COLUMBUS, Ohio, Oct. 31,
2023 /PRNewswire/ -- Diamond Hill Investment Group,
Inc. (Nasdaq: DHIL) today reported unaudited financial results for
the third quarter of 2023.
DIAMOND HILL INVESTMENT GROUP, INC. REPORTS
RESULTS FOR THIRD QUARTER 2023 AND DECLARES QUARTERLY
DIVIDEND
The following are selected highlights for the quarter ended
September 30, 2023:
- Assets under management ("AUM") and assets under advisement
("AUA") combined was $26.6 billion,
compared to $26.6 billion as of
December 31, 2022, and $25.6 billion as of September 30, 2022.
- Average AUM and AUA combined was $27.8
billion, compared to $28.1
billion for the third quarter of 2022.
- Net client outflows were $343.0
million, compared to $760.0
million of net outflows for the third quarter of 2022.
- Revenue was $35.6 million,
compared to $38.3 million for the
third quarter of 2022.
- Operating profit margin was 35%, compared to 42% for the third
quarter of 2022. Adjusted operating profit margin1 was
33%, compared to 39% for the third quarter of 2022.
- Investment loss was $4.6 million,
compared to an investment loss of $8.0
million for the third quarter of 2022.
- The Company recorded a gain of $6.8
million during the third quarter of 2022 from the final
payment on the sale of its high yield-focused advisory
contracts.
- Net income attributable to common shareholders was $6.5 million, compared to $12.0 million for the third quarter of 2022.
- Earnings per share attributable to common shareholders -
diluted was $2.20, compared to
$3.90 for the third quarter of
2022.
- Adjusted earnings per share attributable to common shareholders
- diluted2 was $2.85,
compared to $3.57 for the third
quarter of 2022.
- The Company returned $9.1 million
to shareholders - $4.7 million
through the repurchase of 28,142 shares and $4.4 million through a quarterly cash dividend of
$1.50 per share.
"The investments we are making to diversify our business
continue to show promise," said Heather
Brilliant, CEO. "Our fixed income strategies experienced
inflows again in the third quarter and performance remains strong,
helping partially offset outflows from some of our US equity
strategies. We remain focused on generating excellent, long-term
client outcomes in all market environments."
_____________________________________________
1 Adjusts the financial measure calculated
in accordance with U.S. generally accepted accounting principles
("GAAP") for the impact of market movements on the deferred
compensation liability and related economic hedges, and the impact
of any consolidated funds. During each of the first
three quarters of 2023 and 2022, the Diamond Hill International
Fund was consolidated. During each of the first two quarters
of 2022, the Diamond Hill Large Cap Concentrated Fund was also
consolidated. The Fund(s) consolidated during the applicable
period are referred to as the "Consolidated Funds." See the
reconciliation to the comparable GAAP financial measure at the end
of this earnings release.
2 Adjusts the financial measure
calculated in accordance with GAAP for the impact of the
Consolidated Funds, the gain on the sale of the high yield-focused
advisory contracts, and investment income related to certain other
investments. See the reconciliation to the comparable GAAP
financial measure at the end of this earnings release.
Dividend:
The Company's board of directors approved the payment of a
regular quarterly cash dividend of $1.50 per share. The dividend will be paid on
December 8, 2023, to the Company's shareholders of record as
of November 24, 2023.
"Our capital allocation approach is designed to grow the
intrinsic value of the business by investing in new and existing
strategies and ensuring we have sufficient capital to operate the
business in any market environment," Brilliant added. "When we
believe we have more capital than is necessary to achieve those
aims, we return capital to shareholders. When we believe our shares
are trading at a discount to our estimate of the firm's intrinsic
value, we aim to return capital through share repurchases. Each
year we determine if we have excess capital to pay a special
dividend in the fourth quarter. After assessing the current market
environment, the level of share repurchases during the year, as
well as our $6.00 regular dividend,
we have decided not to issue a special dividend this year."
