Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Eaton Vance Fourth Quarter Earnings Conference Call. [Operator Instructions] Dan Cataldo, Treasurer, you may begin your conference.

Thank you and good morning and welcome to our fiscal 2017 fourth 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 the company’s SEC filings. These filings, including our 2016 annual report on Form 10-K are available on our website or upon request at no charge. I will now turn the call over to Tom.

Good morning and thank you for joining us. Today, we are reporting adjusted earnings per diluted share of $2.48 for the fiscal year ended October 31, which is up 16% from $2.13 in fiscal 2016. For the fourth quarter, we are reporting $0.70 of adjusted earnings per diluted share, that’s up 23% from $0.57 in the fourth quarter of last year and up 13% from $0.62 in this year’s third quarter. We finished fiscal 2017 with record managed assets, record annual net inflows and a record quarterly earnings rate, all-in-all, a very strong year. One of the most notable events of our fiscal 2017 was the acquisition in December of the assets of the former Calvert Investments and the addition of the Calvert funds to Eaton Vance. The Calvert funds are one of the largest and most diversified families of responsibly invested mutual funds, encompassing actively and passively managed equity, fixed income and asset allocation strategies, all managed in accordance with the Calvert principles for Responsible Investing. Responsible Investing continues to be a leading trend in asset management, appealing to the growing universe of investors who seek both financial returns and positive societal impact from their investments. At the time we acquired Calvert, I talked about the opportunity we saw to apply Eaton Vance’s management and distribution resources to help Calvert become a larger and more impactful company. Now, almost 11 months later, we are on the road to doing that and more excited than ever to have Calvert as part of Eaton Vance. Although many growth opportunities are yet to be realized, Calvert is already starting to contribute positively to our net flows. Total managed assets of our Calvert research and management subsidiary, including amounts sub-advised by other Eaton Vance affiliates, increased from $12 billion at acquisition to $12.9…

Thank you and good morning. As Tom mentioned, we are reporting adjusted earnings per diluted share of $2.48 for fiscal 2017, an increase of 16% from $2.13 adjusted earnings per diluted share in the prior fiscal year. On a GAAP basis, we earned $2.42 per diluted share in fiscal 2017 and $2.12 per diluted share in fiscal 2016. As you can see in Attachment 2 to our press release, adjusted earnings differed from GAAP earnings in fiscal 2017 by $0.06 per diluted share to reflect $5.4 million of debt extinguishment costs associated with the May 2017 retirement of $250 million of senior notes due in October 2017. $3.5 million of structuring fees paid in connection with our July closed end fund initial public offering and $0.5 million to reflect increases in the estimated redemption value of non-controlling interest in our affiliates redeemable at other than fair value. Adjusted earnings differed from GAAP earnings in fiscal 2016 by $0.01 per diluted share to reflect $2.3 million of structuring fees paid in connection with our May 2016 closed-end fund IPO. Adjusted operating income, which excludes the impact of closed-end fund structuring fees paid, increased by 17% year-over-year. Our adjusted operating margin was 32% in fiscal 2017 versus 31% in fiscal 2016. Tom mentioned we are reporting record quarterly adjusted earnings per diluted share of $0.70 for the fourth quarter of fiscal 2017. That’s an increase of 23% from $0.57 in the fourth quarter of fiscal 2016 and up 13% from $0.62 in the third quarter of fiscal 2017. Adjusted earnings differed from GAAP earnings in the fourth quarter of fiscal 2017 by $0.01 per diluted share to reflect increases in redemption value of non-controlling interest and affiliates redeemable at other than fair value. Adjusted earnings per diluted share matched GAAP earnings in…

[Operator Instructions] Your first question comes from the line of Brian Bedell of Deutsche Bank. Your line is open.

Hi good morning. Thanks very much. Maybe, Tom, you talked about the FIFO, both on the Senate side, and thanks for the color on Parametric’s initial stake on it. Is there any sense of what portion of the tax alpha that Parametric has historically generated is coming from, choosing the timing of the securities? Realize that, that might be a difficult thing to answer but just to get a sense of what type of impact they could have on the historical tax alpha if that is implemented?

Yes, I don’t - thanks for the question, Brian, I don’t know that and I think it might be a hard thing to quantify in total. Obviously, it’s going to vary a lot by circumstances of an individual account. Paul Bouchey is the Head of Research at Parametric. And I have been in touch with him and with Brian Langstraat, who runs Parametric, over the last couple of weeks as this issue has been out there. And they have been doing as I said in my remarks, they have been doing a lot of work. I’m looking at the ability in a mandatory FIFO regime if that’s what happens, to generate tax alpha. And there, I would say that the results, as reported last night by Paul, are quite encouraging, that you can get to essentially comparable levels of tax alpha, but you have to do it in a somewhat different manner. Essentially, what you want to avoid is having a single security purchased at multiple different price points. So I think that means, generally, as you build out your portfolio over time, you are adding new positions as opposed to adding different layers to existing positions. So you have to you got to think about it more, the way you build portfolio will be different. I think one of our challenges is, if this becomes a law, the proposed effective [date] [ph] is about 5 or 6 weeks from now, so there may be some planning that needs to be implemented before this takes effect. And certainly, there will potentially be some changes in algorithms to be affected so that the new way of operating is reflective of this rule, of this information if it comes through. I would say there is a potential positive for perhaps significant in there for their Custom Core business in that and tax reform and that it’s looking like for higher-income investors, federal rates will be probably flat, but the effective rates, including the state tax is net of federal deductions, in places like California, New York, Massachusetts and Connecticut, places that have relatively high state taxes, then that tax rate doesn’t go down and in fact, could go up likely would go up quite sharply on a net basis in some of those places, which not surprisingly represent a pretty big part of our tax-managed business. So as mentioned, this is something that we oppose. We think it works against what tax reform is trying to accomplish. It complicates the lives of investors, but in some ways, it makes the importance of being smart about tax management even greater. And hard to say, but on balance, we think it could well be a positive for our business.

Okay. Okay, that’s great color. And then maybe just a follow-up on the NextShares with UBS, with that starting up, any sense of aside from the different advisory agreement that you will be having with the other managers, a sense of how the financial advisers at UBS are viewing the product and whether they are going to begin shifting to that en masse, I mean, I guess, just based on conversations, I imagine there’s not really a lot of evidence yet of any traction at this stage?

Yes, it’s obviously very early. I think it was officially turned on in their system either Friday or yesterday. So this is brand new. Also, there’s a process that UBS is undergoing of vetting individual funds. And I know not all of the NextShares funds are yet through that process, including the Oaktree fund that we announced launch of last week. We are very encouraged that UBS is putting funds through an expedited review process. They have lowered the normal standards in terms of how much assets have to be in the fund, recognizing that practically speaking, that since they are the main market here that they can’t realistically expect a lot of flows into the fund to be there before they come in. But we are optimistic. There’s a training module that has been implemented across UBS. I think that’s been well received. As I mentioned in my remarks, this is really the first time that we can wholesale NextShares. The two smaller broker-dealer relationships that we started last year really don’t fit with our distribution model and that of other NextShares sponsors. But this is right down our alley. I should say we are particularly excited about the Oaktree strategy. Oaktree has of course, has an outstanding reputation as a credit manager and this is the first time this diversified credit strategy is available to retail investors. How I think UBS advisers will think about this is strategy by strategy. You put an uninteresting strategy in a NextShares structure I don’t think that’s going to be compelling for an adviser. But you put but if you put an interesting compelling strategy in front of a NextShares adviser, we think that will motivate that adviser to learn about and to invest in NextShares. And that, that success we certainly…

The strategic advisory is their [wrap] [ph] program, I believe, it’s that correct?

Yes. Or it is a [wrap] [ph] program. I think they have other ones as well.

Great thanks for all the color.

Yes. Thanks, Brian.

Your next question comes from the line of Robert Lee of KBW. Your line is open.

Great, thanks. Good morning, everyone. Can you maybe just as a starting place I noticed that you have kind of made a comment in the release about a CLO entity. So it kind of sounds like you are looking to get heavier into the CLO business in managing CLOs. Could you maybe kind of update us on your plans there? And I saw you had a little bit warehouse, so do you have some kind of CLOs you are thinking are coming to market in the next couple of months and just kind of how you are thinking about that business?

So we have one CLO that’s in process that we have mentioned that’s in that’s, I guess, come out of the warehouse stage. We have, I would say, a renewed interest in this business. We have a team here that’s been doing CLOs for certainly well over a decade. We think we are pretty good at this. It’s a huge part of the bank loan market. For public companies, it’s a bit challenging because of the reporting requirements. There are also risk retention rules that effectively require us to own, I think it’s 5% of the entity. You can do that by owning a pro rata strip of the different risk levels or by owning much of the equity. We are I don’t think you can you should expect to see Eaton Vance become primarily a CLO shop. This is a big business, but there are their capital needs here, the risk considerations, there are accounting complexities. But having said all that, this is an asset class that we like. We think we are very good at managing bank loans. We think we understand how CLOs work. There is a stickiness to the assets that we like and we would expect, I would say, relatively slowly to be ramping up our CLO exposure.

Okay, great. And then maybe just following up on Hexavest, I guess you are – I assume you are in negotiations with them right now about the buying up the majority stake. I don’t know if there’s any update on expectations that we should think of around that. Or to some degree, is that impacting how you are thinking in the short term at least about kind of share buyback or capital management?

I think it’s if we were to exercise our option, it would be about a $90 million item. So it’s not an insignificant spending amount. So at the margin, that would influence other uses of capital. I would say that, as your question suggests, we are in the middle of negotiations and would prefer not to say too much. We like these guys very much. We like the way they run their business. But it’s not ultimately recent agreement on whether or not to exercise that option. We have, I think the period expire sometime in the middle of December. So time is getting short and so stay tuned.

Okay and then thanks. Patience is maybe one more question is, can you maybe update us on any kind of how you are thinking of the institutional business of your pipeline. You mentioned, obviously, some success with some of the global macro and obviously the bank loan products in the U.S. and outside, but any kind of color on how we could think about institutional activity on any pipelines?

Yes. So we have a pipeline report that we circulate weekly internally. And as of the end of last week, when the last pipeline report was circulated, happily, lots of indicated inflows and not many indicated outflows, which is good. The areas of growth anticipated based on these are one, not funded. One is a global high-yield mandate for an international client. There’s a quite interesting Calvert-enhanced cash strategy that is pending funding that we think perhaps could be a model for other similar responsibly managed enhanced cash mandates, the parametric pipeline in terms of Custom Core, defensive equity and exposure management continues strong. I was in Japan, I guess, 2 weeks ago, working with our sales team there, meeting with clients. Japan is our largest market outside the United States, and we have seen very strong growth there, that accounts for much of the overall growth in our international business we have seen this year. Strategies we talked about during those sessions when I was there included bank loans, included global macro, included taxable municipal securities, which is kind of interesting, somewhat new market. You wouldn’t think on its face that municipal bonds would be interesting to investors in Japan or places outside the United States. But there’s a market of about $500 billion today for securities issued by municipal issuers, but that don’t qualify for the favorable tax treatment. Therefore, they traded yields that are more comparable to corporate securities. Those corporate those municipal issuers have different risk characteristics than our corporate issuers that make them potentially attractive for taxable investors around the world including outside of the United States. Interestingly, one of the proposals in the tax reform initiative would potentially curtail, it varies a little bit by the House and the Senate version. But in both cases would limit certain types of tax-exempt municipal bond issuances, which interestingly could help address one of the issues we are facing in the taxable market is that it’s a relatively small market with limited supply. So what was released in one side might be a source of growth on the other. But quite active across a range of strategies in institutional, U.S., international, certainly Eaton Vance, Hexavest, Parametric, Atlanta Capital, every one of our subsidiaries is actively trying to build business institutionally, it’s not easy. There tends to be longer selling cycle. Obviously, these are competitive times with lots of pressure from passive and particularly in equities, but we think that maybe, particularly outside the United States as we build a bigger presence, there could be some low-hanging fruit for us in building out that institutional business relatively quickly.

Okay, great. I appreciate the color. Thanks for taking my question.

Right. Thank you, Rob.

[Operator Instructions] Your next question comes from the line of Bill Katz of Citigroup. Your line is open.

Okay. Thank you very much for taking my questions. So maybe a two-parter, Laurie, you mentioned that comp to be about 36% of revenue is looking to the first quarter. So within that, what are some of your baseline assumptions as you look out for the rest of the year? And just remind me if that is sort of a seasonal high point in terms of that ratio in absolute dollar spend? And then on the other side of that, other expense looked like it’s rather high this particular quarter, you didn’t call anything out either in your prepared remarks or in the press release? So is this a new run rate? Was there any sort of mapping of items this quarter? Just trying to get a sense as we look ahead into the new year.

Yes, Bill, this is we’re going to address the comp question first as we move from the fourth quarter into the first quarter, we’ve always got the sort of the seasonal adjustments that we recognize in terms of a number of things. We’ve got base increases, we’ve got benefit resets, we’ve got payroll tax clock resets. And I think, last year, as we moved from the fourth quarter of last year to the first quarter of this year that was about a $4.5 million increase. As we look at the same numbers going into – from the fourth quarter of this year going to the first quarter of 2018, I think we’re probably looking at something a little north of $5 million in terms of incremental pressure on our fixed compensation expenses. You’d have to do your own math based on your expectations about sales to come up with what the pressure might be in terms of our variable compensation, but that’s generally that pressure that we hit each first quarter and that it certainly colors our expectations about that 36% number in the first quarter. In terms of other expenses, this was actually a very clean quarter from an expense perspective. So I don’t know that there was anything in particular that I would call out in terms of our other operating expenses. We’ve been able to keep a pretty good lid on it and I think that we’ve been exercising a lot of control over discretionary spend. So I really don’t – I can’t think of anything off the cuff that would really – that we would need to address in terms of something unusual in the fourth quarter.

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

Hi, thanks a lot. Tom, just on the acquisition side to Parametric, just whether it was timing strategy, turned out very well. You look at what you guys see with Calvert, maybe when you did the transaction. And then over the past 11 months, you’ve been – you’re talking in the different distribution channels. Just wanted to try to gauge either how you see that playing out, whether it’s the core products you mentioned, maybe this enhanced cash product being like a potential opportunity, just where you’re seeing the demand now that you’ve had 11 months on the platform?

Yes. Thanks, Michael. The – one of the challenges we’ve had with Calvert is there are growth opportunities in lots of different directions. We had a Calvert-devoted strategy session toward the end of last week to try and get some kind of consensus on where do we go. And there’s – do we focus on building out institutional business? Calvert traditionally has been a retail brand but in many ways, the demand for Responsible Investing is more developed in certain institutional markets. Do we take Calvert overseas because, again, particularly in Europe, demand in many places for Responsible Investing is more developed there than it is here. We – within U.S. retail, which has been the focus of Calvert traditionally, they have a relatively underdeveloped business historically in the warehouses. And many of those firms, including yours, have major initiatives to build the Responsible Investing business and are looking for partners to work with them to do that. So I’m not maybe a greedy person because I – my vote in the strategy session was to do all of these, but we are somewhat constrained by resources. But we’ve got funds, we’ve got separate accounts, we’ve got retail, we’ve got institutional, we’ve got U.S. and international. And then certainly within different strategies, we’ve got opportunities. In terms of the objective to sell more now as opposed to lay the groundwork for things that might take 6 or 12 or 18 or 24 months to result in flows, the most compelling Calvert offerings today are their 5-star-rated emerging market equity fund, their range of shorter duration, short duration, ultrashort income strategies; and their index products, primarily on the equity side. We think we’ve got plenty to do in the near term to get our sales force focused on selling those in…

Your next question comes from the line of Chris Shutler of William Blair. Your line is open.

Hi, guys. Good morning. On the floating rate side of the business, can you give us a little more color on the demand dynamics that you’re seeing between retail and institution. And then talk about the supply in the bank loan market right now and how you’re feeling about capacity? Thanks.

Yes. So just maybe starting on the capacity side, we are at, I think, roundly $40 billion. It is a market – I don’t have the number off the top of my head, but I think it’s globally, around a $1 trillion market, something like that. So we’re at 4% or – which is we’re a major player, but I think the last time we thought about – the last time we thought we were close to capacity, I think we had assets in the mid- to high-40s, but the asset class was probably more like $600 million at that time. So I think we feel like we’ve got a fair bit of running room in terms of the ability to grow our bank loan franchise from current level. The demand, as I highlighted in my prepared remarks in the quarter was really driven by institutional and particularly driven by clients outside the United States. Retail, I think, was pretty close to – was modestly positive but certainly not what we saw in the first couple of quarters of the fiscal year. Explaining retail demand for – is always a little hard, but what seems to be clear in bank loan flows is that when people are fearing increases in interest rates on the long side and anticipating increases in rates on the short side, it would see more bank loan inflows. Certainly right after the election, we were in one of those kinds of environments where people were optimistic about economic growth, expecting to see potentially a lot of stimulus, were worried about inflation. That was an environment where we saw, literally overnight, a major pickup in bank loan demand. What’s happened over the last couple of quarters is with maybe a lessening of concern about rates on the long end and a tempering of expectations about the pace of Fed action on the short end. There’s been a bit of a reversal of that – of those strong inflows that happened a year-or-so ago. Fortunately, for Eaton Vance, we’ve been in a quite strong performance cycle, which you layer on a good 1-year numbers with a very strong history, we have an excellent performance story to tell today. So we’re in – we feel like we’re in the hunt for bank loan mandates wherever they are to be won, retail, institutional, U.S., international, the catalysts for the next wave of growth, I suspect, likely will be some change in interest rate expectations, either short end or long end or both. But for the moment, we have a relatively stable business that’s experiencing modest growth.

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

Thanks for taking the question. I have a quick follow up on Hexavest. Is it still fair to kind of use the guidance you gave in 2012 around fee rates and accretion to kind of estimate the potential impact to your earnings estimates in margin from the integration of the additional – well, actually, the 75%, if you decide to pull the trigger there?

You may have a better memory than mine, what was my guidance from 2012?

I think you said mid-30s fee rates, which suggested a margin in the 60% to 70% range.

The fee rates are – that’s ballpark in the right area.

Patrick, if you look in our disclosures in the press release, we just – the contribution from Hexavest to our P&L shows up in the equity and income of affiliates. And that – as we’ve I think said in the past, is almost entirely Hexavest. So that will give you a sense of the current contribution of the 49% ownership of Hexavest.

Okay. Thank you.

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

Hi, thanks. My question is on tax, I guess as a major corporate tax beneficiary as you guys have highlighted, can you talk about the priorities of that kind of excess cash flow in terms of how it will either to be sent back through capital return through buybacks and dividends or investing more in the business or M&A? Can you talk about what you’re – how you’re thinking about that?

Yes. Well, I like your optimism that this is going to be enacted. So I’ll start with that. Just to maybe level set, our expectation is that once this is sort of all run through, whenever that is or if that’s going to happen, assuming that the corporate rate stays at the 20% level that’s in the – currently in the House and the Senate bill, we expect our blended combined rate to be around 25%. There’s an adverse effect in there of some of the changes in how executive comp is treated that’s reflected in that number. But compared to that 38.5%-or-so range where we are today, that’s a – I think that’s about a 22% earnings increase once the tax increase – once the tax cut comes through, assuming, importantly, this is a big caveat, that some of that doesn’t get pass through to in higher cost or competed away in some ways in terms of – or a revenue realization. We’ll get – we likely will have some of that effect. But in terms of the overall effect if this happens, we certainly would expect the net effect on after-tax earnings and earnings per share to be strongly positive. Your question is what do we do with the money. I think it’s the same as how we think about things now. I think about – so there’s a – we could get a windfall from the market going up. We could have some big growth surge in our business, but I don’t think those would fundamentally change how we think about capital uses. Our options are the same as they’ve always been, dividends, share repurchases, so returning money back to shareholders or investing in the business either in the form of seed capital or acquisitions. I would say we wouldn’t feel any particular greater urgency to do acquisitions because we’re earning at a higher rate and producing more cash flow. We would certainly consider an increase in the dividend to maintain something like the current payout rate, but that’s obviously a bit speculative and in the future. Whether we would ramp up share repurchases would depend on in part on our view of whether the stock represented good value at that particular time. So the options would be the same as today. The choices would be very much dependent on the situation as we see at the time.

Your next question comes from the line of Craig Siegenthaler of Credit Suisse. Your line is open.

Hi, good afternoon, everyone. This is Ari Ghosh, filling in for Craig. So just on the Parametric and custom data business, could you provide an update on the competitive pressures that you’re seeing here including from property bands and robos? And then has there been any changes to the pricing trends here that would pressure the fee rate? And I believe yours is currently around the 15, 20 bp range on a blended basis? Thanks.

That’s right, and thanks for the question. This is an area like many parts of our business where there is price competition. We’re seeing strong volumes and we’re seeing, at least in some pockets, some increased pricing pressure. There are not particular new entrants that we’re worried about or that are driving prices down. It’s – I think it’s largely that the – this is viewed as a passive or maybe quasi-passive investment strategy and people are quite aware that the cost of passive generally is going down. When we look at the value proposition of producing tax – after-tax alpha, somewhere in the 150 basis point range or hopefully better than that over time, we think this represents an extraordinary value relative to what we generate and benefit and also an extraordinary value relative to other passive alternatives that don’t provide tax alpha. I talked in my prepared remarks a bit about the tax bill and the mandatory FIFO provision. It is interesting that if this goes into effect that, that may have some competitive effects, the firms that are maybe more sophisticated in their management and the capability and are more developed in their systems like Parametric, we would hope would be in a position to respond more quickly to implement changes in systems as necessary and that perhaps that can be helpful in terms of pricing dynamic in the marketplace with a fairly disruptive change in how people would have to implement tax management. But we are a bit speculative, but we are – we think by a considerable margin, the largest player in the business. There are real economies of scale that come in this, but we’re aware that this is something that other firms, at least can think they can do and that we need to distinguish ourself in the marketplace, not only by service levels and performance in terms of generated tax alpha and tracking of benchmark, but also in terms of being cost competitive where required.

Due to time restriction, we are unable to take any further questions. I’ll turn the call back over to Dan Cataldo for final remarks.

Great. And thank you all for joining us this morning. We appreciate your continued interest in Eaton Vance, and hope you all have a happy and safe Thanksgiving.

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