Franklin Resources(BEN) - 2024 Q1 - Quarterly Report

PART I Financial Information This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the period ended December 31, 2023 Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the three months ended December 31, 2023, including income, balance sheets, equity, and cash flows, showing increased net income and diluted EPS Consolidated Statements of Income This table presents the company's unaudited consolidated statements of income, highlighting key revenue, income, and EPS figures for the period Consolidated Statements of Income Highlights (Unaudited) | Metric | Three Months Ended Dec 31, 2023 (in millions) | Three Months Ended Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Total operating revenues | $1,991.1 | $1,967.1 | | Operating Income | $206.5 | $194.0 | | Net Income Attributable to Franklin Resources, Inc. | $251.3 | $165.6 | | Diluted Earnings per Share | $0.50 | $0.32 | Consolidated Balance Sheets This table presents the company's unaudited consolidated balance sheets, detailing assets, liabilities, and equity at period end Consolidated Balance Sheet Highlights (Unaudited) | Metric | December 31, 2023 (in millions) | September 30, 2023 (in millions) | | :--- | :--- | :--- | | Total Assets | $29,865.8 | $30,121.2 | | Total Liabilities | $16,149.7 | $16,547.3 | | Total Stockholders' Equity | $12,637.6 | $12,547.8 | Consolidated Statements of Cash Flows This table presents the company's unaudited consolidated statements of cash flows, summarizing cash movements from operating, investing, and financing activities Consolidated Cash Flow Highlights (Unaudited) | Cash Flow Activity | Three Months Ended Dec 31, 2023 (in millions) | Three Months Ended Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | $(251.9) | $(256.3) | | Net cash used in investing activities | $(137.6) | $(1,042.6) | | Net cash (used in) provided by financing activities | $(159.0) | $958.9 | | Decrease in cash and cash equivalents | $(522.8) | $(280.3) | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, including revenue breakdown, lease commitments, and subsequent events - Revenues from sponsored funds constituted 83% of total operating revenues for the three months ended December 31, 2023 and 2022[26] - On November 1, 2023, the Company took possession of new office space in New York City, recognizing an operating lease right-of-use asset and liability of $396.6 million for a lease over sixteen years with an aggregate commitment of $707.3 million[49] - Subsequent to the quarter end, on January 1, 2024, the Company acquired Putnam Investments from Great-West Lifeco Inc. for 31.6 million shares of its common stock, approximately $220 million in cash at closing, and $100.0 million in deferred cash consideration[52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 6% quarter-over-quarter increase in Assets Under Management (AUM) to $1.456 trillion, driven by positive market performance, and a 6% YoY rise in operating income to $206.5 million Overview This section provides an overview of the company's financial performance, including AUM growth and the acquisition of Putnam Investments - Total Assets Under Management (AUM) reached $1,455.5 billion at December 31, 2023, a 6% increase from September 30, 2023, and a 5% increase from December 31, 2022[63] - The increase in AUM was supported by positive returns in global equity and bond markets during the quarter, with the S&P 500 Index and MSCI World Index increasing by 11.7% and 11.5%, respectively[62] - On January 1, 2024, the company completed the acquisition of Putnam Investments, a global asset management firm, from Great-West Lifeco Inc[63] Assets Under Management This section details the company's Assets Under Management (AUM) by asset class and analyzes the changes in AUM components AUM by Asset Class | Asset Class | Dec 31, 2023 (in billions) | Dec 31, 2022 (in billions) | % Change | | :--- | :--- | :--- | :--- | | Fixed Income | $511.7 | $494.8 | 3% | | Equity | $467.5 | $419.1 | 12% | | Alternative | $256.2 | $257.4 | 0% | | Multi-Asset | $154.6 | $141.4 | 9% | | Cash Management | $65.5 | $75.0 | (13%) | | Total | $1,455.5 | $1,387.7 | 5% | Change in AUM (Three Months Ended Dec 31, 2023) | Component | Amount (in billions) | | :--- | :--- | | Beginning AUM (Oct 1, 2023) | $1,374.2 | | Long-term net flows | $(5.0) | | Cash management net flows | $4.7 | | Total net flows | $(0.3) | | Net market change, distributions and other | $81.6 | | Ending AUM (Dec 31, 2023) | $1,455.5 | - For the quarter, the company experienced long-term net outflows of $5.0 billion, which included $10.8 billion of reinvested distributions This was more than offset