10-Q
1
d19538d10q.htm
FORM 10-Q
Form 10-Q
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2020
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From
to
Commission File Number 001-36423
HENNESSY ADVISORS, INC.
(Exact name of registrant as specified in its charter)
California
68-0176227
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
7250 Redwood Boulevard, Suite 200
Novato, California
94945
(Address of principal executive office)
(Zip code)
(415) 899-1555
(Registrants telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbol
Name of each exchange
on which registered
Common stock, no par value
HNNA
The NASDAQ
Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated
filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
As of February 8, 2021, there were 7,360,342 shares
of common stock issued and outstanding.
Table of Contents
HENNESSY ADVISORS, INC.
TABLE OF CONTENTS
PART I
Financial Information
Item 1
Unaudited Condensed Financial Statements
1
Balance Sheets
1
Statements of Income
2
Statements of Changes in Stockholders Equity
3
Statements of Cash Flows
4
Notes to Unaudited Condensed Financial Statements
5
Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
15
Item 4
Controls and Procedures
24
PART II
Other Information
Item 6
Exhibits
25
Signatures
26
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Table of Contents
PART I: FINANCIAL INFORMATION
Item 1:
Unaudited Condensed Financial Statements
Balance Sheets
(In thousands, except share and per share amounts)
December 31,
September 30,
2020
2020
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
9,954
$
9,955
Investments in marketable securities, at fair value
9
9
Investment fee income receivable
2,688
2,403
Prepaid expenses
427
637
Other accounts receivable
324
378
Total current assets
13,402
13,382
Property and equipment, net of accumulated depreciation
of $1,680 and $1,618, respectively
298
294
Operating lease
right-of-use asset
183
276
Management contracts
80,643
80,643
Other assets
192
191
Total assets
$
94,718
$
94,786
Liabilities and stockholders equity
Current liabilities
Accrued liabilities and accounts payable
$
2,080
$
3,813
Operating lease liability
220
330
Income taxes payable
1,272
949
Total current liabilities
3,572
5,092
Deferred income tax liability, net
11,829
11,516
Total liabilities
15,401
16,608
Commitments and contingencies (Note 8)
Stockholders equity
Common stock, no par value, 22,500,000 shares authorized; 7,359,639 shares issued and outstanding
as of December 31, 2020, and 7,356,822 as of September 30, 2020
19,082
18,705
Retained earnings
60,235
59,473
Total stockholders equity
79,317
78,178
Total liabilities and stockholders equity
$
94,718
$
94,786
See Notes to Unaudited Condensed Financial Statements
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Table of Contents
Statements of Income
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended December 31,
2020
2019
Revenue
Investment advisory fees
$
7,208
$
9,449
Shareholder service fees
581
795
Total revenue
7,789
10,244
Operating expenses
Compensation and benefits
2,104
2,513
General and administrative
1,308
1,492
Mutual fund distribution
121
139
Sub-advisory fees
1,785
2,316
Depreciation
62
53
Total operating expenses
5,380
6,513
Net operating income
2,409
3,731
Interest expense
187
Other income
(1
)
(56
)
Income before income tax expense
2,410
3,600
Income tax expense
637
972
Net income
$
1,773
$
2,628
Earnings per share
Basic
$
0.24
$
0.35
Diluted
$
0.24
$
0.35
Weighted average shares outstanding
Basic
7,357,883
7,501,147
Diluted
7,367,128
7,537,716
Cash dividends declared per share
$
0.14
$
0.14
See Notes to Unaudited Condensed Financial Statements
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Statements of Changes in Stockholders Equity
(In thousands, except share data)
(Unaudited)
Three Months Ended December 31, 2020
Total
Common Stock
Retained
Stockholders
Shares
Amount
Earnings
Equity
Balance at September 30, 2020
7,356,822
$
18,705
$
59,473
$
78,178
Net income
1,773
1,773
Dividends declared
(1,011
)
(1,011
)
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase
Plan
652
6
5
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock
Purchase Plan
2,165
19
20
Stock-based compensation
352
352
Balance at December 31, 2020
7,359,639
$
19,082
$
60,235
$
79,317
Three Months Ended December 31, 2019
Total
Common Stock
Retained
Stockholders
Shares
Amount
Earnings
Equity
Balance at September 30, 2019
7,527,040
$
17,673
$
57,855
$
75,528
Net income
2,628
2,628
Dividends declared
(1,032
)
(1,032
)
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase
Plan
1,702
20
20
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock
Purchase Plan
1,596
18
18
Shares repurchased pursuant to stock buyback program
(64,787
)
(128
)
(557
)
(685
)
Stock-based compensation
447
447
Balance at December 31, 2019
7,465,551
$
18,030
$
58,894
$
76,924
See Notes to Unaudited Condensed Financial Statements
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Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended December 31,
2020
2019
Cash flows from operating activities
Net income
$
1,773
$
2,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
62
53
Change in
right-of-use asset and operating lease liability
(17
)
(14
)
Deferred income taxes
313
403
Stock-based compensation
352
447
Interest expense associated with debt issuance cost
13
Change in operating assets and liabilities:
Investment fee income receivable
(285
)
(193
)
Prepaid expenses
210
105
Other accounts receivable
54
(57
)
Other assets
(1
)
Accrued liabilities and accounts payable
(1,733
)
(2,796
)
Income taxes payable
323
696
Net cash provided by operating activities
1,051
1,285
Cash flows from investing activities
Purchases of property and equipment
(66
)
(34
)
Payments related to management contracts
(710
)
Net cash used in investing activities
(66
)
(744
)
Cash flows from financing activities
Principal payments on bank loan
(1,094
)
Shares repurchased pursuant to stock buyback program
(685
)
Proceeds from shares issued pursuant to the 2018 Dividend Reinvestment and Stock Repurchase
Plan
6
38
Dividend payments
(992
)
(1,032
)
Net cash used in financing activities
(986
)
(2,773
)
Net decrease in cash and cash equivalents
(1
)
(2,232
)
Cash and cash equivalents at the beginning of the period
9,955
24,687
Cash and cash equivalents at the end of the period
$
9,954
$
22,455
Supplemental disclosures of cash flow information:
Cash paid for interest
$
$
182
See Notes to Unaudited Condensed Financial Statements
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HENNESSY ADVISORS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1)
Basis of Financial Statement Presentation
The accompanying condensed balance sheet as of September 30, 2020, which has been derived from audited financial statements, and the
unaudited interim condensed financial statements as of and for the three months ended December 31, 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include the accounts of Hennessy
Advisors, Inc. (the Company, we, us, or our). Certain information and footnote disclosures in these unaudited interim condensed financial statements, normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form
10-Q. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments necessary for a fair statement of the Companys financial position at December 31,
2020, the Companys operating results for the three months ended December 31, 2020 and 2019, and the Companys cash flows for the three months ended December 31, 2020 and 2019. These unaudited interim condensed financial
statements and notes should be read in conjunction with the Companys audited financial statements and notes thereto for fiscal year 2020, which are included in the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2020.
