BEN

Franklin Resources Inc. Q1 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended December 31, 2025 (Fiscal Q1 2026) for Franklin Resources, Inc. The company is a global investment management organization operating under brands including Franklin Templeton, Legg Mason, and Western Asset Management. During the quarter, the company acquired Apera Asset Management, a pan-European private credit firm, for €65.2 million in cash consideration.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased 3% year-over-year, driven by a 3% rise in investment management fees and a 12% increase in shareholder servicing fees.
• Profitability Surge: Net income attributable to Franklin Resources increased 56% to $255.5 million, primarily due to higher operating income and a significant reduction in net losses on investments compared to the prior year.
• AUM Expansion: Total AUM grew 7% year-over-year to $1.684 trillion. This was driven by $28.0 billion in long-term net inflows and the Apera acquisition, partially offset by a $10.1 billion negative net market change.
• Expense Management: Amortization of intangible assets decreased 51% to $55.1 million due to assets becoming fully amortized in the prior year. Occupancy expenses dropped 11% following office consolidation in New York City.
• Investment Performance: Net losses on investments improved significantly from $57.1 million in Q1 2025 to $8.6 million in Q1 2026.

Outlook, Risks, and Unusual Items

• Acquisition Activity: The company acquired Apera Asset Management on October 1, 2025. Up to €125.0 million in contingent consideration may be paid based on revenue targets.
• Legal Proceedings:
  • Western Asset Management (WAM) Investigations: Ongoing investigations by the SEC and DOJ regarding trade allocations. The DOJ is prepared to resolve its investigation without criminal charges against WAM, though discussions continue. The SEC investigation remains open.
  • Class Action Litigation: A lawsuit filed by the Western PA Electrical Employees Insurance Trust Fund (lead plaintiff: Abilene Firemen's Relief and Retirement Fund) alleges violations related to trade allocations by former co-CIO Ken Leech. The case was transferred to the Central District of California in January 2026.
  • 401(k) Litigation: A lawsuit filed by former employees alleges breaches of fiduciary duty regarding the inclusion of proprietary funds in the company's 401(k) plan.
• Capital Allocation: The company repurchased 1.8 million shares for $41.9 million. In December 2025, the Board authorized an additional 20.8 million shares for repurchase, bringing the total available to 40.0 million. Dividends were declared at $0.33 per share.
• Subsequent Event: On January 8, 2026, the company borrowed $150.0 million under its revolving credit facility for general corporate purposes.

Investor Verification Checklist

• Legal Exposure: Monitor the resolution of the WAM trade allocation investigations and the status of the class action lawsuit regarding Ken Leech, as these could result in fines, settlements, or reputational damage.
• AUM Flows: Verify the sustainability of the $28.0 billion in long-term net inflows, particularly given the outflows in fixed income vehicles at WAM.
• Non-GAAP Reconciliations: Review the adjustments made to reach Adjusted Net Income ($378.4M), specifically the exclusion of amortization ($55.1M) and special termination benefits ($16.0M), to understand core operating performance.
• Debt Covenants: Confirm continued compliance with the consolidated net leverage ratio covenant (max 3.25 to 1.00) following the recent $150 million drawdown on the credit facility.
• Acquisition Integration: Assess the financial impact and integration progress of the Apera Asset Management acquisition.