Franklin Resources Inc. 10-Q Summary: Quarter Ended June 30, 2025
Business Context and Reporting Period
This report covers Franklin Resources, Inc. (Franklin Templeton) for the quarterly period ended June 30, 2025, and the nine months ended on that date. Franklin is a global investment management organization operating under brands including Franklin, Templeton, Legg Mason, and Western Asset Management. The company reported total Assets Under Management (AUM) of $1,611.8 billion at period end, a 2% decrease year-over-year and a 4% decrease from the prior fiscal year-end.
Key Financial Metrics
| Metric (in millions) | Q3 2025 | Q3 2024 | 9M 2025 | 9M 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 |
| Operating Margin | 7.5% | 10.5% | 8.1% | 8.9% |
| Net Income Attributable to Franklin | $92.3 | $174.0 | $407.3 | $549.5 |
| Diluted EPS | $0.15 | $0.32 | $0.70 | $1.03 |
| Cash and Cash Equivalents | $3,253.9 | $3,309.5 | $3,253.9 | $3,309.5 |
| Total Debt (Company) | $2,666.7 | $2,780.3 | $2,666.7 | $2,780.3 |
Note: Consolidated Investment Products (CIPs) debt totaled $9.58 billion, but debt holders have no recourse to the Company's assets beyond direct investment.
Material Changes vs. Prior Period
- Revenue Decline: Q3 operating revenues decreased 3% year-over-year, driven primarily by a 3% drop in investment management fees due to a 4% decrease in average AUM. Fixed income AUM declined 22% year-over-year, while Equity AUM grew 10%.
- Profitability Compression: Operating income fell 31% in Q3 and 7% for the nine-month period. This was exacerbated by a $24.4 million impairment charge on indefinite-lived intangible assets recognized in the first quarter of fiscal 2025.
- Expense Management: Occupancy expenses dropped 34% in Q3 due to the consolidation of New York City office space. However, amortization of intangible assets increased 34% due to a reduction in the useful life of assets related to Western Asset Management (WAM).
- Investment Income Volatility: Investment and other income, net, decreased 69% in Q3 and 57% for the nine months, largely due to lower income from equity method investees and net losses on investments.
- Shareholder Returns: The company repurchased 7.3 million shares in Q3 and 8.1 million shares for the nine months, totaling $173.2 million. Dividends declared were $0.32 per share per quarter.
Outlook, Risks, and Contingencies
- Legal Proceedings:
- Western Asset Management (WAM): Ongoing investigations by the SEC and DOJ regarding trade allocations of treasury derivatives. A former co-CIO, Ken Leech, has been indicted. A class-action lawsuit was filed in July 2025 against Franklin, WAM, and Leech.
- 401(k) Litigation: A lawsuit filed in July 2025 alleges breaches of fiduciary duty regarding the inclusion of proprietary funds in the Franklin Templeton 401(k) plan.
- Acquisitions: Franklin entered a definitive agreement to acquire a majority interest in Apera Asset Management for approximately €70 million, with up to €125 million in contingent consideration. The deal is expected to close in Q1 fiscal 2026.
- Regulatory Environment: The "One Big Beautiful Bill Act" was signed into law on July 4, 2025; management does not expect a material impact on financial statements.
- Liquidity: The company maintains a $1.1 billion revolving credit facility and is in compliance with all debt covenants. Liquid assets (excluding CIPs) totaled $5.64 billion.
Investor Verification Checklist
- WAM Outflows: Verify the sustainability of fixed income AUM given the 22% year-over-year decline and ongoing regulatory scrutiny at Western Asset Management.
- Intangible Asset Impairments: Monitor future quarters for additional impairment charges related to WAM or other acquired assets, as useful lives were recently reduced.
- Legal Exposure: Assess the potential financial impact of the pending class-action lawsuit and DOJ/SEC investigations regarding WAM trade allocations.
- Non-GAAP Reconciliations: Review the significant adjustments made to reach "Adjusted Operating Income" (e.g., excluding $112.2M in amortization and $26.9M in termination benefits) to understand core operational performance.
- Share Repurchase Capacity: Confirm remaining authorization under the stock repurchase program (21.9 million shares available as of June 30, 2025) and its impact on future capital allocation.