The preparation of financial
statements requires management to make estimates and assumptions. Making estimates requires management to exercise significant judgment. Accordingly, the actual results could differ substantially from those estimates.
The Companys operating activities consist primarily of providing investment advisory services to 16
open-end mutual funds branded as the Hennessy Funds. The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Focus Fund, the Hennessy Cornerstone Mid
Cap 30 Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Equity and Income Fund, the Hennessy Balanced Fund, the Hennessy BP Energy Fund, the Hennessy BP Midstream
Fund, the Hennessy Gas Utility Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology Fund. The Company also provides shareholder
services to shareholders of the Hennessy Funds.
The Companys operating revenues consist of contractual investment advisory and
shareholder service fees paid to it by the Hennessy Funds. The Company earns investment advisory fees from each Hennessy Fund by, among other things:
acting as portfolio manager for the fund or overseeing the sub-advisor
acting as portfolio manager for the fund, which includes managing the composition of the funds portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with the funds investment objectives,
policies, and restrictions), seeking best execution for the funds portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund;
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performing a daily reconciliation of portfolio positions and cash for the fund;
monitoring the liquidity of the fund;
monitoring the funds compliance with its investment objectives and restrictions and federal securities
laws;
monitoring compliance with federal securities laws, maintaining a compliance program (including a code of
ethics), conducting ongoing reviews of the compliance programs of the funds service providers (including any sub-advisor), conducting on site visits to the funds service providers (including any sub-advisor) as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, D&O/E&O
insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records;
if applicable, overseeing the selection and continued employment of the funds sub-advisor, reviewing the funds investment performance, and monitoring the sub-advisors adherence to the funds investment objectives, policies, and
restrictions;
overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial,
sales, marketing, public relations, audit, information technology, and legal services to the fund;
maintaining in-house marketing and distribution departments on behalf
of the fund;
preparing or directing the preparation of all regulatory filings for the fund, including writing and annually
updating the funds prospectus and related documents;
preparing or reviewing a written summary of the funds performance during the most recent 12-month period for each annual report of the fund;
monitoring and overseeing the accessibility of the fund on third-party platforms;
paying the incentive compensation of the funds compliance officers and employing other staff such as
legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives;
providing a quarterly compliance certification to the Board of Trustees of Hennessy Funds Trust (the
Funds Board of Trustees); and
preparing or reviewing materials for the Funds Board of Trustees, presenting to or leading discussions
with the Funds Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds Board of Trustees.
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The Company earns shareholder service fees from Investor Class shares of the Hennessy
Funds by, among other things, maintaining a toll-free number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds or to get help with processing exchange
and redemption requests or changing account options. These fee revenues are earned and calculated daily by the Hennessy Funds accountants at U.S. Bank Global Fund Services and are subsequently reviewed by management. The fees are computed and
billed monthly, at which time they are recognized in accordance with Accounting Standards Codification 606 Revenue Recognition.
The Company waived a portion of its fees with respect to the Hennessy Cornerstone Large Growth Fund and the Hennessy BP Energy Fund through
the expiration of each funds expense limitation agreement on November 30, 2019, and October 25, 2020, respectively. The Company continues to waive a portion of its fees with respect to the Hennessy BP Midstream Fund and the Hennessy
Technology Fund to comply with contractual expense ratio limitations. The fee waivers are calculated daily by the Hennessy Funds accountants at U.S. Bank Global Fund Services, reviewed by management, and then charged to expense monthly as
offsets to the Companys revenues. Each waived fee is then deducted from investment advisory fee income and reduces the aggregate amount of advisory fees the Company receives from such fund in the subsequent month. To date, the Company has only
waived fees based on contractual obligations, but the Company has the ability to waive fees at its discretion. Any decision to waive fees would apply only on a going-forward basis.
The Companys contractual agreements for investment advisory and shareholder services prove that a contract exists with fixed and
determinable fees, and the services are rendered daily. The collectability is deemed probable because the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are provided.
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic, particularly
risks and uncertainties related to the increased volatility in the stock market. The Company cannot reasonably estimate the continued extent of the impact of the COVID-19 pandemic on its business. As of the
date of issuance of the Companys financial statements, the extent to which the COVID-19 pandemic may materially impact the Companys financial condition, liquidity, or results of operations remains
uncertain.
