BOSTON, May 20, 2015 /PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today reported adjusted earnings per diluted share^([1]) of $0.58 for the second quarter of fiscal 2015, a decrease of 2 percent from $0.59 of adjusted earnings per diluted share in the second quarter of fiscal 2014 and a decrease of 5 percent from $0.61 of adjusted earnings per diluted share in the first quarter of fiscal 2015.

As determined under U.S. generally accepted accounting principles ("GAAP"), the Company earned $0.58 per diluted share in the second quarter of fiscal 2015, $0.59 per diluted share in the second quarter of fiscal 2014 and $0.24 per diluted share in the first quarter of fiscal 2015. Adjusted earnings differed from GAAP earnings in the first quarter of fiscal 2015 to reflect 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 were $1.19 in the six months ended April 30, 2015 compared to $1.17 in the six months ended April 30, 2014, an increase of 2 percent. The Company's GAAP earnings per diluted share were $0.82 and $1.15, respectively, for the compared semi-annual periods.

Consolidated net inflows of $6.8 billion in the second quarter of fiscal 2015 represent a 9 percent annualized internal growth rate (net inflows divided by beginning of period assets managed). For comparison, the Company had net outflows of $0.9 billion in the second quarter of fiscal 2014 and net inflows of $1.4 billion in the first quarter of fiscal 2015.

"The Company's solid organic growth in the second fiscal quarter reflects improved flow results across our businesses," said Thomas E. Faust Jr., Chairman and Chief Executive Officer. "That growth, combined with progress advancing our NextShares™ actively managed exchange-traded product initiative toward market introduction, sets the stage for earnings growth over coming quarters."

Consolidated assets under management were $311.0 billion on April 30, 2015, an increase of 9 percent from the $285.9 billion of managed assets on April 30, 2014 and an increase of 5 percent from the $295.7 billion of managed assets on January 31, 2015. The year-over-year increase in assets under management reflects market appreciation of $12.3 billion and net inflows of $12.9 billion. The sequential quarterly increase in assets under management reflects market appreciation of $8.6 billion and net inflows of $6.8 billion.

Average consolidated assets under management were $303.4 billion in the second quarter of fiscal 2015, up 7 percent from $284.4 billion in the second quarter of fiscal 2014 and up 2 percent from $297.5 billion in the first 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 gross sales and other inflows were $30.2 billion in the second quarter of fiscal 2015, up 33 percent from $22.8 billion in the second quarter of fiscal 2014 and down 2 percent from $30.9 billion in the first quarter of fiscal 2015. Gross redemptions and other outflows were $23.4 billion in the second quarter of fiscal 2015, a decrease of 1 percent from $23.7 billion in the second quarter of fiscal 2014 and down 20 percent from $29.5 billion in the first quarter of fiscal 2015.

As of April 30, 2015, 49 percent-owned affiliate Hexavest, Inc. ("Hexavest") managed $15.6 billion of client assets, a decrease of 8 percent from the $17.1 billion of managed assets on April 30, 2014 and an increase of 4 percent from the $15.0 billion of managed assets on January 31, 2015. Hexavest-managed funds and separate accounts had net outflows of $0.2 billion in the second quarter of fiscal 2015, $0.1 billion in the second quarter of fiscal 2014 and $1.4 billion in the first 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.

 

 

Second Quarter Fiscal 2015 vs. Second Quarter Fiscal 2014

In the second quarter of fiscal 2015, revenue decreased 1 percent to $351.7 million from revenue of $354.1 million in the second quarter of fiscal 2014. Investment advisory and administrative fees were flat, reflecting a 7 percent increase in average consolidated assets under management offset by lower average effective fee rates. Performance fees were negligible in the second quarter of fiscal 2015 and contributed $1.0 million to investment advisory and administrative fees in the second quarter of fiscal 2014. Distribution and service fee revenues were down 5 percent and 8 percent, respectively, reflecting lower managed assets in fund share classes that are subject to distribution and service fees.

Operating expenses were substantially unchanged in the second quarter of fiscal 2015 from the second quarter of fiscal 2014. Increases in compensation, fund-related and other operating expenses were offset by lower distribution and service fee expenses and reduced amortization of deferred sales commissions. The increase in compensation expense reflects higher stock-based compensation, sales-based incentives, salaries and benefits, offset by lower operating income-based bonus accruals. The increase in fund-related expenses reflects higher fund expenses borne by the Company on funds for which it earns an all-in fee. Other expenses increased 5 percent, reflecting higher information technology, facilities-related and other corporate expenses, offset by lower professional services and travel 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 first quarter fiscal 2015 termination of service and additional compensation arrangements in place with a major distribution partner as discussed above. 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 $1.8 million in the second quarter of fiscal 2015, an increase of 128 percent from $0.8 million in the second quarter of fiscal 2014.

During the second quarter of fiscal 2015, the Company and its wholly owned subsidiary Navigate Fund Solutions LLC ("Navigate") made progress advancing NextShares toward market introduction. In April, the Company filed amended registration statements with the U.S. Securities and Exchange Commission ("SEC") for 18 initial Eaton Vance NextShares funds and the NASDAQ Stock Exchange LLC filed with the SEC a request to list and trade each of the 18 funds. Navigate has to date entered into preliminary licensing and service agreements with ten fund advisers (including Eaton Vance) and continues to engage in active dialogue with numerous other fund sponsors about becoming licensees. The ten firms signed to date collectively manage over $500 billion in mutual fund assets and sponsor approximately 200 funds currently rated four or five stars by Morningstar. Conditional upon the timing of final regulatory approvals and market readiness, the Company is targeting launch of the initial NextShares funds in the second half of 2015.

