COLUMBUS, Ohio, April 27,
2020 /PRNewswire/ -- Diamond Hill Investment Group, Inc.
(NASDAQ:DHIL) today reported unaudited financial results for the
first quarter of 2020.
Following are selected highlights for the quarter ended
March 31, 2020:
- Assets under management decreased to $17.5 billion from $20.9
billion in the first quarter of 2019, primarily caused by
lower market valuations resulting from the COVID-19 pandemic and
related government actions. Average assets under management were
comparable period over period.
- Net inflows into equity and fixed income strategies were
$251 million, compared with
$459 million of net outflows in the
same period in 2019.
- Revenue was $31.9 million versus
$32.6 million in the first quarter of
2019, primarily because of an increase in the mix of assets held in
lower fee strategies.
- Operating profit margin was 64% versus 34% for the first
quarter of 2019.
- On a non-GAAP basis, operating profit margin, as
adjusted6, was 39% for the first quarter of 2020 and 42%
for the same period of 2019. The Company expects operating profit
margin, as adjusted, will fluctuate from period to period based on
various factors, including revenue; long-term investment results
generated for clients; individual employee contributions; and
overall staffing levels.
- Net income attributable to common shareholders was $1.5 million, down from $16.9 million during the first quarter of 2019,
primarily because of investment losses caused by lower market
valuations resulting from the COVID-19 pandemic.
- Earnings per share attributable to common shareholders -
diluted was $0.47 in the quarter
compared with $4.84 in the first
quarter of 2019, largely driven by $22.4
million in investment losses resulting from COVID-19 related
market depreciation.
- The Company repurchased shares totaling $9.2 million.
"Our hearts go out to all those affected by the coronavirus. We
are grateful to health care workers and everyone on the front lines
for providing essential services at this difficult time," said
Heather Brilliant, president and CEO
of Diamond Hill. "I'm proud of how our employees have responded to
the professional and personal challenges of the pandemic. We acted
quickly to ensure employees could work from home and continue
supporting our clients seamlessly during this trying time."
Brilliant added, "Despite the ongoing economic effects of the
coronavirus crisis, Diamond Hill
continues to demonstrate its resilience and provide clients with
superior long-term investment capabilities. Our investment
performance was adversely affected amid the severe market
disruptions that occurred toward the end of the first quarter, but
we also attracted net inflows into both equity and fixed income
strategies, which speaks to the enduring quality of our investment
teams and our employees. Diamond
Hill has a strong balance sheet, which gives us flexibility
during economic turmoil and unsettling conditions."
Operating results for the quarter ended March 31, 2020 are not necessarily indicative of
the results that may be expected for the fiscal year ending
December 31, 2020, particularly because of COVID-19 and its
effects on the U.S. and global economies. The impact of COVID-19 on
capital markets was most acute during the last three weeks of the
quarter, significantly reducing assets under management as of
March 31, 2020, and could affect future revenue and operating
margin.
While the Company expects the effects of the pandemic and the
related responses to negatively affect results of operations, cash
flows and financial position, at this time the Company cannot
reasonably estimate the full effect, given the continuing
uncertainty over the duration and severity of the economic
crisis.
