HENNESSY
ADVISORS, INC.
FORM 10-K
ANNUAL REPORT
Year Ended September 30, 2024
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, 2024
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
68-0176227
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
7250 Redwood Boulevard, Suite 200
Novato, California
94945
(Address of principal executive office)
(Zip Code)
(415) 899-1555
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
HNNA
The Nasdaq Stock Market LLC
4.875% Notes due 2026
HNNAZ
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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 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 as reported on the Nasdaq National Market System of $6.90 on March 28, 2024 (the last trading day of the registrant’s most recently completed
second fiscal quarter), was $33,176,187.
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, 2024, there were 7,780,319 shares of common stock issued and outstanding.
Auditor's Name: Marcum LLP
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 2025 annual meeting of shareholders to be filed within 120 days after the close of the fiscal year to
which this report relates, will be, when filed, incorporated by reference in Part III.
(This page intentionally left blank.)
i
HENNESSY ADVISORS, INC.
TABLE OF CONTENTS
PART I
Item 1
Business
1
Item 1A
Risk Factors
21
Item 1C
Cybersecurity
Item 2
Properties
31
Item 3
Legal Proceedings
31
Item 4
Mine Safety Disclosures
32
Part II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
32
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
33
Item 8
Financial Statements and Supplementary Data
41
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
61
Item 9A
Controls and Procedures
62
Item 9B
Other Information
63
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
63
Part III
Item 10
Directors, Executive Officers, and Corporate Governance
63
Item 11
Executive Compensation
64
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
64
Item 13
Certain Relationships and Related Transactions, and Director Independence
64
Item 14
Principal Accountant Fees and Services
64
Part IV
Item 15
Exhibits and Financial Statement Schedules
65
Item 16
Form 10-K Summary
66
Signatures
67
31
(This page intentionally left blank.)
1
PART I
ITEM 1. BUSINESS
GENERAL
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 35 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 2024 was $3.7 billion, and our total assets under management as
of the end of fiscal year 2024 was $4.6 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.
2
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.
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.
3
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 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
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.
2023
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”).
In November, we purchased the assets related to the management of a mutual fund previously managed by Community
Capital Management, LLC (“CCM”) and reorganized the assets of such fund into the Hennessy Stance ESG ETF. The
amount of the purchased assets as of the closing date totaled approximately $12 million.
2024
In February, we purchased the assets related to the management of a second mutual fund previously managed by CCM
and reorganized the assets of such fund into the Hennessy Stance ESG ETF. The amount of the purchased assets as of
the closing date totaled approximately $59 million.
4
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 Balanced Fund
Hennessy Gas Utility Fund
Hennessy Cornerstone Large Growth 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 25 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 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.
5
●
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.
6
●
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.
7
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, 2024.
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
42.60 %
18.78 %
20.69 %
11.76 %
Investor Class Share - HFCGX
42.16 %
18.40 %
20.31 %
11.42 %
Russell 2000® Index (1)
26.76 %
1.84 %
9.39 %
8.78 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Focus Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HFCIX
36.56 %
6.04 %
10.31 %
10.69 %
Investor Class Share - HFCSX
36.04 %
5.64 %
9.90 %
10.28 %
Russell 3000® Index (3)
35.19 %
10.29 %
15.26 %
12.83 %
Russell Midcap® Growth Index (4)
29.33 %
2.32 %
11.48 %
11.30 %
Hennessy Cornerstone Mid Cap 30 Fund
One Year Three Years Five Years Ten Years
Institutional Class Share - HIMDX
44.44 %
24.34 %
24.70 %
13.38 %
Investor Class Share - HFMDX
43.89 %
23.89 %
24.24 %
13.00 %
Russell Midcap® Index (5)
29.33 %
5.75 %
11.30 %
10.19 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Cornerstone Large Growth Fund
One Year Three Years Five Years Ten Years
Institutional Class Share - HILGX
21.13 %
8.83 %
13.04 %
10.09 %
Investor Class Share - HFLGX
20.83 %
8.53 %
12.73 %
9.81 %
Russell 1000® Index (6)
35.68 %
10.83 %
15.64 %
13.10 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Cornerstone Value Fund
One Year Three Years Five Years Ten Years
Institutional Class Share - HICVX
19.52 %
11.63 %
10.85 %
8.64 %
Investor Class Share - HFCVX
19.24 %
11.37 %
10.61 %
8.42 %
Russell 1000® Value Index (7)
27.76 %
9.03 %
10.69 %
9.23 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Total Return Fund
One Year Three Years Five Years Ten Years
Investor Class Share - HDOGX
16.77 %
7.05 %
5.18 %
5.98 %
75/25 Blended DJIA/Treasury Index (8)
22.74 %
8.58 %
9.67 %
9.58 %
Dow Jones Industrial Average (9)
28.85 %
9.97 %
11.78 %
12.03 %
8
Hennessy Equity and Income Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HEIIX
17.98 %
4.65 %
7.19 %
6.53 %
Investor Class Share - HEIFX
17.66 %
4.28 %
6.81 %
6.14 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Balanced Fund
One Year Three Years Five Years Ten Years
Investor Class Share - HBFBX
12.21 %
4.33 %
3.54 %
4.13 %
50/50 Blended DJIA/Treasury Index (10)
17.09 %
6.54 %
7.23 %
6.99 %
Dow Jones Industrial Average (9)
28.85 %
9.97 %
11.78 %
12.03 %
Hennessy Energy Transition Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HNRIX
6.63 %
20.91 %
15.80 %
3.30 %
Investor Class Share - HNRGX
6.27 %
20.52 %
15.44 %
3.00 %
S&P 500® Energy Index (11)
0.85 %
24.14 %
13.90 %
3.99 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Midstream Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HMSIX**
26.41 %
24.78 %
12.70 %
2.67 %
Investor Class Share - HMSFX
26.06 %
24.49 %
12.42 %
2.42 %
Alerian US Midstream Energy Index (12)
36.49 %
26.52 %
16.79 %
4.96 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Gas Utility Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HGASX**
29.32 %
12.31 %
7.19 %
6.49 %
Investor Class Share - GASFX
28.91 %
11.97 %
6.86 %
6.23 %
AGA Stock Index (13)
30.16 %
13.01 %
7.90 %
7.39 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Japan Fund
One Year Three Years Five Years Ten Years
Institutional Class Share - HJPIX
37.43 %
0.72 %
7.23 %
9.31 %
Investor Class Share - HJPNX
36.86 %
0.34 %
6.81 %
8.90 %
Russell/Nomura Total MarketTM Index (14)
22.40 %
3.40 %
7.46 %
6.91 %
Tokyo Stock Price Index (TOPIX) (15)
21.62 %
3.10 %
7.26 %
6.76 %
Hennessy Japan Small Cap Fund
One Year Three Years Five Years Ten Years
Institutional Class Share - HJSIX**
19.81 %
0.16 %
5.08 %
8.04 %
Investor Class Share - HJPSX
19.26 %
-0.24 %
4.66 %
7.67 %
Russell/Nomura Small CapTM Index (16)
19.48 %
1.24 %
4.63 %
6.09 %
Tokyo Stock Price Index (TOPIX) (15)
21.62 %
3.10 %
7.26 %
6.76 %
9
Hennessy Large Cap Financial Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HILFX**
34.70 %
-3.45 %
6.45 %
7.15 %
Investor Class Share - HLFNX
34.28 %
-3.75 %
6.10 %
6.79 %
Russell 1000® Index Financials (17)
41.42 %
10.17 %
14.64 %
13.29 %
Russell 1000® Index (6)
35.68 %
10.83 %
15.64 %
13.10 %
Hennessy Small Cap Financial Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HISFX
33.79 %
1.43 %
10.11 %
9.31 %
Investor Class Share - HSFNX
33.44 %
1.09 %
9.74 %
8.92 %
Russell 2000® Index Financials (18)
38.64 %
4.14 %
7.59 %
8.84 %
Russell 2000® Index (1)
26.76 %
1.84 %
9.39 %
8.78 %
Hennessy Technology Fund*
One Year Three Years Five Years Ten Years
Institutional Class Share - HTCIX**
29.82 %
5.64 %
13.90 %
11.74 %
Investor Class Share - HTECX
29.42 %
5.38 %
13.60 %
11.44 %
NASDAQ Composite Index (19)
38.64 %
8.84 %
18.81 %
16.13 %
S&P 500® Index (2)
36.35 %
11.91 %
15.98 %
13.38 %
Hennessy Stance ESG ETF*
One Year Three Years Five Years
Since
Inception
(3/15/21)
STNC - Net Asset Value
24.31 %
6.56 %
-
6.87 %
STNC - Market Price
24.23 %
6.50 %
-
6.87 %
S&P 500® Index (2)
36.35 %
11.91 %
-
12.80 %
*
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.
