Eaton Vance Corp. Report for the Three Months and Fiscal Year Ended October 31, 2015

BOSTON, Nov. 24, 2015 /PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today reported adjusted earnings per diluted share⁽¹⁾ of $2.29 for the fiscal year ended October 31, 2015, a decrease of 8 percent from record-high adjusted earnings per diluted share of $2.48 for the fiscal year ended October 31, 2014.

As determined under U.S. generally accepted accounting principles ("GAAP"), the Company earned $1.92 and $2.44, respectively, in fiscal 2015 and fiscal 2014. Adjusted earnings differed from GAAP earnings for the fiscal year ended October 31, 2015 as a result of the 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. Adjusted earnings per diluted share differed from GAAP earnings per diluted share for the fiscal year ended October 31, 2014 due to an increase in the estimated redemption value of non-controlling interests in affiliates redeemable at other than fair value, which reduced GAAP earnings by $0.04 per diluted share. 

Adjusted earnings per diluted share were $0.53 in the fourth quarter of fiscal 2015, a decrease of 22 percent from $0.68 of adjusted earnings per diluted share in the fourth quarter of fiscal 2014 and a decrease of 7 percent from $0.57 of adjusted earnings per diluted share in the third quarter of fiscal 2015. The Company's GAAP earnings were $0.53 per diluted share in the fourth quarter of fiscal 2015, $0.66 per diluted share in the fourth quarter of fiscal 2014 and $0.57 per diluted share in the third quarter of fiscal 2015. Adjusted earnings per diluted share differed from GAAP earnings per diluted share in the fourth quarter of fiscal 2014 due to an increase in the estimated redemption value of non-controlling interests in affiliates redeemable at other than fair value, which reduced GAAP earnings per diluted share by $0.02 in that period.

Net income and gains (losses) on seed capital investments contributed $0.01 and $0.04 to earnings per diluted share for the fiscal years ended October 31, 2015 and October 31, 2014, respectively.  Net income and gains (losses) on seed capital investments reduced earnings per diluted share by $0.01 per diluted share in the fourth quarter of fiscal 2015, contributed $0.01 per diluted share in the fourth quarter of fiscal 2014 and were negligible in the third quarter of fiscal 2015.

Consolidated net inflows of $16.7 billion for the fiscal year ended October 31, 2015 represent an internal growth rate of 6 percent (consolidated net inflows divided by beginning of period consolidated assets under management).  For comparison, the Company had consolidated net inflows of $2.8 billion and 1 percent internal growth for the fiscal year ended October 31, 2014.  Consolidated net inflows of $4.6 billion in the fourth quarter of fiscal 2015 represent a 6 percent annualized internal growth rate. For comparison, the Company had consolidated net inflows of $6.8 billion in the fourth quarter of fiscal 2014 and consolidated net inflows of $3.9 billion in the third quarter of fiscal 2015.  

"The fourth quarter of fiscal 2015 proved to be a difficult earnings period for the Company due to product mix and market-driven declines in revenue," said Thomas E. Faust Jr., Chairman and Chief Executive Officer. "Continued improvement in core asset flows and advancement of new initiatives should position the Company for resumed growth as they occur."

Consolidated assets under management were $311.4 billion on October 31, 2015, an increase of 5 percent from $297.7 billion of consolidated managed assets on October 31, 2014, and substantially unchanged from $312.6 billion of consolidated managed assets on July 31, 2015. The year-over-year increase in consolidated assets under management reflects net inflows of $16.7 billion and market price declines of $3.1 billion. The sequential quarterly decrease in consolidated assets under management reflects net inflows of $4.6 billion and market price declines of $5.8 billion.

Average consolidated assets under management were $303.8 billion for the fiscal year ended October 31, 2015, up 5 percent from $288.2 billion for the fiscal year ended October 31, 2014.  Average consolidated assets under management were $306.4 billion in the fourth quarter of fiscal 2015, up 4 percent from $293.8 billion in the fourth quarter of fiscal 2014 and down 1 percent from $309.8 billion in the third quarter of fiscal 2015.

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 sales and other inflows were $124.8 billion in fiscal 2015, an increase of 17 percent from consolidated sales and other inflows of $106.8 billion in fiscal 2014.  Fourth quarter fiscal 2015 consolidated sales and other inflows were $30.9 billion, up 9 percent from $28.3 billion in the fourth quarter of fiscal 2014 and down 6 percent from $32.8 billion in the third quarter of fiscal 2015.

