HENNESSY
ADVISORS, INC.
FORM 10-K
ANNUAL REPORT
Year Ended September 30, 2023
Hennessy Advisors, Inc.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
800-966-4354
www.hennessyadvisors.com
(This page intentionally left blank.) UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2023
or
☐ 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
(State or other jurisdiction of incorporation or organization)
68-0176227
(IRS Employer Identification No.)
7250 Redwood Boulevard, Suite 200
Novato, California
(Address of principal executive office)
94945
(Zip code)
Title of each class
Common stock, no par value
4.875% Notes due 2026
(415) 899-1555
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Trading symbol
HNNA
HNNAZ
Name of each exchange on which registered
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None.
☐
☒
Accelerated filer
Non-accelerated filer
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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
☐
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates (as affiliates are defined in Rule 12b-2 of the Exchange Act) of the registrant, based
on the closing price of $7.75 on March 31, 2023, was $36,924,433.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
As of December 4, 2023, there were 7,673,869 shares of common stock issued and outstanding.
Auditor's Name: Marcum LLC
Auditor's Location: San Francisco, CA
Auditors PCAOB ID Number: 688
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive proxy statement for its 2024 annual meeting of shareholders will be, when filed, incorporated by reference in Part III,
Items 10, 11, 12, 13, and 14.
Emerging growth company
Smaller reporting company
(This page intentionally left blank.) HENNESSY ADVISORS, INC.
TABLE OF CONTENTS
Business
PART I
Item 1
Item 1A Risk Factors
Item 1C Cybersecurity
Item 2
Item 3
Item 4 Mine Safety Disclosures
Properties
Legal Proceedings
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 8
Item 9
Item 9A Controls and Procedures
Item 9B Other Information
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Item 10 Directors, Executive Officers, and Corporate Governance
Item 11 Executive Compensation
Item 12
Item 13 Certain Relationships and Related Transactions and Director Independence
Item 14
Principal Accountant Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Part IV
Item 15 Exhibit and Financial Statement Schedules
Item 16
Form 10-K Summary
Signatures
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(This page intentionally left blank.) ITEM 1. BUSINESS
GENERAL
PART I
Hennessy Advisors, Inc. (the “Company,” “we,” “us,” or “our”) is a publicly traded investment management firm
whose primary business activity is providing investment advisory services to a family of 16 open-end mutual funds
(collectively, the “Hennessy Mutual Funds”) and one exchange-traded fund (“ETF”) branded as the Hennessy Funds. 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. Our firm was
founded on these principles over 30 years ago, and the same principles guide us today.
We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by
providing shareholder services to investors in the Hennessy Mutual Funds. Investment advisory services include managing
the composition of each fund’s portfolio (including the purchase, retention, and disposition of portfolio securities in
accordance with each fund’s investment objectives, policies, and restrictions), monitoring each fund’s compliance with its
investment objectives and restrictions and federal securities laws, monitoring the liquidity of each fund, reviewing each
fund’s investment performance, overseeing the selection and continued employment of sub-advisors and monitoring such
sub-advisors’ adherence to the fund’s investment objectives, policies, and restrictions, overseeing other service providers,
maintaining in-house marketing and distribution departments, preparing and distributing regulatory reports, and overseeing
distribution of the funds through third-party financial institutions. Shareholder services include maintaining a toll-free
number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds and
actively participating as a liaison between investors in the Hennessy Funds and U.S. Bank Global Fund Services, the
Hennessy Funds’ administrator. The fees we receive for investment advisory and shareholder services are calculated as a
percentage of the average daily net asset values of the Hennessy Funds. Accordingly, our total revenue increases or
decreases as our average assets under management rises or falls. The percentage amount of the investment advisory fees
varies from fund to fund, but the percentage amount of the shareholder service fees is consistent across all Hennessy
Mutual Funds.
We have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight,
for some of the Hennessy Funds. In exchange for these sub-advisory services, we pay each sub-advisor a fee out of our own
assets, which is calculated as a percentage of the average daily net asset values of the sub-advised funds. Accordingly, the
sub-advisory fees we pay increase or decrease as our average assets under management in our sub-advised funds increases
or decreases, respectively.
Our average assets under management for fiscal year 2023 was $3.0 billion, and our total assets under
management as of the end of fiscal year 2023 was $3.0 billion. Our business strategy centers on (i) organic growth through
our marketing, sales, and distribution efforts and (ii) growth through strategic purchases of management-related assets.
HISTORICAL CALENDAR YEAR TIMELINE
1989
In February, we were founded as a California corporation under our previous name, Edward J. Hennessy, Inc., and
registered as a broker-dealer with the Financial Industry Regulatory Authority.
1996
In March, we launched our first mutual fund, the Hennessy Balanced Fund.
1998
In October, we launched our second mutual fund, the Hennessy Total Return Fund.
2000
In June, we successfully completed our first asset purchase by purchasing the assets related to the management of
two mutual funds previously managed by Netfolio, Inc. (“Netfolio”) and changed the fund names to the Hennessy
Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund. The amount of the purchased assets as of the
closing date totaled approximately $197 million.
1
2002
In May, we successfully completed a self-underwritten initial public offering of our stock by raising $5.7 million at
an offering price of $1.98 (HNNA.OB) and changed our firm name to Hennessy Advisors, Inc. Our total assets
under management at the time of our initial public offering was approximately $358 million.
2003
In September, we purchased the assets related to the management of a mutual fund previously managed by SYM
Financial Corporation and reorganized the assets of such fund into the newly created Hennessy Cornerstone Mid
Cap 30 Fund. The amount of the purchased assets as of the closing date was approximately $35 million.
2004
In March, we purchased the assets related to the management of five mutual funds previously managed by Lindner
Asset Management, Inc. and reorganized the assets of such funds into four of our existing Hennessy Funds. The
amount of the purchased assets as of the closing date totaled approximately $301 million.
2005
In July, we purchased the assets related to the management of a mutual fund previously managed by Landis
Associates LLC and changed the fund name to the Hennessy Cornerstone Growth, Series II Fund. The amount of
the purchased assets as of the closing date was approximately $299 million.
2007
In November, we launched the Hennessy Micro Cap Growth Fund, LLC, a non-registered private pooled
investment fund.
2009
In March, we purchased the assets related to the management of two mutual funds previously managed by RBC
Global Asset Management (U.S.) Inc. and reorganized the assets of such funds into the newly created Hennessy
Cornerstone Large Growth Fund and the Hennessy Large Value Fund. In conjunction with the completion of the
transaction, RBC Global Asset Management (U.S.) Inc. became the sub-advisor to the Hennessy Large Value Fund.
The amount of the purchased assets as of the closing date totaled approximately $158 million.
In September, we purchased the assets related to the management of two mutual funds previously managed by
SPARX Investment & Research, USA, Inc. and sub-advised by SPARX Asset Management Co., Ltd. and changed
the fund names to the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund. In conjunction with the
completion of the transaction, SPARX Asset Management Co., Ltd. became the sub-advisor to both funds. The
amount of the purchased assets as of the closing date totaled approximately $74 million.
2011
In October, we reorganized the assets of the Hennessy Cornerstone Growth, Series II Fund into the Hennessy
Cornerstone Growth Fund.
2012
In October, we purchased the assets related to the management of 10 mutual funds previously managed by FBR
Fund Advisers (the “FBR Funds”). We reorganized the assets of three of the FBR Funds into existing Hennessy
Funds and reorganized the assets of the seven other FBR Funds into newly created series of the Hennessy Funds. In
conjunction with the completion of the transaction, Broad Run Investment Management, LLC became the
sub-advisor to the Hennessy Focus Fund, FCI Advisors became the sub-advisor to the Hennessy Equity and Income
Fund (fixed income allocation) and the Hennessy Core Bond Fund, and The London Company of Virginia, LLC
became the sub-advisor to the Hennessy Equity and Income Fund (equity allocation). The amount of the purchased
assets as of the closing date was approximately $2.2 billion.
In December, we closed the Hennessy Micro Cap Growth Fund, LLC.
2014
In April, our common stock began trading on The Nasdaq Capital Market.
2
2015
In September, we completed a self-tender offer, under which we repurchased 1,500,000 shares of our common
stock at $16.67 per share.
In June, we launched Institutional Class shares for the Hennessy Japan Small Cap Fund and the Hennessy Large
Cap Financial Fund.
2016
In September, we purchased the assets related to the management of two mutual funds previously managed by
Westport Advisers, LLC and reorganized the assets of such funds into the Hennessy Cornerstone Mid Cap 30 Fund.
The amount of the purchased assets as of the closing date totaled approximately $435 million.
2017
In February, we liquidated the Hennessy Core Bond Fund and reorganized the Hennessy Large Value Fund into the
Hennessy Cornerstone Value Fund. Additionally, for the Hennessy Technology Fund, we implemented changes to
the investment strategy and the portfolio management team.
In March, we launched Institutional Class shares for the Hennessy Gas Utility Fund.
In December, we purchased the assets related to the management of two mutual funds previously managed by
Rainier Investment Management, LLC (“Rainier”) and reorganized the assets of such funds into the Hennessy
Cornerstone Large Growth Fund and the Hennessy Cornerstone Mid Cap 30 Fund. The amount of the purchased
assets as of the closing date totaled approximately $122 million.
2018
In January, we purchased the assets related to the management of a third mutual fund previously managed by
Rainier and reorganized the assets of such fund into the Hennessy Cornerstone Mid Cap 30 Fund. The amount of
the purchased assets as of the closing date totaled approximately $253 million.
In October, we purchased the assets related to the management of the two mutual funds previously managed by BP
Capital Fund Services, LLC ("BP Capital") and reorganized the assets of such funds into the newly created
Hennessy Energy Transition Fund and the Hennessy Midstream Fund. In connection with the transaction, BP
Capital Fund Services, LLC became the sub-advisor to both funds. The amount of the purchased assets as of the
closing date totaled approximately $200 million.
2019 During the year, we repurchased an aggregate of 560,734 shares of our common stock pursuant to our stock
buyback program.
2020
In the first three months of the year, we repurchased an aggregate of 206,109 shares of our common stock pursuant
to our stock buyback program.
2021
In October, we transferred listing of our common stock from The Nasdaq Capital Market to The Nasdaq Global
Market. Also in October, we completed a public offering of 4.875% notes due 2026 (the “2026 Notes”) in the
aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment
option.
2022
2023
In January, we mutually agreed with BP Capital to terminate the sub-advisory agreement for the Hennessy Energy
Transition Fund and the Hennessy Midstream Fund and began managing such funds internally. In December, we
purchased the assets related to the management of an ETF previously managed by Red Gate Advisers, LLC and
reorganized the assets of such fund into the newly created Hennessy Stance ESG ETF. In connection with the
transaction, Stance Capital, LLC (“Stance Capital”) and Vident Investment Advisory, LLC (“VIA”) became
sub-advisors to the fund. The amount of the purchased assets as of the closing date totaled approximately
$43 million.
In April, we signed a definitive agreement with Community Capital Management, LLC (“CCM”) to purchase the
assets related to the management of the CCM Core Impact Equity Fund and the CCM Small/Mid-Cap Impact Value
Fund (the “CCM Equity Funds”). Upon completion of the transaction, which is subject to the approval of the
shareholders of each of the CCM Equity Funds, the assets of the CCM Equity Funds will be reorganized into the
Hennessy Stance ESG ETF. In July, VIA completed an acquisition transaction that resulted in a change of control
of VIA and automatic termination of our sub-advisory agreement with VIA. On the same date, we entered into a
new sub-advisory agreement with Vident Advisory, LLC (“Vident Advisory”).
3
PRODUCT INFORMATION
Investment Strategies of the Hennessy Funds
We manage 16 mutual funds and one ETF, each of which is categorized as a Domestic Equity, Multi-Asset, or
Sector and Specialty product. Shares of the funds generally are available for purchase only by U.S. residents and, in certain
circumstances, U.S. citizens living abroad.
The Hennessy Funds Family
Domestic Equity
Multi-Asset
Sector and Specialty
Hennessy Cornerstone Growth Fund
Hennessy Total Return Fund
Hennessy Energy Transition Fund
Hennessy Focus Fund
Hennessy Equity and Income Fund
Hennessy Midstream Fund
Hennessy Cornerstone Mid Cap 30
Fund
Hennessy Cornerstone Large Growth
Fund
Hennessy Balanced Fund
Hennessy Gas Utility Fund
Hennessy Japan Fund
Hennessy Cornerstone Value Fund
Hennessy Japan Small Cap Fund
Hennessy Large Cap Financial Fund
Hennessy Small Cap Financial Fund
Hennessy Technology Fund
Hennessy Stance ESG ETF
Domestic Equity Funds
Five of the Hennessy Funds are categorized as Domestic Equity products. Of those five funds, four utilize a
quantitative investment strategy and one is actively managed, and they all employ consistent and disciplined approaches to
investing. Following is a brief description of the investment objectives and principal investment strategies of the Hennessy
Funds in the Domestic Equity product category:
● Hennessy Cornerstone Growth Fund (Investor Class symbol HFCGX; Institutional Class symbol HICGX). The
Hennessy Cornerstone Growth Fund seeks long-term growth of capital by investing in growth-oriented common
stocks using a quantitative formula. From the investable common stocks of public companies in the S&P Capital
IQ Database with market capitalizations exceeding $175 million, this fund invests in the 50 common stocks with
the highest one-year price appreciation that also have price-to-sales ratios below 1.5, higher annual earnings than
in the previous year, and positive stock price appreciation over the prior three-month and six-month periods.
● Hennessy Focus Fund (Investor Class symbol HFCSX; Institutional Class symbol HFCIX). The Hennessy Focus
Fund seeks capital appreciation through a concentrated portfolio of approximately 20 companies that the portfolio
managers believe are high-quality businesses with large growth opportunities, excellent management, low tail
risk, and discount valuations. This fund’s holdings are conviction-weighted, with the top ten positions comprising
approximately 60-80% of the fund’s assets.
● Hennessy Cornerstone Mid Cap 30 Fund (Investor Class symbol HFMDX; Institutional Class symbol
HIMDX). The Hennessy Cornerstone Mid Cap 30 Fund seeks long-term growth of capital by investing in mid-cap
growth-oriented common stocks using a quantitative formula. From the investable common stocks of public
companies in the S&P Capital IQ Database with market capitalizations between $1 billion and $10 billion, this
fund invests in the 30 common stocks with the highest one-year price appreciation that also have price-to-sales
4
ratios below 1.5, higher annual earnings than in the previous year, and positive stock price appreciation over the
prior three-month and six-month periods.
● Hennessy Cornerstone Large Growth Fund (Investor Class symbol HFLGX; Institutional Class symbol
HILGX). The Hennessy Cornerstone Large Growth Fund seeks long-term growth of capital by investing in
growth-oriented common stocks of larger companies using a quantitative formula. From the investable common
stocks of public companies in the S&P Capital IQ Database, this fund invests in the 50 stocks that meet the
following criteria, in the specified order: (1) above-average market capitalization; (2) a price-to-cash-flow ratio
less than the median of the remaining securities; (3) positive total capital; and (4) the highest one-year return on
total capital.
● Hennessy Cornerstone Value Fund (Investor Class symbol HFCVX; Institutional Class symbol HICVX). The
Hennessy Cornerstone Value Fund seeks total return, consisting of capital appreciation and current income, by
investing in larger, dividend-paying common stocks using a quantitative formula. From the investable common
stocks of public companies in the S&P Capital IQ Database, this fund invests in the 50 stocks with the highest
dividend yield that also have above-average market capitalizations, above-average number of shares outstanding,
12-month sales that are 50% greater than the average, and above-average cash flows.
Multi-Asset Funds
Three of the Hennessy Funds are categorized as Multi-Asset products. Of those three funds, two utilize a
quantitative investment strategy and one is actively managed. These funds follow a more conservative investment strategy
focused on generating income and providing an alternative to funds containing only equity stocks. Following is a brief
description of the investment objectives and principal investment strategies of the Hennessy Funds in the Multi-Asset
product category:
● Hennessy Total Return Fund (Investor Class symbol HDOGX). The Hennessy Total Return Fund seeks total
return, consisting of capital appreciation and current income, by investing approximately 50% of its assets in the
10 highest dividend-yielding common stocks of the Dow Jones Industrial Average (known as the “Dogs of the
Dow”) in roughly equal dollar amounts and the remaining 50% of its assets in U.S. Treasury securities with a
maturity of less than one year. This fund then utilizes a borrowing strategy that allows the fund’s performance to
approximate what it would be if the fund had an asset allocation of roughly 75% Dogs of the Dow stocks and 25%
U.S. Treasury securities.
● Hennessy Equity and Income Fund (Investor Class symbol HEIFX; Institutional Class symbol HEIIX). The
Hennessy Equity and Income Fund seeks income and long-term capital appreciation with reduced volatility of
returns by investing up to 70% of its assets in common stock, preferred stock, and equity-like instruments and its
remaining assets in asset-backed and mortgage-backed securities and debt instruments, including high-yield
bonds.
● Hennessy Balanced Fund (Investor Class symbol HBFBX). The Hennessy Balanced Fund seeks a combination
of capital appreciation and current income by investing approximately 50% of its assets in roughly equal dollar
amounts in the Dogs of the Dow stocks but limits exposure to market risk and volatility by investing
approximately 50% of its assets in U.S. Treasury securities with a maturity of less than one year.
Sector and Specialty Funds
Nine of the Hennessy Funds are categorized as Sector and Specialty products. Of those nine funds, one is designed
as an index fund and the other eight are actively managed, and each focuses on a niche sector of the stock market.
Following is a brief description of the investment objectives and principal investment strategies of the Hennessy Funds in
the Sector and Specialty product category:
● Hennessy Energy Transition Fund (Investor Class symbol HNRGX; Institutional Class symbol HNRIX). The
Hennessy Energy Transition Fund seeks total return by investing in companies operating in the United States
across the full spectrum of the energy supply/demand value chain, including traditional upstream, midstream, and
downstream energy companies, as well as renewable energy companies and energy end users. The portfolio
managers use a proprietary research and investment process that involves fundamental and quantitative analysis of
various macroeconomic and commodity price and other factors to select this fund’s investments and determine the
weighting of each investment.
5
● Hennessy Midstream Fund (Investor Class symbol HMSFX; Institutional Class symbol HMSIX). The Hennessy
Midstream Fund seeks capital appreciation through distribution growth and current income by investing in
midstream energy infrastructure companies, including master limited partnerships, that own and operate assets
used in the transporting, storing, gathering, processing, distributing, or marketing of natural gas, natural gas
liquids, crude oil, refined products, coal, or electricity or that provide energy-related equipment and services. The
portfolio managers combine a top-down deductive reasoning approach with a detailed bottom-up analysis of
individual companies.
● Hennessy Gas Utility Fund (Investor Class symbol GASFX; Institutional Class symbol HGASX). The Hennessy
Gas Utility Fund seeks income and capital appreciation by investing in companies that are members of the
American Gas Association (“AGA”) in approximately the same percentage as the percentage weighting of such
company in the AGA Stock Index. The AGA Stock Index is a capitalization-weighted index that consists of all
member companies of the AGA whose securities are traded on a U.S. stock exchange. The index is adjusted
monthly for the percentage of natural gas assets on each company’s balance sheet.
● Hennessy Japan Fund (Investor Class symbol HJPNX; Institutional Class symbol HJPIX). The Hennessy Japan
Fund seeks long-term capital appreciation by investing in equity securities of Japanese companies. Using in-depth
analysis and on-site research, the portfolio managers focus on stocks with a potential “value gap” by screening for
companies that they believe have strong businesses and management and are trading at attractive prices. The
portfolio managers limit the portfolio to what they consider to be their best ideas and maintain a concentrated
number of holdings.
● Hennessy Japan Small Cap Fund (Investor Class symbol HJPSX; Institutional Class symbol HJSIX). The
Hennessy Japan Small Cap Fund seeks long-term capital appreciation by investing in equity securities of smaller
Japanese companies, typically considered to be companies with market capitalizations in the bottom 20% of all
publicly traded Japanese companies. Using in-depth analysis and on-site research, the portfolio managers focus on
stocks with a potential “value gap” by screening for small-cap companies that the portfolio managers believe have
strong businesses and management and are trading at attractive prices. The portfolio managers limit the portfolio
to what they consider to be their best ideas and is unconstrained by its benchmarks.
● Hennessy Large Cap Financial Fund (Investor Class symbol HLFNX; Institutional Class symbol HILFX). The
Hennessy Large Cap Financial Fund seeks capital appreciation by investing in securities of large-cap companies
principally engaged in the business of providing financial services, including information technology companies
that are primarily engaged in providing products or services to financial services companies.
● Hennessy Small Cap Financial Fund (Investor Class symbol HSFNX; Institutional Class symbol HISFX). The
Hennessy Small Cap Financial Fund seeks capital appreciation by investing in securities of small-cap companies
principally engaged in the business of providing financial services.
● Hennessy Technology Fund (Investor Class symbol HTECX; Institutional Class symbol HTCIX). The Hennessy
Technology Fund seeks long-term capital appreciation by investing in securities of companies principally engaged
in the research, design, development, manufacturing, or distributing of products or services in the technology
industry. From the investable common stocks of public companies in the S&P Capital IQ Database with market
capitalizations exceeding $175 million, this fund invests in approximately 60 stocks (weighted equally by dollar
amount) that the portfolio managers believe demonstrate sector-leading cash flows and profits, a history of
delivering returns in excess of cost of capital, attractive relative valuations, ability to generate cash, attractive
balance sheet risk profiles, and prospects for sustainable profitability.
● Hennessy Stance ESG ETF (NYSE: STNC). The Hennessy Stance ESG ETF seeks long-term growth of capital
by combining environmental, social, and governance (“ESG”) and machine learning/artificial intelligence
(“ML/AI”) in an ETF structure. The portfolio managers seek exposure to companies that score well on ESG
metrics and that the portfolio managers believe will outperform based on ML/AI models. The fund leverages
optimization in an attempt to reduce portfolio level tail risk and mitigate downside losses.
6
Historical Investment Performance of the Hennessy Funds
The following table presents the average annualized returns for each Hennessy Fund and its relevant benchmark
indices for the one-year, three-year, five-year, and ten-year (or since inception for Hennessy Funds that commenced
operations less than ten years ago) periods ended September 30, 2023.
Returns are presented net of all expenses borne by fund investors, but not net of fees waived or expenses borne by
the Company. The past investment performance of the Hennessy Funds is not a guarantee of future performance, and all of
the Hennessy Funds have experienced negative performance over various periods in the past and may do so again in the
future.
Hennessy Cornerstone Growth Fund
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HICGX
Investor Class Share - HFCGX
Russell 2000® Index (1)
S&P 500® Index (2)
27.89 %
27.44 %
8.93 %
21.62 %
19.23 %
18.83 %
7.16 %
10.15 %
8.60 %
8.25 %
2.40 %
9.92 %
9.67 %
9.33 %
6.65 %
11.91 %
Hennessy Focus Fund*
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HFCIX
Investor Class Share - HFCSX
Russell 3000® Index (3)
Russell Midcap® Growth Index (4)
15.99 %
15.57 %
20.46 %
17.47 %
5.91 %
5.52 %
9.38 %
2.61 %
5.97 %
5.58 %
9.14 %
6.97 %
8.28 %
7.89 %
11.28 %
9.94 %
Hennessy Cornerstone Mid Cap 30 Fund
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HIMDX
Investor Class Share - HFMDX
Russell Midcap® Index (5)
S&P 500® Index (2)
33.60 %
33.13 %
13.45 %
21.62 %
23.00 %
22.57 %
8.09 %
10.15 %
13.26 %
12.87 %
6.38 %
9.92 %
11.28 %
10.91 %
8.98 %
11.91 %
Hennessy Cornerstone Large Growth Fund
Institutional Class Share - HILGX
Investor Class Share - HFLGX
Russell 1000® Index (6)
S&P 500® Index (2)
One Year
Three Years
Five Years
Ten Years
29.28 %
28.96 %
21.19 %
21.62 %
12.94 %
12.64 %
9.53 %
10.15 %
8.93 %
8.62 %
9.63 %
9.92 %
10.15 %
9.88 %
11.63 %
11.91 %
Hennessy Cornerstone Value Fund
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HICVX
Investor Class Share - HFCVX
Russell 1000® Value Index (7)
S&P 500® Index (2)
16.57 %
16.32 %
14.44 %
21.62 %
17.20 %
16.94 %
11.05 %
10.15 %
6.59 %
6.38 %
6.23 %
9.92 %
8.44 %
8.22 %
8.45 %
11.91 %
Hennessy Total Return Fund
One Year
Three Years
Five Years
Ten Years
Investor Class Share - HDOGX
75/25 Blended DJIA/Treasury Index (8)
Dow Jones Industrial Average (9)
11.86 %
15.66 %
19.18 %
6.81 %
7.14 %
8.62 %
3.04 %
6.10 %
7.14 %
5.52 %
8.53 %
10.79 %
7
Hennessy Equity and Income Fund*
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HEIIX
Investor Class Share - HEIFX
S&P 500® Index (2)
11.47 %
10.97 %
21.62 %
3.88 %
3.49 %
10.15 %
4.34 %
3.94 %
9.92 %
6.00 %
5.61 %
11.91 %
Hennessy Balanced Fund
One Year
Three Years
Five Years
Ten Years
Investor Class Share - HBFBX
50/50 Blended DJIA/Treasury Index (10)
Dow Jones Industrial Average (9)
6.91 %
11.66 %
19.18 %
4.16 %
4.94 %
8.62 %
2.01 %
4.73 %
7.14 %
3.59 %
6.10 %
10.79 %
Hennessy Energy Transition Fund*
One Year
Three Years
Five Years
Since
Inception
(12/31/13)
Institutional Class Share - HNRIX
Investor Class Share - HNRGX
S&P 500® Energy Index (11)
S&P 500® Index (2)
26.63 %
26.22 %
30.21 %
21.62 %
50.26 %
49.74 %
51.42 %
10.15 %
5.77 %
5.44 %
8.96 %
9.92 %
4.05 %
3.77 %
4.34 %
11.10 %
Hennessy Midstream Fund*
One Year
Three Years
Five Years
Since
Inception
(12/31/13)
Institutional Class Share - HMSIX**
Investor Class Share - HMSFX
Alerian US Midstream Energy Index (12)
S&P 500® Index (2)
33.28 %
32.95 %
25.56 %
21.62 %
38.81 %
38.51 %
40.32 %
10.15 %
5.73 %
5.51 %
8.95 %
9.92 %
1.84 %
1.59 %
4.29 %
11.10 %
Hennessy Gas Utility Fund*
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HGASX**
Investor Class Share - GASFX
AGA Stock Index (13)
S&P 500® Index (2)
-0.12 %
-0.42 %
0.25 %
21.62 %
8.73 %
8.41 %
9.43 %
10.15 %
4.76 %
4.44 %
5.50 %
9.92 %
6.01 %
5.78 %
6.92 %
11.91 %
Hennessy Japan Fund
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HJPIX
Investor Class Share - HJPNX
Russell/Nomura Total MarketTM Index (14)
Tokyo Stock Price Index (TOPIX) (15)
24.49 %
24.04 %
25.77 %
25.90 %
-5.06 %
-5.41 %
2.93 %
2.82 %
-0.45 %
-0.84 %
2.05 %
1.92 %
6.90 %
6.52 %
4.93 %
4.83 %
Hennessy Japan Small Cap Fund
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HJSIX**
Investor Class Share - HJPSX
Russell/Nomura Small CapTM Index (16)
Tokyo Stock Price Index (TOPIX) (15)
15.51 %
15.16 %
18.86 %
25.90 %
-0.59 %
-0.98 %
-0.80 %
2.82 %
-0.04 %
-0.43 %
-1.20 %
1.92 %
7.82 %
7.50 %
4.51 %
4.83 %
8
Hennessy Large Cap Financial Fund*
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HILFX**
Investor Class Share - HLFNX
Russell 1000® Index Financials (17)
Russell 1000® Index (6)
Hennessy Small Cap Financial Fund*
Institutional Class Share - HISFX
Investor Class Share - HSFNX
Russell 2000® Index Financials (18)
Russell 2000® Index (1)
-4.93 %
-5.21 %
13.59 %
21.19 %
-1.87 %
-2.21 %
14.39 %
9.53 %
0.27 %
-0.07 %
8.82 %
9.63 %
5.41 %
5.09 %
11.15 %
11.63 %
One Year
Three Years
Five Years
Ten Years
-12.52 %
-12.85 %
-3.89 %
8.93 %
19.01 %
18.53 %
10.55 %
7.16 %
2.21 %
185.00 %
0.51 %
2.40 %
6.00 %
5.61 %
6.06 %
6.65 %
Hennessy Technology Fund*
One Year
Three Years
Five Years
Ten Years
Institutional Class Share - HTCIX**
Investor Class Share - HTECX
NASDAQ Composite Index (19)
S&P 500® Index (2)
30.01 %
29.71 %
26.11 %
21.62 %
8.10 %
7.84 %
6.60 %
10.15 %
9.15 %
8.88 %
11.41 %
9.92 %
10.26 %
9.95 %
14.52 %
11.91 %
Hennessy Stance ESG ETF*
STNC - Net Asset Value
STNC - Market Price
S&P 500® Index (2)
One Year
Three Years Five Years
-
-
-
-
-
-
8.41%
8.35%
21.62%
Since
Inception
(3/15/21)
0.71%
0.73%
4.70%
* Performance information from prior to the date that we acquired the assets related to the management of the fund is
included because the previous investment manager managed the fund using a similar investment strategy.
** Performance shown for periods prior to the inception of Institutional Class shares represents the performance of
Investor Class shares of the fund and includes expenses that are not applicable to, and are higher than, those of
Institutional Class shares.
(1) The Russell 2000® Index comprises the smallest 2,000 companies in the Russell 3000® Index based on market
capitalization and current index membership, representing approximately 7% of the total market capitalization of the
Russell 3000® Index.
(2) The S&P 500® Index is a capitalization-weighted index that is designed to represent the broad domestic economy
through changes in the aggregate market value of 500 stocks across all major industries.
(3) The Russell 3000® Index comprises the 3,000 largest U.S. companies based on market capitalization, representing
approximately 96% of the investable U.S. equities market.
(4) The Russell Midcap® Growth Index comprises those companies in the Russell Midcap® Index with relatively higher
price-to-book ratio, higher forecasted growth values, and higher sales per share historical growth.
(5) The Russell Midcap® Index comprises approximately 800 of the smallest securities in the Russell 1000® Index,
representing approximately 27% of the total market capitalization of the Russell 1000® Index.
(6) The Russell 1000® Index comprises the 1,000 largest companies in the Russell 3000® Index based on market
capitalization and current index membership, representing approximately 93% of the total market capitalization of the
Russell 3000® Index.
(7) The Russell 1000® Value Index comprises those companies in the Russell 1000® Index with relatively lower
price-to-book ratios, lower forecasted growth value, and lower sales per share historical growth.
(8) The 75/25 Blended DJIA/Treasury Index consists of 75% common stocks represented by the Dow Jones Industrial
Average and 25% short-duration Treasury securities represented by the ICE BofAML U.S. 3-Month Treasury Bill
Index, which comprises U.S. Treasury securities maturing in three months.
(9) The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock
Exchange or The Nasdaq Stock Market LLC.
9
(10) The 50/50 Blended DJIA/Treasury Index consists of 50% common stocks represented by the Dow Jones Industrial
Average and 50% short-duration Treasury securities represented by the ICE BofAML 1-Year U.S. Treasury Note
Index, which comprises U.S. Treasury securities maturing in approximately one year.
(11) The S&P 500® Energy Index comprises those companies included in the S&P 500® that are classified in the Energy
sector.
(12) The Alerian US Midstream Energy Index comprises companies that earn a majority of their cash flow from midstream
activities involving energy commodities.
(13) The AGA Stock Index is a capitalization-weighted index consisting of members of the American Gas Association
whose securities are traded on a U.S. stock exchange.
(14) The Russell/Nomura Total Market™ Index represents approximately 98% of the investable Japan equity market.
(15) The Tokyo Stock Price Index (TOPIX) is a capitalization-weighted index of all of the companies listed on the First
Section of the Tokyo Stock Exchange.
(16) The Russell/Nomura Small Cap™ Index comprises the bottom 15% of the Russell/Nomura Total Market™ Index
based on market capitalization.
(17) The Russell 1000® Index Financials is a subset of the Russell 1000® Index that measures the performance of securities
classified in the Financials sector of the large-cap U.S. equity market.
(18) The Russell 2000® Index Financials is a subset of the Russell 2000® Index that measures the performance of securities
classified in the Financials sector of the small-cap U.S. equity market.
(19) The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The
Nasdaq Stock Market LLC.
Investors cannot invest directly in an index. Performance data for an index does not reflect any deductions for fees,
expenses, or taxes.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the
Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability
for any errors or omissions in the Russell Indexes or Russell ratings or underlying data, and no party may rely on any
Russell Indexes or Russell ratings or underlying data contained in this communication. No further distribution of Russell
data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of
this communication.
Standard & Poor’s Financial Services LLC is the source and owner of the S&P® and S&P 500® trademarks.
The Dow Jones Industrial Average is the property of the Dow Jones & Company, Inc. Dow Jones & Company, Inc. is not
affiliated with the Hennessy Funds or its investment advisor. Dow Jones & Company, Inc. has not participated in any way
in the creation of the Hennessy Funds or in the selection of stocks included in the Hennessy Funds and has not approved
any information included in this communication.
The Alerian US Midstream Energy Index is a servicemark of GKD Index Partners. LLC d/b/a Alerian (“Alerian”), and its
use is granted under a license from Alerian. Alerian makes no express or implied warranties, representations, or promises
regarding the originality, merchantability, suitability, or fitness for a particular purpose or use with respect to the Alerian
indices. No party may rely on, and Alerian does not accept any liability for any errors, omissions, interruptions, or defects
in, the Alerian indices or underlying data.
Development of New Investment Strategies and Expanding Our Product Offerings
We develop new investment strategies and expand our product offerings by identifying investor needs and
reviewing asset allocation tables to determine where we can augment our family of funds. Once we identify an attractive
market segment, we select one of the following methods to initiate the new strategy:
● We screen the appropriate universe of stocks with a set of parameters that we believe identifies stocks that will
produce higher long-term returns with lower associated risk than their relative indices, and we then introduce the
new investment strategy into the marketplace by opening and directly marketing a new fund;
10
● We purchase the assets related to the management of an existing fund that we then manage ourselves;
● We purchase the assets related to the management of an existing fund and then engage the existing portfolio
managers or strategic firm to act as a sub-advisor to manage the fund; or
● We purchase the assets related to the management of an existing fund and then employ the existing portfolio
management team to manage the fund.
ASSETS UNDER MANAGEMENT, SOURCES OF REVENUES, AND 12B-1 PLANS
We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by
providing shareholder services to investors in the Hennessy Mutual Funds. The fees we receive for these services are
calculated as a percentage of the average daily net asset values of the Hennessy Funds. In addition, the sub-advisory fees
that we pay are also calculated as a percentage of the average daily net asset values of the sub-advised Hennessy Funds.
The amount of our assets under management fluctuates as a result of organic inflows (purchases of shares of the Hennessy
Funds by new or existing investors), acquisition inflows, outflows (redemptions of shares of the Hennessy Funds by
investors), and market appreciation or depreciation.
The following table summarizes our assets under management for the past three fiscal years:
Beginning assets under management
Acquisition inflows
Organic inflows
Redemptions
Market appreciation (depreciation)
Ending assets under management
2023
Fiscal Years Ended September 30,
2022
(In thousands)
2021
$
$
2,895,717 $
43,088
598,119
(915,397)
410,515
3,032,042 $
4,065,922 $
-
656,491
(1,147,888)
(678,808)
2,895,717 $
3,564,597
-
818,358
(1,345,371 )
1,028,338
4,065,922
As stated above, the amount of fees we receive for providing investment advisory and shareholder services
increases or decreases as our average assets under management rises or falls.
The following table summarizes our sources of revenues, net of sub-advisory fees, for the past three fiscal years:
2023
Fiscal Years Ended September 30,
2022
(In thousands)
2021
$
$
30,367
2,393
32,760
(7,332)
25,428
Investment advisory fees
Shareholder service fees
Subtotal
Sub-advisory fees
Revenue, net of sub-advisory fees
$ 22,090 $
1,930
24,020
(3,759)
$ 20,261 $
27,468
2,199
29,667
(5,727)
23,940
11
Investment Advisory Agreements and Fees
We provide investment advisory services to the Hennessy Funds pursuant to investment advisory agreements with
Hennessy Funds Trust. Our provision of investment advisory services to the Hennessy Funds is subject to the oversight of
the Board of Trustees of Hennessy Funds Trust (the “Funds’ Board of Trustees”) and must be in accordance with the
applicable Hennessy Fund’s investment advisory agreement, Prospectus, and Statement of Additional Information. The
services that we provide to each Hennessy Fund pursuant to these investment advisory agreements include, among other
things, the following:
●
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 fund’s portfolio (including the purchase, retention, and
disposition of portfolio securities in accordance with the fund’s investment objectives, policies, and restrictions),
seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy
voting for the fund;
●
performing a daily reconciliation of portfolio positions and cash for the fund;
● monitoring the liquidity of the fund;
● monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws;
● maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance
programs of the fund’s service providers (including any sub-advisor), including their codes of ethics, as
appropriate, conducting on-site visits to the fund’s 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, directors and officers and errors and omissions 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 fund’s sub-advisor, reviewing the fund’s
investment performance, and monitoring the sub-advisor’s adherence to the fund’s 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 fund’s prospectus and related documents;
for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the
most recent 12-month period;
● monitoring and overseeing the accessibility of the fund on financial institution platforms;
●
paying the incentive compensation of the fund’s compliance officer 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 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.
