COLUMBUS, Ohio, Feb. 29,
2024 /PRNewswire/ -- Diamond Hill Investment Group,
Inc. (Nasdaq: DHIL) today reported results for the fourth quarter
of 2023 and the year ended December 31,
2023. The Company derives its consolidated revenue and net
income from investment advisory and fund administration services
provided by its subsidiary, Diamond Hill Capital Management,
Inc.
The following are selected highlights for the year ended
December 31, 2023:
- Assets under management ("AUM") and assets under advisement
("AUA") combined was $29.2 billion,
compared to $26.6 billion as of
December 31, 2022.
- Average AUM and AUA combined was $27.3
billion, compared to $29.6
billion during 2022.
- Net client outflows were $494.0
million, compared to $2.2
billion of net outflows during 2022.
- Revenue was $136.7 million,
compared to $154.5 million in
2022.
- Operating profit margin was 26% in 2023, compared to 42% in
2022. Adjusted operating profit margin[1] was 30% in 2023 and 39%
in 2022.
- Investment income was $23.1
million in 2023, compared to investment loss of $20.2 million in 2022.
- Net income attributable to common shareholders was $42.2 million, compared to $40.4 million in 2022.
- Earnings per share attributable to common shareholders -
diluted was $14.32 in 2023, compared
to $13.01 in 2022.
- Adjusted earnings per share attributable to common shareholders
- diluted[2] was $10.28, compared to
$14.40 in 2022.
- The Company returned a total of $52.6
million to its shareholders - $34.9
million through the repurchase of 212,638 common shares and
$17.7 million through dividends
totaling $6.00 per common share.
|
___________________________________
|
|
1 Adjusts the financial measures
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 full year 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
Diamond Hill Corporate Credit and the Diamond Hill High Yield
investment advisory contracts ("the "High Yield-Focused Advisory
Contracts") effective July 30, 2021, and investment income related
to certain other investments. See the reconciliation to the
comparable GAAP financial measure at the end of this earnings
release.
|
"Our 2023 revenue was impacted by lower average assets under
management/advisement, and outflows from U.S. equity strategies,
offset in part by inflows into our fixed income offerings," said
Heather Brilliant, CEO. "Despite a
challenging year, we ended 2023 in a much stronger position than we
began, and we are pleased with the way our growth in fixed income
helped improve the diversification of our business. Our adjusted
operating margin was impacted by investments we are making in our
business which we anticipate will contribute to our long-term
competitive strength."
Dividend:
The Company's board of directors has approved the payment of a
regular quarterly cash dividend of $1.50 per common share. The dividend will be paid
on March 22, 2024, to the Company's
shareholders of record as of March 11,
2024.
|
Selected Income
Statement Data
(in thousands, except
per share figures and percentages)