Selected Income
Statement Data
|
(in thousands, except
per share figures)
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
2019
|
|
% Change
|
Revenue
|
$
|
31,926
|
|
|
$
|
32,579
|
|
|
(2)%
|
Compensation and
related costs, excluding deferred compensation
(benefit) expense
|
15,417
|
|
|
13,557
|
|
|
14%
|
Deferred compensation
expense (benefit)
|
(8,156)
|
|
|
2,412
|
|
|
NM
|
Other
expenses
|
4,199
|
|
|
5,476
|
|
|
(23)%
|
Total operating
expenses
|
11,461
|
|
|
21,445
|
|
|
(47)%
|
Net operating
income
|
20,465
|
|
|
11,134
|
|
|
84%
|
Investment income
(loss), net
|
(22,398)
|
|
|
14,285
|
|
|
NM
|
Net income (loss)
before taxes
|
(1,933)
|
|
|
25,419
|
|
|
NM
|
Income tax
expense
|
(595)
|
|
|
(5,863)
|
|
|
(90)%
|
Net income
(loss)
|
(2,528)
|
|
|
19,556
|
|
|
NM
|
Net loss (income)
attributable to redeemable noncontrolling interest
|
4,058
|
|
|
(2,623)
|
|
|
NM
|
Net income
attributable to common shareholders
|
$
|
1,530
|
|
|
$
|
16,933
|
|
|
(91)%
|
|
|
|
|
|
|
Earnings per share
attributable to common shareholders - diluted
|
$
|
0.47
|
|
|
$
|
4.84
|
|
|
(90)%
|
|
|
|
|
|
|
Selected Balance
Sheet Data
|
(in thousands, except
per share figures)
|
|
As Of
|
|
March 31,
2020
|
|
December 31,
2019
|
Total cash and
corporate investments held directly by DHCM
|
$
|
169,244
|
|
|
$
|
187,189
|
|
Shareholders'
equity
|
$
|
190,780
|
|
|
$
|
192,856
|
|
Book value per
share
|
$
|
58.75
|
|
|
$
|
58.54
|
|
Cash and corporate
investments per share
|
$
|
52.12
|
|
|
$
|
56.82
|
|
|
Change in Assets
Under Management
|
|
For the Three Months
Ended March 31,
|
(in
millions)
|
2020
|
|
2019
|
AUM at beginning of
the period
|
$
|
23,399
|
|
|
$
|
19,108
|
|
Net cash inflows
(outflows)
|
|
|
|
proprietary funds
|
12
|
|
|
(309)
|
|
sub-advised funds
|
544
|
|
|
59
|
|
separately managed accounts
|
(305)
|
|
|
(209)
|
|
|
251
|
|
|
(459)
|
|
Net market
appreciation (depreciation) and income
|
(6,154)
|
|
|
2,231
|
|
Increase (decrease)
during the period
|
(5,903)
|
|
|
1,772
|
|
AUM at end of the
period
|
$
|
17,496
|
|
|
$
|
20,880
|
|
|
|
|
|
Average
AUM
|
$
|
20,836
|
|
|
$
|
20,710
|
|
|
Net Cash Inflows
(Outflows) Further Breakdown
For the Three Months Ended March 31,
|
(in
millions)
|
2020
|
|
2019
|
Net cash inflows
(outflows)
|
|
|
|
Equity
|
156
|
|
|
(595)
|
|
Fixed
Income
|
95
|
|
|
136
|
|
|
251
|
|
|
(459)
|
|
About Diamond Hill:
Based in Columbus, Ohio,
Diamond Hill is an independent
active asset manager with significant employee ownership and
$17.5 billion in assets under
management as of March 31, 2020. The Company invests on
behalf of institutions and individuals through mutual funds and
separate accounts. Strategies include long-only U.S. and
international equity, alternative long-short equity, and fixed
income. Diamond Hill serves clients
by providing investment strategies that deliver lasting value
through a shared commitment to its intrinsic value investment
philosophy, long-term perspective, disciplined approach and
alignment with client interests. For more information
visit www.diamond-hill.com.
Use of Supplemental Data as Non-GAAP Performance
Measure
As supplemental information, Diamond
Hill is providing performance measures that are based on
methodologies other than U.S. generally accepted accounting
principles ("non-GAAP"). Management believes the non-GAAP
measures below are useful measures of its core business activities,
are important metrics in estimating the value of an asset
management business, and may enable more appropriate comparison to
its peers. These non-GAAP measures should not be a substitute
for financial measures calculated in accordance with U.S. generally
accepted accounting principles ("GAAP") and may be calculated
differently by other companies. The following schedule
reconciles GAAP measures to non-GAAP measures for the three months
ended March 31, 2020 and 2019, respectively.
