Eaton Vance Corp. (NYSE:
EV) reported earnings per diluted share of
$0.37 for the first quarter of fiscal 2010 compared to earnings per diluted share of
$0.21 in the first quarter of fiscal 2009 and
$0.39 in the fourth quarter of fiscal 2009. First quarter 2010 earnings were reduced approximately
$0.02 per diluted share by adjustments recognized in connection with the adoption of a new accounting standard on non-controlling interests in consolidated financial statements. Fourth quarter fiscal 2009 earnings were increased approximately
$0.05 per diluted share by tax adjustments primarily related to stock-based compensation.
Net inflows of $3.0 billion into long-term funds and separate accounts in the first quarter of fiscal 2010 compare to net inflows of $3.3 billion in the first quarter of fiscal 2009 and $5.5 billion in the fourth quarter of fiscal 2009. The Company's annualized internal growth rate for the quarter was eight percent. Assets under management on January 31, 2010 were $161.6 billion, an increase of 32.6 percent over the $121.9 billion of managed assets as of January 31, 2009 and an increase of 4.3 percent over the $154.9 billion of managed assets as of October 31, 2009.
"Eaton Vance's improving financial results reflect both continuing organic growth and the sharp recovery in market prices over the past year," said Thomas E. Faust Jr., Chairman and Chief Executive Officer. "Growth in our managed assets has been nicely balanced between funds and separate accounts and among leading investment disciplines."
Comparison to First Quarter of Fiscal 2009
Long-term fund net inflows of $1.5 billion in the first quarter of fiscal 2010 compare to $0.5 billion of long-term fund net inflows in the first quarter of fiscal 2009, and reflect $6.8 billion of fund sales and other inflows, $4.7 billion of fund redemptions and $0.6 billion of reductions in fund leverage. Institutional and high-net-worth separate account net inflows in the first quarter of fiscal 2010 were $1.0 billion, consisting of gross inflows of $2.7 billion offset by $1.7 billion of outflows. Institutional and high-net-worth separate account inflows in the quarter primarily reflect the funding of new institutional mandates at Eaton Vance Management and net inflows into high-net-worth accounts at Parametric Portfolio Associates. In the first quarter of fiscal 2009, inflows of $3.4 billion in institutional and high-net-worth separate accounts were offset by outflows of $1.1 billion. Retail managed account net inflows were $0.6 billion in the first quarter of fiscal 2010 compared to $0.4 billion in the first quarter of fiscal 2009. Retail managed accounts gross inflows of $1.7 billion in the first quarter of fiscal 2010 decreased from the $1.9 billion of inflows in the first quarter of fiscal 2009, while outflows of $1.1 billion in the first quarter of fiscal 2010 decreased from outflows of $1.5 billion in the prior fiscal year's first quarter. Tables 1-4 on page 7 summarize the Company's assets under management and asset flows by investment category.
Revenue in the first quarter of fiscal 2010 increased $62.5 million, or 30 percent, to $272.0 million from revenue of $209.5 million in the first quarter of fiscal 2009. Investment advisory and administration fees increased 31 percent to $210.4 million, reflecting a 32 percent increase in average assets under management, offset by a modest decline in the Company's average effective investment advisory fee rate. Distribution and underwriter fees increased 19 percent due to an increase in average fund assets that pay these fees. Service fee revenue increased 23 percent due to an increase in average fund assets subject to service fees. Other revenue, which increased by $2.3 million on a year-over-year quarterly basis, included $1.4 million of net realized and unrealized gains on investments of consolidated funds in the first quarter of fiscal 2010 compared to $1.0 million of net realized and unrealized losses on investments of consolidated funds in the first quarter of fiscal 2009.
Operating expenses in the first quarter of fiscal 2010 increased $27.2 million, or 17 percent, to $184.7 million compared to operating expenses of $157.5 million in the first quarter of fiscal 2009. Compensation expense increased 25 percent due to increases in adjusted operating income-based (defined below) bonus accruals, sales-based incentives and stock-based compensation. Distribution expense increased 32 percent from the prior fiscal year's first quarter due primarily to increases in intermediary marketing support payments, Class C distribution fees, payments made under certain closed-end fund compensation agreements and commissions paid on certain sales of Class A shares. Service fee expense increased 22 percent, in line with the increase in assets subject to service fees. Amortization of deferred sales commissions decreased 17 percent, consistent with an overall declining trend in Class B and Class C fund share sales and assets. Fund expenses decreased 15 percent in the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009, primarily reflecting a decrease in subadvisory expenses as a result of the termination of a subadvisory relationship in the fourth quarter of fiscal 2009. Other expenses increased one percent, primarily due to an increase in information technology expenses and an increase in the amortization of intangible assets associated with the December 2008 acquisition of the Tax Advantaged Bonds Strategies ("TABS") business of M.D. Sass, offset by decreases in facilities and consulting expenses.
Operating income in the first quarter of fiscal 2010 was $87.3 million, an increase of 68 percent over operating income of $52.0 million in the first quarter of fiscal 2009.
In evaluating operating performance, the Company considers operating income and net income, which are calculated on a basis consistent with accounting principles generally accepted in the United States of America ("GAAP"), as well as adjusted operating income, a non-GAAP performance measure. Adjusted operating income is defined as operating income excluding the results of consolidated funds and adding back closed-end fund structuring fees, stock-based compensation, write-offs of intangible assets and other items that we consider non-operating in nature. The Company believes that adjusted operating income is a key indicator of the Company's ongoing profitability and therefore uses this measure as the basis for calculating performance-based management incentives. Adjusted operating income is not, and should not be construed to be, a substitute for operating income computed in accordance with GAAP. However, in assessing the performance of the business, management and the Board of Directors look at adjusted operating income as a measure of underlying performance, since operating results of consolidated funds and amounts resulting from one-time events do not necessarily represent normal results of operations. In addition, when assessing performance, management and the Board look at performance both with and without stock-based compensation, a non-cash operating expense.
Adjusted operating income of $99.1 million in the first quarter of fiscal 2010 was 58 percent higher than the $62.9 million of adjusted operating income in the first quarter of fiscal 2009. The Company's adjusted operating margin improved to 36.4 percent in the first quarter of fiscal 2010 from 30.0 percent in the first quarter of fiscal 2009.
The following table provides a reconciliation of operating income to adjusted operating income for the periods presented:
Reconciliation of Operating Income to Adjusted Operating Income
For the Three Months Ended % Change
-------------------------- ----------------
(in thousands) January October January Q1 2010 Q1 2010
31, 31, 31, to to
2010 2009 2009 Q4 2009 Q1 2009
---- ---- ---- ------- -------
Operating income $87,347 $76,865 $51,999 14% 68%
Operating income of
consolidated funds (1,555) (1,363) (93) 14% NM
Stock-based
compensation 13,284 10,196 10,995 30% 21%
------ ------ ------ --- ---
Adjusted operating
income $99,076 $85,698 $62,901 16% 58%
======= ======= ======= === ===
Interest income in the first quarter of fiscal 2010 decreased 39 percent from the first quarter of fiscal 2009 due to lower effective interest rates earned on cash balances. In the first quarter of fiscal 2010, the Company recognized $2.5 million of net realized and unrealized gains on separate account investments compared to $0.8 million of net realized and unrealized losses on separate account investments and $0.1 million of impairment losses on investments in collateralized debt obligation entities in the first quarter of fiscal 2009. The Company's effective tax rate, calculated as a percentage of income before equity in net income (loss) of affiliates, was 38.4 percent and 39.7 percent in the first quarter of fiscal 2010 and fiscal 2009, respectively.
Net income attributable to non-controlling interests in the first quarter of fiscal 2010 increased $4.7 million over the first quarter of fiscal 2009, reflecting a $2.3 million adjustment recognized upon adoption of a new accounting standard on non-controlling interests in consolidated financial statements as of November 1, 2009.
Net income attributable to Eaton Vance Corp. shareholders in the first quarter of fiscal 2010 was $46.2 million, compared to net income attributable to Eaton Vance Corp. shareholders of $24.7 million in the first quarter of fiscal 2009.
Comparison to Fourth Quarter of Fiscal 2009
Revenue in the first quarter of fiscal 2010 increased $17.9 million, or seven percent, to $272.0 million from $254.1 million in the fourth quarter of fiscal 2009. Investment advisory and administration fees increased eight percent to $210.4 million, reflecting a six percent increase in average assets under management. Distribution and underwriter fees increased six percent due to an increase in average fund assets that pay these fees. Service fee revenue increased two percent due to an increase in average fund assets subject to service fees. Other revenue, which increased by $0.4 million over the prior quarter, included $1.4 million of net realized and unrealized gains on investments of consolidated funds recognized in the first quarter of fiscal 2010 compared to $1.2 million of net realized and unrealized gains on investments of consolidated funds in the fourth quarter of fiscal 2009.
Operating expenses increased $7.4 million, or four percent, to $184.7 million in the first quarter of fiscal 2010 from $177.3 million in the fourth quarter of fiscal 2009. Compensation expense increased 10 percent, reflecting increases in adjusted operating income-based bonus accruals, stock-based compensation and sales-based incentives. Distribution expense increased seven percent from the prior fiscal quarter, reflecting an increase in commissions paid on certain sales of Class A shares, an increase in Class C distribution fees and an increase in intermediary marketing support payments. Service fee expense increased six percent, in line with the increase in assets subject to service fees. Fund expenses decreased 45 percent from the fourth quarter of fiscal 2009, primarily reflecting a decrease in subadvisory expenses related to certain sub-advisory agreements that were terminated in the fourth quarter of fiscal 2009. Other expenses decreased three percent due to decreases in information technology and facilities expenses.
Operating income in the first quarter of fiscal 2010 was $87.3 million, an increase of 14 percent over operating income of $76.9 million in the fourth quarter of fiscal 2009. The Company's operating margin improved to 32.1 percent in the first quarter of fiscal 2010 from 30.2 percent in the fourth quarter of fiscal 2009. Adjusted operating income of $99.1 million in the first quarter of fiscal 2010 was 16 percent higher than the $85.7 million of adjusted operating income in the fourth quarter of fiscal 2009.
Interest income in the first quarter of fiscal 2010 decreased two percent from the fourth quarter of fiscal 2009 due to lower effective interest rates earned on cash balances. In the first quarter of fiscal 2010, the Company recognized $2.5 million of net realized and unrealized gains on separate account investments. In the fourth quarter of fiscal 2009, the Company recognized $2.2 million of net realized and unrealized gains on separate account investments and $0.2 million of impairment losses on investments in collateralized debt obligation entities. The Company's effective tax rate, calculated as a percentage of income before equity in net income (loss) of affiliates, was 38.4 percent and 29.8 percent in the first quarter of fiscal 2010 and the fourth quarter of fiscal 2009, respectively. The increase in the Company's first quarter effective tax rate was due primarily to a tax adjustment related to stock-based compensation in the fourth quarter of fiscal 2009 that resulted in a $5.2 million net reduction in the Company's income tax expense.
Net income attributable to non-controlling interests in the first quarter of fiscal 2010 increased $3.3 million over the prior quarter, reflecting a $2.3 million adjustment recognized upon adoption of a new accounting standard on non-controlling interests in consolidated financial statements as of November 1, 2009.
Net income attributable to Eaton Vance Corp. shareholders in the first quarter of fiscal 2010 was $46.2 million compared to net income attributable to Eaton Vance Corp. shareholders of $48.4 million in the fourth quarter of fiscal 2009.
Cash and cash equivalents and short-term investments totaled $399.1 million as of January 31, 2010 compared to $360.5 million on October 31, 2009. The Company used $53.7 million to fund share repurchases and paid $73.3 million of common share dividends over the past twelve months. There were no outstanding borrowings against the Company's $200.0 million credit facility on January 31, 2010.
During the first three months of fiscal 2010, the Company repurchased and retired approximately 0.6 million shares of its Non-Voting Common Stock under its repurchase authorizations. Approximately 7.9 million shares remain of the current 8.0 million share repurchase authorization.
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 products and wealth management solutions. The Company's long record of providing exemplary service 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.
This news release contains 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 from time to time in the Company's filings with the Securities and Exchange Commission.
Eaton Vance Corp.
