What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-12-11 compared with 2023-12-07 · 145 added, 179 removed, 113 unchanged (74% of the section changed)

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on The Nasdaq Global Market under the stock symbol “HNNA.”

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on The Nasdaq Global Market under the stock symbol “HNNA.”

We have paid regular cash dividends to our shareholders and intend to continue to do so, although the declaration of a dividend is always subject to the discretion of our Board of Directors.

As of the end of fiscal year 2023, we had 127 holders of record of our common stock.

In addition, there were 45 brokerage firm accounts that represent 1,977 additional individual shareholders for a total of 2,104 shareholders.

The equity compensation plan information required by Item 201(d) of Regulation S‑K is set forth in the “Equity Compensation Plan Information”

subheading under Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

As of the end of fiscal year 2024, we had 119 holders of record of our common stock.

In addition, there were 42 brokerage firm accounts that represent 1,997 additional individual shareholders for a total of 2,116 shareholders.

The equity compensation plan information required by Item 201(d) of Regulation S‑K is set forth in the “Equity Compensation Plan Information” subheading under Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During fiscal year 2023, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.

During fiscal year 2024, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.

The stock repurchases are presented in the following table for the three months ended September 30, 2024:

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We announced the stock buyback program in August 2010, and the program has no expiration date.

In August 2022, the Board of Directors increased the number of shares that may be repurchased under the stock buyback program by 500,000 shares, to a total of 2,000,000 shares.

In August 2022, the Board of Directors increased the number of shares that may be repurchased under the stock buyback program by 500,000 shares, to a total of 2,000,000 shares.

A total of 1,096,368 shares remain available for repurchase under the stock buyback program.

We did not repurchase any shares pursuant to the stock buyback program during the three months ended September 30, 2024.

The shares that we repurchased in August and September 2023 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program.

MANAGEMENT ’

S 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.

The shares that we repurchased in September 2024 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program.

MANAGEMENT ’ S 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 titled “Risk Factors”

and elsewhere in this Annual Report on Form 10‑K.

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.

Forward-looking statements are subject to risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10‑K.

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.

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We expect that regulatory requirements and developments will cause us to incur additional administrative and compliance costs.

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 (i) the identification, completion, and integration of future acquisitions and (ii) organic growth, through both the retention of the fund assets we currently manage and the generation of inflows into the funds we manage.

The success of our business strategy may be influenced by the factors discussed in Item 1A, “Risk Factors.”

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.

Our business strategy centers on (i) the identification, completion, and integration of future acquisitions and (ii) organic growth, through both the retention of the fund assets we currently manage and the generation of inflows into the funds we manage.

The success of our business strategy may be influenced by the factors discussed in Item 1A, “Risk Factors.” 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.

Our primary business activity is providing investment advisory services to a family of 16 open-end mutual funds and one ETF branded as the Hennessy Funds.

We manage 12 of the 17 Hennessy Funds internally.

For the remaining five 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 fund’s investment performance, and monitor each sub‑advisor’s adherence to each applicable fund’s investment objectives, policies, and restrictions.

In addition, we conduct ongoing reviews of the compliance programs of sub‑advisors and make onsite visits to sub‑advisors, as feasible.

We manage 12 of the 17 Hennessy Funds internally.

For the remaining five funds, we have delegated the day‐to‑day portfolio management responsibilities to sub‑advisors, subject to our oversight.

In addition, we conduct ongoing reviews of the compliance programs of sub‑advisors and make onsite visits to sub‑advisors, as feasible.

Our secondary business activity is providing shareholder services to investors in the Hennessy Mutual Funds.

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The percentage amount of the shareholder service fees is consistent across all Hennessy Mutual 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 fund’s investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts.

equities had strong, positive performance for the one‑year period ended September 30, 2023, with the S&P 500®

Index returning 21.62% and the Dow Jones Industrial Average returning 19.18% for the period (on a total return basis).

Equity prices advanced despite a rise in interest rates as it appears investors now expect that the Federal Reserve is likely to be near the end of raising the Federal Funds rate.

The United States economy continues to create jobs with the unemployment rate now standing at 3.8% while inflation continues to moderate.