(2)
Management Contracts Purchased
Throughout its history, the Company has completed 10 purchases of the assets related to the management of 30 different mutual funds, some
of which were reorganized into already existing Hennessy Funds. In accordance with Financial Accounting Standards Board (FASB) guidance, the Company periodically reviews the carrying value of its management contracts asset to determine
if any impairment has occurred. The fair value of the management contracts asset was estimated as of September 30, 2020, by applying the income approach and is based on management estimates and assumptions, including third-party valuations that
utilize appropriate valuation techniques. It was determined there was no impairment as of such date. As of December 31, 2020, management performed a qualitative analysis and determined it was more likely than not that there continued to be no
impairment.
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Under Accounting Standards Codification 350 Intangibles Goodwill and
Other, intangible assets that have indefinite useful lives are not amortized but are tested at least annually for impairment. The Company reviews the useful life of the management contracts each reporting period to determine if they continue to have
an indefinite useful life.
The Company completed its most recent asset purchase on October 26, 2018, when it purchased the
assets related to the management of the BP Capital TwinLine Energy Fund and the BP Capital TwinLine MLP Fund (the BP Funds), which were reorganized into the Hennessy BP Energy Fund and the Hennessy BP Midstream Fund,
respectively, two new series of Hennessy Funds Trust.
(3)
Investment Advisory Agreements
The Company has investment advisory agreements with Hennessy Funds Trust under which it provides investment advisory services to all classes of
the 16 Hennessy Funds.
The investment advisory agreements must be renewed annually (except in limited circumstances) by (a) the
Funds Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the trustees of Hennessy Funds Trust who are not interested persons of the Hennessy Funds. If an
investment advisory agreement is not renewed, it terminates automatically. There are two additional circumstances in which an investment advisory agreement terminates. First, an investment advisory agreement automatically terminates if the Company
assigns them to another advisor (assignment includes indirect assignment, which is the transfer of the Companys common stock in sufficient quantities deemed to constitute a controlling block). Second, an investment advisory
agreement may be terminated prior to its expiration upon 60 days written notice by either the applicable Hennessy Fund or the Company.
As provided in each investment advisory agreement, the Company receives investment advisory fees monthly based on a percentage of the
applicable funds average daily net asset value.
The Company has entered into sub-advisory
agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy BP Energy Fund, the Hennessy BP Midstream Fund, the Hennessy Japan Fund, and the Hennessy Japan Small Cap Fund. Under each of these sub-advisory agreements, the sub-advisor is responsible for the investment and reinvestments of the assets of the applicable Hennessy Fund in accordance with the terms of such
agreement and the applicable Hennessy Funds Prospectus and Statement of Additional Information. The sub-advisors are subject to the direction, supervision, and control of the Company and the Funds
Board of Trustees. The sub-advisory agreements must be renewed annually (except in limited circumstances) in the same manner as, and are subject to the same termination provisions as, the investment advisory
agreements.
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In exchange for the sub-advisory services, the
Company (not the Hennessy Funds) pays sub-advisory fees to the sub-advisors out of its own assets. Sub-advisory fees are
calculated as a percentage of the applicable sub-advised funds average daily net asset value.
(4)
Fair Value Measurements
The Company applies Accounting Standards Codification 820 Fair Value Measurement for all financial assets and liabilities,
which establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. It also establishes a fair value hierarchy consisting of the following three levels that prioritize the inputs to the valuation techniques used to measure fair value:
Level 1 Unadjusted, quoted prices in active markets for identical assets or liabilities that an
entity has the ability to access at the measurement date;
Level 2 Other significant observable inputs (including, but not limited to, quoted prices in active
markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets); and
Level 3 Significant unobservable inputs (including the entitys own assumptions about what
market participants would use to price the asset or liability based on the best available information) when observable inputs are not available.
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Based on the definitions, the following tables represent the Companys assets
categorized in the Level 1 to Level 3 hierarchies:
December 31, 2020
Level 1
Level 2
Level 3
Total
(In thousands)
Money market fund deposits
$
6,054
$
$
$
6,054
Mutual fund investments
9
9
Total
$
6,063
$
$
$
6,063
Amounts included in
Cash and cash equivalents
$
6,054
$
$
$
6,054
Investments in marketable securities
9
9
Total
$
6,063
$
$
$
6,063
September 30, 2020
Level 1
Level 2
Level 3
Total
(In thousands)
Money market fund deposits
$
6,053
$
$
$
6,053
Mutual fund investments
9
9
Total
$
6,062
$
$
$
6,062
Amounts included in
Cash and cash equivalents
$
6,053
$
$
$
6,053
Investments in marketable securities
9
9
Total
$
6,062
$
$
$
6,062
There were no transfers between levels during the three months ended December 31, 2020, or the year ended
September 30, 2020.
(5)
Leases
The Company determines if an arrangement is an operating lease at inception. Operating leases are included in operating lease right-of-use assets and current and long-term operating lease liabilities on the Companys balance sheet. There were no long-term operating leases as of December 31, 2020, and September 30, 2020.
Right-of-use assets represent the Companys right to use an underlying asset for the lease term and operating lease liabilities represent the Companys obligation to
make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value
of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The Companys lease terms may include
options to extend the lease when it is reasonably certain that it will exercise any such options. For its leases, the Company concluded that it is not reasonably certain that any renewal options would be exercised, and, therefore, the amounts are
not recognized as part of operating lease right-of-use assets or operating lease liabilities. Leases with initial terms of 12 months or less, and certain office
equipment leases that are deemed insignificant, are not recorded on the balance sheet and are expensed as incurred and included within rent expense under general and administrative expense. Lease expense related to operating leases is recognized on
a straight-line basis over the expected lease terms.
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The Companys most significant leases are real estate leases of office facilities. The
Company leases office space under non-cancelable operating leases. Its principal executive office is located in Novato, California, and it has additional offices in Austin, Texas, Boston, Massachusetts, and
Chapel Hill, North Carolina. Only the office lease in Novato, California has been capitalized because the other operating leases have terms of 12 months or less, including leases that are month-to-month in nature. The classification of the Companys operating lease right-of-use assets and operating lease
liabilities and other supplemental information related to the Companys operating leases are as follows:
December 31, 2020
(In thousands,
except years
and percentages)
Operating lease
right-of-use assets
$
183
Operating lease liability
$
220
Weighted average remaining lease term years
0.5
Weighted average discount rate
2.28
%
For the three months ended December 31, 2020, the Companys lease payments related to its operating
lease right-of-use assets totaled $112,432 and rent expense, which is recorded under general and administrative expense in the statements of income, totaled $95,360.
The undiscounted cash flows for future maturities of the Companys operating lease liabilities and the reconciliation to the balance
of operating lease liabilities reflected on the Companys balance sheet are as follows:
December 31, 2020
(In thousands)
Remainder of fiscal year 2021 undiscounted cash flows
$
227
Present value discount
(7
)
Total operating lease liabilities
$
220
(6)
Accrued Liabilities and Accounts Payable
Details relating to accrued expenses reflected on the Companys balance sheet are as follows:
December 31,
2020
2019
(In thousands)
Accrued bonus liabilities
$
901
$
1,388
Accrued sub-advisor fees
617
793
Other accrued expenses
562
561
Total accrued liabilities and accounts payable
$
2,080
$
2,742
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(7)
Income Taxes
The Companys effective income tax rates for the three months ended December 31, 2020 and 2019, were 26.4% and 27.0%, respectively.
The effective income tax rate was lower for the three months ended December 31, 2020, due to changes in discrete items on the Companys tax returns (mainly a reduction in disallowed executive compensation under Section 162(m) of the
Internal Revenue Code).
The Company is subject to income tax in the U.S. federal jurisdiction and multiple state jurisdictions. Following
is a list of jurisdictions that the Company has identified as its major tax jurisdictions with the tax years that remain open and subject to examination by the appropriate governmental agencies marked:
Tax Jurisdiction
2021
2020
2019
2018
2017
Federal
United States
X
X
X
X
X
State
California
X
X
X
X
X
Colorado
X
X
X
Connecticut
X
X
X
X
X
District of Columbia
X
X
X
X
X
Florida
X
X
X
X
X
Georgia
X
X
X
X
X
Illinois
X
X
X
X
X
Indiana
X
X
Iowa
X
X
X
X
Louisiana
X
X
X
Maryland
X
X
X
X
X
Massachusetts
X
X
X
X
X
Michigan
X
X
X
X
X
Minnesota
X
X
X
X
X
New Hampshire
X
X
X
X
X
New Jersey
X
X
New York
X
X
X
X
X
North Carolina
X
X
X
X
X
Oregon
X
X
X
Pennsylvania
X
X
X
X
Texas
X
X
X
X
X
Wisconsin
X
X
X
X
X
Total State Jurisdictions
22
22
19
17
16
For state tax jurisdictions with unfiled tax returns, the statutes of limitations remains open indefinitely.
(8)
Commitments and Contingencies
The Company has no commitments and no significant contingencies with original terms in excess of one year other than operating leases, which
are discussed in Note 5.
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(9)
Equity
Amended and Restated 2013 Omnibus Incentive Plan
The Company has adopted, and the Companys shareholders have approved, the Amended and Restated 2013 Omnibus Incentive Plan (the
Omnibus Plan). Under the Omnibus Plan, participants may be granted RSUs, each of which represents an unfunded, unsecured right to receive a share of the Companys common stock on the date specified in the recipients award. The
Company issues new shares of its common stock when it is required to deliver shares to an RSU recipient. The RSUs granted under the Omnibus Plan vest over four years at a rate of 25% per year. The Company recognizes
stock-based compensation expense on a straight-line basis over the four-year vesting term of each award.
A summary of RSU activity is as follows:
Three Months Ended December 31, 2020
Shares
Weighted Average Grant
Date Fair Value per Share
Non-vested balance at beginning of period
322,181
$
9.76
Granted
Vested (1)
(32,267
)
(10.89
)
Forfeited
Non-vested balance at end of period
289,914
$
9.64
(1) Represents
partially vested RSUs for which the Company already has recognized the associated compensation expense but has not yet issued to employees the related shares of common stock.
Additional information related to RSUs
is as follows:
December 31, 2020
(In thousands, except years)
Total expected compensation expense related to RSUs
$
16,056
Recognized compensation expense related to RSUs
(13,262
)
Unrecognized compensation expense related to RSUs
$
2,794
Weighted average remaining years to expense for RSUs
2.8
Dividend Reinvestment and Stock Purchase Plan
In January 2018, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the DRSPP) to provide shareholders and new
investors with a convenient and economical means of purchasing shares of the Companys common stock and reinvesting cash dividends paid on the Companys common stock. Under the DRSPP, the Company issued 2,817 and 3,298 shares of
common stock during the three months ended December 31, 2020 and 2019, respectively. The maximum number of shares that may be issued under the DRSPP was 1,550,000, of which 1,526,712 shares remained available for issuance as of
December 31, 2020.
As discussed in Note 12, in January 2021, the Company began offering to investors an updated Dividend
Reinvestment and Stock Purchase Plan that replaced the DRSPP.
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Stock Buyback Program
In August 2010, the Company adopted a stock buyback program. The program provides that the Company may repurchase up to
1,500,000 shares of its common stock and has no expiration date. Share repurchases may be made in the open market, in privately negotiated transactions, or otherwise. A total of 596,368 shares remains available for repurchase under the
stock buyback program. The Company temporarily suspended repurchases under the stock buyback program as of March 24, 2020, so the Company did not repurchase any shares of its common stock pursuant to the stock buyback program during the three
months ended December 31, 2020.