|
Selected Income
Statement Data
|
|
|
Three Months Ended
September 30,
|
|
|
|
2023
|
|
2022
|
|
% Change
|
|
Revenue
|
$
35,554,280
|
|
$
38,264,674
|
|
(7) %
|
|
Compensation and
related costs, excluding deferred compensation benefit
|
17,837,787
|
|
17,259,543
|
|
3 %
|
|
Deferred compensation
benefit
|
(859,252)
|
|
(1,051,637)
|
|
(18) %
|
|
Other
expenses
|
6,214,551
|
|
6,024,171
|
|
3 %
|
|
Total operating
expenses
|
23,193,086
|
|
22,232,077
|
|
4 %
|
|
Net operating
income
|
12,361,194
|
|
16,032,597
|
|
(23) %
|
|
Investment loss,
net
|
(4,636,952)
|
|
(8,031,706)
|
|
NM
|
|
Gain on sale of high
yield-focused advisory contracts
|
—
|
|
6,813,579
|
|
NM
|
|
Net income before
taxes
|
7,724,242
|
|
14,814,470
|
|
(48) %
|
|
Income tax
expense
|
(2,523,649)
|
|
(4,442,070)
|
|
(43) %
|
|
Net income
|
5,200,593
|
|
10,372,400
|
|
(50) %
|
|
Net loss attributable
to redeemable noncontrolling interest
|
1,272,839
|
|
1,642,040
|
|
(22) %
|
|
Net income attributable
to common shareholders
|
$
6,473,432
|
|
$
12,014,440
|
|
(46) %
|
|
|
|
|
|
|
|
Earnings per share
attributable to common shareholders - diluted
|
$
2.20
|
|
$
3.90
|
|
(44) %
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2023
|
|
2022
|
|
% Change
|
|
Revenue
|
$
102,895,420
|
|
$
119,542,174
|
|
(14) %
|
|
Compensation and
related costs, excluding deferred compensation expense
(benefit)
|
51,600,045
|
|
53,128,680
|
|
(3) %
|
|
Deferred compensation
expense (benefit)
|
1,867,983
|
|
(6,920,586)
|
|
NM
|
|
Other
expenses
|
18,338,448
|
|
17,976,932
|
|
2 %
|
|
Total operating
expenses
|
71,806,476
|
|
64,185,026
|
|
12 %
|
|
Net operating
income
|
31,088,944
|
|
55,357,148
|
|
(44) %
|
|
Investment income
(loss), net
|
9,722,494
|
|
(33,301,836)
|
|
NM
|
|
Gain on sale of high
yield-focused advisory contracts
|
—
|
|
6,813,579
|
|
NM
|
|
Net income before
taxes
|
40,811,438
|
|
28,868,891
|
|
41 %
|
|
Income tax
expense
|
(11,338,849)
|
|
(9,005,711)
|
|
26 %
|
|
Net income
|
29,472,589
|
|
19,863,180
|
|
48 %
|
|
Net (income) loss
attributable to redeemable noncontrolling interest
|
(859,126)
|
|
5,694,098
|
|
NM
|
|
Net income attributable
to common shareholders
|
$
28,613,463
|
|
$
25,557,278
|
|
12 %
|
|
|
|
|
|
|
|
Earnings per share
attributable to common shareholders - diluted
|
$
9.61
|
|
$
8.14
|
|
18 %
|
|
|
|
|
|
|
|
Selected Assets
Under Management and Assets Under Advisement Data
|
|
|
|
|
|
Change in Assets Under
Management
|
|
For the Three Months
Ended September 30,
|
|
(in
millions)
|
2023
|
|
2022
|
|
AUM at beginning of the
period
|
$
26,066
|
|
$
25,789
|
|
Net cash (outflows)
inflows
|
|
|
|
|
Diamond Hill
Funds
|
(260)
|
|
(629)
|
|
Separately managed
accounts
|
(251)
|
|
(184)
|
|
Collective investment
trusts
|
184
|
|
(1)
|
|
Other pooled
vehicles
|
(16)
|
|
54
|
|
(343)
|
|
(760)
|
|
Net market depreciation
and income
|
(740)
|
|
(1,147)
|
|
Decrease during the
period
|
(1,083)
|
|
(1,907)
|
|
AUM at end of the
period
|
24,983
|
|
23,882
|
|
AUA at end of
period
|
1,638
|
|
1,713
|
|
Total AUM and AUA at
end of period
|
$
26,621
|
|
$
25,595
|
|
|
|
|
|
Average AUM during the
period
|
$
26,004
|
|
$
26,245
|
|
Average AUA during the
period
|
1,756
|
|
1,813
|
|
Total average AUM and
AUA during the period
|
$
27,760
|
|
$
28,057
|
|
|
|
|
|
Change in Assets Under
Management
|
|
For the Nine Months
Ended September 30,
|
|
(in
millions)
|
2023
|
|
2022
|
|
AUM at beginning of the
period
|
$
24,763
|
|
$
31,028
|
|
Net cash (outflows)
inflows
|
|
|
|
|
Diamond Hill
Funds
|
(349)
|
|
(885)
|
|
Separately managed
accounts
|
(340)
|
|
(25)
|
|
Collective investment
trusts
|
67
|
|
(6)
|
|
Other pooled
vehicles
|
260
|
|