Consolidated redemptions and other outflows were $108.1 billion in fiscal 2015, an increase of 4 percent from consolidated redemptions and other outflows of $104.0 billion in fiscal 2014.  Fourth quarter fiscal 2015 consolidated redemptions and other outflows were $26.3 billion, an increase of 22 percent from $21.5 billion in the fourth quarter of fiscal 2014 and down 9 percent from $28.9 billion in the third quarter of fiscal 2015.

As of October 31, 2015, 49 percent-owned affiliate Hexavest, Inc. ("Hexavest") managed $13.9 billion of client assets, a decrease of 16 percent from the $16.7 billion of managed assets on October 31, 2014 and a decrease of 6 percent from the $14.8 billion of managed assets on July 31, 2015. Hexavest-managed funds and separate accounts had net outflows of $2.7 billion in fiscal 2015, $1.1 billion in fiscal 2014, $0.5 billion in the fourth quarter of fiscal 2015, $0.3 billion in the fourth quarter of fiscal 2014 and $0.5 billion in the third quarter of fiscal 2015. Attachment 9 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 2015 vs. Full Year Fiscal 2014

The Company's revenue decreased 3 percent in fiscal 2015 to $1.40 billion from revenue of $1.45 billion in fiscal 2014. Investment advisory and administrative fees were down 3 percent, as the impact of lower average effective fee rates, driven by product mix, more than offset a 5 percent increase in average consolidated assets under management. Performance fees contributed $3.7 million in fiscal 2015 compared to $8.3 million in fiscal 2014. 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 increased 8 percent to $1.00 billion in fiscal 2015 from $0.93 billion in fiscal 2014. Excluding the lump-sum payment of $73.0 million to end service and additional compensation arrangements in place with a major distribution partner for certain Eaton Vance closed-end funds incurred in the first quarter of fiscal 2015, annual expenses were substantially unchanged.  Increases in compensation, distribution, fund-related and other operating expenses were offset by lower service fee expenses and reduced amortization of deferred sales commissions. 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 in connection with employee retirements, other terminations and additions to staff, and increased sales-based incentives, offset by reduced operating income-based bonus accruals.  The increase in distribution expenses reflects the $73.0 million payment to end closed-end fund service and additional compensation arrangements incurred in the first quarter as described above. The increase in fund-related expenses primarily reflects an increase in expenses borne by the Company on funds for which it earns an all-in fee, offset in part by decreases in sub-advisory expenses and fund subsidies. The 4 percent increase in other operating expenses reflects higher professional services, facilities-related and information technology expenses, offset in part by lower travel and other expenses. The decrease in service fee expense reflects lower average assets under management in funds subject to service fee payments.  The decrease in amortization of deferred sales commissions largely reflects decreases in Class B share and Class C share amortization, offset by an increase in private fund commission amortization.

Expenses in connection with the Company's NextShares initiative totaled approximately $7.4 million in fiscal 2015, an increase of 97 percent from $3.7 million in fiscal 2014.

Operating income was down 23 percent to $400.4 million in fiscal 2015 from $519.9 million in fiscal 2014. Operating margin declined to 28.5 percent in fiscal 2015 from 35.8 percent in fiscal 2014. Adjusting for the $73.0 million lump-sum payment described above, operating income was $473.4 million, down 9 percent from fiscal 2014, and fiscal 2015 operating margin was 33.7 percent.

Non-operating expenses totaled $31.1 million in fiscal 2015 compared to $28.7 million in fiscal 2014. The year-over-year change primarily reflects a $1.2 million decline in gains (losses) and other investment income related to the Company's investments in sponsored products and a $1.7 million decline in income (expense) of the Company's consolidated collateralized loan obligation ("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 38.8 percent in fiscal 2015. Excluding the impact of consolidated CLO entities income (expense) borne by other beneficial interest holders, the Company's effective tax rate was 38.2 percent for the fiscal year.