The steady drop in inflation from levels one year ago, within the backdrop of a strong labor market, has helped to propel the stock market higher.

The Consumer Price Index advanced 8.0% in 2022 and is expected to rise 4.1% in 2023, according to Bloomberg.

While this current level is still above the Federal Reserve’s 2% target for inflation, the market seems to be pricing in the Federal Reserve standing on the sidelines for the foreseeable future.

According to Bloomberg, the market is not expecting any reasonable chance of any Fed action until next July, when the market is pricing in a better than even chance of a rate cut.

Long-term U.S.

bonds increased meaningfully during the one‑year period ended September 30, 2023, as the Federal Reserve continued raising the Federal Funds rate.

With a yield curve that remains inverted, investor attention has focused on economic growth that continues to defy consensus expectations.

While real GDP increased 1.9% in 2022, it is expected to accelerate slightly in 2023 with consensus growth expectation of 2.1%, according to Bloomberg.

The idea that the economy was inevitably headed toward a recession has been reconsidered and the market seems to now believe that the economy, while perhaps slowing, is not likely to go into a recession.

For the one‑year period ended September 30, 2023, 10-year U.S.

Government Bond yields rose from 3.83% to 4.57%.

equities had strong, positive performance for the one‑year period ended September 30, 2024, with the S&P 500® Index returning 36.35% and the Dow Jones Industrial Average returning 28.85% for the period (on a total return basis).

Equity prices advanced in anticipation of the Federal Reserve lowering its benchmark interest rate, which ultimately happened in September.

Further, the markets have appeared to continue pricing in the prospect of several more rate cuts over the next year as market participants have appeared to continue to view recent inflation data in a favorable light.

While lower short-term interest rates have propelled the market higher, a strong second quarter earnings season and the expectation of a reasonably robust third quarter earnings season seem to have given investors increased confidence that the economy is on firm footing.

According to Bloomberg, consensus estimates call for the economy to grow 2.6% in 2024.

While that rate is slightly behind last year’s growth rate of 2.9%, we believe it is nonetheless a stronger rate than many had predicted at the beginning of the year.

Yields on long-term U.S.

bonds decreased meaningfully during the one‑year period ended September 30, 2024, as the Federal Reserve has started to lower its benchmark interest rate.

After the rate cut in September 2024, investors appear to have continued to price in further reductions in interest rates.

According to Bloomberg, the market is currently pricing in nearly two more rate cuts by the end of the year and roughly six rate cuts by the end of 2025.

Recent inflation data seems to have calmed the nerves of investors who feared that inflation would continue to be a headwind.

Inflation data released for September 2024 indicated that consumer prices increased 2.4% from a year earlier, compared to 2.5% in August 2024, according to the Labor Department.

The 2.4% rate is the smallest annual increase since February 2021 and now only modestly above the Federal Reserve’s stated goal of 2.0% inflation.

For the one‑year period ended September 30, 2024, 10-year U.S.

Treasury Note yields fell from approximately 4.57% to 3.78%.

The Japanese equity market increased 21.6% (in U.S.

dollar terms) for the one‑year period ended September 30, 2023, as measured by the Tokyo Stock Price Index (TOPIX).

Like many other markets, Japan’s stock market has rebounded sharply from its weakness in the prior twelve-month period.

A relatively strong earnings backdrop in Japan has been supported by the weakening of the yen and strong domestic demand.

The market is now focusing its attention on the idea that the Bank of Japan could announce an end to negative interest rates by the end of the year.

Against this positive equity performance backdrop, 14 of the 17 Hennessy Funds posted positive returns for the one‑year period ended September 30, 2023.

The longer‑term performance numbers remain strong, with 13 of the Hennessy Funds posting positive returns for the three-year and five‑year periods ended September 30, 2023, and all 14 Hennessy Funds with at least 10 years of operating history posting positive returns for the 10‑year period ended September 30, 2023.

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.

dollar terms) for the one‑year period ended September 30, 2024, as measured by the Tokyo Stock Price Index (TOPIX).

