No bad stock

Franklin Resources, Inc.
CEO : Ms. Jennifer M. Johnson

Quarterly earnings growth(YoY,%)

Period	Revenue	Operating Income	EPS	Release Date
2023 Q1	-11.6% YoY	-65.2%	-64.0%	2022-11-01

Matt Nicholls says,

Decline in Q4 Ending AUM

• AUM declined by 6% from the prior quarter due to market depreciation of $62 billion and long-term net outflows of $20.4 billion.
• Adjusted revenues decreased by 4% to $1.53 billion.

Lower Average AUM

• Adjusted investment management fees, excluding performance fees, declined 5% from the prior quarter, primarily due to lower average AUM, which decreased 5% from the prior quarter.

Adjusted Operating Income and Margin

• Adjusted operating income declined 13% from the prior quarter to $494.1 million, and adjusted operating margin decreased to 32.2% from 35.3%.

Fiscal Year 2022 Results

• Ending AUM declined by 15% from the prior year, primarily due to market depreciation of $269 billion and long-term net outflows of $27.8 billion.
• Adjusted revenues of $6.5 billion increased by 2% from the prior year benefiting from six months of Lexington and increased performance fees, offset by lower average AUM, which declined 2%.
• Adjusted operating income was $2.3 billion, a decrease of 2% from the prior year. Adjusted operating margin was 35.9%, 180 basis points lower from the prior year.

Acquisitions and Capital Management

• During the fiscal year, the company closed the acquisitions of both Lexington Partners and O’Shaughnessy Asset Management, made several minority investments and returned $773 million to shareholders in dividends and share repurchases.
• Ended the year with $6.8 billion of cash and investments of approximately level with the year earlier.

Jenny Johnson says,

Focus on Alternative Channel

• Created a separate group staffed with specialists to support the wealth channel wholesaler
• Education is a crucial aspect of getting on the platform

Product Launch and Partnerships

• BSP launched multi-strat interval fund and CP Reef has good traction
• Partnered with CAIS and iCapital to improve paperwork and capital calls
• Listed products on both platforms, which are important and influential in the industry

Due Diligence with Large Platforms

• In the process of due diligence with several large platforms
• A certain amount of size is required to get on larger platforms

Positive Progress and Inflection Point

• Feeling very positive about the progress being made
• At an inflection point where big distributors are doing their due diligence
• As influence grows, able to expand onto more and more platforms

Q & A sessions,

Revenue and AUM

• Adding Alcentra to AUM: $35 billion
• Increase in effective fee rate due to mix shift in next quarter expected to be around mid 39s

Expenses

• Comp and benefits in Q1 2023 expected to be flat to Q4 2022, including two months of Alcentra
• IS&T in Q1 2023 expected to be flat to Q4 2022 inclusive of Alcentra, around $122 million
• Occupancy in Q1 2023 expected to increase to about $60 million inclusive of Alcentra reflecting normalization of return to office
• G&A to be elevated for Q1 2023 at around $160 million, including one-time TA international outsourcing fee and higher placement fees
• Excluding performance fees, expenses expected to be around $3.95 billion to $4 billion for full year 2023

Performance Fees

• Q1 2023 performance fees expected to be around $50 million, assuming performance fees of approximately $50 million for the quarter

Acquisitions and Investments

• No guidance provided on potential future acquisitions, but interested in areas like infrastructure, increasing distribution capability, and the wealth channel
• Tokenization of money market funds and belief in the future of tokenized records for 40 Act funds

Alcentra Acquisition

• Globalizing a specialist investment manager already in DSP
• Helps with fundraising, strategy formation, talent retention, and origination
• Company finding other places within Franklin Templeton to be more efficient to absorb $100 million expense, not cutting costs in London