DIAMOND HILL INVESTMENT GROUP, INC. REPORTS 2023 FINANCIAL RESULTS AND DECLARES FIRST QUARTER DIVIDEND
- Increase in AUM and AUA to $29.2 billion from $26.6 billion in 2022.
- Net client outflows of $494.0 million compared to $2.2 billion in 2022.
- Revenue of $136.7 million in 2023, down from $154.5 million in 2022.
- Operating profit margin decreased to 26% in 2023 from 42% in 2022.
- Adjusted earnings per share of $10.28 in 2023, lower than $14.40 in 2022.
- Dividend of $1.50 per common share approved for payment on March 22, 2024.
- Net income attributable to common shareholders was $42.2 million in 2023, up from $40.4 million in 2022.
- Net client outflows impacting financial performance.
- Decrease in revenue and operating profit margin.
- Lower adjusted earnings per share compared to the previous year.
Insights
Analyzing Diamond Hill Investment Group's financial performance, several key metrics stand out, including a decrease in revenue by 12% year-over-year and a significant reduction in operating profit margin from 42% to 26%. This contraction suggests increased cost pressures or decreased efficiency, which is a concern for profitability. Despite this, net income attributable to common shareholders increased by 4%, indicating effective cost management or other income sources compensating for the revenue shortfall.
The reported net client outflows of $494 million, while an improvement over the previous year's $2.2 billion, still represent a challenge in asset retention and could signal competitive pressures or shifts in investor preferences. The growth in fixed income inflows suggests a strategic pivot that may be resonating with investors seeking stability in uncertain market conditions.
The share repurchase and dividend payments totaling $52.6 million reflect a shareholder-friendly capital allocation policy. However, investors should consider the sustainability of such returns in the context of the company's overall financial health and future growth prospects.
The asset management industry is highly sensitive to market fluctuations and investor sentiment. Diamond Hill's shift toward a more diversified business model, with an emphasis on fixed income, is indicative of adapting to market demands. The increase in assets under management (AUM) from $26.6 billion to $29.2 billion is a positive sign, demonstrating the company's ability to attract and grow assets despite net outflows.
However, the reported decrease in average AUM and AUA combined could be indicative of broader industry trends, such as the shift towards passive investment strategies or increased competition from robo-advisors and other low-cost investment platforms. Understanding these trends is vital for assessing the company's long-term competitive position and growth potential.
From an economic perspective, the performance of investment advisory firms like Diamond Hill can be seen as a barometer for the broader economy and investor confidence. The reported increase in investment income from a loss in the previous year to a gain of $23.1 million could be reflective of recovering markets or astute asset management, particularly in a volatile economic environment.
The company's resilience in the face of net client outflows and a challenging economic landscape may be attributed to its strategic adjustments and cost management. However, the long-term economic outlook, including interest rate movements and inflationary pressures, will be critical in determining the sustainability of Diamond Hill's financial performance and strategic direction.
The following are selected highlights for the year ended December 31, 2023:
- Assets under management ("AUM") and assets under advisement ("AUA") combined was
$29.2 billion $26.6 billion - Average AUM and AUA combined was
$27.3 billion $29.6 billion - Net client outflows were
$494.0 million $2.2 billion - Revenue was
$136.7 million $154.5 million - Operating profit margin was
26% in 2023, compared to42% in 2022. Adjusted operating profit margin[1] was30% in 2023 and39% in 2022. - Investment income was
$23.1 million $20.2 million - Net income attributable to common shareholders was
$42.2 million $40.4 million - Earnings per share attributable to common shareholders - diluted was
$14.32 $13.01 - Adjusted earnings per share attributable to common shareholders - diluted[2] was
$10.28 $14.40 - The Company returned a total of
$52.6 million $34.9 million $17.7 million $6.00