In our view, business sentiment in Japan remains strong, with the Bank of Japan stating that it expects large companies to increase capital spending by 10.6% in the current fiscal year through March 2025.

Bank of Japan Governor Kazuo Ueda has said that the central bank will continue to raise interest rates as long as business conditions remain strong, which is expected to help keep inflation under control around 2.0%.

Against this positive equity performance backdrop, all 17 Hennessy Funds posted positive returns for the one‑year period ended September 30, 2024.

The longer‑term performance numbers remain strong, with 15 of the Hennessy Funds posting positive returns for the three-year period ended September 30, 2024.

Finally, all 16 Hennessy Funds with at least 10 years of operating history posted positive returns for both the 5-year and 10‑year periods ended September 30, 2024.

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 market insights, sector highlights, and other resources to help them manage their fund investments with confidence.

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 both to help retain assets and drive new purchases into the Hennessy Funds.

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We serve approximately 11,200 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly 500 who purchased one of our Funds for the first time during fiscal year 2024.

Approximately 14% of such advisors own two or more Hennessy Funds, and over 400 advisors hold a position of over $500,000.

Approximately 18% of such advisors own two or more Hennessy Funds, and over 650 advisors hold a position of over $500,000.

While numbers have declined in recent years, we continue to focus significant efforts on financial advisors who own two or more Hennessy Funds or hold a position of over $500,000 in an effort to build and maintain brand loyalty among our top tier of advisors.

Total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022.

The increase in total assets was attributable to market appreciation, partially offset by net outflows of the Hennessy Funds.

Total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or 53.1%, compared to the end of fiscal year 2023.

The increase in total assets was attributable to market appreciation, net inflows of the Hennessy Funds, and the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.

The following table illustrates the year-by-year changes in our assets under management over the past three fiscal years:

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Average assets under management

The principal asset on our balance sheet, management contract asset, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of investment funds.

As of the end of fiscal year 2023, this asset had a net balance of $81.3 million, an increase of $0.4 million since the end of fiscal year 2022.

The increase is related to the purchase of assets related to the management of an ETF that were reorganized into the Hennessy Stance ESG ETF and the costs associated with the definitive agreement signed with CCM in April 2023.

(See Note 16 in Item 8, “Financial Statements and Supplementary Data.”)

On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’

overallotment option.

The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023.

The principal asset on our balance sheet, the management contract asset, represents the capitalized costs incurred in connection with the purchase of assets related to the management of investment funds.

As of the end of fiscal year 2024, this asset had a net balance of $82.3 million, an increase of $1.0 million since the end of fiscal year 2023.

This increase is related to the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.

(See Note 5 in Item 8, “Financial Statements and Supplementary Data.”)

On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.

The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023.

The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.

The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours.

The 2026 Notes are the principal liability on our balance sheet at $39.2 million, net of issuance costs.

The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our future secured indebtedness, and structurally subordinate to all future indebtedness and other obligations of any future subsidiaries of ours.

The 2026 Notes are the principal liability on our balance sheet at $39.5 million, net of issuance costs.

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 the end of fiscal year 2024 will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer term capital requirements for periods beyond 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 bank financing or accessing the capital markets.

There can be no assurance that we will be able to raise additional capital.

As discussed above, on October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.

The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023.

Our total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or 53.1%, compared to the end of fiscal year 2023.

The primary sources of our revenues, 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 fiscal year 2024 was $3.7 billion.

As of the end of fiscal year 2024, we had cash and cash equivalents of $63.9 million.

The following table summarizes key financial data relating to our liquidity and use of cash:

Fiscal Years Ended September 30,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

The increase in cash provided by operating activities of $2.1 million was mainly due to increased net income in the current period.

The increase in cash used in investing activities of $0.5 million was due to the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG STF.

The increase in cash used in financing activities of $0.2 million was due to repurchases of shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs in the current period.

Dividend Payments .

We have consistently paid dividends each year since 2005.

Our quarterly dividend rate remained constant during fiscal years 2024 and 2023, and our dividend payments totaled $4.2 million in each such fiscal year.

On October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.

The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.

The 2026 Notes mature on December 31, 2026.

RESULTS OF OPERATIONS

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Net operating income

Interest expense

Interest income

Interest expense

Income before income tax expense

Income tax expense

Revenue –

Investment Advisory Fees and Shareholder Service Fees

Revenue – Investment Advisory Fees and Shareholder Service Fees

Total revenue comprises investment advisory fees and shareholder service fees.

Comparing fiscal year 2023 to fiscal year 2022, total revenue decreased by 19.0%, from $29.7 million to $24.0 million, investment advisory fees decreased by 19.6%, from $27.5 million to $22.1 million, and shareholder service fees decreased by 12.2%, from $2.2 million to $1.9 million.

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 Mutual Funds.

Comparing fiscal year 2024 to fiscal year 2023, total revenue increased by 23.4%, from $24.0 million to $29.6 million, investment advisory fees increased by 24.6%, from $22.1 million to $27.5 million, and shareholder service fees increased by 9.9%, from $1.9 million to $2.1 million.

The increase in investment advisory fees was due mainly to increased average daily net assets of the Hennessy Funds.

The increase in shareholder service fees was due to an increase in the average daily net assets held in Investor Class shares of the Hennessy Mutual Funds.

Assets held in Investor Class shares of the Hennessy Mutual Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Mutual Funds are not subject to a shareholder service fee.

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These annual rates range between 0.40% and 1.25% of average daily net assets.

Average daily net assets of the Hennessy Funds for fiscal year 2023 was $3.0 billion, which represents a decrease of $0.7 billion, or 17.9%, compared to fiscal year 2022.

The Hennessy Fund with the largest average daily net assets for fiscal year 2023 was the Hennessy Focus Fund, with $684 million.

Average daily net assets of the Hennessy Funds for fiscal year 2024 was $3.7 billion, which represents an increase of $0.7 billion, or 23.2%, compared to fiscal year 2023.

The Hennessy Fund with the largest average daily net assets for fiscal year 2024 was the Hennessy Cornerstone Mid Cap 30 Fund, with $981 million.

We collect an investment advisory fee from the Hennessy Cornerstone Mid Cap 30 Fund at an annual rate of 0.74% of average daily net assets.

The Hennessy Fund with the second largest average daily net assets for fiscal year 2024 was the Hennessy Focus Fund, with $645 million.

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 fund’s 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 net assets for fiscal year 2023 was the Hennessy Gas Utility Fund, with $509 million.

We collect an investment advisory fee from the Hennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets. 

However, we pay a sub‑advisory fee at an annual rate of 0.29% to the fund’s sub‑advisor, which reduces the net operating profit contribution of the fund to our financial operations.

Total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or 53.1%, compared to the end of fiscal year 2023.

The increase in total assets was attributable to market appreciation, partially offset by net outflows of the Hennessy Funds.

The Hennessy Funds with the three largest amounts of net inflows were as follows:

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Hennessy Cornerstone Mid Cap 30 Fund

$ 169 million

Hennessy Japan Small Cap Fund

Hennessy Midstream Fund

Hennessy Cornerstone Growth Fund

Hennessy Japan Fund

The Hennessy Funds with the three largest amounts of net outflows were as follows:

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Hennessy Focus Fund

$ (203) million

Hennessy Gas Utility Fund

$ (89) million

Hennessy Japan Fund

$ (82) million

Redemptions as a percentage of assets under management decreased from an average of 2.6% per month during fiscal year 2022 to an average of 2.5% per month during fiscal year 2023.

Hennessy Value Fund

Redemptions as a percentage of assets under management decreased from an average of 2.5% per month during fiscal year 2023 to an average of 2.3% per month during fiscal year 2024.

Operating Expenses

Comparing fiscal year 2022 to fiscal year 2023, total operating expenses decreased by 10.8%, from $19.8 million to $17.7 million.

The decrease in operating expenses was primarily due to decreases in sub-advisory fee, compensation and benefits, and fund distribution and other expenses, partially offset by an increase in general and administrative and depreciation expenses.

As a percentage of total revenue, total operating expenses increased 6.8 percentage points to 73.6%.