(122)
|
|
(362)
|
|
(1,038)
|
|
Net market appreciation
(depreciation) and income
|
582
|
|
(6,108)
|
|
Increase (decrease)
during the period
|
220
|
|
(7,146)
|
|
AUM at end of the
period
|
24,983
|
|
23,882
|
|
AUA at end of
period
|
1,638
|
|
1,713
|
|
Total AUM and AUA at
end of period
|
$
26,621
|
|
$
25,595
|
|
|
|
|
|
Average AUM during the
period
|
$
25,496
|
|
$
28,300
|
|
Average AUA during the
period
|
1,796
|
|
1,976
|
|
Total average AUM and
AUA during the period
|
$
27,291
|
|
$
30,277
|
|
Net Cash (Outflows)
Inflows Further Breakdown
|
|
For the Three Months
Ended
September 30,
|
|
For the Nine Months
Ended
September 30,
|
|
(in
millions)
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
Net cash (outflows)
inflows
|
|
|
|
|
|
|
|
|
Equity
|
$
(732)
|
|
$
(682)
|
|
$
(1,448)
|
|
$
(1,064)
|
|
Fixed
Income
|
389
|
|
(78)
|
|
1,086
|
|
26
|
|
$
(343)
|
|
$
(760)
|
|
$
(362)
|
|
$
(1,038)
|
|
|
|
|
|
|
|
|
About Diamond Hill:
Diamond Hill invests on behalf of
clients through a shared commitment to its valuation-driven
investment principles, long-term perspective, capacity discipline
and client alignment. An independent active asset manager with
significant employee ownership, Diamond
Hill's investment strategies include differentiated U.S. and
international equity, alternative long-short equity and fixed
income.
Non-GAAP Financial Measures and Reconciliation
As supplemental information, the Company is providing certain
financial measures that are based on methodologies other than GAAP
("non-GAAP"). Management believes the non-GAAP financial
measures below are useful measures of the Company's core business
activities, are important metrics in estimating the value of an
asset management business, and help facilitate comparisons to
Company operating performance across periods. These non-GAAP
financial measures should not be used as a substitute for financial
measures calculated in accordance with GAAP and may be calculated
differently by other companies. The following schedules
reconcile financial measures calculated in accordance with GAAP to
non-GAAP financial measures for the three-month and nine-month
periods ended September 30, 2023 and 2022, respectively.
|
Three Months Ended
September 30, 2023
|
|
(in thousands, except
percentages and per share data)
|
Total
Operating
expenses
|
|
Net
operating
income
|
|
Total
Non-operating
income
(loss)
|
|
Income
tax
expense(5)
|
|
Net
income
attributable
to
common
shareholders
|
|
Earnings
per
share
attributable
to
common
shareholders
-
diluted
|
|
Operating
profit
margin
|
|
GAAP
Basis
|
$
23,193
|
|
$
12,361
|
|
$
(4,637)
|
|
$
2,524
|
|
$
6,473
|
|
$
2.20
|
|
35 %
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation liability(1)
|
859
|
|
(859)
|
|
859
|
|
—
|
|
—
|
|
—
|
|
(2) %
|
|
Consolidated
Funds(2)
|
—
|
|
121
|
|
3,269
|
|
593
|
|
1,525
|
|
0.52
|
|
—
|
|
Other investment
income(4)
|
—
|
|
—
|
|
509
|
|
143
|
|
366
|
|
0.13
|
|
—
|
|
Adjusted Non-GAAP
basis
|
$
24,052
|
|
$
11,623
|
|
$
—
|
|
$
3,260
|
|
$
8,364
|
|
$
2.85
|
|
33 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2022
|
|
(in thousands, except
percentages and per share data)
|
Total
Operating
expenses
|
|
Net
operating
income
|
|
Total
Non-operating
income
(loss)
|
|
Income
tax
expense(5)
|
|
Net
income
attributable
to
common
shareholders
|
|
Earnings
per
share
attributable
to
common
shareholders
-
diluted
|
|
Operating
profit
margin
|
|
GAAP
Basis
|
$
22,232
|
|
$
16,033
|
|
$
(1,218)
|
|
$
4,442
|
|
$
12,014
|
|
$
3.90
|
|
42 %
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation liability(1)
|
1,052
|
|
(1,052)
|
|
1,052
|
|
—
|
|
—
|
|
—
|
|
(3) %
|
|
Consolidated