12
The investment advisory agreements also provide that we are responsible for performing any ordinary clerical and
bookkeeping services needed by the Hennessy Funds that are not provided by the funds’ custodian, administrator, or
transfer agent. The Funds’ Board of Trustees comprises five trustees who are not interested persons of the Hennessy Funds
(the “disinterested trustees”) and Neil J. Hennessy, who is our Chief Executive Officer and Chairman of our Board of
Directors. Under the Investment Company Act of 1940, as amended (the “1940 Act”), a majority of the trustees must be
disinterested trustees, and the disinterested trustees must approve entering into and continuing our investment advisory
agreements. The disinterested trustees also have sole responsibility for selecting and nominating other disinterested trustees.
In exchange for the services described above, we receive an investment advisory fee from each Hennessy Fund
that is calculated as a percentage of such fund’s average daily net asset value. As of the end of fiscal year 2023, the
percentages of each fund’s assets used to calculate the annual investment advisory fees payable to us are as follows:
Hennessy Fund
(All Class Shares)
Hennessy Cornerstone Growth Fund
Hennessy Focus Fund
Hennessy Cornerstone Mid Cap 30 Fund
Hennessy Cornerstone Large Growth Fund
Hennessy Cornerstone Value Fund
Hennessy Total Return Fund
Hennessy Equity and Income Fund
Hennessy Balanced Fund
Hennessy Energy Transition Fund
Hennessy Midstream Fund
Hennessy Gas Utility Fund
Hennessy Japan Fund
Hennessy Japan Small Cap Fund
Hennessy Large Cap Financial Fund
Hennessy Small Cap Financial Fund
Hennessy Technology Fund
Hennessy Stance ESG ETF
Investment
Advisory Fee
(as a % of fund assets)
0.74%
0.90%
0.74%
0.74%
0.74%
0.60%
0.80%
0.60%
1.25%
1.10%
0.40%
0.80%
0.80%
0.90%
0.90%
0.74%
0.95%
We waive a portion of our fees with respect to the Hennessy Midstream Fund, the Hennessy Technology Fund,
and the Hennessy Stance ESG ETF 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 our revenues. Each waived fee is then deducted from investment advisory fee income and
reduces the aggregate amount of advisory fees we receive from such fund in the subsequent month. Total fee waivers
during each of fiscal year 2023 and 2022 were $0.1 million. To date, we have only waived fees based on contractual
obligations, but we have the ability to waive fees at our discretion. Any decision to waive fees would apply only on a
going-forward basis.
13
Our 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 disinterested trustees. 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 we assign it to another advisor (assignment includes “indirect assignment,”
which is the transfer of our 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 us.
Sub-Advisory Agreements and Fees
We have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight,
for some of the Hennessy Funds. In each case, the sub-advisor entity or the individuals working at the sub-advisor entity is
the same entity or are the same individuals who advised the fund prior to our purchase of the assets related to the
management of such fund. The provision of sub-advisory services must be in accordance with the applicable Hennessy
Fund’s sub-advisory agreement, Prospectus, and Statement of Additional Information. The services that each sub-advisor
provides to the applicable Hennessy Fund pursuant to the terms of the sub-advisory agreement include, among other things,
the following (except these responsibilities are divided between Stance Capital and Vident Advisory for the Hennessy
Stance ESG ETF):
●
●
●
●
acting as portfolio manager for the fund, which includes managing the composition of the fund’s portfolio
(including the purchase, retention, and disposition of portfolio securities in accordance with the fund’s investment
objectives, policies, and restrictions), seeking best execution for the fund’s portfolio, managing the use of soft
dollars for the fund, and managing proxy voting for the fund;
ensuring that its compliance programs include policies and procedures relevant to the fund and the sub-advisor’s
duties as a portfolio manager to the fund;
for each annual report of the fund, preparing a written summary of the fund’s performance during the most recent
12-month period; and
providing a quarterly certification to Funds’ Board of Trustees regarding trading and allocation practices,
supervisory matters, the sub-advisor’s compliance program (including its code of ethics), compliance with the
fund’s policies, and general firm updates.
14
In exchange for sub-advisory services, we pay sub-advisory fees to the sub-advisors out of our own assets. Sub-
advisory fees are calculated as a percentage of the applicable fund’s average daily net asset value. The following table lists
each of our sub-advised funds, the sub-advisor for such fund, and the percentage used to calculate the annual sub-advisory
fees payable by us to such fund’s sub-advisor as of the end of fiscal year 2023:
Hennessy Fund
(All Class Shares)
Sub-Advisor
Sub-Advisory Fee
(As a % of Fund Assets)
Hennessy Focus Fund
Broad Run Investment Management,
Hennessy Equity and Income Fund
FCI Advisors (fixed income
LLC
allocation)
The London Company of Virginia,
LLC (equity allocation)
SPARX Asset Management Co., Ltd.
Hennessy Japan Fund
Hennessy Japan Small Cap Fund
SPARX Asset Management Co., Ltd.
0.29%
0.27%
0.33%
$0-$500 million: 0.35%
Above $500 million-$1 billion: 0.40%
Above $1 billion: 0.42%
$0-$500 million: 0.35%
Above $500 million-$1 billion: 0.40%
Above $1 billion: 0.42%
Hennessy Stance ESG ETF
Stance Capital, LLC (portfolio
composition sub-advisor)
Vident Advisory, LLC* (trading
sub-advisor)
$0-$125 million: 0.40%
Above $125-$250 million: 0.37%
Above $250 million: 0.35%
$0-$250 million: 0.05%
Above $250-$500 million: 0.05%
Above $500 million: 0.04%
*Subject to a minimum sub-advisory fee to Vident Advisory, LLC of $18,750 on an annual basis.
The sub-advisory agreements must be renewed annually in the same manner as the investment advisory
agreements and are subject to the same termination provisions, including automatic termination in the event the agreement
is assigned. Assignment is generally defined under the 1940 Act and the Advisers Act to include direct assignments as well
as assignments that are deemed to occur due to the change in control of the investment advisor, which includes us or one of
the sub-advisors that we have engaged on behalf of certain of the Hennessy Funds. However, a transaction is not an
assignment under the 1940 Act or the Investment Advisers Act of 1940, as amended (the "Advisers Act") if it does not
result in a change of actual control or management of us or, in the context of a sub-advisor, a change of actual control or
management of the sub-advisor.
15
If a sub-advisor experienced a change of control but we did not, we could continue acting as an advisor to the
applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub-advisory
agreement for the sub-advisor. Because obtaining shareholder approval for a new sub-advisor can be costly both in terms of
expense and time, we recently sought and received an exemptive order from the Securities and Exchange Commission
(“SEC”) to operate under a manager of managers structure. The manager of managers structure permits us to appoint and
replace unaffiliated sub-advisors and to enter into and make material amendments to the related sub-advisory agreements
on behalf of the Hennessy Funds without shareholder approval, but subject in each case to the approval of the Hennessy
Funds’ Board of Trustees. Under the manager of managers structure, we have ultimate responsibility, subject to oversight
by the Hennessy Funds’ Board of Trustees, for overseeing the Hennessy Funds’ unaffiliated sub-advisors and
recommending their hiring, termination, or replacement. Even with the exemptive order from the SEC, we cannot
implement the manager of managers structure on behalf of a particular Hennessy Fund until the shareholders of such
Hennessy Fund approve its implementation.
We recently obtained shareholder approval for the Hennessy Stance ESG ETF to operate under a manager of
managers structure and are evaluating the timing and process for obtaining shareholder approval for the Hennessy Mutual
Funds that have a sub-advisor. With respect to the Hennessy Stance ESG ETF, our sub-advisory agreement with VIA, one
of the sub-advisors for the fund, terminated automatically on July 14, 2023, in connection with an acquisition transaction
that resulted in a change of control of VIA. As a result of the transaction, VIA ceased to exist and Vident Advisory became
the sole Vident enterprise carrying out Vident’s business and operations. On the same date, we entered into a new
sub-advisory agreement with Vident Advisory pursuant to which Vident Advisory now provides sub-advisory services to
the Hennessy Stance ESG ETF. The new sub-advisory agreement was approved by the Hennessy Funds’ Board of Trustees
and by vote of the shareholders of the Hennessy Stance ESG ETF. At the same meeting, the shareholders of the Hennessy
Stance ESG ETF also approved the implementation of the manager of managers structure for the fund.
Shareholder Servicing Agreements and Fees
Pursuant to a shareholder servicing agreement with Hennessy Funds Trust, we provide shareholder services to
investors in the Hennessy Mutual Funds including, 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 and actively participating as a
liaison between investors in the Hennessy Funds and U.S. Bank Global Fund Services. In exchange for these services, we
receive a shareholder service fee from each Hennessy Mutual Fund of 0.10% of the average daily net assets of such fund’s
Investor Class shares.
The shareholder servicing agreement must be renewed annually by the Funds’ Board of Trustees, including the
vote of a majority of the disinterested trustees. If the shareholder servicing agreement is not renewed, it terminates
automatically. In addition, the shareholder servicing agreement may be terminated prior to its expiration upon 60 days’
written notice by Hennessy Funds Trust or us.
12b-1 Plans
All of the Hennessy Mutual Funds have adopted a 12b-1 plan. These plans are named after Rule 12b-1 of the 1940
Act, which permits a fund to adopt a plan that allows the fund to collect fees to use to make payments to third parties in
connection with the distribution of fund shares. Amounts paid under a plan may be spent on any activities or expenses
primarily intended to result in sale of shares of the fund, including, but not limited to (i) advertising, (ii) compensation paid
to financial institutions, broker-dealers, and others for sales and marketing, (iii) shareholder accounting servicing, (iv)
printing and mailing prospectuses to possible new investors, and (v) printing and mailing sales literature. A fund may also
employ a distributor to distribute and market fund shares and then use 12b-1 fees to pay the distributor for expenses relating
to telephone use, overhead, employing employees who engage in or support the distribution of the fund shares, printing
prospectuses and other reports for possible new investors, advertising, and preparing and distributing sales literature.
The 12b-1 fee for each Hennessy Mutual Fund is 0.15% of the average daily net assets of such fund’s Investor
Class shares.
CUSTODIAL, DISTRIBUTION, AND BROKERAGE ARRANGEMENTS
We use independent third parties for custody and distribution of our assets under management.
16
All trades for the Hennessy Funds are executed by independent brokerage firms following our direction or the
direction of our sub-advisors. When selecting brokers, we and our sub-advisors are required to seek best execution.
Although there is no single statutory definition, SEC releases and other legal guidelines make clear that this duty requires
us to seek “the most advantageous terms reasonably available under the circumstances for a customer’s account.” The
lowest possible commission, while important, is not the sole determinative factor. We and our sub-advisors also consider
factors such as order size and market depth, availability of competing markets and liquidity, trading characteristics of the
security, financial responsibility of the broker-dealer, and the broker’s ability to address current market conditions.
Currently, we participate in soft dollar arrangements with one of our brokers. This means we receive research
reports and real-time electronic research to assist us in trading and managing the Hennessy Funds. Under these soft dollar
arrangements, the Hennessy Funds pay brokerage commissions for securities trades at the regular market rate, and some or
all of the value of those commissions is received by us in the form of research or other services that benefit the Hennessy
Funds. We believe our soft dollar arrangements comply with SEC guidance regarding soft dollars.
LICENSE AGREEMENT
Our ability to use the names and formulaic investment strategies of the Hennessy Cornerstone Growth Fund and
the Hennessy Cornerstone Value Fund are governed by the terms and conditions of a license agreement, dated as of
April 10, 2000, with Netfolio. Under the license agreement, Netfolio granted us a perpetual, paid-up, royalty-free, exclusive
license to use certain trademarks, such as “Strategy Indexing,” “Cornerstone Growth,” and “Cornerstone Value,” as well as
the formula investment strategies used by the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value
Fund. All of our advertising, marketing, promotional, and other materials incorporating or referring to the trademarks are
subject to the prior written approval of Netfolio, except that we do not need Netfolio’s prior written approval to use the
trademarks in a manner that is not substantially unchanged from any prior use by Netfolio in its own business or from any
prior use by us previously approved by Netfolio. We have the right to assign the license to another person or entity if the
assignee agrees in writing to be bound by the terms of the license agreement. There are no ongoing licensing fees associated
with this license agreement, and Netfolio does not have any contractual rights to terminate the license agreement.
BUSINESS STRATEGY
From the time we launched our first mutual fund in 1996, we have consistently pursued a growth strategy centered
on organic growth through our marketing, sales, and distribution efforts and growth through strategic purchases of
management-related assets. The implementation of this business strategy is described below.
●
Seeking to deliver strong investment performance of the Hennessy Funds
One of the most effective ways we can grow the assets of the Hennessy Funds is by delivering strong investment
performance, which we believe should:
●
result in an increase in the value of existing assets of the Hennessy Funds;
●
encourage more investors to buy shares of the Hennessy Funds and decrease the number of investors who
redeem their shares and leave the Hennessy Funds; and
● motivate current investors to invest additional money in the Hennessy Funds.
●
Utilizing our branding and marketing campaign to attract assets
We believe we can attract investors to the Hennessy Funds by effectively marketing our consistent and disciplined
approach to investing based on a buy-and-hold philosophy that rejects the idea of market timing. We offer quantitative
funds, actively managed funds, and income-generating funds. We believe our quantitative funds attract investors who want
to understand exactly how their investments are managed and who favor statistical analysis and empirical evidence as the
basis for investment decisions. We also believe that our actively managed funds attract investors who appreciate a
fundamental, hands-on investment management approach and talented portfolio managers. Finally, we believe our more
conservative, income-generating funds attract investors seeking alternatives to funds invested entirely in equities.
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We run a comprehensive and far-reaching public relations program designed to disseminate our message to a wide
variety of potential investors through frequent television appearances, radio spots, feature articles, and print media
mentions. We have partnered with an industry-leading public relations firm, SunStar Strategic, to proactively promote the
Hennessy Funds to national financial media. This public relations program has consistently resulted in the Hennessy Funds
being mentioned an average of once every two to three days in national print and broadcast media such as CNBC, Fox
News, Bloomberg radio and TV, The Wall Street Journal, Kiplinger, and Barron’s, among others. To facilitate our presence
in the media, we utilize LiveStudio, an in-house studio providing a direct link to media broadcasts, at our office in Novato,
California. We have several spokespeople who help us expand our public relations program and provide comprehensive
media coverage of our products, including (i) Neil J. Hennessy, who is our Chief Executive Officer and Chairman of our
Board of Directors as well as President, Chief Market Strategist, and a Portfolio Manager of the Hennessy Funds, (ii) Ryan
Kelley, Chief Investment Officer and a Portfolio Manager of the Hennessy Funds, and (iii) Portfolio Managers Ben Cook,
David Ellison, and Josh Wein, as well as the Portfolio Managers at our sub-advisors.
We maintain and regularly update a robust website and social media presence. Our core marketing efforts include
targeted outreach to both current and prospective investors in the Hennessy Funds, including financial advisors and retail
investors. Our content marketing includes overall market and sector-specific thought leadership, promotional investment
ideas, fund updates, and commentary from our portfolio managers, as well as feature news articles and broadcast
appearances. We attend select investment advisor trade shows and strategic industry-related conferences, and we seek
opportunities to moderate or speak on industry-related panels.
●
Expanding our distribution network to additional distribution platforms
Investors may purchase shares of the Hennessy Funds through financial institutions, including fund supermarkets,
national wirehouses and broker-dealers, independent and regional broker-dealers, and registered investment advisors.
Fund supermarkets, such as Schwab, Fidelity, TD Ameritrade, and Pershing, generally offer funds of many
different investment companies to investors in exchange for a services fee paid by the applicable fund or that fund’s
investment advisor. The ability to purchase various funds in a single location is very attractive to investors, and the majority
of our assets under management as of the end of fiscal year 2023 was held at fund supermarkets. Additionally, we
continually seek opportunities to form new relationships with financial institutions to make the Hennessy Funds even more
accessible to investors. We oversee distribution of the Hennessy Funds through all financial institutions.
Investors may also purchase shares of the Hennessy Mutual Funds directly through the Hennessy Funds' website
or by calling us or U.S. Bank Global Fund Services, the Hennessy Funds’ administrator.
●
Increasing our current base of financial advisors and investment professionals
Investment professionals generally have access to a wide variety of investment products they may recommend to
their clients. A recommendation by an investment professional to a client to buy one of the Hennessy Funds may greatly
influence that investor. Thus, we believe that expanding our current base of investment professionals who utilize no-load
funds for their clients will help us increase our assets under management, which will in turn increase our revenues.
●
Securing participation on the platforms of national full-service firms
We continually strive to develop relationships with national full-service firms that permit their investment
professionals to offer no-load funds to their clients as a way to increase the amount of assets that we manage, which will in
turn increase our revenues.
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●
Pursuing strategic purchases of management agreements for additional funds
A primary component of our growth strategy is to selectively pursue strategic purchases of the assets related to the
management of additional funds. We believe the regulatory burden imposed upon the fund industry, along with increased
competition, has compressed the margins of smaller to mid-sized fund managers, making those managers more receptive to
an asset purchase. The long-term trend toward lower fees has made it more challenging to identify accretive asset
purchases, but we believe that we are well positioned to move quickly once we identify any attractive purchase targets from
the large supply of potential targets.
Through our asset purchase strategy, we have completed 11 purchases of the assets related to the management of
investment funds over a 20-year period, integrating $4.3 billion in net assets of 31 different investment funds into the
Hennessy Funds family.
●
Delivering strong, high-quality financial results.
We seek to maintain a strong financial position and to manage our investment advisory business to meet the
highest regulatory, ethical, and business standards and to maintain continuity of service to all of the investors in the
Hennessy Funds.
COMPETITION
The investment advisory industry is highly competitive, with new competitors continually entering the industry.
We compete directly with numerous global and U.S. investment managers, commercial banks, savings and loans
associations, brokerage and investment banking firms, broker-dealers, insurance companies, and other financial institutions
that often provide investment products with similar features and objectives to those we offer. These institutions range from
small boutique firms to large financial services complexes. We are considered a small investment advisory company. Many
competing companies are part of larger financial services companies that conduct business in more markets and have
greater marketing, financial, technical, research, and distribution resources and other capabilities than we do. Most of the
larger firms offer a broader range of financial services to the same retail and institutional investors we seek to serve. These
factors may place us at a competitive disadvantage, and we can give no assurance that our strategies and efforts to maintain
and enhance our current investor relationships, as well as to create new ones, will be successful. To grow our business, we
must be able to compete effectively for assets under management. Key competitive factors include:
●
the investment performance of the Hennessy Funds;
●
the breadth of our product offerings;
●
industry rankings of the Hennessy Funds;
●
the quality of our services;
● our ability to further develop and market our brand;
● our commitment to placing the interests of investors first; and
● our general business reputation.
Increased competition could reduce the demand for our products and services, which could have a material adverse
effect on our business, results of operations, and financial condition.
Competition is an important risk that our business faces and should be considered along with other risk factors that
we discuss in Item 1A, “Risk Factors.”
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REGULATORY ENVIRONMENT
We are subject to an increasing number of extensive and complex federal and state laws and regulations intended
to protect investors in funds and investors of registered investment advisors. We believe we are in compliance in all
material respects with all applicable laws and regulations.
We are registered as an investment advisor with the SEC and, therefore, must comply with the requirements of the
Advisers Act and related SEC regulations. Such requirements relate to, among other things, fiduciary duties to investors,
transactions with investors, compliance program effectiveness, solicitation arrangements, conflicts of interest, advertising,
recordkeeping and reporting, disclosure, and anti-fraud matters.
We manage accounts for the Hennessy Funds on a discretionary basis, meaning that we have the authority to buy
and sell securities for each portfolio, select broker-dealers to execute trades, and negotiate brokerage commission rates. In
connection with certain of these transactions, we receive soft dollar credits from broker-dealers that have the effect of
reducing certain of our expenses. All of our soft dollar arrangements are intended to be within the safe harbor provided by
Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). If our ability to use soft dollars
were reduced or eliminated as a result of the implementation of statutory amendments or new regulations, our operating
expenses would increase.
The Hennessy Funds are registered with the SEC under the 1940 Act, which imposes additional obligations on
both the Hennessy Funds and us, as the advisor to the Hennessy Funds, including detailed operational requirements. While
we exercise broad discretion over the day-to-day management of the business, affairs, and investment portfolios of the
Hennessy Funds, our operations are subject to oversight and management by the Funds’ Board of Trustees. The
responsibilities of the Funds’ Board of Trustees include, among other things, annually approving the continuation of our
investment advisory agreements and shareholder servicing agreement with the Hennessy Funds and our sub-advisory
agreements with the sub-advisors to the Hennessy Funds, approving other service providers, determining the method of
valuing assets, and monitoring transactions involving affiliates. The 1940 Act also imposes on us a fiduciary duty with
respect to receiving investment advisory fees. That fiduciary duty may be enforced by the SEC, by administrative action, or
through litigation initiated by investors in the Hennessy Funds pursuant to a private right of action.
The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act of 1940
and the 1940 Act, ranging from fines and censures to the suspension of individual employees to termination of our
registration as an investment advisor. A violation of applicable law or regulations could also subject us, our directors, and
our employees to civil actions brought by private parties. We believe we are in compliance in all material respects with all
applicable SEC requirements.
EMPLOYEES
As of the end of fiscal year 2023, we had 17 employees, 16 of whom were full-time employees. Our 17 employees
had an average tenure of 14 years as of the end of fiscal year 2023. We focus on providing our employees competitive
compensation, a friendly and flexible office environment, and fostering close-knit working relationships among our team
members. Over 50% of our employees are women, and with an executive team that is 50% women and 25% minority, we
believe we have created an environment in which all team members can be successful and supported.
Our executive officers are (i) Neil J. Hennessy, Chief Executive Officer and Chairman of our Board of Directors,
(ii) Teresa M. Nilsen, President, Chief Operating Officer, Secretary, and a member of our Board of Directors, (iii) Kathryn
R. Fahy, Chief Financial Officer and Senior Vice President, and (iv) Daniel B. Steadman, Executive Vice President. In
addition to our executive officers’ responsibilities at Hennessy Advisors, Inc., (a) Mr. Hennessy is President, Chief Market
Strategist, and a Portfolio Manager of the Hennessy Funds and is a member of the Funds’ Board of Trustees, (b) Ms. Nilsen
is an Executive Vice President and Treasurer of the Hennessy Funds, (c) Ms. Fahy is Vice President, Assistant Treasurer,
and Assistant Secretary of the Hennessy Funds, and (d) Mr. Steadman is an Executive Vice President and Secretary of the
Hennessy Funds.
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AVAILABLE INFORMATION
We make available free of charge through a link on our website, www.hennessyadvisors.com, our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. We are not including the information contained on our
website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
We face many risks and uncertainties, many of which are inherent in the financial services industry and the
investment advisory business. Investors should carefully consider the risks described below, together with all of the other
information included in this Annual Report on Form 10-K, in evaluating us and our common stock. Our business, results of
operations, financial condition, and stock price could be materially adversely affected by any of the risks we face, including
those described below.
RISKS RELATING TO OUR ASSETS UNDER MANAGEMENT
Volatility in and disruption of the capital markets and changes in the economy has and may continue to significantly
affect our assets under management and revenues.
The securities markets are inherently volatile and may be affected by factors beyond our control, including global
economic conditions, industry trends, interest and inflation rate fluctuations, political factors, the imposition of economic
sanctions, public health crises, natural disasters, and other factors that are difficult to predict. Because our assets under
management is largely concentrated in equity products, our results are particularly susceptible to downturns in the equity
markets. We derive all of 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 asset value of the Hennessy Funds.
Accordingly, our revenues increase or decrease as our average assets under management increases or decreases, which is
affected by market appreciation or depreciation and purchases and redemptions of shares of the Hennessy Funds. Changing
market conditions could also cause an impairment to the value of our management contract asset.
Investors in the Hennessy Funds can redeem their investments at any time and for any reason, including poor
investment performance and volatile equity markets. A decline in our assets under management adversely affects our
revenues.
Investors in the Hennessy Funds may redeem their investments at any time and for any reason without prior notice.
Success in the investment advisory and fund business is largely dependent on investment performance, as well as investor
servicing and distribution. If the Hennessy Funds perform poorly compared to the investment products offered by other
investment advisory firms, we may experience a decrease in purchases of shares and an increase in redemptions of shares of
the Hennessy Funds. Further, sharp declines in the stock market have and may continue to cause increases in redemptions
of shares of the Hennessy Funds. Such redemptions reduce our assets under management and adversely affect our revenues.
Adverse opinions of the Hennessy Funds by third parties, including rating agencies or industry analysts, could decrease
new investments in, or accelerate redemptions from, the Hennessy Funds, which would adversely affect our revenues.
The Hennessy Funds are rated, ranked, and assessed by independent third parties, including rating agencies,
industry analysts, distribution partners, and industry periodicals. These ratings, rankings, and assessments often influence
the investment decisions of investors, but they can be affected by a number of factors that are not under our direct control
and may change frequently. For example, a ranking agency like Morningstar may change its ranking designs and
methodology, which could result in a decrease in the ratings of the Hennessy Funds without any action on our part. If the
Hennessy Funds received an adverse rating, ranking, or assessment from a third party, it could result in an increase in the
withdrawal of assets from the Hennessy Funds by existing investors and the inability to attract additional investments into
the Hennessy Funds from existing and new investors, thereby reducing our assets under management and adversely
affecting our revenues.
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The failure or negative performance of products offered by competitors may have a negative impact on the Hennessy
Funds within such similar product type, irrespective of our fund performance.
Many competitors offer similar products to the Hennessy Funds, and the failure or negative performance of
competitors’ products could lead to a loss of confidence in the corresponding products in the Hennessy Funds lineup,
irrespective of the performance of the Hennessy Funds. Any loss of confidence in a product type could lead to redemptions
in the Hennessy Fund within such product type, which could have a material adverse effect on our business, results of
operations, and financial condition.
Our business and operations are subject to adverse effects from market reactions to the outbreak of contagious diseases.
The outbreak and spread of contagious diseases such as COVID-19 has adversely impacted global commercial
activity, contributed to significant volatility in global equity and debt markets, and disrupted supply chains, operations, and
economic activity. The COVID-19 pandemic adversely impacted the value and performance of the Hennessy Funds, which
resulted in declines in our revenues. It also limited our ability to source and pursue potential acquisitions. Future outbreaks
of contagious diseases could have similar adverse impacts on our business and financial performance.
RISKS RELATING TO OUR BUSINESS MODEL AND OPERATIONS
We derive a substantial portion of our revenues from a limited number of the Hennessy Funds.
For the past several years, approximately 75% of our assets under management has been concentrated in five of
our funds. During fiscal year 2023, our average assets under management was concentrated in the following five funds:
(i) the Hennessy Focus Fund (23% of average assets under management); (ii) the Hennessy Gas Utility Fund (17% of
average assets under management); (iii) the Hennessy Cornerstone Midcap 30 Fund (15% of average assets under
management); (iv) the Hennessy Japan Fund (10% of average assets under management); and (v) the Hennessy Cornerstone
Value Fund (10% of average assets under management). Consequently, our revenues followed a similar pattern of
concentration: (a) the Hennessy Focus Fund (27% of total revenue); (b) the Hennessy Cornerstone Midcap 30 Fund (15%
of total revenue); (c) the Hennessy Gas Utility Fund (10% of total revenue); (d) the Hennessy Cornerstone Value Fund
(10% of total revenue); and (e) the Hennessy Japan Fund (10% of total revenue). As a result, our operating results are
particularly dependent upon the performance of a very small number funds and our ability to maintain and grow assets
under management in these funds. These funds have experienced significant redemptions in recent years and may continue
to do so for the future. This has reduced, and may continue to reduce, our assets under management and revenues.
We utilize unaffiliated sub-advisors to manage the portfolio composition of certain of the Hennessy Funds, and any
matters that have an adverse impact on their businesses or any change in our relationships with our sub-advisors could
lead to a reduction in assets under management, which would adversely affect our revenues.
We utilize unaffiliated sub-advisors to manage the portfolio composition of some of the Hennessy Funds.
Although we perform due diligence on our sub-advisors, we do not manage their day-to-day business activities. Our
financial condition and profitability may be adversely affected by situations that are specific to such sub-advisors, such as
disruption of their operations, their exposure to disciplinary action, or reputational harm to them.
We periodically negotiate the terms and conditions of these sub-advisory relationships, and there can be no
assurance that such terms will remain acceptable to us or our sub-advisors. These relationships may also be terminated by
us or the applicable sub-advisor without penalty on 60 days’ notice. In addition, each sub-advisory agreement must be
renewed annually by the Funds’ Board of Trustees (or by the vote of a majority of the outstanding shares of the applicable
Hennessy Fund), including a majority of the disinterested trustees. Furthermore, a sub-advisory agreement automatically
terminates if it is assigned. Assignment is generally defined under the 1940 Act and the Advisers Act to include direct
assignments as well as assignments that are deemed to occur due to the change in control of the investment advisor, which
includes us or one of the sub-advisors that we have engaged on behalf of certain of the Hennessy Funds. However, a
transaction is not an assignment under the 1940 Act or the Advisers Act if it does not result in a change of actual control or
management of us or, in the context of a sub-advisor, a change of actual control or management of the sub-advisor.
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Generally, if a sub-advisor experiences a change of control but we do not, we could continue acting as an advisor
to the applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub-advisory
agreement for the sub-advisor. However, for the Hennessy Stance ESG ETF, we have the authority to appoint and replace
unaffiliated sub-advisors and to enter into and make material amendments to the related sub-advisory agreements without
shareholder approval. This is because we recently sought and received an exemptive order from the SEC to operate under a
manager of managers structure and subsequently obtained shareholder approval to implement such structure for the
Hennessy Stance ESG ETF. Under the manager of managers structure, we have ultimate responsibility, subject to oversight
of and approval by the Hennessy Funds’ Board of Trustees, for overseeing the Hennessy Funds’ unaffiliated sub-advisors
and recommending their hiring, termination, or replacement. We have not yet received, and do not have an estimated
timeline for receiving, shareholder approval to operate under a manager of managers structure for the Hennessy Mutual
Funds that are sub-advised.
Any interruption or termination of our sub-advisory relationships, whether due to a change of control or any other
circumstance, could affect our ability to market our sub-advised funds and result in a reduction in assets under
management, which would adversely affect our revenues.
We utilize a unitary fee structure for the Hennessy Stance ESG ETF, and we bear the risk that the Fund’s operating
expenses may increase and lead to a reduction in our revenues from the fund.
The Hennessy Stance ESG ETF pays us a unitary fee under its investment advisory agreement with us. Under a
unitary fee structure, we bear all operating expenses incurred in connection with providing services to the fund. The
operating expenses covered by the unitary fee include third party data providers, transfer agency, custody, fund
administration, legal, audit and other services. Additionally, for no compensation, we pay all other operating expenses of
the fund, including sub-advisory fees, with the exception of the following: (1) the management fees paid to us; (2)
distribution fees and expenses paid by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the
Investment Company Act; (3) interest expenses; (4) brokerage expenses, trading expenses, and other expenses (such as
stamp taxes) in connection with the execution of portfolio transactions or in connection with creation or redemption
transactions; (5) compensation paid to the independent trustees of the fund and fees paid to independent trustees’ counsel;
(6) tax expenses and governmental fees; and (7) extraordinary expenses not incurred in the course of ordinary business (the
“Excluded Fees”). The fund and its shareholders bear the costs of Excluded Fees. The unitary fee structure generally
eliminates the possibility for any decrease in the total fund expense ratio during periods when assets under management
increased, which could lead to increased profitability for us if ware able to achieve economies of scale. On the other hand,
if the fund’s operating expenses increase (other than Excluded Fees), this will lead to a reduction in our revenues from the
fund.
We depend on key personnel to manage our business, and the loss of any key person’s services, combined with our
inability to identify and retain a suitable replacement for such person, could materially adversely affect us. Additionally,
the cost to retain our key personnel could put pressure on our operating margins.
Our success is largely dependent on the skills, experience, and performance of our key personnel. The business
acumen, investment advisory expertise, and business relationships of our key personnel are critical elements in operating
and expanding our business. Financial services professionals are in high demand, and we face significant competition for
qualified employees. The loss of services of any of our key personnel for any reason, combined with our inability to
identify and retain a suitable replacement for such person, could have a material adverse effect on our business, results of
operations, and financial condition. Moreover, in order to retain key personnel, we may be required to increase
compensation to such individuals, resulting in additional expense.
We have debt and may incur additional debt, which may increase the risk of investing in us and may harm our financial
condition and results of operations.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and therefore
increase the risks associated with investing in our securities.
23
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.
We may incur additional debt in the future. Our indebtedness could (i) decrease our ability to obtain additional
financing for working capital, capital expenditures, general corporate or other purposes, (ii) limit our flexibility to make
acquisitions, (iii) increase our cash requirements to support the payment of interest, (iv) limit our flexibility in planning for,
or reacting to, changes in our business and our industry, and (v) increase our vulnerability to adverse changes in general
economic and industry conditions. Our ability to make payments of principal and interest on our indebtedness depends
upon our future performance, which is subject to general economic conditions and financial, business, and other factors
affecting our consolidated operations, many of which are beyond our control.
Changes in the distribution channels on which we depend could reduce our net revenues and hinder our growth.
Our primary source of distribution of the Hennessy Funds is through a variety of financial institutions. Our success
is highly dependent on access to these various distribution channels. We cannot guarantee we will be able to retain access to
these channels at similar pricing or at all. Increasing competition for these distribution channels could cause our distribution
costs to rise, which could have a material adverse effect on our net income. These financial institutions generally can
terminate their relationships with us on short notice. Mergers and other corporate transactions among distributors also may
affect our relationships with financial institutions. Certain of the financial institutions upon whom we rely to distribute the
Hennessy Funds also sell their own competing proprietary investment products, which could limit the distribution of our
products. Investors increasingly rely on external consultants and other third parties for advice on the choice of investment
manager. These consultants and third parties tend to exert a significant degree of influence over their clients’ choices, and
they may favor one of our competitors as better meeting their particular clients’ needs. There is no assurance that the
Hennessy Funds will be among their recommended choices in the future.
Additionally, particularly in the United States, certain financial institutions have substantially reduced the number
of investment funds they make available to their clients. If a material portion of the financial institutions with whom we do
business were to substantially narrow their product offerings, it could have a significant adverse effect on our assets under
management, revenues, and net income. More broadly, in both retail and institutional channels, financial institutions
(distribution firms and consultants) are seeking to reduce the number of investment management firms with which they do
business. This poses risks of additional lost business if a particular financial institution chooses to stop or significantly
reduce its business relationship with us. Any failure to maintain strong business relationships with these financial
institutions and the consultant community due to any of the above-described factors would impair our ability to distribute
the Hennessy Funds, which in turn would have a negative effect on our assets under management, revenues, and net
income.
Management contracts purchased by us are currently classified as an indefinite-life asset subject to impairment analysis.
The impairment analysis is based on subjective criteria, and an impairment loss could be recorded.
The management contracts we have purchased, an $81.3 million asset on the balance sheet as of the end of fiscal
year 2023, are considered an intangible asset with an indefinite useful life. Management reviews the indefinite life
classification of our management contract asset each reporting period. If the management contract asset is ever reclassified
as an asset with a definite life, we would begin amortizing the management contracts over their remaining useful life. If the
management contract asset continues to be classified as an indefinite-life asset, we will continue to periodically review the
carrying value to determine if any impairment has occurred. The impairment analysis is based on anticipated future cash
flows, which are calculated based on assets under management. Although the management contract asset is not currently
impaired, there is always a possibility of impairment in the future, which could require us to write off all or a portion of the
asset. A write-off, depending on the amount, could have operational risks and could have a significant impact on the value
of our equity and our earnings per share.
24
We may be required to forego all or a portion of our fees under our investment advisory agreements with the Hennessy
Funds.
On an annual basis, the Funds’ Board of Trustees must assess the reasonableness of our investment advisory fees.
While the Funds’ Board of Trustees has found our investment advisory fees to be reasonable in the past, we cannot
guarantee that it will continue to do so. Additionally, we regularly analyze the expense ratios of the Hennessy Funds and
have the right to waive fees to compete with other funds with lower expense ratios (although in the past we have only
waived fees based on contractual obligations). Any waiver of or reduction in fees would cause our revenues to decline and
could adversely affect our business, results of operations, and financial condition. Any fee waiver would apply only on a
going-forward basis.