|
|
|
Three Months
Ended
December
31,
|
|
|
|
Year Ended
December 31,
|
|
|
|
2023
|
|
2022
|
|
% Change
|
|
2023
|
|
2022
|
|
% Change
|
|
Revenue
|
$
33,821
|
|
$
34,954
|
|
(3) %
|
|
$
136,716
|
|
$
154,496
|
|
(12) %
|
|
Compensation and
related costs, excluding deferred compensation expense
(benefit)
|
19,131
|
|
17,376
|
|
10 %
|
|
70,731
|
|
70,505
|
|
— %
|
|
Deferred compensation
expense (benefit)
|
3,732
|
|
2,517
|
|
48 %
|
|
5,600
|
|
(4,402)
|
|
(227) %
|
|
Other
expenses
|
6,543
|
|
6,085
|
|
8 %
|
|
24,881
|
|
24,062
|
|
3 %
|
|
Total operating
expenses
|
29,406
|
|
25,978
|
|
13 %
|
|
101,212
|
|
90,165
|
|
12 %
|
|
Net operating
income
|
4,415
|
|
8,976
|
|
(51) %
|
|
35,504
|
|
64,331
|
|
(45) %
|
|
Investment income
(loss), net
|
13,349
|
|
13,115
|
|
2 %
|
|
23,071
|
|
(20,187)
|
|
(214) %
|
|
Gain on sale of High
Yield-Focused Advisory Contracts
|
—
|
|
—
|
|
NM
|
|
—
|
|
6,815
|
|
(100) %
|
|
Net income before
taxes
|
17,764
|
|
22,091
|
|
(20) %
|
|
58,575
|
|
50,959
|
|
15 %
|
|
Income tax
expense
|
(4,151)
|
|
(5,082)
|
|
(18) %
|
|
(15,490)
|
|
(14,088)
|
|
10 %
|
|
Net income
|
13,613
|
|
17,009
|
|
(20) %
|
|
43,085
|
|
36,871
|
|
17 %
|
|
Net loss (income)
attributable to redeemable noncontrolling interest
|
—
|
|
(2,131)
|
|
NM
|
|
(859)
|
|
3,563
|
|
NM
|
|
Net income attributable
to common shareholders
|
$
13,613
|
|
$
14,878
|
|
(9) %
|
|
$
42,226
|
|
$
40,434
|
|
4 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to common shareholders - diluted
|
$
4.76
|
|
$
4.93
|
|
(3) %
|
|
$ 14.32
|
|
$ 13.01
|
|
10 %
|
|
Selected Assets
Under Management and Assets Under Advisement Data
|
|
|
Change in AUM and
AUA
|
|
For the Year Ended
December 31,
|
|
(in
millions)
|
2023
|
|
2022
|
|
AUM at beginning of the
year
|
$
24,763
|
|
$
31,028
|
|
Net cash inflows
(outflows)
|
|
|
|
|
Diamond Hill
Funds
|
(599)
|
|
(2,433)
|
|
Separately managed
accounts
|
(416)
|
|
(73)
|
|
Collective investment
trusts
|
153
|
|
486
|
|
Other pooled
vehicles
|
368
|
|
(221)
|
|
(494)
|
|
(2,241)
|
|
Net market appreciation
(depreciation) and income
|
3,149
|
|
(4,024)
|
|
Increase (decrease)
during the year
|
2,655
|
|
(6,265)
|
|
AUM at end of the
year
|
27,418
|
|
24,763
|
|
AUA at end of the
year
|
1,746
|
|
1,802
|
|
Total AUM and AUA at
end of the year
|
$
29,164
|
|
$
26,565
|
|
|
|
|
|
Average AUM during the
year
|
$
25,552
|
|
$
27,599
|
|
Average AUA during the
year
|
1,769
|
|
1,952
|
|
Total average AUM and
AUA during the year
|
$
27,321
|
|
$
29,551
|
|
Net Cash (Outflows)
Inflows Further Breakdown
|
|
For the Year Ended
December 31
|
|
(in
millions)
|
2023
|
|
2022
|
|
Net cash (outflows)
inflows
|
|
|
|
|
Equity
|
$
(1,865)
|
|
$
(2,247)
|
|
Fixed
Income
|
1,371
|
|
6
|
|
$
(494)
|
|
$
(2,241)
|
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. For more information visit
www.diamond-hill.com.
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 the differences between financial measures calculated in
accordance with GAAP and non-GAAP financial measures for 2023 and
2022.
|
Year Ended December
31, 2023
|
|
(in thousands, except
percentages and per share data)
|
Total
operating
expenses
|
|
Net
operating
income
|
|
Total non-
operating
income
|
|
Income tax
expense(5)
|
|
Net income
attributable
to common
shareholders
|
|
Earnings per
share
attributable
to common
shareholders
- diluted
|
|
Net
operating
profit
margin
|
|
GAAP
Basis
|
$ 101,212
|
|
$
35,504
|
|
$
23,071
|
|
$
15,490
|
|
$
42,226
|
|
$
14.32
|
|
26 %
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
liability(1)
|
(5,600)
|
|
5,600
|
|
(5,600)
|
|
—
|
|
—
|
|
—
|
|
4 %
|
|
Consolidated
Funds(2)
|
—
|
|
330
|
|
(4,148)
|
|
(793)
|
|
(2,166)
|
|
(0.73)
|
|
—
|
|
Other investment
income(4)
|
—
|
|
—
|
|
$ (13,323)
|
|
(3,571)
|
|
(9,752)
|
|
(3.31)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Non-GAAP
Basis
|
$
95,612
|
|
$
41,434
|
|
—
|
|
$
11,126
|
|
$
30,308
|
|
$
10.28
|
|
30 %
|
|
|
Year Ended December
31, 2022
|
|
(in thousands, except
percentages and per share data)
|
Total
operating
expenses
|
|
Net
operating
income
|
|
Total non-
operating
income
|
|
Income tax
expense(5)
|
|
Net income
attributable
to common
shareholders
|
|
Earnings per
share
attributable
to common
shareholders
- diluted
|
|
Net
operating
profit
margin
|
|
GAAP
Basis
|
$
90,165
|
|
$
64,331
|
|
$ (13,373)
|
|
$
14,088
|
|
$
40,434
|
|
$
13.01
|
|
42 %
|
|
Non-GAAP
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
liability(1)
|
4,402
|
|
(4,402)
|
|
4,402
|
|
—
|
|
—
|
|
—
|
|
(3) %
|
|
Consolidated
Funds(2)
|
—
|
|
423
|
|
11,317
|
|
2,113
|
|
6,063
|
|
1.95
|
|
—
|
|
Gain on sale of
High-Yield Focused Advisory Contracts(3)
|
—
|
|
—
|
|
(6,814)
|
|
(1,761)
|
|
(5,053)
|
|
(1.63)
|
|
—
|
|
Other investment
income(4)
|
—
|
|
—
|
|
$
4,468
|
|
1,155
|
|
3,313
|
|
1.07
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Non-GAAP
Basis
|
$
94,567
|
|
$
60,352
|
|
—
|
|
$
15,595
|
|
$
44,757
|
|
$
14.40
|
|
39 %
|
|
|
(1) This non-GAAP adjustment removes
the compensation expense resulting from market valuation changes in
the Diamond Hill Fixed Term Deferred Compensation Plan and the
Diamond Hill Variable Term Deferred Compensation Plan's (together,
the "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 discrete transaction, thus, the Company believes
that removing the impact of the gain helps readers understand the
Company's core operating results and improves comparability 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 rate of 26.8% for 2023, and 25.8%
for 2022.
|
The Company does not recommend that investors consider the above
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 such 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 our
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 may differ materially from the anticipated
results or other expectations expressed in its forward-looking
statements.
Factors that may 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,
2023. These factors include, but are not limited to: (i) any
reduction in the Company's assets under management ("AUM") or
assets under advisement ("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) challenges
from industry trends towards lower fee strategies and model
portfolio arrangements; (vii) adverse regulatory and legal
developments; (viii) unfavorable changes in tax laws or
limitations; (ix) interruptions in or failure to provide critical
technological service by the Company or third parties; (x) adverse
civil litigation and government investigations or proceedings; (xi)
failure to adapt to or successfully incorporate technological
changes, such as artificial intelligence, into the Company's
business; (xii) risk of loss on the Company's investments; (xiii)
lack of sufficient capital on satisfactory terms; (xiv) losses or
costs not covered by insurance; (xv) a decline in the performance
of the Company's products; (xvi) changes in interest rates and
inflation; (xvii) changes in national and local economic and
political conditions; (xix) the continuing economic uncertainty in
various parts of the world; (xviii) the after-effects of the
COVID-19 pandemic and the actions taken in connection therewith;
(xx) political uncertainty caused by, among other things, political
parties, economic nationalist sentiments, tensions surrounding the
current socioeconomic landscape; and (xix), other risks identified
from time-to-time in our public documents on file with the U.S.
Securities and Exchange Commission.
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 undertakes 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.