Funds(2)
|
—
|
|
90
|
|
5,827
|
|
1,154
|
|
3,121
|
|
1.01
|
|
—
|
|
Gain on sale of
high-yield focused advisory contracts (3)
|
—
|
|
—
|
|
(6,814)
|
|
(1,840)
|
|
(4,974)
|
|
(1.62)
|
|
—
|
|
Other investment
income(4)
|
—
|
|
—
|
|
1,153
|
|
311
|
|
842
|
|
0.28
|
|
—
|
|
Adjusted Non-GAAP
basis
|
$
23,284
|
|
$
15,071
|
|
$
—
|
|
$
4,067
|
|
$
11,003
|
|
$
3.57
|
|
39 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2023
|
|
Total
Operating
expenses
|
|
Net
operating
income
|
|
Total
Non-operating
income
(loss)
|
|
Income
tax
expense(5)
|
|
Net
income
attributable
to
common
shareholders
|
|
Earnings
per
share
attributable
to
common
shareholders
-
diluted
|
|
Operating
profit
margin
|
|
GAAP
Basis
|
$
71,806
|
|
$
31,089
|
|
$ 9,722
|
|
$
11,339
|
|
$
28,613
|
|
$
9.61
|
|
30 %
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation liability(1)
|
(1,868)
|
|
1,868
|
|
(1,868)
|
|
—
|
|
—
|
|
—
|
|
2 %
|
|
Consolidated
Funds(2)
|
—
|
|
330
|
|
(4,148)
|
|
(840)
|
|
(2,119)
|
|
(0.71)
|
|
—
|
|
Other investment
income(4)
|
—
|
|
—
|
|
(3,706)
|
|
(1,053)
|
|
(2,653)
|
|
(0.89)
|
|
—
|
|
Adjusted Non-GAAP
basis
|
$
69,938
|
|
$
33,287
|
|
$
—
|
|
$
9,446
|
|
$
23,841
|
|
$
8.01
|
|
32 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2022
|
|
Total
Operating
expenses
|
|
Net
operating
income
|
|
Total
Non-operating
income
(loss)
|
|
Income
tax
expense(5)
|
|
Net
income
attributable
to
common
shareholders
|
|
Earnings
per
share
attributable
to
common
shareholders
-
diluted
|
|
Operating
profit
margin
|
|
GAAP
Basis
|
$
64,185
|
|
$
55,357
|
|
$
(26,488)
|
|
$
9,006
|
|
$
25,557
|
|
$
8.14
|
|
46 %
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation liability (1)
|
6,921
|
|
(6,921)
|
|
6,921
|
|
—
|
|
—
|
|
—
|
|
(5) %
|
|
Consolidated
Funds(2)
|
—
|
|
333
|
|
19,099
|
|
3,586
|
|
10,152
|
|
3.24
|
|
—
|
|
Gain on sale of
high-yield focused advisory contracts (3)
|
—
|
|
—
|
|
(6,814)
|
|
(1,778)
|
|
(5,036)
|
|
(1.60)
|
|
—
|
|
Other investment
income(4)
|
—
|
|
—
|
|
7,282
|
|
1,901
|
|
5,381
|
|
1.71
|
|
—
|
|
Adjusted Non-GAAP
basis
|
$
71,106
|
|
$
48,769
|
|
$
—
|
|
$
12,715
|
|
$
36,054
|
|
$
11.49
|
|
41 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) This non-GAAP adjustment removes the
compensation expense resulting from market valuation changes in the
Company's deferred compensation plans' liability and the related
net gains/losses on investments designated as an economic hedge
against the related liability. Amounts deferred under the
deferred compensation plans are adjusted for
appreciation/depreciation of investments chosen by
participants. The Company believes it is useful to offset the
non-operating investment income or loss realized on the hedges
against the related compensation expense and remove the net impact
to help readers understand the Company's core operating results and
to improve comparability from period to period.
(2) This non-GAAP adjustment removes the impact
that the Consolidated Funds have on the Company's GAAP consolidated
statements of income. Specifically, the Company adds back the
operating expenses and subtracts the investment income of the
Consolidated Funds. The adjustment to net operating income
represents the operating expenses of the Consolidated Funds, net of
the elimination of related management and administrative
fees. The adjustment to net income attributable to common
shareholders represents the net income of the Consolidated Funds,
net of redeemable non-controlling interests. The Company
believes removing the impact of the Consolidated Funds helps
readers understand its core operating results and improves
comparability from period to period.
