014. To participate in the conference call, please call 877-201-0168 (domestic) or 647-788-4901 (international) and refer to "Eaton Vance Corp. Second Fiscal Quarter Earnings." Listeners to the conference call must enter the confirmation code 32384247.  A webcast of the conference call can also be accessed via Eaton Vance's website, www.eatonvance.com. 

A replay of the call will be available for one week by calling 855-859-2056 (domestic) or 404-537-3406 (international) or by accessing Eaton Vance's website, www.eatonvance.com. Listeners to the telephone replay must enter the confirmation code 32384247.

About Eaton Vance Corp.

Eaton Vance Corp. is one of the oldest investment management firms in the United States, with a history dating back to 1924. 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 www.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 GAAP, management believes that certain non-GAAP financial measures, while not a substitute for GAAP financial measures, may be effective indicators of the Company's performance over time. Adjusted net income and adjusted earnings per diluted share reflect the add back of adjustments 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"), closed-end fund structuring fees and other items management deems non-recurring or non-operating, such as special dividends, costs associated with retiring debt and tax settlements. See reconciliation provided in Attachment 2 for more information on adjusting items.

 

 

 

SOURCE Eaton Vance Corp.