Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eaton Vance Corp. First Fiscal Quarter Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Treasurer, Dan Cataldo, you may begin your conference.

Thank you and welcome to our fiscal 2018 first quarter earnings call and webcast. Here this morning are Tom Faust, Chairman and CEO of Eaton Vance; and Laurie Hylton, our CFO. We will first comment on the quarter and then take your questions. The full earnings release and charts we will refer to during the call are available on our website, eatonvance.com, under the heading, Press Releases. 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 2017 annual report and Form 10-K are available on our website upon request at no charge. I'll now turn the call over to Tom.

Thanks, Dan and good morning, everyone. Earlier this morning, we reported adjusted earnings per diluted share of $0.78 for the first quarter of our fiscal 2018, which is up 47% from the $0.53 that we reported in last year's first quarter, and also up 11% from $0.70 that we reported in the fourth quarter of last fiscal year. The nearly 50% year-over-year increase in adjusted earnings per diluted share reflects 29% higher operating income and the favorable effect on adjusted earnings of the reduction in the U.S. corporate income tax rate included in the Tax Cuts and Jobs Act enacted in December. As Laurie will discuss in more detail, our first quarter adjusted earnings per diluted share exceeded the $0.63 of U.S. GAAP earnings per diluted share we reported for the period, primarily to reflect the revaluation of previously booked deferred tax assets and liabilities as a result of the lower U.S. corporate tax rate, the tax expense we recognized on the deemed repatriation of foreign earnings not previously subject to U.S. tax as is required under the Tax Act, and the recognition of net excess tax benefit from stock-based compensation plans in connection with the exercise of employee stock options and the vesting of restricted stock awards during the period as newly adopted accounting guidance requires to be included now in GAAP earnings. First quarter adjusted earnings also reflect the add back of a onetime charge recognized during the period in connection with the expiration of our option to acquire an additional 26% ownership interest in our 46% owned affiliate Hexavest. We finished our first fiscal quarter with record managed assets and had record revenue and record adjusted earnings for the quarter as the strong business trends of fiscal 2017 continued into the first quarter of fiscal 2018. Ending…

Thank you and good morning. As Tom mentioned we're reporting adjusted earnings per diluted share of $0.78 for the first quarter of fiscal 2018, an increase of 47% from $0.53 of adjusted earnings per diluted share in the first quarter of fiscal 2017 and up 11% from $0.70 of adjusted earnings per diluted share reported in the fourth quarter fiscal 2017. As you can see in attachment to our press release, adjusted earnings differed from GAAP earnings in the first quarter of fiscal 2018 by $0.15 per diluted share, primarily reflecting the impact of tax law changes and the newly adopted accounting standard. Adjustments affecting our first quarter include $21.7 million revaluation of deferred tax amounts resulting from the new tax legislation enacted on December 22, 2017, $3 million of incremental tax expense also resulting from the December tax law changes related to the deemed repatriation of foreign earnings not previously subject to U.S. taxation, and then $11.9 million income tax benefit related to newly adopted accounting guidance addressing the treatment of stock-based compensation plans. This benefit, driven by the exercise of stock options and the vesting of restricted stock during the period, would have been recognized as an adjustment to equity rather than the income statement item under the previous accounting guidance. As a further adjustment to first quarter earnings, the company recognized a $6.5 million pre-tax loss, $5.7 million after-tax, in connection with the expiration during the period of our option to acquire an additional 26% ownership interest in our 49% owned affiliate Hexavest. Adjusted earnings per diluted share matched GAAP earnings per diluted share in the first quarter of fiscal 2017 and differed from GAAP earnings in the fourth quarter of fiscal 2017 by $0.01 per diluted share to reflect increases in the estimated redemption value of…

Your first question comes from Bill Katz with Citigroup. Your line is open.

Okay. Thank you very much. Just maybe on the European opportunity, Tom, you sort of called out the new platform onboard. I was just sort of wondering from here what kind of growth has that platform has had, and maybe if you could flesh out maybe the opportunity in Japan a bit more?

