Franklin Resources, Inc. Announces Preliminary Fourth Quarter and Fiscal Year Results

Franklin Resources, Inc. (the “Company”) (NYSE: BEN) today announced preliminary net income¹ of $232.7 million or $0.46 per diluted share for the quarter ended September 30, 2022, as compared to $256.4 million or $0.50 per diluted share for the previous quarter, and $665.7 million or $1.30 per diluted share for the quarter ended September 30, 2021. Preliminary net income¹ for the year ended September 30, 2022 was $1,291.9 million or $2.53 per diluted share, as compared to $1,831.2 million or $3.57 per diluted share for the prior year. Preliminary operating income was $348.5 million for the quarter ended September 30, 2022, as compared to $404.7 million for the previous quarter and $531.5 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. Preliminary adjusted net income² was $394.4 million and adjusted diluted earnings per share² was $0.78 for the quarter ended September 30, 2022, as compared to $416.0 million and $0.82 for the previous quarter, and $644.6 million and $1.26 for the quarter ended September 30, 2021. Preliminary adjusted net income² was $1,855.6 million and adjusted diluted earnings per share² was $3.63 for the year ended September 30, 2022, as compared to $1,915.2 million and $3.74 for the prior year. Preliminary adjusted operating income² was $494.1 million for the quarter ended September 30, 2022, as compared to $566.9 million for the previous quarter and $647.1 million for the prior year.

“This month, we officially mark Franklin Templeton’s 75th anniversary as a company,” said Jenny Johnson, President and CEO of Franklin Resources, Inc. “Over that time span, we have focused on building a diversified business – across asset classes, client types, regions and investment vehicles – and fiscal year 2022 was no exception.

“Since January, macroeconomic and geopolitical uncertainty have resulted in significant volatility and correlated declines in both global equity and fixed income markets. Our assets under management and flows were impacted by these unprecedented conditions and industry-wide pressures. However, as always, we have been actively engaging with our clients by providing insights and thought leadership to help them navigate the latest conditions, including drawing upon the expanded resources of our various specialist investment managers and the Franklin Templeton Institute. We benefited from having a diversified mix of assets and generated net inflows in the alternative and multi-asset categories. We also saw an improvement in our non-US regions, with EMEA experiencing positive net flows for the year.

“Our continued expansion of alternative investment capabilities, an increasing area of client demand, led us to the acquisitions of Lexington Partners and Alcentra, which closed today. Pro forma for Alcentra, alternative assets total $260 billion as of September 30, 2022, making Franklin Templeton one of the largest managers of alternative assets with a meaningful presence in the key alternative categories.

“Additionally, we see the importance of technology in providing greater customization solutions to investors. Toward this end, earlier this fiscal year we acquired Canvas, a leading custom indexing solutions platform through O’Shaughnessy Asset Management. Canvas has experienced positive net flows each quarter since the platform launched in September 2019 and AUM has grown by over 50% since we announced the acquisition. We also continued to be actively engaged in making investments in technology related distribution opportunities and developing our tokenization and digital asset products.

“While continuing to invest in long-term growth initiatives, we also strengthened the foundation of our business through disciplined expense management. Our strong balance sheet continues to provide us with financial flexibility to grow our business, and we ended the fiscal year with $6.8 billion of cash and investments after funding two acquisitions and four minority investments and returning $773 million to shareholders through dividends and share repurchases.

“None of our efforts this past fiscal year would have been possible without the hard work and dedication of our employees. I would like to thank them for their tireless efforts to serve our clients.”

Total assets under management (“AUM”) were $1,297.4 billion at September 30, 2022, down $82.4 billion or 6% during the quarter due to the negative impact of $62.1 billion of net market change, distributions and other and $20.4 billion of long-term net outflows, partially offset by $0.1 billion of cash management net inflows. AUM decreased $232.7 billion or 15% during the fiscal year due to the negative impact of $269.0 billion of net market change, distributions and other, $27.8 billion of long-term net outflows and $0.8 billion of cash management net outflows, partially offset by $64.9 billion from acquisitions.

Cash and cash equivalents and investments⁴ were $5.8 billion and, including the Company’s direct investments in consolidated investment products, were $6.8 billion at September 30, 2022. Total stockholders’ equity was $12.3 billion and the Company had 499.6 million shares of common stock outstanding at September 30, 2022. The Company repurchased 1.0 million shares of its common stock for a total cost of $27.3 million during the quarter ended September 30, 2022.

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, Global Advisory Services and 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 (844) 200-6205 in the U.S. or (929) 526-1599 in other locations using access code 644052. A replay of the teleconference can also be accessed by calling (866) 813-9403 in the U.S. or +44 204 525 0658 in other locations using access code 626370 after 2:00 p.m. Eastern Time on November 1, 2022 through November 8, 2022, 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 (650) 312-4091 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: