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Franklin Resources(BEN) - 2025 Q3 - Quarterly Report

PART I Financial Information Item 1. Financial Statements This section presents Franklin Resources, Inc.'s unaudited consolidated financial statements for Q3 2025, showing decreased net income and EPS Consolidated Statements of Income Q3 2025 total operating revenues decreased to $2,064.0 million, with net income falling to $92.3 million and diluted EPS to $0.15 Consolidated Statements of Income Highlights (in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $2,064.0 | $2,122.9 | $6,427.0 | $6,266.8 | | Operating Income | $154.1 | $222.5 | $518.7 | $558.3 | | Net Income Attributable to Franklin Resources, Inc. | $92.3 | $174.0 | $407.3 | $549.5 | | Diluted Earnings per Share | $0.15 | $0.32 | $0.70 | $1.03 | Consolidated Balance Sheets Total assets increased slightly to $32,552.2 million as of June 30, 2025, while total liabilities rose and stockholders' equity decreased Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Assets | $32,552.2 | $32,464.5 | | Cash and cash equivalents | $3,253.9 | $3,309.5 | | Goodwill | $6,211.6 | $6,211.4 | | Intangible assets, net | $4,440.3 | $4,802.1 | | Total Liabilities | $18,117.3 | $17,899.7 | | Debt | $2,666.7 | $2,780.3 | | Total Stockholders' Equity | $13,054.4 | $13,243.0 | Consolidated Statements of Cash Flows Nine months ended June 30, 2025, saw net cash from operations increase to $1,086.8 million, with a total decrease in cash of $451.9 million Cash Flow Summary (Nine Months Ended June 30, in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,086.8 | $413.1 | | Net cash used in investing activities | $(1,901.3) | $(1,222.7) | | Net cash provided by financing activities | $363.9 | $506.4 | | Decrease in cash and cash equivalents | $(451.9) | $(290.7) | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, investments, fair value, CIPs, and legal proceedings, with sponsored funds contributing 83% of revenues - Revenues from sponsored funds accounted for 83% of total operating revenues for the nine months ended June 30, 202525 - The company's maximum exposure to loss from nonconsolidated Variable Interest Entities (VIEs), consisting of investments and receivables, was $1,623.8 million as of June 30, 202545 - No significant changes occurred in the India Credit Fund Closure Matters, while SEC and DOJ investigations into Western Asset Management (WAM) are ongoing, and new lawsuits were filed regarding the Franklin Templeton 401(k) Retirement Plan and WAM trade allocations464749 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2025 financial performance, noting decreased AUM to $1,611.8 billion, lower revenues, and a contracted operating margin of 7.5% Assets Under Management (AUM) Total AUM decreased 2% to $1,611.8 billion at June 30, 2025, driven by $80.1 billion in net outflows, primarily from Fixed Income AUM by Asset Class (in billions) | Asset Class | June 30, 2025 | June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | | Equity | $656.6 | $595.0 | 10% | | Fixed Income | $441.7 | $564.5 | (22%) | | Alternative | $258.4 | $254.5 | 2% | | Multi-Asset | $183.2 | $168.1 | 9% | | Cash Management | $71.9 | $64.5 | 11% | | Total | $1,611.8 | $1,646.6 | (2%) | Change in AUM (Nine Months Ended June 30, 2025, in billions) | Component | Amount | | :--- | :--- | | Beginning AUM (Oct 1, 2024) | $1,678.6 | | Long-term net flows | $(85.5) | | Cash management net flows | $5.4 | | Total net flows | $(80.1) | | Net market change, distributions and other | $13.5 | | Ending AUM (June 30, 2025) | $1,611.8 | - For the nine months ended June 30, 2025, long-term net outflows totaled $85.5 billion, including $118.6 billion of long-term net outflows at Western Asset Management (WAM)79 Investment Performance As of June 30, 2025, Fixed Income performance was strong, with 65% of AUM in top two quartiles (1-year), while Equity performance was weaker at 41% Investment Performance as of June 30, 2025 (% of AUM) | Category | Metric | 1-Year | 3-Year | 5-Year | 10-Year | | :--- | :--- | :--- | :--- | :--- | :--- | | Equity | % AUM in Top 2 Quartiles | 41% | 