Franklin Resources, Inc. Announces Third Quarter Results

Franklin Resources, Inc. (the “Company”) (NYSE: BEN) today announced net income¹ of $174.0 million or $0.32 per diluted share for the quarter ended June 30, 2024, as compared to $124.2 million or $0.23 per diluted share for the previous quarter, and $227.5 million or $0.44 per diluted share for the quarter ended June 30, 2023. Operating income was $222.5 million for the quarter ended June 30, 2024, as compared to $129.3 million for the previous quarter and $314.9 million for the prior year.

As supplemental information, the Company is providing certain adjusted performance measures which are based on methodologies other than generally accepted accounting principles. Adjusted net income² was $326.4 million and adjusted diluted earnings per share² was $0.60 for the quarter ended June 30, 2024, as compared to $306.6 million and $0.56 for the previous quarter, and $326.1 million and $0.63 for the quarter ended June 30, 2023. Adjusted operating income² was $424.9 million for the quarter ended June 30, 2024, as compared to $419.6 million for the previous quarter and $476.8 million for the prior year.

“During our third fiscal quarter, we saw a number of positive developments across our business which further diversified our firm’s capabilities, and continued our focus on new technologies to optimize the client experience and support our business growth,” said Jenny Johnson, President and CEO of Franklin Resources, Inc.

“This quarter, we continued to make progress executing our long-term plan of diversification across asset classes, investment vehicles and geographies. Client demand led to positive net flows in multi-asset and alternative strategies during the quarter. We saw a strong quarter of positive net flows across our retail SMAs, Canvas® and ETF offerings. In particular, ETFs generated net inflows of over $3 billion with ending AUM of $27 billion. Our non-U.S. business saw a fifth consecutive quarter of positive net flows and finished the quarter with approximately $492 billion in AUM.

“As various aspects of the asset management industry evolve, we continue to make investments in technology across distribution, investment management and operations. This quarter, we announced that we are working with Microsoft to build an advanced financial AI platform, which will help embed artificial intelligence into our sales and marketing processes to create more personalized support for clients. We also recently announced plans to make a strategic minority investment in Envestnet, a significant industry platform. Finally, we announced the selection of a single platform to unify our investment management technologies across public market asset classes. This will support the simplification of our operation and reduce long-term capital expenditures.

“Looking ahead, we will continue to invest in the business to support our strategic priorities in asset management and wealth management for the benefit of all stakeholders.”

Total assets under management (“AUM”) were $1,646.6 billion at June 30, 2024, up $1.9 billion during the quarter due to $3.0 billion of cash management net inflows and the positive impact of $2.1 billion of net market change, distributions, and other, partially offset by $3.2 billion of long-term net outflows.

Cash and cash equivalents and investments were $5.6 billion and, including the Company’s direct investments in consolidated investment products (“CIPs”), were $6.8 billion⁴ at June 30, 2024. Total stockholders’ equity was $13.6 billion and the Company had 522.1 million shares of common stock outstanding at June 30, 2024. The Company repurchased 4.3 million shares of its common stock for a total cost of $101.5 million during the quarter ended June 30, 2024.

Conference Call Information

A written commentary on the results by Jenny Johnson, President and CEO; Matthew Nicholls, Executive Vice President, CFO and COO; and Adam Spector, Executive Vice President, Head of Global Distribution will be available via investors.franklinresources.com today at approximately 8:30 a.m. Eastern Time.

Ms. Johnson and Messrs. Nicholls and Spector will also lead a live teleconference today at 11:00 a.m. Eastern Time to answer questions. Access to the teleconference will be available via investors.franklinresources.com or by dialing (+1) (800) 549-8228 in North America or (+1) (646) 564-2877 in other locations using access code 21080. A replay of the teleconference can also be accessed by calling (+1) (888) 660-6264 in North America or (+1) (646) 517-3975 in other locations using access code 21080# after 2:00 p.m. Eastern Time on July 26, 2024 through August 2, 2024, or via investors.franklinresources.com.

Analysts and investors are encouraged to review the Company’s recent filings with the U.S. Securities and Exchange Commission and to contact Investor Relations at investorrelations@franklintempleton.com before the live teleconference for any clarifications or questions related to the earnings release or written commentary.

Supplemental Non-GAAP Financial Measures

As supplemental information, we are providing performance measures for “adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share,” each of which is based on methodologies other than generally accepted accounting principles (“non-GAAP measures”). Management believes these non-GAAP measures are useful indicators of our financial performance and may be helpful to investors in evaluating our relative performance against industry peers.

“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are defined below, followed by reconciliations of operating income, operating margin, net income attributable to Franklin Resources, Inc. and diluted earnings per share on a U.S. GAAP basis to these non-GAAP measures. Non-GAAP measures should not be considered in isolation from, or as substitutes for, any financial information prepared in accordance with U.S. GAAP, and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate.

Adjusted Operating Income

We define adjusted operating income as operating income adjusted to exclude the following:

• Elimination of operating revenues upon consolidation of investment products.
• Acquisition-related items:
  • Acquisition-related retention compensation.
  • Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.
  • Amortization of intangible assets.
  • Impairment of intangible assets and goodwill, if any.
• Special termination benefits related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.
• Impact on compensation and benefits expense from gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net.
• Impact on compensation and benefits expense related to minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests.

Adjusted Operating Margin

We calculate adjusted operating margin as adjusted operating income divided by adjusted operating revenues. We define adjusted operating revenues as operating revenues adjusted to exclude the following:

• Elimination of operating revenues upon consolidation of investment products.
• Acquisition-related performance-based investment management fees which are passed through as compensation and benefits expense.
• Sales and distribution fees and a portion of investment management fees allocated to cover sales, distribution and marketing expenses paid to the financial advisers and other intermediaries who sell our funds on our behalf.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

We define adjusted net income as net income attributable to Franklin Resources, Inc. adjusted to exclude the following:

• Activities of CIPs.
• Acquisition-related items:
  • Acquisition-related retention compensation.
  • Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.
  • Amortization of intangible assets.
  • Impairment of intangible assets and goodwill, if any.
  • Write off of noncontrolling interests related to the wind down of an acquired business.
  • Interest expense for amortization of Legg Mason debt premium from acquisition-date fair value adjustment.
• Special termination benefits related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.
• Net gains or losses on investments related to deferred compensation plans which are not offset by compensation and benefits expense.
• Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests.
• Unrealized investment gains and losses.
• Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.

We define adjusted diluted earnings per share as diluted earnings per share adjusted to exclude the per share impacts of the adjustments applied to net income in calculating adjusted net income.

In calculating our non-GAAP measures, we adjust for the impact of CIPs because it is not considered reflective of our underlying results of operations. Acquisition-related items and special termination benefits are excluded to facilitate comparability to other asset management firms. We adjust for compensation and benefits expense related to funded deferred compensation plans because it is partially offset in other income (expense), net. We adjust for compensation and benefits expense and net income (loss) attributable to redeemable noncontrolling interests to reflect the economics of certain profits interest arrangements. Sales and distribution fees and a portion of investment management fees generally cover sales, distribution and marketing expenses and, therefore, are excluded from adjusted operating revenues. In addition, when calculating adjusted net income and adjusted diluted earnings per share we exclude unrealized investment gains and losses included in investment and other income (losses) because the related investments are generally expected to be held long term.

The calculations of adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are as follows: