Franklin Resources(BEN) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record long-term inflows of $118.6 billion, up 40% from the prior quarter and 22% from the prior year quarter [7] - Long-term net inflows were $28 billion, with assets under management (AUM) ending the quarter at $1.68 trillion, reflecting an increase due to long-term net inflows and the acquisition of Apera [8] - Adjusted Operating Income was $437.3 million, influenced by lower performance fees and higher average AUM [19] Business Line Data and Key Metrics Changes - Public markets generated positive net flows totaling $30.4 billion, with equity net inflows of $19.8 billion for the quarter [9] - Fixed Income delivered its eighth consecutive quarter of positive net flows, with net inflows of $2.6 billion driven by Franklin Templeton Fixed Income [9] - Private markets saw $274 billion in alternative AUM, with $10.8 billion raised during the quarter, including $9.5 billion in private market assets [10] Market Data and Key Metrics Changes - The institutional pipeline of long, but unfunded mandates remains strong at $20.4 billion, indicating sustained demand for investment capabilities [9] - The ETF platform reached a new high with $58 billion in AUM, generating $7.5 billion in net flows, marking its 17th consecutive positive quarter [15] - Multi-asset AUM is nearly $200 billion, with net inflows of $4 billion during the quarter, reflecting clients' increasing preference for diversified solutions [14] Company Strategy and Development Direction - The company is focused on delivering integrated solutions and long-term strategic relationships, aligning with client needs for resilience in portfolios [6] - Recent M&A activity emphasizes the importance of alternative assets, with strategic acquisitions aimed at enhancing capabilities and geographic reach [12] - The company aims to double the size of fiduciary services in its five-year plan, focusing on both organic and inorganic growth [36] Management's Comments on Operating Environment and Future Outlook - Management highlighted the ongoing transition for investors amid significant market turbulence and economic uncertainty, emphasizing the need for durable returns and risk management [4] - The company is well-positioned to capture long-term trends reshaping the industry across public and private markets, with a focus on innovation and efficiency [20] - Management expressed confidence in achieving a margin of over 30% by fiscal 2027, supported by disciplined expense management and strategic investments [46][66] Other Important Information - The company is advancing its AI initiatives, including the launch of Intelligence Hub, aimed at modernizing distribution and enhancing client experience [17] - Digital assets are becoming increasingly important, with $1.8 billion in digital asset AUM, including tokenized funds and crypto ETFs [17] - The company has been recognized as one of the best places to work in money management, reflecting its commitment to employee engagement and client service [20] Q&A Session Questions and Answers Question: Cost Flexibility and Savings - Management indicated that expenses are expected to remain in line with 2025 guidance, with ongoing cost savings initiatives contributing to margin expansion in the latter half of the year [23][24] Question: M&A Activity and Contingent Liabilities - Management confirmed that contingent consideration related to recent transactions is minimal, with no significant liabilities expected from closed deals [27][30] Question: Long-term Margin Expectations - Management projected that operating margins could exceed 30% by fiscal 2027, with ongoing integration efforts and strategic initiatives contributing to profitability [46][66] Question: AI's Impact on Consolidation - Management noted that AI could drive consolidation in the asset management industry, as smaller managers may struggle to compete without the scale and data resources required for effective model training [76][80] Question: Blockchain and Tokenization Strategy - Management highlighted the efficiency of blockchain technology, noting significant cost savings compared to traditional systems, and expressed optimism about the future adoption of tokenized funds [86][88]