by $81.6 billion from positive net market change, distributions, and other factors[70] Operating Revenues This section analyzes the company's operating revenues, highlighting changes in investment management fees and performance fees - Total operating revenues increased 1% year-over-year to $1,991.1 million, driven by a 1% rise in investment management fees and a 2% increase in sales and distribution fees[81] - Investment management fees rose by $20.4 million, primarily due to a 3% increase in average AUM and higher catch-up fees from a secondary private fund, which offset lower performance fees[82] - Performance fees decreased to $166.4 million from $209.0 million in the prior-year period, mainly due to a $72.0 million decrease in fees from Lexington Partners L.P., which are passed through as compensation expense[84] Operating Expenses This section details the company's operating expenses, focusing on compensation and benefits, occupancy, and general and administrative costs - Total operating expenses increased 1% year-over-year to $1,784.6 million[89] - Compensation and benefits, the largest expense category, decreased by 1% to $968.3 million This was primarily due to a $71.9 million decrease in acquisition-related performance fee pass-through expenses, which offset increases in incentive compensation and salaries[91][93] - Occupancy expenses increased 22% to $66.7 million, mainly due to the new office lease at One Madison Avenue in New York City[99] - General, administrative and other expenses decreased 10% to $132.0 million, primarily due to a $14.9 million decrease in acquisition-related costs compared to the prior year quarter[102] Liquidity and Capital Resources This section discusses the company's liquid assets, debt, share repurchase activities, and future cash commitments Liquid Assets and Debt | Metric (in millions) | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,284.6 | $3,592.8 | | Receivables | $1,175.6 | $1,181.7 | | Investments | $1,130.9 | $1,098.8 | | Total Liquid Assets | $5,591.1 | $5,873.3 | | Debt | $3,046.9 | $3,052.8 | - During the quarter, the company repurchased 2.4 million shares of common stock for $58.8 million In December 2023, the Board authorized an additional 27.2 million shares for repurchase[139] - The company expects to use cash for deferred consideration payments related to acquisitions, including $100.0 million for Putnam in Q3 FY2024, and $400 million for Lexington in Q3 FY2024[140][141] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports that there were no material changes from the market risk disclosures presented in its Annual Report on Form 10-K for the fiscal year ended September 30, 2023 - There were no material changes from the market risk disclosures in the Form 10-K for the fiscal year ended September 30, 2023[150] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2023, with no material changes in internal control over financial reporting - The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of December 31, 2023[151] - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[152] PART II Other Information This section provides updates on legal proceedings, risk factors, equity sales, and a list of exhibits Item 1. Legal Proceedings The company refers to Note 10 in the financial statements for details on legal proceedings, indicating no significant changes from the previous fiscal year-end disclosure - For a description of legal proceedings, the report refers to Note 10 – Commitments and Contingencies in Part I, Item 1 of the Form 10-Q[154] Item 1A. Risk Factors The company states that there have been no material changes from the Risk Factors previously disclosed in its Annual Report on Form 10-K for the fiscal year 2023 - There were no material changes from the Risk Factors previously disclosed in the last Annual Report on Form 10-K for fiscal year 2023[155] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the three months ended December 31, 2023, totaling 2,423,273 shares, and notes the Board's authorization for an additional 27.2 million shares for repurchase Common Stock Repurchases (Q1 FY2024) | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2023 | 1,240,037 | $23.83 | | November 2023 | 725,713 | $24.16 | | December 2023 | 457,523 | $25.63 | | Total | 2,423,273 | N/A | - In December 2023, the Board of Directors authorized the repurchase of up to an additional 27.2 million shares, bringing the total available for repurchase under the program to 40.0 million shares[157] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, which are incorporated by reference - The exhibits listed on the Exhibit Index are incorporated by reference into the Form 10-Q[158]