63% | 51% | 59% | | | % AUM Exceeding Benchmark | 31% | 45% | 35% | 44% | | Fixed Income | % AUM in Top 2 Quartiles | 65% | 72% | 68% | 61% | | | % AUM Exceeding Benchmark | 65% | 74% | 82% | 86% | Operating Revenues and Expenses Q3 2025 operating revenues decreased 3% to $2.1 billion due to lower AUM, while expenses remained flat, impacted by increased amortization and decreased occupancy costs - Investment management fees decreased in Q3 2025 due to a 4% drop in average AUM, primarily in fixed income, with an effective investment management fee rate of 40.5 basis points for the quarter9091 - Performance fees were $60.6 million for Q3 2025, up from $56.6 million in the prior year quarter92 - Amortization of intangible assets increased significantly for both the three and nine-month periods, primarily due to a reduction in the remaining useful life of definite-lived intangible assets related to WAM111 - An impairment charge of $24.4 million was recognized during the nine months ended June 30, 2025, related to certain indefinite-lived intangible assets for acquired mutual fund investment management contracts112 Liquidity and Capital Resources The company maintains strong liquidity with $5.6 billion in liquid assets, repurchased 8.1 million shares for $173.2 million, and entered a new $1.1 billion credit agreement Liquid Assets and Debt (in millions) | Category | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,213.4 | $3,261.1 | | Receivables | $1,215.3 | $1,261.6 | | Investments | $1,216.1 | $1,141.7 | | Total Liquid Assets | $5,644.8 | $5,664.4 | | Debt | $2,666.7 | $2,780.3 | - During the nine months ended June 30, 2025, the company repurchased 8.1 million shares of common stock at a cost of $173.2 million, with 21.9 million shares remaining available for repurchase147 - On April 30, 2025, the company entered into a new five-year, $1.1 billion Amended and Restated Revolving Credit Agreement142 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk disclosures from the Annual Report on Form 10-K for the fiscal year ended September 30, 2024 - No material changes occurred from the market risk disclosures in the Form 10-K for the fiscal year ended September 30, 2024159 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The Company's principal executive and financial officers concluded that disclosure controls and procedures as of June 30, 2025, were effective160 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls161 PART II Other Information Item 1. Legal Proceedings Legal proceedings include ongoing SEC/DOJ investigations into WAM, a related class-action lawsuit, and a new lawsuit regarding the Franklin Templeton 401(k) Retirement Plan - The company provides an update on the Western Asset Management (WAM) investigations, noting the CFTC has closed its investigation, but SEC and DOJ investigations remain ongoing, with a related class-action lawsuit filed on July 3, 20254748 - A new lawsuit was filed on July 22, 2025, by former employees concerning the Franklin Templeton 401(k) Retirement Plan, alleging breaches of fiduciary duties related to the inclusion of proprietary funds49 Item 1A. Risk Factors No material changes occurred from the Risk Factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2024 - No material changes occurred from the Risk Factors disclosed in the last Annual Report on Form 10-K164 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2025, the company repurchased 7,295,376 shares of common stock, with 21.9 million shares remaining authorized for repurchase Common Stock Repurchases (Q3 2025) | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 100,572 | $19.22 | | May 2025 | 7,190,234 | $21.61 | | June 2025 | 4,570 | $21.15 | | Total | 7,295,376 | N/A | - In December 2023, the Board of Directors authorized the repurchase of up to an additional 27.2 million shares, for a total of up to 40.0 million shares available under the program166 Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q3 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the quarter ended June 30, 2025167 Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and iXBRL formatted financial data