|
Three Months
Ended
March 31,
|
(in thousands, except
percentages and per share data)
|
2020
|
|
2019
|
Total
revenue
|
$
|
31,926
|
|
|
$
|
32,579
|
|
|
|
|
|
Net operating income,
GAAP basis
|
$
|
20,465
|
|
|
$
|
11,134
|
|
Non-GAAP
adjustment:
|
|
|
|
Gains (losses) on
deferred compensation plan investments,
net(1)
|
(8,156)
|
|
|
2,412
|
|
Net operating income,
as adjusted, non-GAAP basis(2)
|
12,309
|
|
|
13,546
|
|
Non-GAAP
adjustment:
|
|
|
|
Tax provision on net
operating income, as adjusted, non-GAAP
basis(3)
|
(3,448)
|
|
|
(3,484)
|
|
Net operating income,
as adjusted, after tax, non-GAAP basis(4)
|
$
|
8,861
|
|
|
$
|
10,062
|
|
|
|
|
|
Net operating income,
as adjusted after tax per diluted share, non-GAAP
basis(5)
|
$
|
2.71
|
|
|
$
|
2.88
|
|
Diluted weighted
average shares outstanding, GAAP basis
|
3,273
|
|
|
3,497
|
|
|
|
|
|
Operating profit
margin, GAAP basis
|
64
|
%
|
|
34
|
%
|
Operating profit
margin, as adjusted, non-GAAP basis(6)
|
39
|
%
|
|
42
|
%
|
|
(1)
|
Gains on deferred
compensation plan investments, net: The gain on deferred
compensation plan investments, which increases deferred
compensation expense included in operating income, is removed from
operating income in the calculation because it is offset by an
equal amount in investment income below net operating income on the
income statement, and thus has no impact on net income attributable
to the Company.
|
(2)
|
Net operating
income, as adjusted: This non-GAAP measure represents the
Company's net operating income adjusted to exclude the impact on
compensation expense of gains and losses on investments in the
deferred compensation plan.
|
(3)
|
Tax provision on
net operating income, as adjusted: This non-GAAP measure
represents the tax provision excluding the impact of investment
related activity and is calculated by applying the unconsolidated
effective tax rate to net operating income, as adjusted.
|
(4)
|
Net operating
income, as adjusted, after tax: This non-GAAP measure
deducts from the net operating income, as adjusted, the tax
provision on net operating income, as adjusted.
|
(5)
|
Net operating
income, as adjusted after tax per diluted share: This non-GAAP
measure was calculated by dividing the net operating income, as
adjusted after tax, by diluted weighted average shares
outstanding.
|
(6)
|
Operating profit
margin, as adjusted: This non-GAAP measure was calculated by
dividing the net operating income, as adjusted, by total
revenue.
|
Diamond Hill does not promote
that investors consider the above non-GAAP financial measures
alone, or as a substitute for, financial information prepared in
accordance with GAAP.
Throughout this press release, the Company may make
forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, relating to such
matters as anticipated operating results, prospects and levels of
assets under management, technological developments, economic
trends (including interest rates and market volatility), expected
transactions and similar matters. The words "believe," "expect,"
"anticipate," "estimate," "should," "hope," "seek," "plan,"
"intend" and similar expressions identify forward-looking
statements that speak only as of the date thereof. While we believe
that the assumptions underlying our forward-looking statements are
reasonable, investors are cautioned that any of the assumptions
could prove to be inaccurate and, accordingly, our actual results
and experiences could differ materially from the anticipated
results or other expectations expressed in our forward-looking
statements.
Factors that could cause our actual results to differ materially
from the results referred to in the forward-looking statements are
discussed under "Item 1A. Risk Factors" and elsewhere in our Annual
Report on Form 10-K for the fiscal year ended December 31,
2019, as well as under "Item 1A. Risk Factors" in our Quarterly
Report on Form 10-Q for the quarter ended March 31,
2020. These factors include, but are not limited to: the
adverse effect from a decline in the securities markets; a decline
in the performance of our products; the effect of national,
regional and global economic conditions generally, including
significant economic disruptions from COVID-19 and the actions
taken in connection therewith; changes in interest rates; changes
in national and local economic and political conditions, the
continuing economic uncertainty in various parts of the world;
changes in government policy and regulation, including monetary
policy; changes in our ability to attract or retain key employees;
unforeseen costs and other effects related to legal proceedings or
investigations of governmental and self-regulatory organizations;
and other risks identified from time-to-time in other public
documents on file with the SEC.
In light of the significant uncertainties in the forward-looking
statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any
other persons, that our objectives and plans will be achieved. All
forward-looking statements made in this press release are based on
information presently available to the management of the Company
and speak only as of the date on which they are made. We assume no
obligation to update any forward-looking statements, whether as a
result of new information, future developments or otherwise, except
as may be required by law.
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SOURCE Diamond Hill Investment Group, Inc.