Equity in net income of affiliates decreased to $12.0 million in fiscal 2015 from $16.7 million in fiscal 2014. Equity in net income of affiliates in fiscal 2015 included $10.9 million of Company equity in the net income of Hexavest, $0.3 million of gains (losses) and other income on the Company's investments in sponsored funds and $0.8 million of net income in a private equity partnership. Equity in net income of affiliates in fiscal 2014 included $11.0 million of Company equity in the net income of Hexavest, $5.2 million of gains (losses) and other income on the Company's investments in sponsored funds and $0.5 million of net income in a private equity partnership.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $7.9 million in fiscal 2015 compared to net income attributable to non-controlling and other beneficial interests of $16.8 million in fiscal 2014.

Fourth Quarter Fiscal 2015 vs. Fourth Quarter Fiscal 2014

In the fourth quarter of fiscal 2015, revenue decreased 7 percent to $341.5 million from revenue of $368.4 million in the fourth quarter of fiscal 2014. Investment advisory and administrative fees were down 8 percent, as the impact of lower average effective fee rates, driven by product mix, more than offset a 4 percent increase in average consolidated assets under management. Performance fees contributed $2.0 million in the fourth quarter of fiscal 2015 compared to $6.3 million in the fourth quarter of fiscal 2014. 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 increased 1 percent to $230.5 million in the fourth quarter of fiscal 2015 from $229.2 million in the fourth quarter of fiscal 2014. Increases in compensation and other operating expenses were mostly offset by lower distribution and service fee expenses, reduced amortization of deferred sales commissions and lower fund-related expenses. 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 in connection with employee retirements, other terminations and additions to staff, and higher operating income-based bonus accruals.  The 5 percent increase in other operating expenses reflects higher professional services, facilities-related and information technology expenses, offset in part by lower travel and other expenses. The decrease in service fee expense reflects lower average managed assets 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 termination of service and additional compensation arrangements in place with a major distribution partner. The decrease in amortization of deferred sales commissions largely reflects decreases in Class B share and Class C share amortization, offset by an increase in private fund commission amortization. The decrease in fund-related expenses primarily reflects lower sub-advisory expenses.

Expenses in connection with the Company's NextShares initiative totaled approximately $2.3 million in the fourth quarter of fiscal 2015, an increase of 110 percent from $1.1 million in the fourth quarter of fiscal 2014.

During the fourth quarter of fiscal 2015, the Company and its wholly owned subsidiary Navigate Fund Solutions LLC ("Navigate") continued to advance NextShares toward product launch.  In August, Envestnet, Inc. announced an initiative to make NextShares funds available to financial advisors through its wealth management platform.  In September, Folio Investing and Folio Institutional, online brokerage services for individual investors, financial advisors, institutions and their clients, announced plans to offer NextShares funds directly to individual investors, advisors and institutions.  To date, 12 fund advisers, including Eaton Vance, have indicated their intent to offer NextShares by entering into preliminary agreements with Navigate and filing request for exemptive relief with the SEC.  These 12 firms collectively manage approximately $640 billion in mutual fund assets and sponsor almost 260 funds currently rated four or five stars by Morningstar.  Subject to registration statement approval and operational readiness, Eaton Vance intends to begin the staged introduction of NextShares funds in the first quarter of calendar 2016. 

Operating income was down 20 percent to $110.9 million in the fourth quarter of fiscal 2015 from $139.2 million in the fourth quarter of fiscal 2014. Operating margin declined to 32.5 percent in the fourth quarter of fiscal 2015 from 37.8 percent in the fourth quarter of fiscal 2014.

Non-operating expenses totaled $13.7 million in the fourth quarter of fiscal 2015 compared to $10.5 million in the fourth quarter of fiscal 2014. The year-over-year change primarily reflects a $0.9 million decline in gains (losses) and other investment income related to the Company's investments in sponsored products and a $2.6 million decline in income (expense) of the Company's 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 40.2 percent in the fourth quarter of fiscal 2015. Excluding the impact of consolidated CLO entity income (expense) borne by other beneficial interest holders, the Company's effective tax rate was 38.6 percent for the quarter.

Equity in net income of affiliates decreased to $2.7 million in the fourth quarter of fiscal 2015 from $4.4 million in the fourth quarter of fiscal 2014. Equity in net income of affiliates in the fourth quarter of fiscal 2015 included $2.4 million of Company equity in the net income of Hexavest and $0.2 million of gains (losses) and other income on the Company's investments in sponsored funds. Equity in net income of affiliates in the fourth quarter of fiscal 2014 included $2.7 million of Company equity in the net income of Hexavest, $1.5 million of gains (losses) and other income on the Company's investments in sponsored funds and $0.2 million of net income in a private equity partnership.