Comparing fiscal year 2023 to fiscal year 2024, total operating expenses increased by 17.5%, from $17.7 million to $20.8 million.

As a percentage of total revenue, total operating expenses decreased 3.5 percentage points to 70.1%.

The increase in dollar value of operating expenses was primarily due to increases in compensation and benefits and general and administrative expenses.

Compensation and Benefits Expense :

Comparing fiscal year 2022 to fiscal year 2023, compensation and benefits expense decreased by 7.1%, from $8.3 million to $7.7 million.

As a percentage of total revenue, compensation and benefits expense increased 4.2 percentage points to 32.2%.

The decrease in dollar value of compensation and benefits expense was due primarily to a decrease in head count and incentive-based compensation during fiscal year 2023.

Comparing fiscal year 2023 to fiscal year 2024, compensation and benefits expense increased by 17.2%, from $7.7 million to $9.1 million.

As a percentage of total revenue, compensation and benefits expense decreased 1.7 percentage points to 30.5%.

The increase in dollar value of compensation and benefits expense was due primarily to an increase in incentive-based compensation during fiscal year 2024.

General and Administrative Expense :

Comparing fiscal year 2022 to fiscal year 2023, general and administrative expense increased by 8.8% from $5.0 million to $5.5 million.

As a percentage of total revenue, general and administrative expense increased 5.8 percentage points to 22.8%.

The increase in general and administrative expense was due to an increase in professional services, including investment banking, legal and marketing costs, in the current period.

Comparing fiscal year 2023 to fiscal year 2024, general and administrative expense increased by 18.3% from $5.5 million to $6.5 million.

As a percentage of total revenue, general and administrative expense decreased 0.9 percentage points to 21.9%.

The dollar value increase in general and administrative expense was primarily due to increases in sales and distribution expenses (not including fees paid to various financial institutions that offer the Hennessy Funds as potential investments to their clients, which are reflected in “Fund Distribution and Other Expense”), as well as professional services expenses, in the current period.

Fund Distribution and Other Expense :

The distribution component of fund distribution and other 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 as a fund distribution expense on our statement of operations to the extent paid by us.

The Hennessy Mutual Funds, with the exception of the Hennessy Stance ESG ETF, may be purchased directly, and when purchased directly, we do not incur any such expense.

The Hennessy Mutual Funds, with the exception of the Hennessy Stance ESG ETF, may be purchased directly, and when 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.

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the split of average daily net assets held by financial institutions in Institutional Class shares of the Hennessy Mutual Funds versus Investor Class shares of the Hennessy Mutual Funds;

 fee minimums at various financial institutions.

The other component of fund distribution and other expense consists of fees incurred by us for the operations of the Hennessy Stance ESG ETF.

We receive a unitary investment advisory fee from the Hennessy Stance ESG ETF and then pay all of its operating expenses (with limited exceptions), including fund administration, fund accounting, transfer agency, custody, licensing, audit, and tax services.

Comparing fiscal year 2022 to fiscal year 2023, fund distribution and other expense decreased by 9.3%, from $0.54 million to $0.49 million.

As a percentage of total revenue, fund distribution and other expense increased 0.2 percentage points to 2.0%.

The decrease in dollar value of fund distribution and other expense was primarily due to decreased average daily net assets of the Hennessy Mutual Funds, which in turn decreases the fees we pay to financial institutions.

The decrease was partly offset by the expense associated with the operations of the Hennessy Stance ESG ETF that began in December 2022.

Comparing fiscal year 2023 to fiscal year 2024, fund distribution and other expense increased by 68.3%, from $0.49 million to $0.82 million.

As a percentage of total revenue, fund distribution and other expense increased 0.8 percentage points to 2.8%.

The increase of fund distribution and other expense was due to increased average daily net assets of the Hennessy Mutual Funds, which in turn increases the fees we pay to financial institutions.

Additionally, fund distribution and other expense increased due to the additional expenses relating to the Hennessy Stance ESG ETF resulting from the purchase of assets related to the management of the two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.