Yes, so the business that we didn't acquire it, but I guess the word would be assumed at the end of January was about $800 million in assets. That asset number has been quite stable over time. The company that group was previously a part of called Oechsle Advisors did not have significant marketing resources and certainly didn't focus those resources on their fixed income team, despite the fact that they have an excellent record, they have a credible team and they're located in a market that's very much focused on fixed income investing. So, we think there is an opportunity there. We've heard that there's at least one opportunity that I know about that's come to my attention where we are responding to an RFP, but we're in the very early days there, we are just a few weeks into our ownership of that group. We think there should be an opportunity, but it's pretty hard to say exactly how big that will be. Somewhat surprisingly, most of the clients' assets for that team are actually in the U.S. So I think they have four current clients they have different institutions in different places, but two of those are in the U.S. and the biggest two clients they have are U.S. based. But it won't be a big contributor, we don't expect, to our organic growth over the balance of this year certainly. But we do think that both that team and the broader benefits to our global income strategy of having a base in Frankfurt on the continent of Europe and also having a sales presence there could and likely will prove valuable to us over time. But we will not be, I don't think, an overnight success in terms of growing the AUM of that business; that's…

Okay. That's great color. And then just a follow-up, Laurie, perhaps help maybe to guide what was the big increase in the share count sequentially, and then you just sort of mentioned your balancing sort of the plans on the other side of (32:21) U.S. tax front. Could you sort of give us a sense of how you're leaning and what's some of the areas where you either reinvest or return to capital might be?

Yes, I think in terms of the share count, Bill, the obviously run up in our stock price over the period contributed significantly. Using the treasury stock method, if you have a run up, it's going to increase your diluted share count. So you're seeing that there. We had obviously trended down a little bit in terms of our share repurchases last year. So, in terms of incremental dilution, we had some significant stock option exercises and restricted share vesting, and we were not necessarily offsetting all of that with share repurchases in the course of the year. So those two components combined increased the diluted share count. And in terms of our capital management, I think we like most companies in the industry are spending a lot of time thinking about that. I don't think that we're in a position at this point to lay out any definitive plans, but I will tell you that we'll probably be in a better position next quarter to have a more fulsome conversation about it.

Okay, thank you.

Your next question comes from Patrick Davitt with Autonomous Research. Your line is open.

Hey, good morning. Thanks for taking my questions. We received quite a bit of concern around Parametric's enhanced alpha strategies through the February correction and volatility. So I've a few questions around that. One, how do you feel those strategies performed relative to client expectations? Two, what has been the experience with clients through that period in terms of stickiness of assets? And three, do you feel like the product is more or less marketable now that you have that data point in your back pocket?

So let's just be clear on what is you're asking about, you're talking about the Parametric Emerging Markets strategy?

All the enhanced alpha stuff, yeah.

So what you mean by enhanced alpha stuff? So I just want to make sure I answer the right question. You're talking about emerging market equity or are you talking about defensive equity or volatility risk premium strategies?

Like the volatility risk premium strategy, I'm sorry.

Yeah, okay so I'll focus on that. So the volatility risk premium strategy or sometimes called defensive equity or there is a mutual fund called Parametric Volatility Risk Premium Defensive Fund, but it's all variations on the same things. This is a strategy that is a volatility selling strategy. It is a hedge strategy in that the base portfolio is half invested in equities and half invested in cash instruments, I think in treasuries, that you can do it different ways. But that's how most of the assets are invested. And the way it's positioned is that you capture volatility risk premium, you're effectively a seller of insurance and capture that premium during periods of volatility like we had in early February. You will see a reduction in returns because you think of this as an insurance selling strategy. And so when there are more fires, there will be more claims to be paid. In this case, that gets reflected in a daily mark of the account assets. Performance was completely in line with expectations given the market environment. This is a rules based strategy. There were and I don't think will ever be significant surprises in how it performs. It's not a leverage strategy. In the worst case, it has an equity beta of 1 or approaching 1. So it's a strategy we like and certainly we have not heard about significant market concerns about how that strategy has performed in this environment. It has performed in line with expectations.