10
(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.
Russell® is a trademark of the London Stock Exchange Group (“LSEG”) and is used by Frank Russell Company (“Russell”)
under license. Neither we nor the Hennessy Funds are in any way sponsored, endorsed, sold, or promoted by Russell or by
LSEG, and neither Russell nor LSEG makes any warranty or representation whatsoever, expressly or impliedly, either as to the
results to be obtained from the use of the applicable indexes above and/or the figure at which such indexes stand at any
particular time on any particular day or otherwise. Such indexes are compiled and calculated by Russell in connection with
Nomura Securities Co., Ltd. (“Nomura”). However, neither Russell, LSEG, nor Nomura shall be liable (whether in negligence
or otherwise) to any person for any inaccuracies in such indexes and neither Russell, LSEG, nor Nomura shall be under any
obligation to advise any person of any inaccuracies therein. No further distribution of Russell data is permitted without
Russell’s express written consent.
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;
11
●
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:
Fiscal Years Ended September 30,
2024
2023
2022
(In thousands)
Beginning assets under management
$
3,032,042 $
2,895,717 $
4,065,922
Acquisition inflows
71,656
43,088
-
Organic inflows
1,554,303
598,119
656,491
Redemptions
(1,005,191 )
(915,397 )
(1,147,888 )
Market appreciation (depreciation)
989,553
410,515
(678,808 )
Ending assets under management
$
4,642,363 $
3,032,042 $
2,895,717
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:
Fiscal Years Ended September 30,
2024
2023
2022
(In thousands)
Investment advisory fees
$
27,524 $
22,090 $
27,468
Shareholder service fees
2,122
1,930
2,199
Subtotal
29,646
24,020
29,667
Sub-advisory fees
(4,169 )
(3,759 )
(5,727 )
Revenue, net of sub-advisory fees
$
25,477 $
20,261 $
23,940
12
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 officers and employing other staff such as legal,
marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as
management executives;
●
providing a quarterly compliance certification to the 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.
13
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 2024, the percentages of
each fund’s assets used to calculate the annual investment advisory fees payable to us are as follows:
Hennessy Fund
Investment Advisory Fee
(All Class Shares)
(as a % of fund assets)
Hennessy Cornerstone Growth Fund
0.74%
Hennessy Focus Fund
0.90%
Hennessy Cornerstone Mid Cap 30 Fund
0.74%
Hennessy Cornerstone Large Growth Fund
0.74%
Hennessy Cornerstone Value Fund
0.74%
Hennessy Total Return Fund
0.60%
Hennessy Equity and Income Fund
0.80%
Hennessy Balanced Fund
0.60%
Hennessy Energy Transition Fund
1.25%
Hennessy Midstream Fund
1.10%
Hennessy Gas Utility Fund
0.40%
Hennessy Japan Fund
0.80%
Hennessy Japan Small Cap Fund
0.80%
Hennessy Large Cap Financial Fund
0.90%
Hennessy Small Cap Financial Fund
0.90%
Hennessy Technology Fund
0.74%
Hennessy Stance ESG ETF
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 fiscal
years 2024 and 2023 were $0.18 million and $0.15 million, respectively. 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.
14
Our investment advisory agreements must be renewed annually (except in limited circumstances) by (i) the Funds’
Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (ii) 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
direct or indirect 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 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.
15
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 2024:
Hennessy Fund
Sub-Advisory Fee
(All Class Shares)
Sub-Advisor
(As a % of Fund Assets)
Hennessy Focus Fund
Broad Run Investment Management, LLC
0.29%
Hennessy Equity and
FCI Advisors (fixed income allocation)
0.27%
Income Fund
The London Company of Virginia, LLC (equity allocation)
0.33%
Hennessy Japan Fund
SPARX Asset Management Co., Ltd.
$0-$500 million: 0.35%
Above $500 million-$1 billion: 0.40%
Above $1 billion: 0.42%
Hennessy Japan Small
SPARX Asset Management Co., Ltd.
$0-$500 million: 0.35%
Cap Fund
Above $500 million-$1 billion: 0.40%
Above $1 billion: 0.42%
Hennessy Stance ESG ETF Stance Capital, LLC (portfolio composition sub-advisor)
$0-$125 million: 0.40%
Above $125-$250 million: 0.37%
Above $250 million: 0.35%
Vident Advisory, LLC* (trading sub-advisor)
$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.
16
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 sought and received an exemptive order from the Securities and Exchange Commission (“SEC”) in 2023 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 obtained shareholder approval for the Hennessy Stance ESG ETF in 2023 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.
17
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.
18
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 2024 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.
19
●
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 12 purchases of the assets related to the management of
investment funds over a nearly 25-year period, integrating $4.4 billion in net assets of 33 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.”
20
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 2024, we had 18 employees, 17 of whom were full-time employees. Our 18 employees
had an average tenure of 14 years as of the end of fiscal year 2024. 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 Senior 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.
21
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
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.
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.
22
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 may adversely impact global commercial activity, contribute to
significant volatility in global equity and debt markets, and disrupt supply chains, operations, and economic activity. Such
outbreaks may adversely impact the value and performance of the Hennessy Funds, which may result in declines in our
revenues and limit our ability to source and pursue potential acquisitions. Future outbreaks of contagious diseases could have
adverse impacts on our business and financial performance.
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.
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 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
23
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, but there has been
downward pressure on fees in the investment advisory industry for many years. 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 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 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.
24
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.
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.
25
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 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 or six of
our funds. During fiscal year 2024, our average assets under management was concentrated in the following five funds: (i) the
Hennessy Cornerstone Mid Cap 30 Fund (27% of average assets under management); (ii) the Hennessy Focus Fund (18% of
average assets under management); (iii) the Hennessy Gas Utility Fund (12% of average assets under management); (iv) the
Hennessy Japan Fund (10% of average assets under management); and (v) the Hennessy Cornerstone Growth Fund (9% of
average assets under management). Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy
Cornerstone Mid Cap 30 Fund (26% of total revenue); (b) the Hennessy Focus Fund (21% of total revenue); (c) the Hennessy
Japan Fund (10% of total revenue); (d) the Hennessy Cornerstone Growth Fund (9% of total revenue); and (e) the Hennessy
Cornerstone Value Fund (8% of total revenue). As a result, our operating results are particularly dependent upon the
performance of a small number of funds and our ability to maintain and grow assets under management in these funds. These
funds have from time to time experienced significant redemptions and may do so again in the future. A significant increase in
redemptions for any reason would reduce our assets under management and 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;
●
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.
26
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.
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 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: (i) the management fees paid to us; (ii) distribution fees and expenses paid
by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act; (iii) interest
expenses; (iv) 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; (v) compensation paid to the independent
trustees of the fund and fees paid to independent trustees’ counsel; (vi) tax expenses and governmental fees; and (vii)
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 increase, which could lead to increased profitability for us if we
are 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 profitability from the fund.
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
27
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.
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 sought and received an exemptive order from the SEC in 2023 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 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
28
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 are high priorities for many regulators, and many jurisdictions have
enacted laws and regulations in these areas. Enactment of privacy laws or regulations have, and may continue to, 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.
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.
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.
29
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.
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 $82.3 million asset on the balance sheet as of the end of fiscal year
2024, 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.
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.
30
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 future secured indebtedness, and structurally
subordinated to all 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
operations, many of which are beyond our control.
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.
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.
31
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.
Certain provisions in our employment agreements and bonus agreements with key personnel could delay or discourage an
acquisition of the Company.
Our employment agreements with key personnel provide for certain payments in the event of certain terminations of
employment of such persons or changes of control of the Company The obligation of the Company to make such payments
upon the occurrence of such events could significantly increase the cost of an acquisition of the Company and make potential
acquirers hesitant to proceed.
ITEM 1C. CYBERSECURITY
We have policies and procedures for identifying, assessing, and managing material risks associated with cybersecurity
threats. We seek to address cybersecurity risks through a comprehensive approach focused on preserving the confidentiality,
security, and availability of the information that we collect and store by identifying, preventing, and mitigating cybersecurity
threats and effectively responding to cybersecurity incidents when they occur. We implement and maintain technical and
physical safeguards and other organizational measures, including, for example, the use of antivirus software, intrusion
prevention and detection systems, virtual private networks, firewalls, email security, link protection, the regular deployment of
updates and patches as they become available, a general policy against providing access to our network to any third party (with
the exception of our third-party information technology vendor), the use of a third-party service to conduct mandatory online
training for all employees regarding identifying and mitigating cybersecurity risks, regular phishing testing, regular penetration
testing, regular reviews of access to systems and networks, and routine monitoring of compliance with our written information
security plan. We also maintain cybersecurity insurance that provides for certain protection against potential losses arising
from a cybersecurity incident.