As detailed in Attachment 3, net loss attributable to non-controlling and other beneficial interests was $1.4 million in the fourth quarter of fiscal 2015 compared to net income attributable to non-controlling and other beneficial interests of $5.0 million in the fourth quarter of fiscal 2014.

Fourth Quarter Fiscal 2015 vs. Third Quarter Fiscal 2015

In the fourth quarter of fiscal 2015, revenue decreased 4 percent to $341.5 million from revenue of $355.5 million in the third quarter of fiscal 2015. Investment advisory and administrative fees were down 4 percent, reflecting a 1 percent decrease in average consolidated assets under management and lower average effective fee rates. Performance fees contributed $2.0 million in the fourth quarter of fiscal 2015 and $1.7 million in the third quarter of fiscal 2015. Distribution and service fee revenues collectively decreased 2 percent, reflecting lower managed assets in fund share classes that are subject to these fees.

Operating expenses decreased 3 percent to $230.5 million in the fourth quarter of fiscal 2015 from $238.8 million in the third quarter of fiscal 2015, reflecting lower compensation, distribution, service fee and fund-related expenses. The decrease in compensation expense reflects lower stock-based compensation accruals and other compensation costs in connection with employee retirements and other terminations and decreases in operating income-based bonus accruals. The decrease in distribution expense reflects lower marketing expenses and reduced distribution fee expenses. The decrease in service fee expense reflects lower average managed assets subject to service fee payments. The decrease in fund-related expenses is attributable to a decrease in fund expenses borne by the Company on funds for which it earns an all-in fee as well as decreases in sub-advisory expenses.

NextShares-related expenses grew from $2.0 million in the third quarter of fiscal 2015 to $2.3 million in the fourth quarter of fiscal 2015, an increase of 12 percent.

Operating income was down 5 percent to $110.9 million in the fourth quarter of fiscal 2015 from $116.7 million in the third quarter of fiscal 2015. Operating margin decreased to 32.5 percent in the fourth quarter of fiscal 2015 from 32.8 percent in the third quarter of fiscal 2015, reflecting revenue declines in excess of expense declines.

Non-operating expenses totaled $13.7 million in the fourth quarter of fiscal 2015 compared to $7.6 million in the third quarter of fiscal 2015, reflecting a $1.5 million decline in gains (losses) and other investment income related to the Company's investments in sponsored products and a $4.6 million decline in income (expense) of the Company's consolidated CLO entities.

Equity in net income of affiliates decreased to $2.7 million in the fourth quarter of fiscal 2015 from $3.3 million in the third quarter of fiscal 2015. In the fourth quarter of fiscal 2015, equity in net income of affiliates included $2.4 million of Company equity in the net income of Hexavest and $0.2 million of gains (losses) and other income on the Company's investments in sponsored funds. In the third quarter of fiscal 2015, equity in net income of affiliates included $2.9 million of Company equity in the net income of Hexavest and $0.4 million of net income in a private equity partnership.

As detailed in Attachment 3, net loss attributable to non-controlling and other beneficial interests was $1.4 million in the fourth quarter of fiscal 2015 compared to net income attributable to non-controlling and other beneficial interests of $0.3 million in the third quarter of fiscal 2015.

Balance Sheet Information

Cash and cash equivalents totaled $465.6 million on October 31, 2015, with no outstanding borrowings against the Company's $300 million credit facility. Included within investments is $77.4 million of holdings of short-term debt securities with maturities between 90 days and one year. During fiscal 2015, the Company used $283.4 million to repurchase and retire approximately 7.4 million shares of its Non-Voting Common Stock under its repurchase authorizations. Of the current 8.0 million share repurchase authorization, approximately 3.2 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 months and fiscal year ended October 31, 2015. To participate in the conference call, please call 877-201-0168 (domestic) or 647-788-4901 (international) and refer to "Eaton Vance Corp. Fourth Quarter Earnings – Conference ID 69380557." 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 69380557.

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, payments to end closed-end fund service and additional compensation arrangements, 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.

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