Your next question comes from Dan Fannon with Jefferies. Your line is open.

Thanks. I guess first on the expense outlook, if you could talk about I guess more on this past quarter the sequential pickup of what was seasonal versus the variable increase and just generally thinking about kind of the margin profile as we kind of look ahead, you gave a couple of the next quarter type of movements around the step-up and step-down around the 401(k) match and things. But just broadly thinking about, given the strength of asset growth through January, how you're thinking about kind of margin profile for next year?

Yeah, I think most of the comments we made they were forward-looking related, particularly the compensation and just to be clear, I think that we identified and have identified in the past roughly 40% of our compensation is variable. So that's going to move either in line with what's happening from an operating income perspective or in line with sales in terms of our compensation to our sales team. In terms of our fixed compensation, we've obviously seen some uptick in terms of our head count that drove our base increases and that's going to continue. The things that won't continue or won't continue that we saw in the first quarter would be the roughly $2.5 million of stock-based compensation that I highlighted in my comments and then the offset where we anticipate seeing the uptick in what otherwise would've been a drop off in our 401(k) match in the second quarter. But outside of that, I wouldn't anticipate seeing a lot of other seasonal adjustments on the comp side. I don't think that we're seeing anything significant in terms of the change in our operating model and I therefore would not anticipate seeing any significant moves in our operating margin moving into the next quarter. We always have this sort of downtick in the first quarter associated with these pressures that we've talked about and then we see things start to pick up as we move through the year. I don't see anything coming down the pike that's different. As we talked about, we're thinking about our capital management, may there be some incremental technology spend in the course of the year. There might be but it's not going to be significant in terms of moving the needle, in terms of our overall operating structure.

Got it. And then just as a follow-up, Tom, you mentioned a number of key funds coming online for next years on the UBS platform. Can you maybe quantify that and think about or help us think about framing what that kind of opportunity could be over the next kind of 12 months?

Yeah, I certainly don't have numbers to share because we don't have any clear idea on how this is going to go. There are really two constraints on the growth of NextShares at UBS. One that I talked about is the one about products getting through their due diligence process and we think we're on the verge of a significantly – being in a significantly better position, meaning that several of the key strategies that we have strong hopes for in terms of sales potential. We expect to clear that due diligence process over the next month and that includes the Parametric floating rate strategy, I believe the – sorry, the Eaton Vance Floating Rate strategy. The Eaton Vance Oaktree Diversified Credit strategy, there's a Hartford Global Impact strategy that is managed by Wellington, that I know Hartford is pretty excited about and will be putting up some considerable market resources behind. So those are – we know those are close and we think that those products, plus things already available already through due diligence will be sufficient to get our sales force talking about NextShares and to get the sales force of Hartford and other firms that have NextShares represented, to have this be a key part of their focus within UBS and then we should see some sales results. In all cases, where a NextShares fund is offered alongside a similar strategy, the NextShares fund is less expensive both in terms of its expense ratio and in terms of its expected non-expense ratio, operating costs, so we expect to see better performance. Over time, we expect to see improved tax results of operating as exchange traded funds. So we think there's lots of reason for optimism, but it hasn't happened yet. The other thing that needs to happen…

Your next question comes from Michael Carrier with Bank of America Merrill Lynch. Your line is open.

Hey, thanks. Just a question on the flows, Tom, you mentioned, just how Eaton Vance is positioned in a rising rate backdrop and some of the products that are well-positioned. Just on the tax reform, any products that maybe you have seen demand, any shift there, I guess on a personal side the changes aren't as significant as the corporate side, but could you just – any change that you expect in some of the products that are tax efficient?

Yes, I think it's a little hard to say. I mean one thing that we speculated about during the quarter I think is probably everyone on the call is aware that, during November and December there was a proposal that would have – that was included in the Senate version of the bill that would have forced the use of FIFO, would have taken away taxpayers' ability to use so-called identified tax lot method and selecting the securities. And as people may know, that's an important part of the service offering of Parametric's Custom Core and related products offered by competitors, where you're trying to achieve returns that match a prescribed benchmark, but to exceed the returns on an after-tax basis through tax laws harvesting and other ongoing tax management techniques. We don't know this for a fact and can't confirm this, but we suspect that during the first quarter, our first fiscal quarter that is November-December period that there was a bit of a chilling of the market for those kinds of things just because there was so much focus and so much energy devoted to trying to figure out what was going to happen with the tax law and what that it implied for our clients and how these things would work, if the ability to use identified tax lot method went away. So one thing that we do see and that we can see it – we do expect and we see this somewhat in the numbers that we should see a month-to-month improvement in that business versus what we saw in the last couple of months of the year. We certainly saw an improving trend, January versus November and December in Parametric Custom Core, and also just for February that we've seen to-date that same trend…

Good, that's helpful. And I just have a quick follow-up on Calvert. The progress there has been has been good. Just on, when we think about the growth going forward in the product offering, is it more demand by clients picking up as we see more and more interest in ESG, or is there more that you guys can be doing or are doing on the distribution front in terms of getting those products on platforms or new product offerings?

Yes, of course, those two are related. At firms where there is a major push relating to responsible investing, naturally it becomes easier to get strategies and funds onto platforms, so that has been a help, and we have seen some improvement there. I would say there may be three drivers of the growth of Calvert over the last year. The two you mentioned, which is general growing awareness and enthusiasm for responsible investing, that's one. Two, bringing the distribution resources of Eaton Vance to bear supporting Calvert. The third would be the investment performance component, which is that we have a number of high performing top rated funds under the Calvert banner, and that – as their performance has been strong, that drives flows in the same way that it does in other parts of the market. Perhaps there's somewhat less sensitivity among responsible investors to performance, but still performance matters in this space, and to the extent we have strong performance that affects flows. In fact, the top selling Calvert strategy has been their Emerging Markets Equity strategy, which no surprise it's been a very strong performer both in an absolute sense because emerging markets have been strong, but also particularly strong on a relative basis with a five-star rating by Morningstar. So we think we've got a long way to go. There are many opportunities, many different ways to apply Calvert's expertise in evaluating investments from an ESG perspective, their reputation as a leading brand and thought leader in this space. You may have seen a Barron's cover story two or three weeks ago that was ranking the 100 most responsible companies among public companies in the U.S. As noted in that article, that was all based on research done by Calvert. And so, there are – and also there was an article in Barron's this past week about different investors thinking differently about having gun manufacturers represented in their portfolios. The quote in that is from John Streur, CEO of Calvert. So they're very much – Calvert is very much in the conversation about responsible investing issues whether those be environmental issues, social issues or governance issues. And as these become increasingly important to a broader range of investors in the U.S., as they've long been in Europe, we expect that the value of this franchise for us to only grow.

Your next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Great. Hi, folks. Thanks for taking my question. Maybe just to make sure I heard this correct on the tax reform side, I think Laurie did you say or maybe just reiterate the tax rate guidance for fiscal 2019, and then I think you said the impact of the stock option expensing is not in that tax rate and will be adjusted out, is that correct?

Correct. So, yes, we gave the guidance for 2019 at roughly 25% to 25.5%, and that's taking out all the noise associated with the fact that this year we obviously only got 0.833% of the benefit of the tax reform, because of our fiscal year. And when we are going to be presenting our earnings and will also get the same reconciliation for our effective tax rate. Those – the number that I gave for next year for the 25% to 25.5% excludes any anticipated impact of the stock-based compensation in the new accounting guidance.

Thank you, great.

So, Brian, we made the decision to exclude those adjustments in tax rate related to this new accounting guidance requiring these tax adjusted related to stock-based compensation plans to go through the income statement, probably for the reason that you're focusing on, which is both for modeling purposes and in terms of really thinking about the company's performance on a current basis, it's very hard to think about that as a measure of our current performance. What drives that in the short run is how does our stock do and how many employees choose to exercise options during a period, neither of which relates particularly to at least as I think about fundamentally how the business is doing. So we think we treat that both in the first quarter and planned on an ongoing basis as an adjustment to GAAP earnings. And then also, anything we're projecting in terms of future tax rates as Laurie said is backing that out or ignoring that both because we're not including it in adjusted earnings, but maybe more importantly because we don't really have any way of predicting either where our stock price is going to go or the rate at which employees are going to be exercising options. So it's kind of a necessary exclusion.

Okay, that makes sense. And just I guess philosophically, I know you're still working on the game plan for what to do from the incremental contribution from tax reform. But I guess philosophically if we continue to have a mid-single digit through a better type of organic fee revenue growth with say normal market returns, should we still be thinking of the operating margin outlook as one that's benefiting from scaling the business, and so continuous operating margin improvement on an annual basis? And if I could squeeze one more in there, just the driver of the alternative fee rate increase, was that all from Global Macro Absolute Return?

Probably the easiest to answer is the second question, which is yes. It was Global Macro...

Yeah, that category is very dominated by that one strategy.

Yeah.

And Global Macro Absolute Return Advantage is the higher fee relative to the category average.

Right. And I think in terms of operating margin, I think we continue to have this conversation obviously, but we do believe that there is opportunity for margin expansion over time. I think it's just a function quite frankly of what our product mix looks like and ultimately what is happening with the business in terms of sales. And we've got quality problems when we had periods of high sales that drives up our incentive compensation. But I think – at this point, we are not anticipating any seismic shift in the way that we think about our operating model. So I wouldn't say that I would give you any guidance and we would see any significant changes.

But as I understand the question, I think there's a – you're trying to relate the tax law changes to operating margins or – and I think maybe under that is are we expecting to spend away a lot of the tax benefit which would have an adverse effect on margins, or do we expect to see that competed away, that benefit of the tax or tax rate to be competed away, I suppose in a way that would hurt our revenues rather than our expenses. But we are certainly not expecting to see a lot of increases in expenses for the reason that our taxes went down. Laurie did mention an increase in employee benefit, which is our annual employee matching, which is a relatively small item, but meaningful to our employees and also marginally meaningful in terms of our overall cost structure. No doubt there will be other things that we'll be doing, but I don't think we will be relating decisions we make about technology or other spending items to the fact that we're paying lower tax rate on our earnings in the U.S. going forward. And in terms of the market impact of this, we're already in a quite competitive business with certainly ongoing fee pressures, but I would say that incrementally there are significant numbers of players in our business that do not see a meaningful cut in their tax rate. Not everyone that manages assets is a corporate tax payer, which is of course a lot of where the benefit of the U.S. tax increase – U.S. tax cut fell. We were in a position to benefit more than most for the reason that we paid a higher tax rate and had more of our earnings in the U.S. than most of our competitors. But again, I don't think people will be cutting fees or becoming more aggressive in their competitive posture, simply because the tax rate in the U.S. went down. That might happen, but I don't think it will be for the reason that the tax rates are now lower than they were last year.

Your next question comes from Chris Shutler with William Blair. Your line is open. Chris Charles Shutler - William Blair & Co. LLC: Hi, guys, good afternoon. Just one quick one, thinking about M&A, please give us an update on your appetite right now to bring on new franchises, what asset classes, geographies are of interest, if any, and just any sense whether getting past tax reform with a little more market volatility here early this year, whether that's driving more sellers to explore other options? Thanks.

Yeah, so we're active in monitoring the acquisition market. I wouldn't say we're active in the acquisition market. Laurie and I field phone calls from investment bankers on a pretty regular basis. It feels like it's perhaps more of a seller's market than a buyer's market today, just based on what we hear as valuations on things that are out there. Thinking of ourselves more as a value buyer, that makes it perhaps less likely rather than more likely that we'll be stepping into major transactions this year. But we do monitor closely things that are happening. There are things that we've expressed interest in that invariably are going to go to other bidders that are perhaps willing to put a higher valuation or bid more aggressively or have more optimistic assumptions than we do. I think that's the way it should work. Acquisitions should go to the acquirer that provides the best fit and is willing to provide the highest valuation, in some cases, that will be in Vance. But in many cases, it will not be. So we look – we kick the tires a lot. Particular things that are interesting to us, we articulate our strategic priorities as including the one probably that fits best with an acquisition strategy is growing outside the United States, growing our global footprint. We're still, despite the accelerated growth we've seen in the last couple of years outside the United States, it still represents only about 7% of our revenues. So with the right cultural fit and at the right price, we would be interested in potentially doing an acquisition outside the United States. In terms of things here or specific asset classes, I don't – we don't feel like we have huge holes in our lineup. But certainly, we're interested in extending our reach into areas where we think we can compete effectively in investment strategies where we view alpha potential and also where we see a fit with our distribution capabilities and also with our investment culture. So we look, we talk and we certainly feel like we have the resources to be a significant player in this. And we talked about the financial flexibility we have as a result of our large cash and near cash position and our borrowing capabilities certainly. But we're not going to use that on a deal that we feel doesn't make sense for Eaton Vance. Chris Charles Shutler - William Blair & Co. LLC: All right, thanks Tom.

Your next question comes from Ken Worthington with JPMorgan. Your line is open.

Hi, good afternoon now. In the past, you've been skeptical of nontransparent ETFs getting approval. I guess are you still skeptical and if the nontransparent ETFs are approved, to what extent do you think there will be effective competitors given the challenges you saw securing ETMF distribution and getting people kind of comfortable with the new structure?

Yes, thanks, Ken. I continue to be skeptical that some or all of the ideas that have been put before the SEC are ultimately approvable. And then beyond that, I'm skeptical that they will be widely applicable across asset classes. To my knowledge, essentially all of the proposals if not all the proposals are focused on U.S. equities. That's potentially a big market, but there are lots of other things outside of U.S. equities. But, there are a lot of issues for the SEC to consider not only how these things will trade, but more broadly are they successful in protecting the confidentiality of funds portfolio information, which is a key objective of these types of funds, and do they raise other securities law and related issues. So, yes, I continue to be skeptical that there will be broad approval of so-called nontransparent active ETFs.

Okay. Great, thanks. And just quickly on Hexavest, you decided or noted to not exercise the option to buy more. Is Hexavest sort of now perpetually going to be a minority investment or is there opportunities in the future to kind of to reassess and maybe buy a greater stake?

Perpetually that seems like a long time to commit ourselves to, but there is – we have no option. This was a one-time option. We very much like our investment in Hexavest. But one of the things we like about it is the current ownership and governance model in which management, the people that run the company, the people that run the investment process, they own 51% and we own 49%. We are the distribution partner in all markets outside the United States. They distribute in Canada. They run the money. To us it seems like a better match after a lot of thought is for the team there to own 51% and us to own 49%. So that's where we've been. It's worked well. The business has grown under that structure. We like the way it works from a governance standpoint. And after much consideration, we concluded that we wanted to stay at 51%/49% as opposed to us move moving to a 75% position which was our option.

And this concludes the Q&A session for the conference. I'd now like to turn it back to Dan Cataldo for closing remarks.

Great, thank you all for joining us this morning. We appreciate your ongoing interest in Eaton Vance, and look forward to reporting back to you towards the end of May. Thank you.

This concludes today's conference call. You may now disconnect.