The Hennessy Japan Fund and the Hennessy Japan Small Cap Fund invest in the Japanese stock market in yen, which
involves foreign exchange and economic uncertainties.
The Hennessy Japan Fund and the Hennessy Japan Small Cap Fund are invested in securities listed on the
Japanese stock market, which exposes these funds to risks that are not typically associated with an investment in a U.S.
issuer. The values of these funds fluctuate with changes in the value of the Japanese yen versus the U.S. dollar. Investments
in Japanese securities also expose these funds to the economic uncertainties affecting Japan, which may differ from those
affecting the United States. Further, Japanese financial accounting standards and practices may differ, and there may be less
information on Japanese companies available publicly. If these circumstances result in a reduction in the total assets of the
Hennessy Japan Fund and the Hennessy Japan Small Cap Fund, our assets under management would be reduced, which
would adversely affect our revenues.
We utilize quantitative investment strategies for some of the Hennessy Funds that require us to invest in specific
portfolios of securities and hold these positions for a specified period of time regardless of performance.
Our formula-driven funds adhere to quantitative investment strategies, and the portfolios of stocks held by such
funds are rescreened and rebalanced at designated times in accordance with such investment strategies. Adhering to our
investment strategies regardless of any adverse developments that may arise could result in substantial losses to the
formula-driven Hennessy Funds if, for example, the stocks selected for a fund are experiencing financial difficulty or are
out of favor with investors in a given period. This could, in theory, result in relatively low performance of the
formula-driven Hennessy Funds and adversely affect the net assets of such Hennessy Funds. A decrease in the net assets of
the Hennessy Funds would adversely affect our revenues.
We pursue strategic asset purchases as part of our regular business strategy, and such acquisitions involve inherent
risks that could adversely affect our operating results and financial condition and potentially dilute the holdings of
current shareholders.
As part of our regular business strategy, we pursue strategic purchases of the assets related to the management of
additional funds. This strategy is accompanied by risks including, among others, the possibility of the following:
●
the potential unavailability of attractive acquisition opportunities;
●
a high level of competition from other companies that may have greater financial resources than we do;
● our inability to value potential asset purchases accurately and negotiate acceptable purchase terms;
● our inability to obtain quorum and secure enough affirmative votes to gain approval of the proposed fund
reorganization from the target fund’s investors;
●
the loss of fund assets paid for in an asset purchase through redemptions by investors of the funds involved in
the asset purchase;
● higher than anticipated asset purchase expenses;
25
● our inability to successfully integrate and maintain adequate infrastructure to support business growth;
●
increasing our leverage;
●
the potential diversion of our management’s time and attention;
● dilution to our shareholders if we fund an asset purchase in whole or in part with our common stock; and
●
adverse effects on our earnings if purchased intangible assets become impaired.
While we seek to mitigate these risks through, among other things, due diligence and indemnification provisions,
these or other risk-mitigating measures that we put in place may not be sufficient to address these risks. If one or more of
these risks occur, we may be unable to successfully complete a purchase of management-related assets (thereby requiring
us to write off any related expenses), we may experience an impairment of our management contract asset, we may receive
negative publicity or suffer other negative impacts on our reputation, and we may not achieve the expected return on
investment. Any of these results could have an adverse effect on our business, results of operations, and financial condition.
Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely
assignable, and must be renewed annually; the loss of such agreements would reduce our revenues.
We generate all of our operating revenues from the investment advisory and shareholder servicing agreements
with the Hennessy Funds. These agreements may be terminated without penalty on 60 days’ notice and may not be assigned
without the consent of investors in the Hennessy Funds. In addition, they each must be renewed annually by the Funds’
Board of Trustees (or, in the case of our investment advisory agreements, by the vote of a majority of the outstanding
shares of the applicable Hennessy Fund), including a majority of the disinterested trustees. The termination or non-renewal
of these agreements, or the renegotiation of the terms of these agreements in a manner detrimental to us, could result in a
substantial reduction in revenues, which could have a material adverse effect on our business, results of operations, and
financial condition.
RISKS RELATING TO OUR INDUSTRY
Investor behavior is influenced by short-term investment performance.
Investor behavior may be based on many factors, including short-term investment performance. Poor short-term
performance of the Hennessy Funds, irrespective of longer-term success, could potentially lead to a decrease in purchases
of shares of the Hennessy Funds and an increase in redemptions, thereby reducing our assets under management and
adversely affecting our revenues.
Assets invested through financial institutions can be quickly redeemed, which could reduce our revenues.
Financial institutions are attractive to investors because of the ease of accessibility to a variety of funds, but this
may cause the investments to be more sensitive to fluctuations in performance, especially in the short term. If we were
unable to retain the assets of the Hennessy Funds held through financial institutions, our assets under management would
be reduced. As a result, our revenues could decline and our business, results of operations, and financial condition could be
materially adversely affected.
26
We face intense competition in attracting investors and retaining net assets in the Hennessy Funds.
The investment advisory industry is intensely competitive and new participants are continually entering the
industry. We compete directly with numerous global and U.S. investment advisors, commercial banks, savings and loan
associations, brokerage and investment banking firms, broker-dealers, insurance companies, and other financial institutions
that often provide investment products with similar features and objectives to those we offer. These institutions range from
small boutique firms to large financial services complexes. We are considered a small investment advisory company. Many
competing companies are part of larger financial services companies that conduct business in more markets and have
greater marketing, financial, technical, research, and distribution resources and other capabilities than we do. Most of the
larger firms offer a broader range of financial services to the same retail and institutional investors that we seek to serve. If
we are unable to attract investors and retain net assets in the Hennessy Funds due to increased competition, our revenues
could decline and we could experience a material adverse effect on our business, results of operations, and financial
condition.
For more information regarding competitive factors, see the “Competition” subheading in Item 1, “Business.”
We may be unable to develop or acquire new products and the development of new products may expose us to
reputational harm, additional costs, or operational risk.
Our continued financial performance may depend on our ability to react to changes in the asset management
industry, respond to evolving investor demands and develop, market, and manage new investment products. Conversely,
the development and introduction of new products, including the creation or acquisition of products with a focus on
ESG matters, requires continued innovative effort on our part and may require significant time and resources, as well as
ongoing support and investment. Substantial risks and uncertainties are associated with the introduction of new products,
including the implementation of new and appropriate operational controls and procedures, shifting investor and market
preferences, the introduction of competing products, constraints on our ability to manage growth, and compliance with
regulatory and disclosure requirements. A growing number of new products also depend on data provided by third parties
as analytical inputs and are subject to additional risks, including with respect to data quality, cost, availability, and provider
relationships. There can be no assurance that we will be able to develop or acquire new products that address the needs of
investors on the timescale they require. Any failure to successfully develop or acquire new products, or effectively manage
associated operational risks, could harm our reputation and expose us to additional costs, which may reduce our assets
under management and adversely affect our revenues.
Market consolidation and industry trends could negatively impact our business.
In recent years, there have been several instances of industry consolidation in both the distribution and investment
management areas. Further consolidation may occur in these areas in the future. The increasing size and market influence
of certain distributors of our products and of certain direct competitors may have a negative impact on our ability to
compete at the same levels of profitability in the future. Additionally, the market environment has increasingly led some
investors to favor lower–fee, passive products. As a result, investment advisors that emphasize passive products have
gained, and may continue to gain, market share from active managers like us.
Industry trends and market pressure to lower our investment advisory fees could reduce our profit margin.
Our profits are highly dependent on the fees we are able to charge to the Hennessy Funds for investment advisory
services. To the extent we are forced to compete on the basis of the investment advisory fees we charge to the Hennessy
Funds, we may not be able to maintain our current fee structures. We have historically competed primarily on the
performance of the Hennessy Funds and not on the level of our investment advisory fees relative to those of our
competitors. In recent years, however, there has been a trend toward lower fees in the investment advisory industry. To
maintain our fee structures in a competitive environment, we must be able to provide investors in the Hennessy Funds with
investment returns and service that will adequately compensate them for investing in our funds with our current fee
structures. We may not succeed in maintaining our current fee structures, and fee reductions on existing or future business
could have a material adverse effect on our results of operations.
Higher insurance premiums and increased insurance coverage risks could increase our costs and reduce our
profitability.
We carry insurance in amounts and under terms that we believe are appropriate, but we cannot guarantee that our
insurance policies will cover all liabilities and losses to which we may be exposed or, if covered, that such liabilities and
27
losses will not exceed insurance coverage limits or that our insurers will remain solvent and meet their obligations. In
addition, insurance premiums and required retentions have increased in the past and may do so again in the future.
We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such
proceeding could involve substantial financial penalties. Various claims may also arise against us in the ordinary course of
business, such as employment-related claims. There has been increased incidence of litigation and regulatory investigations
in the financial services industry in recent years, including customer claims and class action suits alleging substantial
monetary damages. Certain insurance coverage may not be available or may be prohibitively expensive in future periods.
As our insurance policies come up for renewal, we may need to assume higher deductibles or co-insurance liabilities, or pay
higher premiums, which would increase our expenses and have a material adverse effect on our results of operations.
We depend on information technology, and any failures of or damage to, attack on or unauthorized access to our
information technology systems or facilities, or those of third parties with which we do business, including as a result of
cyber-attacks, could result in significant limits on our ability to conduct our operations and activities, costs, and
reputational damage.
We use software and related technologies throughout our business and also utilize third-party vendors who use
software and related technologies to provide services to us and the Hennessy Funds. We are dependent on the effectiveness
of our information and cybersecurity policies, procedures, and capabilities we maintain to protect our computer and
telecommunications systems and the data that resides on or is transmitted through them, including data provided by third
parties that is significant to our business. An information security incident, such as a cyber-attack involving a phishing
scam, business email compromise, malware, or ransomware attack, or an internally caused incident or disruption, such as
misuse or a failure to control access to sensitive systems, could materially interrupt our business operations or cause
disclosure or modification of sensitive or confidential investor or competitive information. Moreover, our growing reliance
on mobile and cloud technology and any failure by mobile technology and cloud service providers to adequately safeguard
their systems and prevent cyber-attacks could disrupt our operations and result in misappropriation, corruption, or loss of
personal, confidential, or proprietary information or third-party data. Additionally, although we take precautions to
password protect and encrypt our laptops and other mobile electronic hardware, if such hardware is stolen, misplaced, or
left unattended, it may become vulnerable to hacking or other unauthorized use, creating a possible security risk and
resulting in potentially costly actions. Furthermore, there is a risk that encryption and other protective measures may be
circumvented, particularly to the extent that new computing technologies increase the speed and computing power
available.
The financial services industry has been the subject of cyber-attacks involving the dissemination, theft, and
destruction of corporate information or other assets as a result of failure to follow procedures by employees or as a result of
actions by third parties, including actions by terrorist organizations and nation-state actors. Although we have implemented
policies and controls to prevent and address potential data breaches, inadvertent disclosures, increasingly sophisticated
cyber-attacks, and cyber-related fraud, there can be no assurance that any of these measures will prove effective. Because
the techniques used to obtain unauthorized access, disable, or degrade service or sabotage systems change frequently and
often are not recognized until launched against a target, we may be unable to anticipate these techniques, to implement
adequate preventative measures, or to address them until they are discovered. In addition, a successful cyber-attack may
persist for an extended period of time before being detected, and it may take a considerable amount of time for an
investigation to be completed and the severity and potential impact to be known. While such an investigation is ongoing,
we may not necessarily know the extent of the harm or how best to remediate it, certain errors or actions could be repeated
or compounded before they are discovered and remediated, and communication to the public, regulators, shareholders, and
investors in the Hennessy Funds may be inaccurate, any or all of which could further increase the costs and consequences
of an information security incident.
If any of these events were to occur, we could suffer a financial loss, a disruption of our business, liability to the
Hennessy Funds and their investors, regulatory intervention, or reputational damage, any of which could have a material
adverse effect on our business, results of operations, and financial condition. We also may be required to expend significant
additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures. In
addition, our cybersecurity insurance may not cover all losses and damages from such events and our ability to maintain or
obtain sufficient insurance coverage in the future may be limited.
Finally, cybersecurity and data privacy have become high priorities for regulators, and many jurisdictions are
enacting laws and regulations in these areas. Enactment of privacy laws or regulations could, among other things, result in
additional costs of compliance or litigation. In addition, while we strive to comply with the relevant laws and regulations,
any failure to comply could result in regulatory investigations and penalties as well as negative publicity, which could
materially adversely affect our business, results of operations, and financial condition.
28
We are exposed to legal risk and litigation, which could increase our expenses and reduce our profitability.
We are subject to a number of sources of potential legal liability, including, by way of example, investors in the
Hennessy Funds, our own shareholders, our employees, or regulators. Lawsuits or investigations that we may become
involved in could be very expensive and highly damaging to our reputation, even if the underlying claims are without merit.
Our business is extensively regulated, which increases our costs of doing business, and our failure to comply with
regulatory requirements may harm our financial condition.
Our business is subject to extensive regulation in the United States, particularly by the SEC. We are subject to
regulation under the Securities Act of 1933, as amended, the Exchange Act, the 1940 Act, the Advisers Act, and various
other statutes. The laws to which we are subject are designed primarily to protect investors in the Hennessy Funds as
opposed to our shareholders. In addition to an increased number of applicable laws, the investment fund industry has
undergone increased scrutiny by the SEC and state regulators in recent years, resulting in numerous enforcement actions
and sweep examinations. Increased regulation has increased our costs in managing the Hennessy Funds, and we could
continue to experience higher costs if new laws require us to spend more time, hire additional personnel, or buy new
technology to comply effectively. Any change in law could also have a material adverse effect on us by limiting the sources
of our revenues and increasing our costs. In addition to securities regulations, our business also may be materially adversely
affected by other types of laws and policies.
Any determination of a failure to comply with applicable laws, rules, or regulations could expose us or our
employees to civil liability, criminal liability, or disciplinary or enforcement action, with penalties that could include the
disgorgement of fees, fines, sanctions, suspensions, or censure of individual employees, or revocation or limitation of
business activities or registration, and may result in monetary losses that are not covered by insurance in adequate amounts
or at all, any of which could have an adverse impact on our financial condition and results of operations. Further, if we or
our employees were to fail to comply with applicable laws, rules, or regulations, or be named as a subject of an
investigation or other regulatory action, the public announcement and potential publicity surrounding any such
investigation or action could have an adverse effect on our reputation and our stock price and result in increased costs, even
if we or our employees were found not to have violated such laws, rules, or regulations.
Changes to U.S. or state tax laws, our failure to adequately comply with U.S. or state tax laws, or the outcome of any
audits or regulatory disputes with respect to our compliance with U.S. or state tax laws could adversely affect us.
Changes to U.S. or state tax law could be enacted in the future that could have a material adverse effect on our
business, results of operations, and financial condition. Further, we are subject to potential tax audits in various
jurisdictions and in such event, tax authorities may disagree with certain positions we have taken and assess penalties or
additional taxes. While we assess regularly the likely outcomes of these potential audits, there can be no assurance that we
will accurately predict the outcome of a potential audit, and an audit could have a material adverse impact on our business,
results of operations, and financial condition.
Our investment advisory agreements require us to adhere to the investment policies and strategies of the Hennessy
Funds; any failure to comply with such requirements could result in claims, losses, or regulatory sanctions.
Our investment advisory agreements with the Hennessy Funds contain contractual provisions that require us to
comply with the investment policies and strategies of the Hennessy Funds when we provide our investment advisory
services. We are also required to comply with numerous investment, asset valuation, distribution, and tax requirements
under applicable law and regulations. Any allegation of a failure to adhere to these requirements could result in investor
claims, reputational damage, withdrawal of assets, and potential regulatory sanctions, any of which could negatively impact
our revenues and earnings. We have implemented procedures and utilize the services of experienced administrators,
accountants, and lawyers to assist in satisfying these requirements, but there can be no assurance that these precautions will
protect us from potential liabilities.
29
We may need to raise additional capital to fund new business initiatives, and resources may not be available to us in
sufficient amounts or on acceptable terms, which could have an adverse impact on our business.
Our ability to meet our future cash needs is dependent upon our ability to generate cash. Although we have been
successful in generating sufficient cash in the past, we may not be successful in the future. We may need to raise additional
capital to fund new business initiatives or repay the 2026 Notes, and financing may not be available to us in sufficient
amounts, on acceptable terms, or at all. Our ability to access bank financing or capital markets efficiently depends on a
number of factors, including the state of credit and equity markets, interest rates, and credit spreads. If we are unable to
access sufficient capital on acceptable terms, our business could be adversely impacted.
Failure to establish adequate controls and risk management policies, as well as circumvention of established controls
and policies by employees, could harm us by impairing our ability to attract and retain investors in the Hennessy Funds
and by subjecting us to significant legal liability, regulatory scrutiny, and reputational harm.
Our reputation is critical to attracting and retaining investors in the Hennessy Funds. In recent years, there have
been a number of highly publicized cases involving fraud, conflicts of interest, or other misconduct by individuals in the
financial services industry. We have implemented controls and risk management policies to monitor and manage risks, but
we cannot be certain that such controls and policies will successfully identify and manage internal and external risks.
Further, although we strive to conduct our business in accordance with the highest ethical standards and emphasize the
importance of doing so to our employees, there is a risk that our employees could engage in misconduct that adversely
affects our business. For example, if an employee were to engage in, or be accused of engaging in, illegal or suspicious
activity (such as improper trading, disclosure of confidential information, or breach of fiduciary duties), we could be
subject to regulatory sanctions and suffer serious harm to our reputation, financial position, and ability to maintain and
grow the number of investors in the Hennessy Funds.
The historical performance of the Hennessy Funds should not be considered indicative of the future results of the
Hennessy Funds or of any returns expected on our common stock.
The historical performance of the Hennessy Funds is relevant to returns on our common stock only insofar as the
fees we have earned in the past and may earn in the future, which are based on average assets under management, may
impact the performance of our common stock. Positive performance of the Hennessy Funds typically increases our
revenues, which in turn could positively affect our business, and poor performance typically reduces our revenues, which in
turn could adversely affect our business. However, the historical and potential future returns of the Hennessy Funds are not
directly linked to returns on our common stock, such that positive performance of the Hennessy Funds will not necessarily
result in positive returns on our common stock and poor performance of the Hennessy Funds will not necessary result in
negative returns on our common stock. Moreover, the historical performance of the Hennessy Funds should not be
considered indicative of the future results that should be expected from such funds.
RISKS RELATING TO OUR COMMON STOCK
Ownership of a large percentage of our common stock is concentrated with a small number of shareholders, which
could increase the volatility in our stock trading and significantly affect our share price and causes us to experience
limited trading volume in our securities.