Sub-Advisory Fees Expense :

Comparing fiscal year 2022 to fiscal year 2023, sub‑advisory fees expense decreased by 34.4%, from $5.7 million to $3.8 million.

As a percentage of total revenue, sub‑advisory fees expense decreased 3.7 percentage points to 15.6%.

The decrease in sub‑advisory fees expense was due to a decrease in average daily net assets of the sub‑advised Hennessy Funds, with an additional decrease as a result of us no longer paying sub‑advisory fees with respect to the Hennessy Energy Transition Fund and the Hennessy Midstream Fund after January 31, 2022. The decrease was partly offset by the expense associated with new sub‑advisory relationships relating to the Hennessy Stance ESG ETF that began in December 2022.

Comparing fiscal year 2023 to fiscal year 2024, sub‑advisory fees expense increased by 10.9%, from $3.8 million to $4.2 million.

As a percentage of total revenue, sub‑advisory fees expense decreased 1.5 percentage points to 14.1%.

The dollar value increase in sub‑advisory fees expense was due to an increase in average daily net assets of the sub‑advised Hennessy Funds, with an additional increase due to the expense associated with new sub‑advisory relationships relating to the Hennessy Stance ESG ETF that began in December 2022.

Depreciation Expense :

Comparing fiscal year 2022 to fiscal year 2023, depreciation expense increased by 11.1% from $0.21 million to $0.23 million due to additional fixed asset purchases.

As a percentage of total revenue, depreciation expense increased 0.3 percentage points to 1.0%.

Interest Expense

Comparing fiscal year 2022 to fiscal year 2023, interest expense increased by 6.3% from $2.1 to $2.3 million.

The increase in interest expense was due to a full period of 2026 Notes interest expense incurred in the current period.

The 2026 Notes were issued on October 20, 2021, and therefore incurred a partial period of interest expense in the first quarter of the prior comparable period.

Comparing fiscal year 2023 to fiscal year 2024, depreciation expense increased by 6.1% from $0.23 million to $0.24 million due to additional fixed asset purchases.

As a percentage of total revenue, depreciation expense decreased 0.2 percentage points to 0.8%.

Interest Income

Comparing fiscal year 2022 to fiscal year 2023, interest income increased from $0.2 to $2.5 million.

The increase was due to rising interest rates. 

Comparing fiscal year 2023 to fiscal year 2024, interest income increased from $2.52 million to $3.11 million.

The increase was due to increased interest rates and increased principal balances.

Interest Expense

Comparing fiscal year 2023 to fiscal year 2024, interest expense increased by 0.8% from $2.26 million to $2.28 million.

The increase in interest expense was due to the manner in which interest expense is calculated under U.S.

The issuance costs related to the 2026 Notes that have been capitalized are amortized over time and therefore increase the carrying amount of the 2026 Notes.

As the carrying amount of the 2026 Notes increases, the interest expense on the 2026 Notes for financial statement purposes also increases.

Income Tax Expense

Comparing fiscal year 2022 to fiscal year 2023, income tax expense increased by 4.2%, from $1.76 million to $1.83 million.

The increase in income tax expense was due to a higher effective income tax rate, partially offset by lower net operating income in the current period. The higher effective tax rate in the current period is due to the release of a portion of uncertain tax benefit position in the prior comparable period, as discussed in Item 8, “Financial Statements and Supplementary Data.”

Comparing fiscal year 2022 to fiscal year 2023, net income decreased by 22.9%, from $6.2 million to $4.8 million.

The decrease in net income was primarily due to decreased average assets under management in the current period, which resulted in lower revenue and net operating income.

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 the end of fiscal year 2023 will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer‑term capital requirements for periods beyond one year from the issuance date of this report.

There can be no assurance that we will be able to raise additional capital.

On October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’

overallotment option.

The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023.

The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.

Our total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022.

The primary sources of our revenues, 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 fiscal year 2023 was $3.0 billion.

As of the end of fiscal year 2023, we had cash and cash equivalents of $60.5 million.

The following table summarizes key financial data relating to our liquidity and use of cash:

Fiscal Years Ended September 30,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net increase in cash and cash equivalents

The decrease in cash provided by operating activities of $1.5 million was mainly due to decreased net income in the current period.