Summary of Results of Operations
(in thousands, except per share figures)
(unaudited)
Three Months Ended
% %
Change Change
January October January Q1 2010 Q1 2010
31, 31, 31, to to
2010 2009 2009 Q4 2009 Q1 2009
Revenue:
Investment advisory
and administration
fees $210,387 $194,983 $160,512 8% 31%
Distribution and
underwriter fees 25,034 23,713 21,083 6 19
Service fees 33,990 33,228 27,600 2 23
Other revenue 2,624 2,214 276 19 NM
Total revenue 272,035 254,138 209,471 7 30
Expenses:
Compensation of
officers and
employees 86,874 78,883 69,626 10 25
Distribution expense 29,111 27,095 22,056 7 32
Service fee expense 28,136 26,441 23,049 6 22
Amortization of
deferred sales
commissions 7,959 7,779 9,557 2 (17)
Fund expenses 4,293 7,786 5,032 (45) (15)
Other expenses 28,315 29,289 28,152 (3) 1
Total expenses 184,688 177,273 157,472 4 17
Operating Income 87,347 76,865 51,999 14 68
Other Income/(Expense):
Interest income 770 789 1,271 (2) (39)
Interest expense (8,416) (8,413) (8,416) - -
Realized gains
(losses) on
investments 1,748 1,846 (1,130) (5) NM
Unrealized gains on
investments 793 341 314 133 153
Foreign currency
gains 134 36 61 272 120
Impairment losses on
investments - (226) (106) NM NM
Income Before Income
Taxes and Equity in Net
Income (Loss) of
Affiliates 82,376 71,238 43,993 16 87
Income Taxes (31,645) (21,211) (17,460) 49 81
Equity in Net Income
(Loss) of Affiliates,
Net of Tax 814 410 (1,233) 99 NM
Net Income 51,545 50,437 25,300 2 104
Net Income Attributable
to Non-Controlling
Interests (5,303) (2,003) (603) 165 NM
Net Income Attributable
to Eaton Vance Corp.
Shareholders $46,242 $48,434 $24,697 (5) 87
Earnings Per Share
Attributable to Eaton
Vance Corp. Shareholders:
Basic $0.39 $0.41 $0.21 (5) 86
Diluted $0.37 $0.39 $0.21 (5) 76
Dividends Declared, Per
Share $0.160 $0.160 $0.155 - 3
Weighted Average Shares
Outstanding:
Basic 116,603 116,478 115,910 0 1
Diluted 122,920 122,658 118,602 0 4
Eaton Vance Corp.
Balance Sheet
(in thousands, except per share figures)
(unaudited)
January 31, October 31,
2010 2009
ASSETS
Current Assets:
Cash and cash equivalents $349,027 $310,586
Short-term investments 50,099 49,924
Investment advisory fees and other
receivables 115,430 107,975
Note receivable from affiliate 2,500 -
Other current assets 12,151 19,677
Total current assets 529,207 488,162
Other Assets:
Deferred sales commissions 50,911 51,966
Goodwill 135,786 135,786
Other intangible assets, net 78,880 80,834
Long-term investments 131,715 133,536
Deferred income taxes 105,275 97,044
Equipment and leasehold improvements, net 73,375 75,201
Note receivable from affiliate - 8,000
Other assets 4,408 4,538
Total other assets 580,350 586,905
Total assets $1,109,557 $1,075,067
LIABILITIES, TEMPORARY EQUITY AND PERMANENT EQUITY
Current Liabilities:
Accrued compensation $44,357 $85,273
Accounts payable and accrued expenses 58,133 51,881
Dividend payable 18,958 18,812
Taxes payable 29,146 -
Deferred income taxes 16,683 15,580
Contingent purchase price liability 13,876 13,876
Other current liabilities 3,589 2,902
Total current liabilities 184,742 188,324
Long-Term Liabilities:
Long-term debt 500,000 500,000
Other long-term liabilities 36,058 35,812
Total long-term liabilities 536,058 535,812
Total liabilities 720,800 724,136
Commitments and contingencies - -
Temporary Equity:
Redeemable non-controlling interests 46,546 43,871
Total temporary equity 46,546 43,871
Permanent Equity:
Voting Common stock, par value $0.00390625
per share:
Authorized, 1,280,000 shares
Issued, 431,790 and 431,790 shares,
respectively 2 2
Non-voting common stock, par value $0.00390625
per share:
Authorized, 190,720,000 shares
Issued, 118,031,524 and 117,087,810 shares,
respectively 461 457
Additional paid-in capital 52,190 44,786
Notes receivable from stock option
exercises (3,037) (3,078)
Accumulated other comprehensive loss (2,026) (1,394)
Retained earnings 294,278 266,196
Total Eaton Vance Corp. shareholders'
equity 341,868 306,969
Non-redeemable non-controlling interests 343 91
Total permanent equity 342,211 307,060
Total liabilities, temporary equity and
permanent equity $1,109,557 $1,075,067
Table 1
Asset Flows (in millions)
Twelve Months Ended January 31, 2010
(unaudited)
Assets 1/31/2009 - beginning of period $121,930
Long-term fund sales and inflows 25,213
Long-term fund redemptions and outflows (20,832)
Long-term fund net exchanges 648
Institutional/HNW account inflows 12,283
Institutional/HNW account outflows (5,703)
Institutional/HNW account net exchanges (579)
Retail managed account inflows 8,215
Retail managed account outflows (5,957)
Market value change 25,743
Change in cash management funds 623
Net change 39,654
Assets 1/31/2010 - end of period $161,584
Table 2
Assets Under Management
By Investment Category (in millions)
(unaudited)
January 31, October 31, % January 31, %
2010 2009 Change 2009 Change
Equity Funds $56,606 $54,779 3% $46,591 21%
Fixed Income Funds 26,697 24,970 7% 19,851 34%
Bank Loan Funds 16,879 16,452 3% 12,466 35%
Cash Management Funds 1,409 1,417 -1% 786 79%
Separate Accounts 59,993 57,278 5% 42,236 42%
Total $161,584 $154,896 4% $121,930 33%
Table 3
Asset Flows by Investment Category (in millions)
(unaudited)
Three Months Ended
Jan. 31, Oct. 31, Jan. 31,
2010 2009 2009
Equity fund assets - beginning of period $54,779 $52,873 $51,956
Sales/inflows 3,298 2,919 4,789
Redemptions/outflows (3,180) (3,053) (3,530)
Exchanges 461 (17) (34)
Market value change 1,248 2,057 (6,590)
Net change 1,827 1,906 (5,365)
Equity assets - end of period $56,606 $54,779 $46,591
Fixed income fund assets - beginning of
period 24,970 23,078 20,382
Sales/inflows 2,579 2,305 1,398
Redemptions/outflows (1,477) (1,691) (1,391)
Exchanges 121 6 29
Market value change 504 1,272 (567)
Net change 1,727 1,892 (531)
Fixed income assets - end of period $26,697 $24,970 $19,851
Bank loan fund assets - beginning of period 16,452 15,847 13,806
Sales/inflows 948 1,257 797
Redemptions/outflows (711) (1,284) (1,557)
Exchanges 6 (3) (24)
Market value change 184 635 (556)
Net change 427 605 (1,340)
Bank loan assets - end of period $16,879 $16,452 $12,466
Long-term fund assets - beginning of period 96,201 91,798 86,144
Sales/inflows 6,825 6,481 6,984
Redemptions/outflows (5,368) (6,028) (6,478)
Exchanges 588 (14) (29)
Market value change 1,936 3,964 (7,713)
Net change 3,981 4,403 (7,236)
Total long-term fund assets - end of period $100,182 $96,201 $78,908
Separate accounts - beginning of period 57,278 50,452 35,832
Institutional/HNW account inflows 2,699 5,674 3,431
Institutional/HNW account outflows (1,678) (1,261) (1,079)
Institutional/HNW account exchanges (579) - -
Institutional/HNW assets acquired 1 - - 4,818
Retail managed account inflows 1,714 2,153 1,879
Retail managed account outflows (1,163) (1,482) (1,467)
Retail managed accounts acquired 1 - - 2,035
Separate accounts market value change 1,722 1,742 (3,213)
Net change 2,715 6,826 6,404
Separate accounts - end of period $59,993 $57,278 $42,236
Cash management fund assets - end of period 1,409 1,417 786
Total assets under management - end of period $161,584 $154,896 $121,930
Table 4
Long-Term Fund and Separate Account Net Flows (in millions)
(unaudited)
Three Months Ended
January 31, October 31, January 31,
2010 2009 2009
Long-term funds:
Open-end and other
funds $2,492 $1,094 $2,546
Closed-end
funds (21) 107 (450)
Private funds (1,014) (748) (1,590)
Institutional/HNW
accounts 1,021 4,413 2,352
Retail managed
accounts 551 671 412
Total net flows $3,029 $5,537 $3,270
(1) Tax Advantaged Bond Strategies acquired by Eaton Vance subsidiary,
Eaton Vance Management, in December 2008.
SOURCE Eaton Vance Corp.
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