We have a limited number of shareholders, and a large percentage of our common stock is held by an even fewer
number of shareholders. If our larger shareholders were to decide to liquidate their ownership positions, it could cause
significant fluctuations in the share price of our common stock. Having a limited number of shareholders also causes us to
experience limited trading volume in our securities.
30
We intend to pay regular dividends to our shareholders, but our ability to do so is subject to the discretion of our Board
of Directors.
We have consistently paid dividends each year since 2005, but the declaration, amount, and payment of dividends
to our shareholders by us are subject to the discretion of our Board of Directors. Our Board of Directors takes into account
general economic and business conditions, our strategic plans, our financial results and condition, any contractual, legal,
and regulatory restrictions on our payment of dividends, and such other factors as our Board of Directors deems relevant to
determining whether to declare dividends and the amount of such dividends.
ITEM 2. PROPERTIES.
Our principal executive office is located at 7250 Redwood Boulevard, Suite 200, Novato, California 94945, where
we occupy approximately 13,728 square feet and have the right to use all common areas. We also lease office space in
Austin, Texas, Dallas, Texas, Boston, Massachusetts, and Chapel Hill, North Carolina. We consider these arrangements to
be suitable and adequate for the management and operations of our business. We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5.
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.”
31
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. The stock repurchases are presented
in the following table for the three months ended September 30, 2023:
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (1)
- $
7,849
26,343
34,192 $
-
6.89
6.79
6.81
-
-
-
-
596,368
1,096,368
1,096,368
1,096,368
Period
July 1-31, 2023
August 1-31, 2023 (2)
September 1-30, 2023 (2)
Total
(1) We are authorized to purchase a maximum of 2,000,000 shares under our stock buyback program. 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. We did not repurchase any shares pursuant to the stock buyback
program during the three months ended September 30, 2023.
(2) 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.
ITEM 7. 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. 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 investors in the
Hennessy Funds, taxes, general economic and business conditions, interest rate movements, inflation, the personal savings
rate, 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. 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.
32
OVERVIEW
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. Our secondary business activity is providing shareholder services to investors in the Hennessy Mutual Funds.
We derive our operating revenues from investment advisory fees paid to us by the Hennessy Funds and
shareholder service fees paid to us by the Hennessy Mutual 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 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.
U.S. 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%.
The Japanese equity market increased 25.56% (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.
33
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 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. 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 over 149,000 fund accounts nationwide, including accounts held by investors who employ
financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us. We
serve approximately 11,600 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly
800 who purchased one of our Funds for the first time during fiscal year 2023. Approximately 14% of such advisors own
two or more Hennessy Funds, and over 400 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.
The following table illustrates the year-by-year changes in our assets under management over the past three fiscal
years:
2023
Fiscal Years Ended September 30,
2022
(In thousands)
2021
Beginning assets under management
Acquisition inflows
Organic inflows
Redemptions
Market appreciation (depreciation)
Ending assets under management
$
$
2,895,717 $
43,088
598,119
(915,397)
410,515
3,032,042 $
4,065,922 $
-
656,491
(1,147,888)
(678,808)
2,895,717 $
3,564,597
-
818,358
(1,345,371 )
1,028,338
4,065,922
As stated above, the fees we receive for providing investment advisory and shareholder services are based on
average assets under management. The following table shows average assets under management by share class over the
past three fiscal years:
2023
Fiscal Years Ended September 30,
2022
(In thousands)
2021
Hennessy Mutual Funds
Investor Class
Institutional Class
Hennessy Stance ESG ETF
Average assets under management
$
$
1,930,294 $
1,027,166
34,230
2,991,690 $
2,199,250 $
1,445,112
-
3,644,362 $
2,394,194
1,595,106
-
3,989,300
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.”)
34
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.
RESULTS OF OPERATIONS
The following table sets forth items in the statements of income as dollar amounts and as percentages of total
revenue:
Revenue
Investment advisory fees
Shareholder service fees
Total revenue
Operating expenses
Compensation and benefits
General and administrative
Fund distribution and other
Sub-advisory fees
Depreciation
Total operating expenses
Net operating income
Interest expense
Interest income
Income before income tax expense
Income tax expense
Net income
Fiscal Years Ended September 30,
2022
2023
Percent of
Total
Amounts
Revenue Amounts
Percent of
Total
Revenue
(In thousands, except percentages)
$
$
22,090
1,930
24,020
7,732
5,479
486
3,759
230
17,686
6,334
2,256
(2,522)
6,600
1,829
4,771
92.0% $
8.0
100.0
27,468
2,199
29,667
92.6%
7.4
100.0
32.2
22.8
2.0
15.6
1.0
73.6
26.4
9.4
(10.5)
27.5
7.6
19.9% $
8,322
5,036
536
5,727
207
19,828
9,839
2,122
(229)
7,946
1,756
6,190
28.0
17.0
1.8
19.3
0.7
66.8
33.2
7.2
(0.8)
26.8
5.9
20.9%
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. 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.
We collect investment advisory fees from each Hennessy Fund 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 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. 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
35
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.
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.
The Hennessy Funds with the three largest amounts of net inflows were as follows:
Fiscal Year Ended September 30, 2023
Fund Name
Hennessy Cornerstone Mid Cap 30 Fund
Hennessy Japan Small Cap Fund
Hennessy Midstream Fund
The Hennessy Funds with the three largest amounts of net outflows were as follows:
Fiscal Year Ended September 30, 2023
Fund Name
Hennessy Focus Fund
Hennessy Gas Utility Fund
Hennessy Japan Fund
Amount
$ 169 million
$ 18 million
$ 1 million
Amount
$ (203) million
$ (89) million
$ (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.
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%.
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.
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.
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. 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.
36
The distribution component of fund distribution and other expenses is affected by many factors, including the
following:
●
average daily net assets held by financial institutions;
●
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; and
●
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.
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.
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.
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.
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.”
Net Income
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.
37
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. 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.
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. 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.
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:
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
Fiscal Years Ended September 30,
2023
2022
$
$
(In thousands)
7,134 $
(819)
(4,326)
1,989 $
8,665
(231)
34,217
42,651
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.
2026 Notes. 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.
38
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 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.
Our operating revenues consist of contractual investment advisory and shareholder service fees. 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’ 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. The collectability is probable as the fees are received
from the Hennessy Funds in the month subsequent to the month in which the services are provided.
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. 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 2023 as the more-likely-than-
not threshold was not met as of the end of fiscal year 2023.
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.
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.
There have been no other significant changes to our critical accounting policies and estimates during fiscal year
2023.
39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Income
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
41
43
44
45
46
47
40
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
of Hennessy Advisors, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Hennessy Advisors, Inc. (the “Company”) as of September 30, 2023
and 2022, the related statements of income, changes in stockholders’ equity and cash flows for each of the two years in the
period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period
ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
41
Valuation of Management Contract Asset – Impairment Consideration
As described in Note 1(f) to the financial statements, the Company has historically capitalized the cost of purchasing
management contracts as intangible assets. These intangible assets are considered to have indefinite useful lives and are
therefore not amortized, but rather tested at least annually for impairment. As part of this annual test, management (i)
evaluates whether events and circumstances indicate that it is more likely than not that impairment exists, and/or (ii)
estimates the fair value of such intangible assets and compares it to the cost of the assets to determine whether impairment
has occurred. Management’s estimate of the fair value of management contract assets involves subjective assumptions that
include stock market returns, fund flows and weighted average cost of capital.
We have determined that the valuation of management contract assets constitutes a critical audit matter for the following
reasons: (i) it is a matter that should be communicated to the audit committee, since it involves a significant management
estimate; (ii) it involves a material account balance; and (iii) it involves especially subjective auditor judgment.
We have addressed this critical audit matter by performing appropriate audit procedures. These procedures included (i)
assessing management’s evaluation of whether events or circumstances indicate that it is more likely than not that
impairment exists; (ii) evaluating the reasonableness of management’s fair value estimate assumptions; and (iii) testing the
mathematical accuracy of management’s valuation model. Professionals with specialized skills and knowledge were used to
assist in evaluating of the measurement of the Company’s estimated fair value of the management contract assets.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2004.
San Francisco, CA
December 6, 2023
42
Hennessy Advisors, Inc.
Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets
Cash and cash equivalents
Investments in marketable securities, at fair value
Investment fee income receivable
Interest income receivable
Prepaid expenses
Other accounts receivable
Total current assets
Property and equipment, net of accumulated depreciation of $2,287 and $2,057,
respectively
Operating lease right-of-use asset
Management contracts
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities
Accrued liabilities and accounts payable
Accrued management contract payment
Operating lease liability
Income taxes payable
Total current liabilities
Notes payable, net of issuance costs
Long-term operating lease liability
Net deferred income tax liability
Total liabilities
Commitments and contingencies (Note 10)
Stockholders' equity
$
$
$
September 30,
2023
2022
60,476 $
10
2,046
253
669
247
63,701
305
295
81,262
156
145,719 $
3,165 $
-
279
748
4,192
39,164
-
14,611
57,967
58,487
9
2,051
100
753
257
61,657
320
651
80,868
156
143,652
3,320
210
367
820
4,717
38,870
279
13,488
57,354
Common stock, no par value, 22,500,000 shares authorized; 7,671,099 shares
issued and outstanding as of September 30, 2023, and 7,571,741 as of
September 30, 2022
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
$
21,800
65,952
87,752
145,719 $
20,951
65,347
86,298
143,652
See Accompanying Notes to Financial Statements
43
Hennessy Advisors, Inc.
Statements of Income
(In thousands, except share and per share amounts)
Revenue
Investment advisory fees
Shareholder service fees
Total revenue
Operating expenses
Compensation and benefits
General and administrative
Fund distribution and other
Sub-advisory fees
Depreciation
Total operating expenses
Net operating income
Interest expense
Interest income
Income before income tax expense
Income tax expense
Net income
Earnings per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Cash dividends declared per share
Fiscal Years Ended
September 30,
2023
2022
22,090 $
1,930
24,020
7,732
5,479
486
3,759
230
17,686
6,334
2,256
(2,522)
6,600
1,829
4,771 $
0.63 $
0.63 $
27,468
2,199
29,667
8,322
5,036
536
5,727
207
19,828
9,839
2,122
(229 )
7,946
1,756
6,190
0.83
0.82
7,580,120
7,603,676
0.55 $
7,483,342
7,558,008
0.55
$
$
$
$
$
See Accompanying Notes to Financial Statements
44
Hennessy Advisors, Inc.
Statements of Changes in Stockholders' Equity
(In thousands, except share data)
Balance at September 30, 2021
Net income
Dividends paid
Employee and director restricted stock vested
Repurchase of vested employee restricted stock for tax
Common Stock
Retained
Amount Earnings
Total
Stockholders'
Equity
Shares
7,469,584 $
-
-
132,263
19,964 $
-
-
-
63,298 $
6,190
(4,113)
-
83,262
6,190
(4,113)
-
withholding
(37,718)
(328)
(28)
(356)
Shares issued for auto-investments pursuant to the 2021
Dividend Reinvestment and Stock Purchase Plan
Shares issued for dividend reinvestment pursuant to the
471
5
-
5
2021 Dividend Reinvestment and Stock Purchase Plan
Stock-based compensation
Employee restricted stock forfeiture
Balance at September 30, 2022
Net income
Dividends paid
Employee and director restricted stock vested
Repurchase of vested employee restricted stock for tax
withholding
Shares issued for auto-investments pursuant to the 2021
Dividend Reinvestment and Stock Purchase Plan
Shares issued for dividend reinvestment pursuant to the
2021 Dividend Reinvestment and Stock Purchase Plan
Stock-based compensation
Employee restricted stock forfeiture
Balance at September 30, 2023
7,141
-
-
7,571,741 $
-
-
124,015
74
1,252
(16)
20,951 $
-
-
-
-
-
-
65,347 $
4,771
(4,166)
-
(34,192)
(233)
1,206
9
-
-
8,329
-
-
7,671,099 $
64
1,026
(17)
21,800 $
-
-
-
65,952 $
74
1,252
(16)
86,298
4,771
(4,166)
-
(233)
9
64
1,026
(17)
87,752
See Accompanying Notes to Financial Statements
45
Hennessy Advisors, Inc.
Statements of Cash Flows
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
$
4,771 $
6,190
Fiscal Years Ended
September 30,
2023
2022
Depreciation
Change in right-of-use asset and operating lease liability
Amortization of note issuance costs
Deferred income taxes
Employee restricted stock forfeiture
Stock-based compensation
Unrealized loss (gain) on marketable securities
Change in operating assets and liabilities:
Investment fee income receivable
Interest income receivable
Prepaid expenses
Other accounts receivable
Other assets
Accrued liabilities and accounts payable
Income taxes payable
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property and equipment
Payments related to management contracts
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of notes, net of underwriting discount
Payment of issuance costs on notes
Repurchase of vested employee restricted stock for tax withholding
Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and
Stock Repurchase Plan
Dividend payments
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Supplemental disclosures of cash flow information
Cash paid for income taxes
Cash paid for interest
Dividend investment issued in shares
Payment related to management contracts in accounts payable
$
$
$
$
$
See Accompanying Notes to Financial Statements
230
(11)
294
1,123
(17)
1,026
(1)
5
(153)
84
10
-
(155)
(72)
7,134
(215)
(604)
(819)
-
-
(233)
9
(4,102)
(4,326)
1,989
58,487
60,476 $
779 $
1,962 $
64 $
- $
207
-
263
1,051
(16 )
1,252
1
744
(100 )
35
20
79
(831 )
(230 )
8,665
(216 )
(15 )
(231 )
39,042
(435 )
(356 )
5
(4,039 )
34,217
42,651
15,836
58,487
938
1,859
74
210
46
Notes to Financial Statements
(1)
Organization and Description of Business and Significant Accounting Policies
(a) Organization and Description of Business
Hennessy Advisors, Inc. (the “Company”) was founded on February 1, 1989, as a California corporation under
the name Edward J. Hennessy, Incorporated. In 1990, the Company became a registered investment advisor, and on
April 15, 2001, the Company changed its name to Hennessy Advisors, Inc.
The Company’s operating activities consist primarily of providing investment advisory services to 16 open-end
mutual funds and one exchange-traded fund (“ETF”) 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 Energy Transition Fund, the Hennessy 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 (collectively, the “Hennessy Mutual Funds”), as well as to the
Hennessy Stance ESG ETF. The Company also provides shareholder services to investors in the Hennessy Mutual
Funds.
The employee retention credit (“ERC”), as originally enacted on March 27, 2020, by the CARES Act, was a
refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer paid
to employees and allowed claims through December 31, 2021, by eligible employers who retained employees during
the COVID-19 pandemic. The Company filed Form 941-X to request an ERC from the Internal Revenue Service. In
May 2023, the Company received an ERC of approximately $0.3 million plus accrued interest. For-profit entities do
not have specific guidance to apply under accounting principles generally accepted in the United States to account for
ERCs and therefore follow guidance in accordance with Accounting for Government Grants and Disclosure of
Government Assistance (“IAS 20”). In accordance with IAS 20, the Company is netting the credit against related
payroll expense in the current period.
The Company’s 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 fund’s portfolio (including the purchase, retention,
and disposition of portfolio securities in accordance with the fund’s investment objectives, policies, and
restrictions), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund,
and managing proxy voting for the fund;
● performing a daily reconciliation of portfolio positions and cash for the fund;
● monitoring the liquidity of the fund;
● monitoring the fund’s compliance with its investment objectives and restrictions and federal securities
laws;
● maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the
compliance programs of the fund’s service providers (including any sub-advisor), including their codes of
ethics, as appropriate, conducting on-site visits to the fund’s 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, directors and officers and
errors and omissions 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;
47
●
if applicable, overseeing the selection and continued employment of the fund’s sub-advisor, reviewing the
fund’s investment performance, and monitoring the sub-advisor’s adherence to the fund’s 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 fund’s prospectus and related documents;
●
for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance
during the most recent 12-month period;
● monitoring and overseeing the accessibility of the fund on financial institution platforms;
● paying the incentive compensation of the fund’s compliance officer 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.
The Company earns shareholder service fees from Investor Class shares of the Hennessy Mutual 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 and actively participating as a liaison between investors in the Hennessy Funds and
U.S. Bank Global Fund Services.
Investment advisory and shareholder service 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 Company recognizes revenues when its obligations related to the investment advisory and shareholder
services are satisfied, and it is probable that a significant reversal of the revenue amount would not occur in future
periods. Management judgment is required in assessing the probability of significant revenue reversal and in
identification of distinct services. Investment advisory and shareholder services are performed over time because
investors in the Hennessy Funds are receiving and consuming the benefits as they are provided by the Company.
Fees are based on contractual percentages of net asset values and recognized for services provided during the period,
which are distinct from services provided in other periods. Such fees are affected by changes in net asset values,
including market appreciation or depreciation, foreign exchange translation, and net inflows or outflows. Assets
under management represent the broad range of financial assets the Company manages for the Hennessy Funds on a
discretionary basis pursuant to investment management and shareholder servicing agreements that are expected to
continue for at least 12 months. In general, reported assets under management reflect the valuation methodology that
corresponds to the basis used for determining revenue. The fees are computed and billed monthly, at which time they
are recognized in accordance with Accounting Standards Codification 606 — Revenue from Contracts with
Customers.
48
The Company waives a portion of its fees with respect to the Hennessy Midstream Fund, the Hennessy
Technology Fund, and the Hennessy Stance ESG ETF 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 Company’s 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 Company’s 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.
(b) Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of
three months or less that are readily convertible into cash.
(c) Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) guidance on “Disclosures about Fair Value of Financial
Instruments” requires disclosures regarding the fair value of all financial instruments for financial statement
purposes. The estimates presented in these financial statements are based on information available to management as
of the end of fiscal years 2023 and 2022. Accordingly, the fair values presented in the Company’s financial
statements as of the end of fiscal years 2023 and 2022 may not be indicative of amounts that could be realized on
disposition of the financial instruments. The fair value of receivables, accounts payable, and notes payable has been
estimated at carrying value due to the short maturity of these instruments. The fair value of marketable securities and
money market accounts is based on closing net asset values as reported by securities exchanges registered with the
SEC.
(d) Investments
Investments in highly-liquid financial instruments with remaining maturities of less than one year are classified
as short-term investments. Financial instruments with remaining maturities of greater than one year are classified as
long-term investments. A table of investments is included in Note 3 in this Item 8, “Financial Statements and
Supplementary Data.”
The Company holds investments in publicly traded mutual funds, which are accounted for as trading securities.
Accordingly, unrealized gains and losses of less than $1,000 per year were recognized in operations for fiscal years
2023 and 2022.