The increase in cash used in investing activities of $0.6 million was due to the purchase of assets related to the management of an ETF that were reorganized into the Hennessy Stance ESG ETF and the costs associated with the definitive agreement signed with CCM in the current period.

The decrease in cash provided by financing activities of $38.5 million was due to the issuance of the 2026 Notes in the prior comparable period.

Dividend Payments .

We have consistently paid dividends each year since 2005.

Our quarterly dividend rate remained constant during fiscal years 2023 and 2022, and our dividend payments totaled $4.2 and $4.1 million in each such fiscal year, respectively.

On October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’

overallotment option.

The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.

The 2026 Notes mature on December 31, 2026.

CRITICAL ACCOUNTING POLICIES

Comparing fiscal year 2023 to fiscal year 2024, income tax expense increased by 42.5%, from $1.8 million to $2.6 million.

The increase in income tax expense was due to higher net operating income in the current period, partially offset by a lower effective income tax rate in the current period.

The lower effective tax rate in the current period is due to an increased tax benefit in the current period due to restricted stock vesting at a higher share price.

Comparing fiscal year 2023 to fiscal year 2024, net income increased by 48.8%, from $4.8 million to $7.1 million.

The increase in net income was primarily due to increased average assets under management in the current period, which resulted in higher revenue and net operating income.

CRITICAL ACCOUNTING ESTIMATES AND 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 management’s 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 management’s current judgment.

Described below are the accounting policies that we believe are most critical to understanding our results of operations and financial position.

1 unchanged sentence

We earn our investment advisory fees through portfolio management of the Hennessy Funds, and we earn our shareholder service fees by assisting investors in the Hennessy Mutual Funds.

These fee revenues are earned and calculated daily by the Hennessy Funds’

In accordance with Financial Accounting Standards Board (“FASB”) guidance on revenue recognition, we recognize fee revenues monthly.

These fee revenues are earned and calculated daily by the Hennessy Funds’ accountants.

In accordance with Financial Accounting Standards Board (“FASB”) guidance on revenue recognition, we recognize fee revenues monthly.

Our contractual agreements provide persuasive evidence that an arrangement exists with fixed and determinable fees, and the services are rendered daily.

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The management contracts we have purchased are considered intangible assets with an indefinite life and we account for them in accordance with Accounting Standards Codification 350:

Intangibles –

Goodwill and Other (“ASC 350”).

Pursuant to ASC 350, an entity first assesses qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test.

Intangibles – Goodwill and Other (“ASC 350”).

Pursuant to ASC 350, an entity first assesses qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test.

The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.

If an entity determines that it is more likely than not that an indefinite‑lived intangible asset is impaired, then it must conduct an impairment analysis.

We were able to forego the annual impairment analysis for fiscal year 2024 as the more-likely-than-not threshold was not met as of the end of fiscal year 2024.

The costs related to our purchase of the assets related to the management of investment funds are capitalized as incurred.

The costs are defined as an intangible asset per the FASB standard “Intangibles –

Goodwill and Other.”

The acquisition costs include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts.

The amounts are included in the management contract asset, totaling $81.3 million as of the end of fiscal year 2023.

The costs related to our purchase of assets related to the management of investment funds are capitalized as incurred.

The costs are defined as an intangible asset per the FASB standard “Intangibles – Goodwill and Other.” The acquisition costs include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts.

The amounts are included in the management contract asset, totaling $82.3 million as of the end of fiscal year 2024.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

We reviewed accounting pronouncements issued between December 7, 2022, the filing date of our most recent previously filed Annual Report on Form 10-K, and December 6, 2023, the filing date of this Annual Report on Form 10-K, and have determined that no accounting pronouncement issued would have a material impact on our financial position, results of operations, or disclosures.

We reviewed accounting pronouncements issued between December 7, 2023, the filing date of our most recent previously filed Annual Report on Form 10-K, and December 11, 2024, the filing date of this Annual Report on Form 10-K, and are currently in the process of evaluating the impact of adoption on our financial position, results of operations, and disclosures.

There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity