Eaton Vance Corp. ( EV)

F3Q 2011 Earnings Conference Call

August 17, 2011 11:00 ET

Executives

Dan Cataldo – Manager of Financial Planning and Analysis

Tom Faust – Chairman and Chief Executive Officer

Bob Whelan – Chief Financial Officer

Laurie Hylton – Chief Accounting Officer

Analysts

Steven Truong – Barclays Capital

Michael Kim – Sandler O’Neill

Ken Worthington – JPMorgan

Marc Irizarry – Goldman Sachs

Bill Katz – Citigroup

Cynthia Mayer – Bank of America

Douglas Sipkin – Ticonderoga Securities

Presentation

O perator

Greetings, and welcome to the Eaton Vance quarter three fiscal year 2011 earnings release. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instruction)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Cataldo, Manager of Financial Planning and Analysis. Thank you. Mr. Cataldo, you may now begin.

Dan Cataldo Manager of Financial Planning and Analysis

Good morning and welcome to our fiscal third quarter 2011 earnings call and webcast. Here this morning are Tom Faust, Chairman and CEO of Eaton Vance; Bob Whelan, our CFO; and Laurie Hylton, our Chief Accounting Officer. Tom and Bob will comment on the quarter and then we will take your questions.

The full release and charts we will refer to during the call are available on our website, eatonvance.com under the heading Press Releases. P`lease be aware that today’s presentation contains forward-looking statements about our business and financial results. The actual results may differ materially from those projected due to risks and uncertainties in our business, including but not limited to those discussed in our SEC filings. These filings including our 2010 Annual Report and Form 10-K are available on our website or on request at no charge.

I would now like to turn it over to Tom.

Tom Faust - Chairman and Chief Executive Officer

Good morning, and thanks everyone for joining us. Eaton Vance earned $0.55 per diluted share in the third quarter of fiscal 2011, up 62% from last year’s third quarter. Even after backing out roughly $0.025 a share of investment gains recognized in the quarter, this was the highest quarterly EPS in the company’s history. We also set new record highs in terms of revenue, adjusted operating income, and net income surpassing the 2007, 2008 pre-bear market highs.

As Bob will discuss in more detail, we continue to maintain a strong balance sheet with over $500 million of cash and cash equivalents and nearly $285 million of investments on our books at quarter end. We believe Eaton Vance is exceptionally well positioned for the more challenging market environment that appears to be upon us.

As shown on slides two and three of the accompanying PowerPoint presentation, we finished the quarter with $199 billion in managed assets, up 15% from a year ago and down 2% from the $203 billion at the end of the second fiscal quarter. Rising stock and bond markets were a source of asset growth in the first half of the fiscal year, weaker markets were a drag on managed assets in the third quarter, more than offsetting growth from positive net flows.

Our exposure to loss of assets in a market decline is mitigated by the diversity of our business, which encompasses equities, fixed income, floating-rate income and alternative investment mandates. The breakdown of our current managed assets by mandate and delivery format is shown on slides four and five.

As shown on slide six, our $43.8 billion of gross inflows through the first nine months of the fiscal year puts us on pace to have our best sales year ever. The $13.7 billion of inflows in the third quarter were up about 1% from a year ago.

As shown on slides seven and eight, net inflows for the fiscal year-to-date were $6.6 billion or 5% annualized internal growth rate. The $1.9 billion of net inflows in the third quarter equates to a 4% internal growth rate, extending our streak of positive net flows to 22 consecutive quarters.

Consistent with fund industry trends, we did see a drop in our mutual fund sales in the quarter. As shown on slide nine, all four categories of Eaton Vance funds showed decline from second quarter sales levels. According to strategic insight, net flows into long-term funds in the U.S. fell from a positive $43.5 billion in April to positive $29.8 billion in May to $5.3 billion in June and into a negative $10 billion in July. Our sales have never been more diversified across investment categories and among major franchise funds than they are today.

Slide 10 shows our top selling funds for the quarter, which encompass all of our major asset categories and includes products managed by our Parametric and Atlanta Capital subsidiaries as well as Eaton Vance Management. The extensive lineup of new funds that we launched in fiscal 2010 continues to make meaningful contributions to fiscal 2011 quarter results.

The new Global Macro Absolute Return Advantage, Commodity Strategy, Richard Bernstein Multi-Market Equity Strategy and the repositioned Multi-Strategy Absolute Return Funds accounted for approximately 10% of our U.S. mutual fund sales in the third quarter. Based on their strong sales success, these funds have grown to over $2.5 billion in assets from just $300 million, 15 months ago.

The two Tax-Advantaged Bond Strategy funds launched earlier last year that have intermediate term and the Long-Term Muni Bond Funds have quickly established themselves as performance leaders in their respective categories. While not yet contributing meaningfully to flows, they should be position for significant growth as demand recovers for Muni Bond Funds.

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