(3) This non-GAAP adjustment removes the impact of
the gain on the sale of the high yield-focused advisory
contracts. The sale of the high yield-focused advisory
contracts was a nonrecurring transaction, thus, the Company
believes that removing the impact of the gain helps readers
understand the Company's core operating results and improves
comparability from period to period.
(4) This non-GAAP adjustment represents the net
gains or losses earned on the Company's non-consolidated investment
portfolio that are not designated as economic hedges of the
deferred compensation plans' liability, non-consolidated seed
investments, and other investments. The Company believes
adjusting for these non-operating income or loss items helps
readers understand the Company's core operating results and
improves comparability from period to period.
(5) The income tax expense impacts were
calculated and resulted in an overall non-GAAP effective tax rates
of 28.0% for the three months ended September 30, 2023, 27.0% for the three months
ended September 30, 2022, 28.4% for
the nine months ended September 30,
2023, and 26.1% for the nine months ended September 30, 2022.
The Company does not recommend that investors consider non-GAAP
financial measures alone, or as a substitute for, financial
information prepared in accordance with GAAP.
Cautionary Note Regarding Forward-Looking Statements
Throughout this press release, the Company may make
"forward-looking statements" within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements
are provided under the "safe harbor" protection of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements include, but are not limited to, statements regarding
anticipated operating results, prospects and levels of assets under
management, technological developments, economic trends (including
interest rates and market volatility), expected transactions and
similar matters. The words "may," "believe," "expect,"
"anticipate," "target," "goal," "project," "estimate," "guidance,"
"forecast," "outlook," "would," "will," "continue," "likely,"
"should," "hope," "seek," "plan," "intend," and variations of such
words and similar expressions identify forward-looking
statements. Similarly, descriptions of the Company's
objectives, strategies, plans, goals, or targets are also
forward-looking statements. Forward-looking statements are
based on the Company's expectations at the time such statements are
made, speak only as of the dates they are made and are susceptible
to a number of risks, uncertainties and other factors. While
the Company believes that the assumptions underlying its
forward-looking statements are reasonable, investors are cautioned
that any of the assumptions could prove to be inaccurate and,
accordingly, the Company's actual results and experiences could
differ materially from the anticipated results or other
expectations expressed in its forward-looking statements.
Factors that could cause the Company's actual results or
experiences to differ materially from results discussed in
forward-looking statements are discussed under Part I, Item 1A
(Risk Factors) and elsewhere in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2022, as well as
in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2023. These factors include, but are not
limited to: (i) any reduction in the Company's AUM or AUA; (ii)
withdrawal, renegotiation, or termination of investment advisory
agreements; (iii) damage to the Company's reputation; (iv) failure
to comply with investment guidelines or other contractual
requirements; (v) challenges from the competition the Company faces
in its business; (vi) adverse regulatory and legal developments;
(vii) unfavorable changes in tax laws or limitations; (viii)
interruptions in or failure to provide critical technological
service by the Company or third parties; (ix) adverse civil
litigation and government investigations or proceedings; (x) risk
of loss on the Company's investments; (xi) lack of sufficient
capital on satisfactory terms; (xii) losses or costs not covered by
insurance; (xiii) a decline in the performance of the Company's
products; (xiv) changes in interest rates and inflation; (xv)
changes in national and local economic and political conditions;
(xvi) the continuing economic uncertainty in various parts of the
world; (xvii) the after-effects of the COVID-19 pandemic and the
actions taken in connection therewith; (xviii) political
uncertainty caused by, among other things, political parties,
economic nationalist sentiments, tensions surrounding the current
socioeconomic landscape, and other risks identified from
time-to-time in other public documents of the Company on file with
the SEC.
In light of the significant uncertainties in forward-looking
statements, the inclusion of such information should not be
regarded as a representation by the Company or any other person
that its expectations, objectives and plans will be achieved. All
forward-looking statements made in this press release are based on
information presently available to the management of the Company
and speak only as of the date hereof. Readers are cautioned not to
place undue reliance on forward-looking statements. New risks and
uncertainties arise from time to time, and factors that the Company
currently deems immaterial may become material, and it is
impossible for the Company to predict these events or how they may
affect it. The Company assumes no obligation to update any
forward-looking statements, whether as a result of new information,
future developments or otherwise, except as may be required by law,
although it may do so from time to time. The Company does not
endorse any projections regarding future performance that may be
made by third parties.
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SOURCE Diamond Hill Investment Group, Inc.