Operating income was down 2 percent to $122.2 million in the second quarter of fiscal 2015 from $125.3 million in the second quarter of fiscal 2014. Operating margin declined to 34.8 percent in the second quarter of fiscal 2015 from 35.4 percent in the second quarter of fiscal 2014.

Non-operating expense totaled $5.4 million in the second quarter of fiscal 2015 compared to $7.2 million in the second quarter of fiscal 2014. The year-over-year change primarily reflects a $1.1 million positive change in gains (losses) and other investment income related to the Company's investments in sponsored products and a $0.7 million increase 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 37.6 percent in the second quarter of fiscal 2015.

Equity in net income of affiliates decreased to $3.0 million in the second quarter of fiscal 2015 from $5.2 million in the second quarter of fiscal 2014. Equity in net income of affiliates in the second quarter of fiscal 2015 included $2.6 million of Company equity in the net income of Hexavest and $0.4 million of net income in a private equity partnership. 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.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $5.5 million in the second quarter of fiscal 2015 compared to $3.1 million in the second quarter of fiscal 2014.

Second Quarter Fiscal 2015 vs. First Quarter Fiscal 2015

In the second quarter of fiscal 2015, revenue decreased 1 percent to $351.7 million from $354.9 million in the first quarter of fiscal 2015. Investment advisory and administrative fees were flat, reflecting a 2 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 were negligible in the second quarter of fiscal 2015 and contributed $0.1 million to investment advisory and administrative fees in the first quarter of fiscal 2015. Distribution and service fee revenues collectively decreased 5 percent, reflecting lower managed assets in fund share classes that are subject to distribution and service fees.

Operating expenses decreased 25 percent to $229.4 million in the second quarter of fiscal 2015 from $304.4 million in the first quarter of fiscal 2015. Excluding the payment of $73.0 million to terminate service and additional compensation arrangements in place with a major distribution partner for certain Eaton Vance closed-end funds in the first quarter of fiscal 2015, operating expenses were down 1 percent in the second quarter of fiscal 2015 from the first quarter of fiscal 2015. The 1 percent decrease reflects lower compensation and distribution and service fee expenses and reduced amortization of deferred sales commissions, offset by higher fund-related and other operating expenses. The decrease in distribution expense (excluding the $73.0 million termination payment described above) reflects lower closed-end fund-related distribution expense following termination of the partner arrangements as described above. The decrease in compensation expense reflects lower operating income-based bonus accruals, reduced stock-based compensation and a decline in salary and benefit costs due to fewer payroll days in the second quarter, offset by higher sales-based incentives. The lower 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 lower Class C share amortization, offset by an increase in private fund commission amortization. The increase in fund-related expenses is attributable to higher fund expenses borne by the Company on funds for which it earns an all-in fee. Other expenses increased 7 percent, reflecting higher information technology, professional services, travel and other corporate expenses, offset by lower facilities-related expenses.

NextShares-related expenses grew from $1.3 million in the first quarter of fiscal 2015 to $1.8 million in the second quarter of fiscal 2015, an increase of 38 percent.

Operating income was up 142 percent to $122.2 million in the second quarter of fiscal 2015 from $50.6 million in the first quarter of fiscal 2015. Operating margin increased to 34.8 percent in the second quarter of fiscal 2015 from 14.2 percent in the first quarter of fiscal 2015. Excluding the $73.0 million termination payment described above, second quarter fiscal 2015 operating income was down 1 percent versus the first quarter of fiscal 2015.

Non-operating expense totaled $5.4 million in the second quarter of fiscal 2015 compared to $4.4 million in the first quarter of fiscal 2015, reflecting a $2.5 million decline in gains (losses) and other investment income related to the Company's investments in sponsored products and a $1.5 million improvement in income (expense) of the Company's consolidated CLO entity.

Equity in net income of affiliates decreased to $3.0 million in the second quarter of fiscal 2015 from $3.1 million in the first quarter of fiscal 2015. In the second quarter of fiscal 2015, equity in net income of affiliates included $2.6 million of Company equity in the net income of Hexavest and $0.4 million of net income in a private equity partnership. In the first quarter of fiscal 2015, equity in net income of affiliates included $2.9 million of Company equity in the net income of Hexavest, $0.1 million of 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.

As detailed in Attachment 3, net income attributable to non-controlling and other beneficial interests was $5.5 million in the second quarter of fiscal 2015 and $3.5 million in the first quarter of fiscal 2015.

Balance Sheet Information

Cash and cash equivalents totaled $262.9 million on April 30, 2015, with no outstanding borrowings against the Company's $300 million credit facility. Included within investments is $120.1 million of holdings of short-term debt securities with maturities between 90 days and one year. During the first six months of fiscal 2015, the Company used $123.7 million to repurchase and retire approximately 3.0 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 six months ended April 30, 2015.To participate in the conference call, please call 877-201-0168 (domestic) or 647-788-4901 (international) and refer to "Eaton Vance Corp. Second Quarter Earnings." 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 47843435.

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.

 

 

 

 

 

 

 

 

 

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SOURCE Eaton Vance Corp.