___________________________________ |
1 Adjusts the financial measures calculated in accordance with |
2 Adjusts the financial measure calculated in accordance with GAAP for the impact of the Consolidated Funds, the gain on the sale of the Diamond Hill Corporate Credit and the Diamond Hill High Yield investment advisory contracts ("the "High Yield-Focused Advisory Contracts") effective July 30, 2021, and investment income related to certain other investments. See the reconciliation to the comparable GAAP financial measure at the end of this earnings release. |
"Our 2023 revenue was impacted by lower average assets under management/advisement, and outflows from
Dividend:
The Company's board of directors has approved the payment of a regular quarterly cash dividend of
Selected Income Statement Data (in thousands, except per share figures and percentages) | |||||||||||
Three Months Ended December 31, | Year Ended December 31, | ||||||||||
2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||
Revenue | $ 33,821 | $ 34,954 | (3) % | $ 136,716 | $ 154,496 | (12) % | |||||
Compensation and related costs, excluding deferred compensation expense (benefit) | 19,131 | 17,376 | 10 % | 70,731 | 70,505 | — % | |||||
Deferred compensation expense (benefit) | 3,732 | 2,517 | 48 % | 5,600 | (4,402) | (227) % | |||||
Other expenses | 6,543 | 6,085 | 8 % | 24,881 | 24,062 | 3 % | |||||
Total operating expenses | 29,406 | 25,978 | 13 % | 101,212 | 90,165 | 12 % | |||||
Net operating income | 4,415 | 8,976 | (51) % | 35,504 | 64,331 | (45) % | |||||
Investment income (loss), net | 13,349 | 13,115 | 2 % | 23,071 | (20,187) | (214) % | |||||
Gain on sale of High Yield-Focused Advisory Contracts | — | — | NM | — | 6,815 | (100) % | |||||
Net income before taxes | 17,764 | 22,091 | (20) % | 58,575 | 50,959 | 15 % | |||||
Income tax expense | (4,151) | (5,082) | (18) % | (15,490) | (14,088) | 10 % | |||||
Net income | 13,613 | 17,009 | (20) % | 43,085 | 36,871 | 17 % | |||||
Net loss (income) attributable to redeemable noncontrolling interest | — | (2,131) | NM | (859) | 3,563 | NM | |||||
Net income attributable to common shareholders | $ 13,613 | $ 14,878 | (9) % | $ 42,226 | $ 40,434 | 4 % | |||||
Earnings per share attributable to common shareholders - diluted | $ 4.76 | $ 4.93 | (3) % | $ 14.32 | $ 13.01 | 10 % | |||||
Selected Assets Under Management and Assets Under Advisement Data | |||
Change in AUM and AUA | |||
For the Year Ended December 31, | |||
(in millions) | 2023 | 2022 | |
AUM at beginning of the year | $ 24,763 | $ 31,028 | |
Net cash inflows (outflows) | |||
Diamond Hill Funds | (599) | (2,433) | |
Separately managed accounts | (416) | (73) | |
Collective investment trusts | 153 | 486 | |
Other pooled vehicles | 368 | (221) | |
(494) | (2,241) | ||
Net market appreciation (depreciation) and income | 3,149 | (4,024) | |
Increase (decrease) during the year | 2,655 | (6,265) | |
AUM at end of the year | 27,418 | 24,763 | |
AUA at end of the year | 1,746 | 1,802 | |
Total AUM and AUA at end of the year | $ 29,164 | $ 26,565 | |
Average AUM during the year | $ 25,552 | $ 27,599 | |
Average AUA during the year | 1,769 | 1,952 | |
Total average AUM and AUA during the year | $ 27,321 | $ 29,551 | |
Net Cash (Outflows) Inflows Further Breakdown | |||
For the Year Ended December 31 | |||
(in millions) | 2023 | 2022 | |
Net cash (outflows) inflows | |||
Equity | $ (1,865) | $ (2,247) | |
Fixed Income | 1,371 | 6 | |
$ (494) | $ (2,241) | ||
About Diamond Hill:
Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment. An independent active asset manager with significant employee ownership, Diamond Hill's investment strategies include differentiated
Non-GAAP Financial Measures and Reconciliation
As supplemental information, the Company is providing certain financial measures that are based on methodologies other than GAAP ("non-GAAP"). Management believes the non-GAAP financial measures below are useful measures of the Company's core business activities, are important metrics in estimating the value of an asset management business, and help facilitate comparisons to Company operating performance across periods. These non-GAAP financial measures should not be used as a substitute for financial measures calculated in accordance with GAAP and may be calculated differently by other companies. The following schedules reconcile the differences between financial measures calculated in accordance with GAAP and non-GAAP financial measures for 2023 and 2022.
Year Ended December 31, 2023 | |||||||||||||
(in thousands, except percentages and per share data) | Total | Net | Total non- | Income tax | Net income | Earnings per | Net | ||||||
GAAP Basis | $ 101,212 | $ 35,504 | $ 23,071 | $ 15,490 | $ 42,226 | $ 14.32 | 26 % | ||||||
Non-GAAP Adjustments: | |||||||||||||
Deferred compensation liability(1) | (5,600) | 5,600 | (5,600) | — | — | — | 4 % | ||||||
Consolidated Funds(2) | — | 330 | (4,148) | (793) | (2,166) | (0.73) | — | ||||||
Other investment income(4) | — | — | $ (13,323) | (3,571) | (9,752) | (3.31) | — | ||||||
Adjusted Non-GAAP Basis | $ 95,612 | $ 41,434 | — | $ 11,126 | $ 30,308 | $ 10.28 | 30 % | ||||||
Year Ended December 31, 2022 | |||||||||||||
(in thousands, except percentages and per share data) | Total | Net | Total non- | Income tax | Net income | Earnings per | Net | ||||||
GAAP Basis | $ 90,165 | $ 64,331 | $ (13,373) | $ 14,088 | $ 40,434 | $ 13.01 | 42 % | ||||||
Non-GAAP Adjustments: | |||||||||||||
Deferred compensation liability(1) | 4,402 | (4,402) | 4,402 | — | — | — | (3) % | ||||||
Consolidated Funds(2) | — | 423 | 11,317 | 2,113 | 6,063 | 1.95 | — | ||||||
Gain on sale of High-Yield Focused Advisory Contracts(3) | — | — | (6,814) | (1,761) | (5,053) | (1.63) | — | ||||||
Other investment income(4) | — | — | $ 4,468 | 1,155 | 3,313 | 1.07 | — | ||||||
Adjusted Non-GAAP Basis | $ 94,567 | $ 60,352 | — | $ 15,595 | $ 44,757 | $ 14.40 | 39 % | ||||||
(1) This non-GAAP adjustment removes the compensation expense resulting from market valuation changes in the Diamond Hill Fixed Term Deferred Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan's (together, the "Deferred Compensation Plans") liability and the related net gains/losses on investments designated as an economic hedge against the related liability. Amounts deferred under the Deferred Compensation Plans are adjusted for appreciation/depreciation of investments chosen by participants. The Company believes it is useful to offset the non-operating investment income or loss realized on the hedges against the related compensation expense and remove the net impact to help readers understand the Company's core operating results and to improve comparability from period to period. |
(2) This non-GAAP adjustment removes the impact that the Consolidated Funds have on the Company's GAAP consolidated statements of income. Specifically, the Company adds back the operating expenses and subtracts the investment income of the Consolidated Funds. The adjustment to net operating income represents the operating expenses of the Consolidated Funds, net of the elimination of related management and administrative fees. The adjustment to net income attributable to common shareholders represents the net income of the Consolidated Funds, net of redeemable non-controlling interests. The Company believes removing the impact of the Consolidated Funds helps readers understand its core operating results and improves comparability from period to period. |
(3) This non-GAAP adjustment removes the impact of the gain on the sale of the High Yield-Focused Advisory Contracts. The sale of the High Yield-Focused Advisory Contracts was a discrete transaction, thus, the Company believes that removing the impact of the gain helps readers understand the Company's core operating results and improves comparability period to period. |
(4) This non-GAAP adjustment represents the net gains or losses earned on the Company's non-consolidated investment portfolio that are not designated as economic hedges of the Deferred Compensation Plans' liability, non-consolidated seed investments, and other investments. The Company believes adjusting for these non-operating income or loss items helps readers understand the Company's core operating results and improves comparability from period to period. |
(5) The income tax expense impacts were calculated and resulted in an overall non-GAAP effective tax rate of |
The Company does not recommend that investors consider the above non-GAAP financial measures alone, or as a substitute for, financial information prepared in accordance with GAAP.
Cautionary Note Regarding Forward-Looking Statements
Throughout this press release, the Company may make "forward-looking statements" within the meaning of the
Factors that may cause the Company's actual results or experiences to differ materially from results discussed in forward-looking statements are discussed under Part I, Item 1A (Risk Factors) and elsewhere in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. These factors include, but are not limited to: (i) any reduction in the Company's assets under management ("AUM") or assets under advisement ("AUA"); (ii) withdrawal, renegotiation, or termination of investment advisory agreements; (iii) damage to the Company's reputation; (iv) failure to comply with investment guidelines or other contractual requirements; (v) challenges from the competition the Company faces in its business; (vi) challenges from industry trends towards lower fee strategies and model portfolio arrangements; (vii) adverse regulatory and legal developments; (viii) unfavorable changes in tax laws or limitations; (ix) interruptions in or failure to provide critical technological service by the Company or third parties; (x) adverse civil litigation and government investigations or proceedings; (xi) failure to adapt to or successfully incorporate technological changes, such as artificial intelligence, into the Company's business; (xii) risk of loss on the Company's investments; (xiii) lack of sufficient capital on satisfactory terms; (xiv) losses or costs not covered by insurance; (xv) a decline in the performance of the Company's products; (xvi) changes in interest rates and inflation; (xvii) changes in national and local economic and political conditions; (xix) the continuing economic uncertainty in various parts of the world; (xviii) the after-effects of the COVID-19 pandemic and the actions taken in connection therewith; (xx) political uncertainty caused by, among other things, political parties, economic nationalist sentiments, tensions surrounding the current socioeconomic landscape; and (xix), other risks identified from time-to-time in our public documents on file with the
In light of the significant uncertainties in forward-looking statements, the inclusion of such information should not be regarded as a representation by the Company or any other person that its expectations, objectives and plans will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company and speak only as of the date hereof. Readers are cautioned not to place undue reliance on forward-looking statements. New risks and uncertainties arise from time to time, and factors that the Company currently deems immaterial may become material, and it is impossible for the Company to predict these events or how they may affect it. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law, although it may do so from time to time. The Company does not endorse any projections regarding future performance that may be made by third parties.
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SOURCE Diamond Hill Investment Group, Inc.
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