We have an Information Technology committee that meets at least quarterly and includes members of our management
team and compliance team. The members of the Information Technology committee have gained cybersecurity experience
through years of training, internal and external discussions, and the development, implementation, and periodic evaluation of
our cybersecurity policies.
We have not experienced a material cybersecurity incident, any expenses we have incurred from cybersecurity breaches
have been immaterial, and we are not aware of any cybersecurity incidents that are reasonably likely to materially affect our
business. Our business strategy, results of operations and financial condition have not been materially affected by risks from
cybersecurity threats, including as a result of previously identified cybersecurity incidents. However, future incidents could
have a material and adverse impact on our business strategy, results of operations, or financial condition. For additional
discussion of the risks posed by cybersecurity threats, see Item 1A, “Risk Factors.”
Our Board of Directors oversees cybersecurity risk management as part of its general oversight function. The Company’s
management team provides updates to the Board of Directors regarding cybersecurity as appropriate.
ITEM 2.
PROPERTIES.
Our principal executive office is located at 7250 Redwood Boulevard, Suite 200, Novato, California 94945, where we
occupy approximately 14,000 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.
32
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 2024, we had 119 holders of record of our common stock. In addition, there were
42 brokerage firm accounts that represent 1,997 additional individual shareholders for a total of 2,116 shareholders.
The equity compensation plan information required by Item 201(d) of Regulation S-K is set forth in the “Equity
Compensation Plan Information” subheading under Item 12, “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.”
33
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
During fiscal year 2024, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to
satisfy tax withholding obligations arising in connection with the vesting of RSUs. The stock repurchases are presented in the
following table for the three months ended September 30, 2024:
Period
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)
July 1-31, 2024
- $
-
-
1,096,368
August 1-31, 2024
-
-
-
1,096,368
September 1-30, 2024 (2)
39,410
10.24
-
1,096,368
Total
39,410 $
10.24
-
1,096,368
(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. A total of 1,096,368 shares remain available for repurchase under the
stock buyback program. We did not repurchase any shares pursuant to the stock buyback program during the three
months ended September 30, 2024.
(2) The shares that we repurchased in September 2024 are not subject to a maximum per plan or program because we did
not repurchase them pursuant to a plan or program.
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.
34
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, 2024, with the S&P 500®
Index returning 36.35% and the Dow Jones Industrial Average returning 28.85% for the period (on a total return basis). Equity
prices advanced in anticipation of the Federal Reserve lowering its benchmark interest rate, which ultimately happened in
September. Further, the markets have appeared to continue pricing in the prospect of several more rate cuts over the next year
as market participants have appeared to continue to view recent inflation data in a favorable light. While lower short-term
interest rates have propelled the market higher, a strong second quarter earnings season and the expectation of a reasonably
robust third quarter earnings season seem to have given investors increased confidence that the economy is on firm footing.
According to Bloomberg, consensus estimates call for the economy to grow 2.6% in 2024. While that rate is slightly behind
last year’s growth rate of 2.9%, we believe it is nonetheless a stronger rate than many had predicted at the beginning of the
year.
Yields on long-term U.S. bonds decreased meaningfully during the one-year period ended September 30, 2024, as the
Federal Reserve has started to lower its benchmark interest rate. After the rate cut in September 2024, investors appear to have
continued to price in further reductions in interest rates. According to Bloomberg, the market is currently pricing in nearly two
more rate cuts by the end of the year and roughly six rate cuts by the end of 2025. Recent inflation data seems to have calmed
the nerves of investors who feared that inflation would continue to be a headwind. Inflation data released for September 2024
indicated that consumer prices increased 2.4% from a year earlier, compared to 2.5% in August 2024, according to the Labor
Department. The 2.4% rate is the smallest annual increase since February 2021 and now only modestly above the Federal
Reserve’s stated goal of 2.0% inflation. For the one-year period ended September 30, 2024, 10-year U.S. Treasury Note yields
fell from approximately 4.57% to 3.78%.