Dividend income is recorded on the ex-dividend date. Purchases and sales of marketable securities are recorded
on a trade-date basis, and realized gains and losses recognized on sale are determined on a specific
identification/average cost basis.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally between one and ten years.
(f) Management Contracts Purchased
Throughout its history, the Company has completed 11 purchases of the assets related to the management of
31 different investment funds, some of which were reorganized into already existing Hennessy Funds. In accordance
with FASB guidance, the Company periodically reviews the carrying value of its management contract asset to
determine if any impairment has occurred. Although a quantitative analysis of the fair value of the management
contract asset was not required, management performed a high-level analysis for internal purposes only. The fair
value of the management contract asset was estimated as of the end of fiscal years 2023 and 2022 by applying the
49
income approach and was based on management estimates and assumptions, including third-party valuations that
utilize appropriate valuation techniques. The analysis further supported that there was no "more-likely-than-
not" impairment trigger as of such dates.
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 considered
various factors, such as likelihood of continued renewal, whether there are foreseeable limits on net cash flows, and
whether the Company is dependent on a limited number of investors, in determining the useful life of the
management contracts. Based on analysis, the Company considers the management contract asset to be an intangible
asset with an indefinite useful life and no impairment as of the end of fiscal year 2023.
The Company completed its most recent asset purchase on December 22, 2022, when it purchased certain
assets related to the management of the Stance Equity ESG Large Cap Core ETF (the “Stance ETF”). This asset
purchase added approximately $43 million to the Company’s assets under management at the time of closing. The
purchase was consummated in accordance with the terms and conditions of the Transaction Agreement, dated as of
August 29, 2022, among the Company, Stance Capital, LLC, and Red Gate Advisers, LLC, among others. Upon
completion of the transaction, the assets related to the management of the Stance ETF were reorganized into a newly
formed series of Hennessy Funds Trust named the Hennessy Stance ESG ETF. In connection with the transaction,
Stance Capital, LLC and Vident Investment Advisory, LLC (“VIA”) became sub-advisors to the Hennessy Stance
ESG ETF. In July 2023, VIA completed an acquisition transaction that resulted in a change of control of VIA and
automatic termination of the Company’s sub-advisory agreement with VIA. On the same date, the Company entered
into a new sub-advisory agreement with Vident Advisory, LLC. As of September 30, 2023, the Company capitalized
a total of $0.2 million under this transaction, all of which remained payable as of September 30, 2022, and was paid
during the year ended September 30, 2023.
On April 26, 2023, the Company announced that it has signed a definitive agreement with Community Capital
Management, LLC (“CCM”) related to the management of the CCM Core Impact Equity Fund and the CCM
Small/Mid-Cap Impact Value Fund (the “CCM Equity Funds”). The definitive agreement includes customary
representations, warranties, and covenants of the parties to the agreement. It provides for payment by the Company to
be made upon closing equal to 1.25% of the aggregate current net asset value of the CCM Equity Funds measured as
of the close of business two trading days prior to the closing date of the transaction. The Company expects to
complete the transaction during calendar 2023.
In the current period, the Company capitalized $0.2 million in legal costs related to the transaction. Upon
completion of the transaction, the assets of the CCM Equity Funds will be reorganized into the Hennessy Stance ESG
ETF. The transaction is subject to customary closing conditions, including the approval of the CCM Equity Funds’
shareholders.
(g) Income Taxes
The Company, under the FASB guidance on “Accounting for Uncertainty in Income Tax,” uses a recognition
threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax
positions taken or expected to be taken in a company’s income tax return and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The
Company utilizes a two-step approach for evaluating uncertain tax positions. The first step, recognition, requires the
Company to determine if the weight of available evidence indicates that a tax position is more likely than not to be
sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step,
measurement, is based on the largest amount of benefit that is more likely than not to be realized on ultimate
settlement.
The Company believes the positions taken on its tax returns are fully supported, but tax authorities may
challenge these positions and they may not be fully sustained on examination by the relevant tax authorities.
Accordingly, the income tax provision includes amounts intended to satisfy assessments that may result from these
challenges. Determining the income tax provision for these potential assessments and recording the related effects
requires management judgement and estimates. The amounts ultimately paid on resolution of an audit could be
materially different from the amounts previously included in the income tax provision and, therefore, could have a
material impact on the Company’s income tax provision, net income, and cash flows. The accrual for uncertain tax
positions is attributable primarily to uncertainties concerning the tax treatment of the Company’s domestic
50
operations, including the allocation of income among different jurisdictions. For a further discussion on taxes, refer
to Note 12 in this Item 8, “Financial Statements and Supplementary Data.”
The Company is subject to income tax in the U.S. federal jurisdiction and multiple state jurisdictions. The
Company’s U.S. federal income taxes for 2019 through 2023 remain open and subject to examination. The Company
has identified 22 major state tax jurisdictions in which it is subject to income tax, which include California, Colorado,
Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts,
Michigan, Minnesota, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, and
Wisconsin. For tax years that remain open, the below chart shows the number of such state tax jurisdictions that
remain subject to examination by the appropriate governmental agencies:
Year
2023
2022
2021
2020
2019
Number of State Tax
Jurisdictions
22
22
22
22
19
For state tax jurisdictions with unfiled tax returns, the statutes of limitations remains open indefinitely.
(h) Earnings 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”).
(i) Equity
Amended and Restated 2013 Omnibus Incentive Plan
The Company has adopted, and the Company’s shareholders have approved, the Amended and Restated 2013
Omnibus Incentive Plan (the “Omnibus Plan”), which provides for the issuance of options, stock appreciation rights,
restricted stock, RSUs, performance awards, and other equity awards for the purpose of attracting and retaining
executive officers, key employees, and outside directors and advisors and increasing shareholder value. The
maximum number of shares that may be issued under the Omnibus Plan is 50% of the number of outstanding shares
of common stock of the Company, subject to adjustment by the compensation committee of the Company’s Board of
Directors upon the occurrence of certain events. The 50% limitation does not invalidate any awards made prior to a
decrease in the number of outstanding shares, even if such awards have result or may result in shares constituting
more than 50% of the outstanding shares being available for issuance under the Omnibus Plan. Shares available
under the Omnibus Plan that are not awarded in one particular year may be awarded in subsequent years.
The compensation committee of the Company’s Board of Directors has the authority to determine the awards
granted under the Omnibus Plan, including among other things, the individuals who receive the awards, the times
when they receive them, vesting schedules, performance goals, whether an option is an incentive or nonqualified
option, and the number of shares to be subject to each award. However, no participant may receive options or stock
appreciation rights under the Omnibus Plan for an aggregate of more than 75,000 shares in any calendar year. The
exercise price and term of each option or stock appreciation right is fixed by the compensation committee except that
the exercise price for each stock option that is intended to qualify as an incentive stock option must be at least equal
to the fair market value of the stock on the date of grant and the term of the option cannot exceed 10 years. In the
case of an incentive stock option granted to a 10% or more shareholder, the exercise price must be at least 110% of
the fair market value on the date of grant and cannot exceed five years. Incentive stock options may be granted only
within 10 years from the date of shareholder approval of the Omnibus Plan (which was March 2014). The aggregate
fair market value (determined at the time the option is granted) of shares with respect to which incentive stock
options may be granted to any one individual, which stock options are exercisable for the first time during any
calendar year, may not exceed $100,000. An optionee may, with the consent of the compensation committee, elect to
pay for the shares to be received upon exercise of his or her options in cash, shares of common stock, or any
combination thereof.
51
Under the Omnibus Plan, participants may be granted RSUs, each of which represents an unfunded, unsecured
right to receive a share of the Company’s common stock on the date specified in the recipient’s 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.
All compensation costs related to RSUs vested during fiscal years 2023 and 2022 have been recognized in the
financial statements.
The Company has available up to 3,835,550 shares of the Company’s common stock in respect of granted
stock awards, in accordance with terms of the Omnibus Plan.
A summary of RSU activity is as follows:
Fiscal Years Ended September 30,
2022
2023
Non-vested balance at beginning of year
Granted
Vested (1)
Forfeited
Non-vested balance at end of year
Weighted
Average
Grant Date
Fair Value
per Share
8.15
5.53
(8.22)
(8.12)
6.91
Shares
315,561 $
159,700
(124,746 )
(5,360 )
345,155 $
Weighted
Average
Grant Date
Fair Value
per Share
8.87
7.72
(9.42)
(8.76)
8.15
Shares
323,810 $
132,875
(133,207)
(7,917)
315,561 $
(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:
Unrecognized compensation expense related to RSUs
Weighted average remaining period to expense for RSUs (in years)
Dividend Reinvestment and Stock Purchase Plan
September 30, 2023
(In thousands,
except years)
$
2,386
3.1
In January 2021, the Company adopted an updated Dividend Reinvestment and Stock Purchase Plan (the
“DRSPP”), replacing the previous Dividend Reinvestment and Stock Purchase Plan that had been in place since
2018. The DRSPP provides shareholders and new investors with a convenient and economical means of purchasing
shares of the Company’s common stock and reinvesting cash dividends paid on the Company’s common stock.
Under the DRSPP, the Company issued 9,535 and 7,612 shares of common stock in fiscal years 2023 and 2022,
respectively. The maximum number of shares that may be issued under the DRSPP is 1,470,000, of which 1,443,310
shares remained available for issuance as of September 30, 2023.
52
Stock Buyback Program
In August 2010, the Company’s Board of Directors adopted a stock buyback program pursuant to which the
Company was authorized to repurchase up to 1,500,000 shares of its common stock in the open market, in privately
negotiated transactions, or otherwise. The program does not have an expiration date. In August 2022, the Board of
Directors increased the number of shares that may be repurchased under the program to 2,000,000 shares. As a result,
a total of 1,096,368 shares remains available for repurchase under the stock buyback program. The Company did not
repurchase any shares of its common stock pursuant to the stock buyback program during fiscal year 2023.
(j) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(2)
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 entity’s 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.
53
Based on the definitions, the following table represents the Company’s assets categorized in the Level 1 to
Level 3 hierarchies:
Money market fund deposits
Mutual fund investments
Total
Amounts included in
Cash and cash equivalents
Investments in marketable securities
Total
Money market fund deposits
Mutual fund investments
Total
Amounts included in
Cash and cash equivalents
Investments in marketable securities
Total
Level 1
Level 2
Level 3
Total
September 30, 2023
$
$
$
$
59,382 $
10
59,392 $
59,382 $
10
59,392 $
(In thousands)
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
59,382
10
59,392
59,382
10
59,392
Level 1
Level 2
Level 3
Total
September 30, 2022
$
$
$
$
54,225 $
9
54,234 $
54,225 $
9
54,234 $
(In thousands)
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
54,225
9
54,234
54,225
9
54,234
There were no transfers between levels during fiscal years 2023 or 2022.
The fair values of receivables, payables, and accrued liabilities approximate their book values given the short-
term nature of those instruments.
The fair value of the 2026 Notes (see Note 9 in this Item 8, “Financial Statements and Supplementary Data”)
was approximately $36.8 million as of September 30, 2023, based on the last trading price of the notes on that date
(Level 1).
54
(3)
Investments
The cost, gross unrealized gains, gross unrealized losses, and fair market value of the Company’s trading
investments were as follows:
2023
Mutual fund investments
Total
2022
Mutual fund investments
Total
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
Total
$
$
4 $
4
4 $
4
26 $
26
24 $
24
(20) $
(20)
(19) $
(19)
10
10
9
9
The mutual fund investments are included as a separate line item in current assets on the Company’s balance
sheets.
(4)
Property and Equipment, Net
The following table summarizes the Company’s property and equipment balances:
Equipment
Leasehold improvements
Furniture and fixtures
IT infrastructure
Software
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
September 30,
2023
2022
(In thousands)
$
$
786 $
154
399
87
1,166
2,592
(2,287 )
305 $
703
154
396
85
1,039
2,377
(2,057 )
320
The following useful lives are assigned to fixed assets: furniture is seven years, equipment is three years, and
software ranges from one to three years. During each of fiscal year 2023 and 2022, depreciation expense was
$0.2 million.
(5)
Management Contracts
The costs related to the Company’s purchase of the assets related to management contracts are capitalized as
incurred and comprise the management contract asset. This asset was $81.3 million as of the end of fiscal year 2023,
an increase of $0.4 million from the end of fiscal year 2022. The increase was related to expenses incurred in
connection with the purchase of assets related to the management of the Stance ETF and the costs associated with the
definitive agreement signed with CCM in the current period. The Company considers the management contract asset
to be an intangible asset per Accounting Standards Codification 350 — Intangibles – Goodwill and Other. The
purchase costs that comprise the management contract asset include consideration to the seller, as well as legal and
similar external transaction costs.
(6)
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 17 Hennessy Funds.
55
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 it to another advisor (assignment includes “indirect assignment,”
which is the transfer of the Company’s 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 fund’s 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 Japan Fund, the Hennessy Japan Small Cap Fund, and the Hennessy Stance ESG
ETF. 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 Fund’s 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.
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
fund’s average daily net asset value.
Effective January 31, 2022, the Company and BP Capital Fund Services, LLC mutually agreed to terminate the
sub-advisory agreement for the Hennessy Energy Transition Fund and the Hennessy Midstream Fund. Those funds
are now managed internally by the Company.
(7)
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 Company’s balance
sheet. During the quarter ended March 31, 2021, the Company renewed the lease for its office in Novato, California
for an additional three years, which initially created a long-term operating lease as of such date. Upon renewal of the
lease, the Company recorded a right-of-use asset of $1.1 million on its balance sheet. The renewed lease expires on
July 31, 2024, and is therefore a short-term operating lease as of September 30, 2023. There were no other long-term
operating leases as of the end of fiscal year 2023.
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating
lease liabilities represent the Company’s 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 Company’s 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 exercise, 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.
56
The Company’s 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, Dallas, 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 Company’s operating lease right-of-
use assets and operating lease liabilities and other supplemental information related to the Company’s operating
leases are as follows:
Operating lease right-of-use assets
Current operating lease liability
Long-term operating lease liability
Weighted average remaining lease term
Weighted average discount rate
September 30,
2023
(In thousands,
except years and
percentages)
$
$
$
295
279
-
0.8
0.90%
For fiscal years 2023 and 2022, the Company’s lease payments related to its operating lease right-of-use assets
totaled $0.37 million and $0.36 million, respectively, and total rent expense for all offices, which is recorded under
general and administrative expense in the statements of income, totaled $0.51 million and $0.49 million, respectively.
The undiscounted cash flows for future maturities of the Company’s operating lease liabilities and the
reconciliation to the balance of operating lease liabilities reflected on the Company’s balance sheet are as follows:
Fiscal year 2024 undiscounted cash flows
Present value discount
Total operating lease liabilities
(8)
Accrued Liabilities and Accounts Payable
September 30, 2023
(In thousands)
$
286
(7)
279
Details relating to the accrued liabilities and accounts payable reflected on the Company’s balance sheet are as
follows:
Accrued bonus liabilities
Accrued sub-advisor fees
Other accrued expenses
Total accrued expenses
(9)
Debt Outstanding
September 30,
2023
2022
(In thousands)
2,260 $
310
595
3,165 $
2,207
336
777
3,320
$
$
On October 20, 2021, the Company completed a public offering of 4.875% notes due 2026 in the aggregate
principal amount of $40,250,000 (the “2026 Notes”), which included the full exercise of the underwriters’
overallotment option. The initial net proceeds received were approximately $38,607,000 after considering the impact
of issuance costs and underwriter discounts. 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.
57
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of the Company’s
future unsecured unsubordinated indebtedness, senior to any of the Company’s future indebtedness that expressly
provides that it is subordinate to the 2026 Notes, effectively subordinate to all of the Company’s existing and future
secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of
any of the Company’s future subsidiaries.
(10)
Commitments and Contingencies
In addition to the operating leases discussed in Note 7 in this Item 8, “Financial Statements and Supplementary
Data,” the Company has contractual expense ratio limitations in place with respect to the Hennessy Midstream Fund,
the Hennessy Technology Fund, and the Hennessy Stance ESG ETF. The contractual expense ratio limitations with
respect to the Hennessy Midstream Fund and the Hennessy Technology Fund expire February 28, 2024. The
contractual expense ratio limitation with respect to the Hennessy Stance ESG ETF expires December 31, 2024. Total
fees waived during fiscal years 2023 and 2022 were $0.15 million and $0.11 million, respectively. To date, the
Company has only waived fees based on contractual obligations but has the ability to waive fees at its discretion. Any
decision to waive fees would apply only on a going forward basis.
The Company has no other commitments and no significant contingencies with original terms in excess of one
year.
(11)
Retirement Plan
The Company has a 401(k) retirement plan covering eligible employees. Employees are eligible to participate
if they are over 21 years of age and have completed a minimum of one month of service with at least 80 hours
worked in that month. The Company also made discretionary profit-sharing contributions of $0.2 million in each of
the fiscal years 2023 and 2022. To be eligible for the discretionary profit-sharing contribution, an employee must be
eligible to participate in the 401(k) retirement plan and must complete at least 501 hours of service during the
calendar year or be employed as of the last day of the calendar year.
(12)
Income Taxes
As of the end of each of fiscal years 2023 and 2022, the Company’s gross liability for unrecognized tax
benefits related to uncertain tax positions was $0.4 million and $0.4 million, respectively. If the tax benefits of such
amounts were recognized, $0.3 million and $0.3 million of such amounts, respectively, would decrease the
Company’s effective income tax rate. The Company’s net liability for accrued interest and penalties was $0.3 million
as of each of September 30, 2023, and September 30, 2022. The Company has elected to recognize interest and
penalties related to unrecognized tax benefits as a component of income tax expense. During the years ended
September 30, 2023, and September 30, 2022, the Company recognized approximately $0.05 million and
$0.02 million in interest and penalties, respectively.
The Company’s activity was as follows:
Fiscal Years Ended September 30,
2023
2022
(In thousands)
Beginning year balance
Decrease related to prior year tax positions
Ending year balance
$
$
353 $
-
353 $
608
(255 )
353
The total amount of unrecognized tax benefits can change due to final regulations, audit settlements, tax
examinations activities, lapse of applicable statutes of limitations, and the recognition and measurement criteria under
the guidance related to accounting for uncertainly in income taxes. The Company is unable to estimate what this
change could be within the next 12 months, but does not believe it would be material to its financial statements.