(10)
Earnings per Share and Dividends per Share
Basic earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding, while
diluted earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents, which consist of restricted stock units
(RSUs).
For the three months ended December 31, 2020 and 2019, the Company excluded 227,410 and 184,871 common
stock equivalents, respectively, from the diluted earnings per share calculations because they were not dilutive. In each case, the excluded common stock equivalents consisted of non-vested RSUs.
The Company paid a quarterly cash dividend of $0.1375 per share on December 2, 2020, to shareholders of record as of November 12,
2020.
(11)
Recently Issued and Adopted Accounting Standards
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement
(Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. This update eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the
fair value hierarchy and adds new disclosure requirements for Level 3 measurements. It is effective for fiscal years beginning after December 15, 2019 (the Companys fiscal year 2021), with early adoption permitted for any
eliminated or modified disclosures. The Company is currently evaluating the impact of adopting this update but does not expect it to have a material impact on the Companys financial condition, results of operations, cash flows, or related
disclosures.
See Note 5 for additional disclosure regarding the Companys leases.
(12)
Subsequent Events
In January 2021, the Company began offering to investors an updated Dividend Reinvestment and Stock Purchase Plan. The maximum number of
shares that may be issued under the updated plan is 1,470,000 shares, of which 1,469,603 remain available for issuance.
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Table of Contents
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the securities laws, for which we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by terminology such as
expect, anticipate, intend, may, plan, will, should, could, would, assume, believe, estimate,
predict, potential, project, continue, seek, and similar expressions, as well as statements in the future tense. We have based these forward-looking statements on our current expectations
and projections about future events, based on information currently available to us. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be
accurate indications of the times at which, or means by which, such performance or results will be achieved.
Forward-looking statements
are subject to risks, uncertainties, and assumptions, including those described in the section entitled Risk Factors and elsewhere in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2020. Unforeseen developments could cause actual performance or results to differ substantially from those expressed in or suggested by the forward-looking statements. Management does not assume responsibility for the accuracy or
completeness of these forward-looking statements. There is no regulation requiring an update of any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations.
Our business activities are affected by many factors, including, without limitation, redemptions by mutual fund shareholders, taxes, general
economic and business conditions, including those related to the COVID-19 pandemic, movement of interest rates, competitive conditions, industry regulation, and fluctuations in the stock market, many of which
are beyond the control of our management. Further, the business and regulatory environments in which we operate remain complex, uncertain, and subject to change. We expect that regulatory requirements and developments will cause us to incur
additional administrative and compliance costs. In addition, while current domestic economic conditions are relatively favorable, changes in short-term interest rates, policy changes by the new administration in Washington, D.C., and developments in
international financial markets could influence economic and financial conditions significantly. Notwithstanding the variability in our economic and regulatory environments, we remain focused on the investment performance of the Hennessy Funds and
on providing high-quality customer service to investors.
Our business strategy centers on
(a) the identification, completion, and integration of future acquisitions and (b) organic growth, through both the retention of the mutual fund assets we currently manage and the generation of inflows into the mutual funds we manage. The
success of our business strategy may be influenced by the factors discussed in the section entitled Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30,
2020. All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward-looking by their nature.
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Our Continuing Response to the COVID-19 Pandemic
In mid-March 2020, in response to the COVID-19 pandemic, we
invoked our business continuity plan to ensure a smooth transition to remote work for our employees. We have continued to effectively operate the Company and remain committed to providing the same high level of services to the 16 Hennessy Funds and
their shareholders. Further, we have undertaken various initiatives to ensure our continuing success in the work-from-home environment and prepare for our
employees return to the office, including the following:
Regularly engaging with key partners and service providers to garner assurance regarding their ability to
continue to provide high-quality services to us and to the Hennessy Funds;
Strengthening our digital marketing and public relations, including by expanding our online presence and
speaking on and moderating panels at virtual industry-related conferences;
Keeping open lines of communication with our employees as they work from home to help ensure seamless
operations, productive interactions, and early identification of issues;
Maintaining effective governance and internal controls in a remote work setting; and
Establishing a
return-to-work committee to manage the following:
Creating and updating a thorough
return-to-work plan;
Training all employees on such plan to prepare for their eventual return to
in-office work; and
Interpreting and communicating ongoing changes to pandemic-related
governmental mandates.
Given the dynamic nature of the COVID-19 pandemic and
its effects, we will continue to revise our approach to these initiatives and take any additional actions we deem appropriate to meet the needs of our employees, our partners, and the Hennessy Funds and their shareholders. While we cannot reasonably
estimate the duration and severity of the COVID-19 pandemic or its ultimate impact on our business and revenues, we believe we have positioned the Company to emerge from the current crisis prepared for
long-term growth.
Overview
Our
primary business activity is providing investment advisory services to a family of open-end mutual funds branded as the Hennessy Funds. We manage 10 of the 16 Hennessy Funds internally. For the remaining six
funds, we have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight. We
oversee the selection and continued employment of each sub-advisor, review each funds investment performance, and monitor each sub-advisors adherence to each
applicable funds investment objectives, policies, and restrictions. In addition, we conduct ongoing reviews of the compliance programs of sub-advisors and make
on-site visits to sub-advisors, as feasible. Our secondary business activity is providing shareholder services to shareholders of the Hennessy Funds.
16
Table of Contents
We derive our operating revenues from investment advisory fees and shareholder service fees
paid to us by the Hennessy Funds. These fees are calculated as a percentage of the average daily net assets of each Hennessy Fund. The percentage amount of the investment advisory fees varies by fund. The percentage amount of the shareholder service
fees is consistent across all funds, but shareholder service fees are charged on Investor Class shares only. The dollar amount of the fees we receive fluctuates with changes in the average net asset value of each Hennessy Fund, which is
affected by each funds investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts.
On a total return basis, the Dow Jones Industrial Average was up 10.73% for the three months ended December 31, 2020. During the most
recent quarter, equity prices rallied as the emergency use authorizations of two COVID-19 vaccines gave investors hope that vaccinations would start in the United States before year end. With vaccinations
underway, attention has turned to the prospect of life starting to slowly return to pre-pandemic norms. While certain segments of the economy, such as information technology, have performed quite well during
the pandemic, other segments, such as travel and leisure, have been adversely affected. With the possibility of a return to pre-pandemic levels of economic activity comes the potential for those industries to
recover as restaurants reopen and people start to travel again. In addition to encouraging vaccine news, the Federal Reserve continues to stress that it does not expect to raise short-term interest rates during 2021. The prospect of low interest
rates and a strengthening economy has given investors reason to be constructive on the market.
Long-term U.S. bond yields increased
during the three months ended December 31, 2020, as the economic outlook improved and the prospect of inflation became a topic of discussion. While inflation trends remained muted, investors are starting to anticipate a day when the Federal
Reserve may be forced to adjust rate policy.
The Japanese equity market was up 13.65% in U.S. dollar terms over the three months ended
December 31, 2020, as measured by the Tokyo Stock Price Index. During the period, Japan benefitted from Chinas strong economic rebound as the two countries are strong trade partners. With the prospect of healthy corporate earnings growth
in the first half of 2021and a consensus that demand for Japanese products will accelerate in the second half of 2021, equities rallied during the period despite subdued domestic consumption and the continuation of pandemic restrictions throughout
the country.
Against this backdrop, 14 of the Hennessy Funds posted positive annualized returns in each of the three-year, five-year,
ten-year, and since inception periods ended December 31, 2020, the exception being the two BP Funds, which focus exclusively on the more volatile Energy sector. In the one-year period ended December 31, 2020, 10 of the 16 Hennessy
Funds generated positive returns.
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As always, we are committed to providing superior service to investors and employing a
consistent and disciplined approach to investing based on a buy-and-hold philosophy that rejects the idea of market timing. Our goal is to provide products that
investors can have confidence in, knowing their money is invested as promised and with their best interests in mind. Accordingly, we continually seek new and improved ways to support investors in the Hennessy Funds, including by providing thought
leadership and other resources to help them navigate through this unprecedented market disruption due to the pandemic. We operate a robust and leading-edge marketing automation and customer relationship
management (CRM) system, with a database of over 100,000 financial advisors in addition to retail investors. We utilize this technology in an effort to both to retain assets and to drive new purchases into the Hennessy Funds. We employ a
comprehensive marketing and sales program consisting of content, digital, social media, and traditional marketing initiatives and proactive meetings. In addition, our consistent annual public relations campaign has resulted in the Hennessy brand
name appearing on TV, radio, print, or online media on average once every two to three days.
We provide service to nearly
175,000 mutual fund accounts nationwide, including accounts held by shareholders who employ financial advisors to assist them with investing and accounts held by retail shareholders who invest directly with us. We serve over 15,500 financial
advisors who utilize the Hennessy Funds on behalf of their clients, including over 1,000 who purchased one of our Funds for the first time during calendar year 2020. Approximately 18% of such advisors own two or more Hennessy Funds, and nearly
550 advisors hold a position of over $500,000, demonstrating strong brand loyalty.
Total assets under management as of
December 31, 2020, was $3.8 billion, a decrease of $1.1 billion, or 23.0%, compared to December 31, 2019. The decrease in total assets was attributable to net outflows from the Hennessy Funds.
The following table illustrates the changes quarter by quarter in our assets under management since December 31, 2019:
Fiscal Quarters Ended
December 31,
September 30,
June 30,
March 31,
December 31,
2020
2020
2020
2020
2019
(In thousands)
Beginning assets under management
$
3,564,597
$
3,491,768
$
3,319,932
$
4,978,502
$
4,873,839
Acquisition inflows
Organic inflows
213,502
118,027
104,742
161,368
187,057
Redemptions
(401,160
)
(280,273
)
(471,129
)
(685,621
)
(334,103
)
Market appreciation (depreciation)
455,612
235,075
538,223
(1,134,317
)
251,709
Ending assets under management
$
3,832,551
$
3,564,597
$
3,491,768
$
3,319,932
$
4,978,502
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As stated above, the fees we receive for providing investment advisory and shareholder
service are based on average assets under management. The following table shows average assets under management by share class for each quarter since December 31, 2019:
Fiscal Quarters Ended
December 31,
September 30,
June 30,
March 31,
December 31,
2020
2020
2020
2020
2019
(In thousands)
Investor Class
$
2,308,369
$
2,209,305
$
2,130,287
$
2,724,261
$
3,160,832
Institutional Class
1,477,001
1,405,683
1,318,522
1,653,242
1,787,459
Total
$
3,785,370
$
3,614,988
$
3,448,809
$
4,377,503
$
4,948,291
The principal asset on our balance sheet, management contracts, represents the capitalized costs incurred in
connection with the purchase of the assets related to the management of mutual funds. As of December 31, 2020, this asset had a net balance of $80.6 million, unchanged since September 30, 2020.
The principal liability on our balance sheet is the net deferred tax liability of $11.8 million generated due to the continued write off
of our management contracts asset for tax purposes, which creates a book-to-tax difference.
Results of Operations
The following
table sets forth items in the statements of income as dollar amounts and as percentages of total revenue:
Three Months Ended December 31,
2020
2019
Amounts
Percent of
Total Revenue
Amounts
Percent of
Total Revenue
(In thousands, except percentages)
Revenue
Investment advisory fees
$
7,208
92.5
%
$
9,449
92.2
%
Shareholder service fees
581
7.5
795
7.8
Total revenue
7,789
100.0
10,244
100.0
Operating expenses
Compensation and benefits
2,104
27.0
2,513
24.5
General and administrative
1,308
16.8
1,492
14.6
Mutual fund distribution
121
1.6
139
1.4
Sub-advisory fees
1,785
22.9
2,316
22.6
Depreciation
62
0.8
53
0.5
Total operating expenses
5,380
69.1
6,513
63.6
Operating income
2,409
30.9
3,731
36.4
Interest expense
187
1.8
Other income
(1
)
(0.0
)
(56
)
(0.6
)
Income before income tax expense
2,410
30.9
3,600
35.2
Income tax expense
637
8.1
972
9.5
Net income
$
1,773
22.8
%
$
2,628
25.7
%
Revenue Investment Advisory Fees and Shareholder Service Fees
Total revenue comprises investment advisory fees and shareholder service fees. Comparing the three months ended December 31, 2019, to the
three months ended December 31, 2020, total revenue decreased by 24.0%, from $10.2 million to $7.8 million, investment advisory fees decreased by 23.7%, from $9.4 million to $7.2 million, and shareholder service fees
decreased by 26.9%, from $0.8 million to $0.6 million.
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The decrease in investment advisory fees was due mainly to decreased average daily net
assets of the Hennessy Funds. The decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Funds. Assets held in Investor Class shares of the Hennessy Funds
are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Funds are not subject to a shareholder service fee.
We collect investment advisory fees from each of the Hennessy Funds at differing annual rates. These annual rates range between 0.40% and
1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for the three months ended December 31, 2020, was $3.8 billion, which represents a decrease of $1.2 billion, or 23.5%, compared to the three months
ended December 31, 2019. The Hennessy Fund with the largest average daily net assets for the three months ended December 31, 2020, was the Hennessy Focus Fund, with $1.2 billion. We collect an investment advisory fee from the Hennessy
Focus Fund at an annual rate of 0.90% of average daily net assets. However, we pay a sub-advisory fee at an annual rate of 0.29% to the funds sub-advisor, which
reduces the net operating profit contribution of the fund to our financial operations. The Hennessy Fund with the second largest average daily assets for the three months ended December 31, 2020, was the Hennessy Japan Fund, with
$0.8 billion. We collect an investment advisory fee from the Japan Fund at an annual rate of 0.90% of average daily net assets. However, we pay a sub-advisory fee at an annual rate in the range of 0.35%
to 0.42% (depending on asset level) to the funds sub-advisor, which reduces the net operating profit contribution of the fund to our financial operations.
Total assets under management as of December 31, 2020, was $3.8 billion, a decrease of $1.1 billion, or 23.0%, compared to
December 31, 2019. The decrease was attributable to net outflows from the Hennessy Funds.
The Hennessy Funds with net inflows were
as follows:
Three Months Ended December 31,
2020
Fund
Name
Amount
Hennessy Japan Fund
$
99 million
Hennessy Large Cap Financial Fund
$
7 million
The Hennessy Funds with the three largest amounts of net outflows were as follows:
Three Months Ended December 31,
2020
Fund
Name
Amount
Hennessy Focus Fund
$
(182) million
Hennessy Gas Utility Fund
$
(55) million
Hennessy Cornerstone Mid Cap 30 Fund
$
(26) million
Redemptions as a percentage of assets under management increased from an average of 2.2% per month during the
three months ended December 31, 2019, to an average of 3.5% per month during the three months ended December 31, 2020.
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Operating Expenses
Comparing the three months ended December 31, 2019, to the three months ended December 31, 2020, total operating expenses decreased
by 17.4%, from $6.5 million to $5.4 million. Although the dollar value decreased, operating expenses as a percentage of total revenue increased 5.5 percentage points to 69.1% because fixed expenses have become a larger portion of
total operating expense.
Compensation and Benefits Expense : Comparing the three months ended December 31, 2019, to the three
months ended December 31, 2020, compensation and benefits expense decreased by 16.3%, from $2.5 million to $2.1 million. Although the dollar value decreased, compensation and benefits expense as a percentage of total revenue increased
2.5 percentage points to 27.0% because fixed expenses, such as salaries, have become a larger portion of total compensation and benefit expense. The dollar value decrease is mainly due to a decrease in incentive-based compensation.
General and Administrative Expense : Comparing the three months ended December 31, 2019, to the three months ended
December 31, 2020, general and administrative expense decreased by 12.3%, from $1.5 million to $1.3 million. Although the dollar value decreased, general and administrative expense as a percentage of total revenue increased
2.2 percentage points to 16.8% because fixed expenses, such as office rent and professional services, have become a larger portion of total general and administrative expense. The dollar value decrease is mainly to a decrease in conference and
travel expense.
Mutual Fund Distribution Expense : Mutual fund distribution expense consists of fees paid to various financial
institutions that offer the Hennessy Funds as potential investments to their clients. When the Hennessy Funds are purchased through one of these financial institutions, the institution typically charges an
asset-based fee, which is recorded in mutual fund distribution expense in our statement of operations to the extent paid by us. When the Hennessy Funds are purchased directly, we do not incur any
such expense. These fees generally increase or decrease in line with the net assets of the Hennessy Funds held through these financial institutions, which are affected by inflows, outflows, and fund performance. In addition, some financial
institutions charge a minimum fee if the average daily net assets of a Hennessy Fund held by such an institution are less than a threshold amount. In such cases, we pay the minimum fee.
Comparing the three months ended December 31, 2019, to the three months ended December 31, 2020, mutual fund distribution expense
decreased by 12.9%, from $0.14 million to $0.12 million. Although the dollar value decreased, mutual fund distribution expense as a percentage of total revenue increased 0.2 percentage points to 1.6% because fixed expenses, such as
minimum fees, have become a larger portion of the total. The dollar value decrease is due to lower average daily net assets held at financial institutions.
Sub-Advisory Fees Expense : Comparing the three months ended December 31, 2019, to the
three months ended December 31, 2020, sub-advisory fees expense decreased by 22.9%, from $2.3 million to $1.8 million. Although the dollar value decreased,
sub-advisory fees expense as a percentage of total revenue increased 0.3 percentage points to 22.9% because assets held in our sub-advised funds have become a larger
percent of our total assets under management. The dollar value decrease is due to a decrease in assets under management held in our sub-advised funds.
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Depreciation Expense : Comparing the three months ended December 31, 2019, to the
three months ended December 31, 2020, depreciation expense increased by 17.0%, from $0.05 million to $0.06 million. As a percentage of total revenue, depreciation expense increased 0.3 percentage points to 0.8%.
Interest Expense
Comparing the three
months ended December 31, 2019, to the three months ended December 31, 2020, interest expense decreased by 100.0% from $0.2 million to $0, due to a repayment in full on the principal balance on March 26, 2020.
Income Tax Expense
Comparing the three
months ended December 31, 2019, to the three months ended December 31, 2020, income tax expense decreased by 34.5%, from $1.0 million to $0.6 million, due primarily to lower net operating income for the current period, and
secondarily to a lower effective income tax rate that resulted from changes in discrete items on our tax returns (mainly a reduction in disallowed executive compensation under Section 162(m) of the Internal Revenue Code).
Net Income
Comparing the three months
ended December 31, 2019, to the three months ended December 31, 2020, net income decreased by 32.5%, from $2.6 million to $1.8 million. The decrease in net income was due to lower net operating income in the current period,
partially offset by the lower effective income tax rate discussed above.
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States,
which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These
accounting policies, methods, and estimates are an integral part of the financial statements prepared by management and are based upon managements current judgments. Those judgments are normally based on knowledge and experience with regard to
past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly sensitive because of their significance to the financial statements and because future events affecting them may differ
markedly from managements current judgment. For a discussion of the accounting policies that we believe are most critical to understanding our results of operations and financial position, see the section entitled Managements
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
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Liquidity and Capital Resources
We continually review our capital requirements to ensure that we have funding available to support our business model. Management anticipates
that cash and other liquid assets on hand as of December 31, 2020, will be sufficient to meet our capital requirements for at least one year from the issuance date of this report. To the extent that liquid resources and cash provided by
operations are not adequate to meet long-term capital requirements, management plans to raise additional capital by either, or both, seeking to increase our borrowing capacity or accessing the capital markets. There can be no assurance that we will
be able to raise additional capital.
Our total assets under management as of December 31, 2020, was $3.8 billion, a decrease of
$1.1 billion or 23.0%, compared to December 31, 2019. The primary sources of our revenue, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on and generated by our average assets under
management. Our average assets under management for the three months ended December 31, 2020, was $3.8 billion, a decrease of $1.2 billion or 23.5%, compared to the three months ended December 31, 2019. As of December 31,
2020, we had cash and cash equivalents of $10.0 million.
The following table summarizes key financial data relating to our liquidity
and use of cash:
For the Three Months
Ended December 31,
2020
2019
(In thousands)
Net cash provided by operating activities
$
1,051
$
1,285
Net cash used in investing activities
(66
)
(744
)
Net cash used in financing activities
(986
)
(2,773
)
Net decrease in cash and cash equivalents
$
(1
)
$
(2,232
)
Comparing the three months ended December 31, 2019, to the three months ended December 31, 2020,
cash provided by operating activities decreased $0.1 million due mainly to decreased operating income.
Comparing the three months
ended December 31, 2019, to the three months ended December 31, 2020, cash used in investing activities decreased $0.7 million due to a payment for the purchase of assets related to the management of the BP Funds made in the prior
period.
Comparing the three months ended December 31, 2019, to the three months ended December 31, 2020, cash used for
financing activities decreased $1.8 million due primarily to not having any principal payments due on our term loan (which we paid off in full in March 2020) and secondarily to not repurchasing any shares pursuant to our buyback plan in
the current period (whereas we did repurchase shares in the prior period).
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Table of Contents
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management performed an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures,
as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the
period covered by this report. Based on such evaluation, management, including the Companys principal executive officer and principal financial officer, concluded that the Companys disclosure controls and procedures are effective as of
the end of the period covered by this report.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Companys internal control over financial reporting as defined in
Rules 13a-15(f) of the Exchange Act that occurred during the fiscal quarter ended December 31, 2020, and that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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Table of Contents
PART II: OTHER INFORMATION
Item 6.
Exhibits
Set forth below is a list of all exhibits to this Quarterly Report on Form 10-Q.
31.1
Rule 13a-14a Certification of the Principal Executive Officer.
31.2
Rule 13a-14a Certification of the Principal Financial Officer.
32.1
Written Statement of the Principal Executive Officer, Pursuant to 18 U.S.C. § 1350.
32.2
Written Statement of the Principal Financial Officer, Pursuant to 18 U.S.C. § 1350.
101
Financial statements from the Quarterly Report on Form 10-Q of Hennessy Advisors, Inc. for the quarter ended December 31, 2020, filed on February 11, 2021, formatted in XBRL:
(i) the Condensed Balance Sheets; (ii) the Condensed Statements of Income; (iii) the Condensed Statements of Changes in Stockholders Equity; (iv) the Condensed Statements of Cash Flows; and (v) the Notes to Unaudited
Condensed Financial Statements.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized:
HENNESSY ADVISORS, INC.
Date: February 11, 2021
By:
/s/ Teresa M. Nilsen
Teresa M. Nilsen
President
26
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.