58
The Company’s income tax expense was as follows:
Current
Federal
State
Total Current
Deferred
Federal
State
Total Deferred
Total
Fiscal Years Ended September 30,
2023
2022
(In thousands)
$
$
485 $
221
706
955
168
1,123
1,829 $
854
(149 )
705
888
163
1,051
1,756
The principal reasons for the differences from the federal statutory income tax rate and the Company’s
effective tax rate were as follows:
Federal statutory income tax rate
State income taxes, net of federal benefit
Permanent and other differences
Difference due to executive compensation
Tax return to provision adjustments
Uncertain tax position
Stock-based compensation
Effective income tax rate
Fiscal Years Ended September 30,
2023
2022
21.0%
4.0
(0.4)
0.7
0.8
0.9
0.7
27.7%
21.0%
3.9
0.4
1.0
(1.3)
(3.0)
0.1
22.1%
59
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and
liabilities were as follows:
Deferred tax assets
Accrued compensation
Stock compensation
State taxes
Capital loss carryforward
Lease liability
Gross deferred tax assets
Disallowed capital loss
Net deferred tax assets
Deferred tax liabilities
Property and equipment
Management contracts
ROU asset
Total deferred tax liabilities
Net deferred tax liabilities
(13)
Earnings per Share
Fiscal Years Ended September 30,
2023
2022
(In thousands)
$
$
37 $
18
176
7
70
308
(7)
301
(31)
(14,807)
(74)
(14,912)
(14,611) $
40
20
175
7
(1)
241
(7)
234
(35)
(13,687)
-
(13,722)
(13,488)
The weighted average common shares outstanding used in the calculation of basic earnings per share and
weighted average common shares outstanding, adjusted for common stock equivalents, used in the computation of
diluted earnings per share were as follows:
Weighted average common stock outstanding, basic
Dilutive impact of RSUs
Weighted average common stock outstanding, diluted
September 30,
2023
2022
7,580,120
23,556
7,603,676
7,483,342
74,666
7,558,008
For fiscal years 2023 and 2022, the Company excluded 100,569 and 282 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 vested RSUs.
(14)
Concentration of Credit Risk
The Company maintains its cash accounts with three commercial banks that, at times, may exceed federally
insured limits. The amount on deposit at September 30, 2023, exceeded the insurance limits of the Federal Deposit
Insurance Corporation by approximately $1.1 million. In addition, total cash and cash equivalents include
$59.3 million held in the First American U.S. Government Money Market Fund that is not federally insured. The
Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
(15)
Recently Issued and Adopted Accounting Standards
The Company has reviewed accounting pronouncements issued between December 7, 2022, the filing date of
its 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 has determined that no accounting pronouncement issued would have a material impact on
the Company’s financial position, results of operations, or disclosures.
60
There have been no other significant changes to the Company’s critical accounting policies and estimates
during fiscal year 2023.
(16)
Risk and Uncertainties – Geopolitical Tensions
The short and long-term implications of Russia’s invasion of Ukraine and Hamas' attack against Israel are
difficult to predict. Because of the highly uncertain and dynamic nature of these events, their impact on the
Company’s business, financial condition, or operating results cannot be reasonably estimated at this time.
(17)
Pending Asset Purchase of the CCM Equity Funds
On April 26, 2023, the Company announced that it signed a definitive agreement with Community Capital
Management, LLC to purchase the assets related to the management of the CCM Equity Funds. The Company filed a
Current Report on Form 8-K regarding this transaction on April 26, 2023.
Upon completion of the transaction, the assets related to the CCM Equity Funds will be reorganized into the
Hennessy Stance ESG ETF.
The transaction is subject to customary closing conditions, including approval by the Board of Trustees of
Hennessy Funds Trust, the Board of Trustees of the Quaker Investment Trust, and the shareholders of each of the
CCM Equity Funds.
(18)
Subsequent Events
As of December 6, 2023, the filing date of this Annual Report on Form 10-K, management evaluated the
existence of events occurring subsequent to the end of fiscal year 2023, and determined the following to be
subsequent events:
On October 26, 2023, the Company announced a quarterly cash dividend of $0.1375 per share paid on
November 27, 2023, to shareholders of record as of November 13, 2023. The declaration and payment of dividends
to holders of the Company’s common stock, if any, are subject to the discretion of the Company’s Board of
Directors. The Company’s Board of Directors will take into account such matters as general economic and business
conditions, the Company’s strategic plans, the Company’s financial results and condition, contractual, legal, and
regulatory restrictions on the payment of dividends by the Company, and such other factors as the Company’s Board
of Directors may consider relevant.
On November 13, 2023, the Company completed the purchase of certain assets related to the management of
the CCM Small/Mid-Cap Impact Value Fund. This asset purchase added approximately $12 million to the
Company’s assets under management at the time of closing. The purchase was consummated in accordance with
the terms and conditions of that certain Transaction Agreement, dated as of April 26, 2023, between the Company
and Community Capital Management, LLC. The purchase price of $0.2 million was funded with available cash and
was based on the total net assets under management of the CCM Small/Mid-Cap Impact Value Fund as measured at
the close of business on November 10, 2023. Upon completion of the transaction, the assets of CCM Small/Mid-
Cap Impact Value Fund were reorganized into the Hennessy Stance ESG ETF.
The Special Meeting of shareholders of the CCM Core Impact Equity Fund has been adjourned to January
31, 2024. Pending shareholder approval, the assets of the CCM Core Impact Equity Fund will also be reorganized
into the Hennessy Stance ESG ETF.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
61
ITEM 9A. CONTROLS AND PROCEDURES
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) of the Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30,
2023, using the criteria set forth in 2013 Internal Control — Integrated Framework 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of
September 30, 2023, the Company’s internal control over financial reporting was effective based on those criteria.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this report. Based on such
evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and
procedures as of September 30, 2023, were effective to provide reasonable assurance that the information required to be
disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time
periods specified in the rules and forms of the SEC, and (ii) accumulated and communicated to management, including the
principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure.
CHANGES IN INTERNAL CONTROLS
There have been no changes in internal control over financial reporting as defined in Rules 13a-15(f) of the
Exchange Act that occurred during the fiscal quarter ended September 30, 2023, and that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
62
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item can be found in our Proxy Statement for our 2024 Annual Meeting (“Proxy
Statement”) under the captions “Election of Directors,” “Corporate Governance,” and “Executive Officers.” Such
information is incorporated by reference as if fully set forth in this report.
CODE OF ETHICS
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer,
executive vice presidents, directors, and all employees. The code has been designed in accordance with the Sarbanes-Oxley
Act of 2002 to promote honest and ethical conduct. The code also applies to Hennessy Funds Trust. The Code of Ethics is
posted on our website at www.hennessyadvisors.com. In the event we amend or waive any of the provisions of the Code of
Ethics, we intend to disclose these actions on our website. We are not including the information contained on our website as
part of, or incorporating it by reference into, this report.
Any person may obtain a copy of the Code of Ethics, at no cost, by forwarding a written request to:
Hennessy Advisors, Inc.
7250 Redwood Blvd., Suite 200
Novato, CA 94945
Attention: Teresa Nilsen
63
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item can be found in the Proxy Statement under the captions “Director
Compensation,” “Compensation Discussion and Analysis,” and “Executive Compensation.” Such information is
incorporated by reference as if fully set forth in this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item can be found in the Proxy Statement under the caption “Voting
Information.” Such information is incorporated by reference as if fully set forth in this report.
EQUITY COMPENSATION PLAN INFORMATION
Our Omnibus Plan, which was approved by our shareholders, is the only equity compensation plan under which
we may issue our common stock.
Number of Securities
to Be Issued upon
Exercise of
Outstanding
Options, Warrants,
and Rights
September 30, 2023
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants,
and Rights
Number of Securities
Remaining for
Issuance Under
Compensation Plans (2)
349,613
-
349,613
-
-
-
1,175,032
-
1,175,032
Plan Category
Equity compensation plans approved by
security holders (1)
Equity compensation plans not approved by
security holders
Total
(1) Securities to be issued pursuant to outstanding RSUs that vest over four years at a rate of 25% per year, for which the
weighted average exercise price is zero.
(2) Excludes securities to be issued upon the vesting of outstanding RSUs. The maximum number of shares of common
stock that may be issued under the Omnibus Plan is 50% of our outstanding common stock, or 3,835,550 shares, as of
the end of fiscal year 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item can be found in the Proxy Statement under the caption “Corporate
Governance.” Such information is incorporated by reference as if fully set forth in this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item can be found in the Proxy Statement under the caption “Independent
Registered Public Accounting Firm.” Such information is incorporated by reference as if fully set forth in this report.
64
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
PART IV
The financial statements and financial statement schedules for Hennessy Advisors, Inc. are included in Item 8,
“Financial Statements and Supplementary Data.”
Exhibit Index
Set forth below is a list of all exhibits to this Annual Report on Form 10-K, including those incorporated by
reference.
Exhibits
3.1
3.2
4.1
4.2
4.3
Amended and Restated Articles of Incorporation (10)
Fifth Amended and Restated Bylaws (12)
Description of Securities (16)
Indenture, dated as of October 20, 2021, by and between the Registrant and U.S. Bank National Association, as
trustee (15)
First Supplemental Indenture, dated as of October 20, 2021, by and between the Registrant and U.S. Bank National
Association, as trustee (15)
10.1 License Agreement, dated as of April 10, 2000, between the registrant and Netfolio, Inc. (2)
10.2
Investment Advisory Agreement, dated as of March 23, 2009, between the registrant and Hennessy Funds Trust (on
behalf of the Hennessy Cornerstone Large Growth Fund) (3)
Investment Advisory Agreement, dated as of October 25, 2012, between the registrant and Hennessy Funds Trust
(on behalf of the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy Gas Utility Fund, the
Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology Fund)
(4)
Investment Advisory Agreement, dated as of February 28, 2014, between the registrant and Hennessy Funds Trust
(on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy
Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Balanced Fund, the Hennessy Japan Fund,
and the Hennessy Japan Small Cap Fund) (7)
10.3
10.4
10.5 First Amendment to Investment Advisory Agreement, dated as of March 1, 2016, between the registrant and
Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Mid Cap
30 Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Balanced Fund,
the Hennessy Japan Fund, and the Hennessy Japan Small Cap Fund) (9)
10.6 First Amendment to Investment Advisory Agreement, dated as of February 28, 2017, between the registrant and
Hennessy Funds Trust (on behalf of the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the
Hennessy Gas Utility Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and
the Hennessy Technology Fund)
10.7 Amended and Restated Investment Advisory Agreement, dated as of February 28, 2022, between the registrant and
Hennessy Funds Trust (on behalf of the Hennessy Energy Transition Fund and the Hennessy Midstream Fund)
Investment Advisory Agreement, dated as of December 22, 2022, between the registrant and Hennessy Funds Trust
(on behalf of the Hennessy Stance ESG ETF)
10.8
10.9 First Amendment to Investment Advisory Agreement, dated as of April 28, 2023, between the registrant and
Hennessy Funds Trust (on behalf of the Hennessy Stance ESG ETF)
10.10 Sub-Advisory Agreement, dated as of October 25, 2012, between the registrant and Broad Run Investment
Management, LLC (for the Hennessy Focus Fund) (4)
10.11 Sub-Advisory Agreement, dated as of October 25, 2012, between the registrant and The London Company of
Virginia, LLC (for the Hennessy Equity and Income Fund (equity allocation)) (4)
10.12 Sub-Advisory Agreement, dated as of October 25, 2012, between the registrant and FCI Advisors (for the Hennessy
Equity and Income Fund (fixed income allocation)) (4)
10.13 Sub-Advisory Agreement, dated as of February 28, 2014, between the registrant and SPARX Asset Management
Co., Ltd. (for the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund) (7)
10.14 First Amendment to Sub-Advisory Agreement, dated as of February 28, 2018, between the registrant and SPARX
Asset Management Co., Ltd. (for the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund) (13)
10.15 Sub-Advisory Agreement, dated as of December 22, 2022, between the registrant and Stance Capital, LLC (for the
Hennessy Stance ESG ETF (portfolio composition sub-advisor))
65
10.16 First Amendment to Sub-Advisory Agreement, dated as of April 28, 2023, between the registrant and Stance
Capital, LLC (for the Hennessy Stance ESG ETF (portfolio composition sub-advisor))
10.17 Sub-Advisory Agreement, dated as of July 14, 2023, between the registrant and Vident Advisory, LLC (for the
Hennessy Stance ESG ETF (trading sub-advisor))
10.18 Second Amended and Restated Servicing Agreement, dated as of February 28, 2022, between the registrant and
Hennessy Funds Trust (on behalf of all Hennessy Mutual Funds)
10.19 Hennessy Advisors, Inc. Amended and Restated 2013 Omnibus Incentive Plan (6)
10.20 Form of Restricted Stock Unit Award Agreement for Employees (1)(5)
10.21 Form of Restricted Stock Unit Award Agreement for Directors (1)(5)
10.22 Form of Stock Option Award Agreement for Employees (1)(5)
10.23 Form of Stock Option Award Agreement for Directors (1)(5)
10.24 Second Amended and Restated Bonus Agreement, dated as of January 26, 2018, between the registrant and Teresa
M. Nilsen (1)(12)
10.25 Amended and Restated Bonus Agreement, dated as of October 10, 2016, between the registrant and Daniel B.
Steadman (1)(9)
10.26 Employment Agreement, dated as of January 26, 2018, between the registrant and Teresa M. Nilsen (1)(12)
10.27 Fourth Amended and Restated Employment Agreement, dated as of February 22, 2019, between the registrant and
Neil J. Hennessy (1)(14)
23.1 Consent of Marcum LLP, Independent Registered Public Accounting Firm
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
97
101
Hennessy Advisors, Inc. Compensation Recovery Policy
Financial statements from the Annual Report on Form 10-K of the registrant for the year ended September 30,
2023, filed on December 6, 2023, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Income and
Comprehensive Income; (iii) the Statements of Changes in Stockholders’ Equity; (iv) the Statements of Cash
Flows; and (v) the Notes to Financial Statements.
The Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).
104
Notes:
(1) Management contract or compensatory plan or arrangement.
(2)
(3)
Incorporated by reference from the Company’s Form SB-2 registration statement (SEC File No. 333-66970) filed August 6, 2001.
Incorporated by reference from the Company’s Form 10-K for the fiscal year ended September 30, 2009 (SEC File No. 000-49872), filed
December 4, 2009.
Incorporated by reference from the Company’s Form 10-Q for the quarter ended December 31, 2012 (SEC File No. 000-49872), filed
January 17, 2013.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 000-49872) filed September 18, 2013.
Incorporated by reference to Annex A of the Company’s definitive proxy statement on Schedule 14A for the Company’s Special Meeting
of Shareholders held on March 26, 2015 (SEC File No. 000-49872), filed February 21, 2014.
Incorporated by reference from the Company’s Form 10-Q for the quarter ended June 30, 2014 (SEC File No. 001-36423), filed August 6,
2014.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed October 13, 2016.
Incorporated by reference from the Company’s Form 10-K for the fiscal year ended September 30, 2016 (SEC File No. 001-36423), filed
December 1, 2016.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed March 7, 2017.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed May 11, 2017.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed January 25, 2018.
Incorporated by reference from the Company’s Form 10-Q for the quarter ended March 31, 2018 (SEC File No. 001-36423), filed May 2,
2018.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed February 25, 2019.
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423), filed October 20, 2021.
Incorporated by reference from the Company’s Form 10-K for the fiscal year ended September 30, 2021 (SEC File No. 001-36423), filed
November 24, 2021.
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
ITEM 16. FORM 10-K SUMMARY
None.
66
Pursuant to the requirements of Section 13 or 15(d) 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:
SIGNATURES
Hennessy Advisors, Inc.
(Registrant)
By:
/s/ Teresa M. Nilsen
Teresa M. Nilsen
President, Chief Operating Officer, Secretary, and Director
(As a duly authorized officer on behalf of the registrant and as Principal
Executive Officer)
Date: December 6, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:
Date: December 6, 2023
Date: December 6, 2023
Date: December 6, 2023
Date: December 6, 2023
Date: December 6, 2023
Date: December 6, 2023
Date: December 6, 2023
Date: December 6, 2023
By:
/s/ Kathryn R. Fahy
Kathryn R. Fahy
Chief Financial Officer and Senior Vice President
(Principal Financial and Accounting Officer)
By:
/s/ Neil J. Hennessy
Neil J. Hennessy
Chief Executive Officer and Chairman of the Board of Directors
By:
/s/ Henry Hansel
Henry Hansel
Director
By:
/s/ Brian A. Hennessy
Brian A. Hennessy
Director
By:
/s/ Lydia Knight-O’Riordan
Lydia Knight-O’Riordan
Director
By:
/s/ Kiera Newton
Kiera Newton
Director
By:
/s/ Susan W. Pomilia
Susan W. Pomilia
Director
By:
/s/ Thomas L. Seavey
Thomas L. Seavey
Director
67
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement of Hennessy Advisors, Inc. on Form S-3 (No.
333-251201) and S-8 (No. 333-188439) of our report dated December 6, 2023, with respect to our audits of the financial
statements of Hennessy Advisors, Inc. as of September 30, 2023 and 2022, and for the years ended September 30, 2023 and
2022, which report is included in this Annual Report on Form 10-K of Hennessy Advisors, Inc. for the year ended
September 30, 2023.
/s/ Marcum LLP
Marcum LLP
San Francisco, California
December 6, 2023
Exhibit 31.1
Rule 13a – 14a Certification of the Principal Executive Officer
I, Teresa M. Nilsen, certify that:
1.
I have reviewed this annual report on Form 10-K of Hennessy Advisors, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
/s/ Teresa M. Nilsen
Teresa M. Nilsen, President
Hennessy Advisors, Inc.
Date: December 6, 2023
Exhibit 31.2
Rule 13a – 14a Certification of the Principal Financial Officer
I, Kathryn R. Fahy, certify that:
1.
I have reviewed this annual report on Form 10-K of Hennessy Advisors, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
/s/ Kathryn R. Fahy
Kathryn R. Fahy, Chief Financial Officer
Hennessy Advisors, Inc.
Date: December 6, 2023
Exhibit 32.1
Written Statement of the Principal Executive Officer
Pursuant to 18 U.S.C. § 1350
Solely for the purposes of complying with 18 U.S.C. § 1350, I, the undersigned President of Hennessy Advisors, Inc. (the
“Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year
ended September 30, 2023 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Teresa M. Nilsen
Teresa M. Nilsen, President
Hennessy Advisors Inc.
Date: December 6, 2023
Exhibit 32.2
Written Statement of the Principal Financial Officer
Pursuant to 18 U.S.C. § 1350
Solely for the purposes of complying with 18 U.S.C. § 1350, I, the undersigned Chief Financial Officer of Hennessy
Advisors, Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the
Company for the year ended September 30, 2023 (the “Report”), fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/ Kathryn R. Fahy
Kathryn R. Fahy, Chief Financial Officer
Hennessy Advisors, Inc.
Date: December 6, 2023
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