The Japanese equity market increased 21.6% (in U.S. dollar terms) for the one-year period ended September 30, 2024,
as measured by the Tokyo Stock Price Index (TOPIX). In our view, business sentiment in Japan remains strong, with the Bank
of Japan stating that it expects large companies to increase capital spending by 10.6% in the current fiscal year through March
2025. Bank of Japan Governor Kazuo Ueda has said that the central bank will continue to raise interest rates as long as
business conditions remain strong, which is expected to help keep inflation under control around 2.0%.
Against this positive equity performance backdrop, all 17 Hennessy Funds posted positive returns for the one-year
period ended September 30, 2024. The longer-term performance numbers remain strong, with 15 of the Hennessy Funds
posting positive returns for the three-year period ended September 30, 2024. Finally, all 16 Hennessy Funds with at least
10 years of operating history posted positive returns for both the 5-year and 10-year periods ended September 30, 2024.
35
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 198,500 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 11,200 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly
500 who purchased one of our Funds for the first time during fiscal year 2024. Approximately 18% of such advisors own two
or more Hennessy Funds, and over 650 advisors hold a position of over $500,000. While numbers have declined in recent
years, we continue to focus significant efforts on financial advisors who own two or more Hennessy Funds or hold a position of
over $500,000 in an effort to build and maintain brand loyalty among our top tier of advisors.
Total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or
53.1%, compared to the end of fiscal year 2023. The increase in total assets was attributable to market appreciation, net inflows
of the Hennessy Funds, and the purchase of assets related to the management of two mutual funds previously managed by
CCM that were reorganized into the Hennessy Stance ESG ETF.
The following table illustrates the year-by-year changes in our assets under management over the past three fiscal
years:
Fiscal Years Ended September 30,
2024
2023
2022
(In thousands)
Beginning assets under management
$
3,032,042 $
2,895,717 $
4,065,922
Acquisition inflows
71,656
43,088
-
Organic inflows
1,554,303
598,119
656,491
Redemptions
(1,005,191 )
(915,397 )
(1,147,888 )
Market appreciation (depreciation)
989,553
410,515
(678,808 )
Ending assets under management
$
4,642,363 $
3,032,042 $
2,895,717
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:
Fiscal Years Ended September 30,
2024
2023
2022
(In thousands)
Hennessy Mutual Funds
Investor Class
$
2,121,824 $
1,930,294 $
2,199,250
Institutional Class
1,475,335
1,027,166
1,445,112
Hennessy Stance ESG ETF
89,784
34,230
-
Average assets under management
$
3,686,943 $
2,991,690 $
3,644,362
The principal asset on our balance sheet, the management contract asset, represents the capitalized costs incurred in
connection with the purchase of assets related to the management of investment funds. As of the end of fiscal year 2024, this
asset had a net balance of $82.3 million, an increase of $1.0 million since the end of fiscal year 2023. This increase is related to
the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into
the Hennessy Stance ESG ETF. (See Note 5 in Item 8, “Financial Statements and Supplementary Data.”)
36
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 future secured indebtedness, and structurally
subordinate to all future indebtedness and other obligations of any future subsidiaries of ours. The 2026 Notes are the principal
liability on our balance sheet at $39.5 million, net of issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
We continually review our capital requirements to ensure that we have funding available to support our business
model. Management anticipates that cash and other liquid assets on hand as of the end of fiscal year 2024 will be sufficient to
meet our capital requirements for one year from the issuance date of this report, as well as our longer term capital requirements
for periods beyond one year from the issuance date of this report. To the extent that liquid resources and cash provided by
operations are not adequate to meet long-term capital requirements, management plans to raise additional capital by either, or
both, seeking bank financing or accessing the capital markets. There can be no assurance that we will be able to raise additional
capital.
As discussed above, on October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal
amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option. The 2026 Notes mature
on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after
December 31, 2023.
Our total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or
53.1%, compared to the end of fiscal year 2023. The primary sources of our revenues, liquidity, and cash flow are our
investment advisory fees and shareholder service fees, which are based on, and generated by, our average assets under
management. Our average assets under management for fiscal year 2024 was $3.7 billion. As of the end of fiscal year 2024, we
had cash and cash equivalents of $63.9 million.
The following table summarizes key financial data relating to our liquidity and use of cash:
Fiscal Years Ended September 30,
2024
2023
(In thousands)
Net cash provided by operating activities
$
9,277 $
7,134
Net cash used in investing activities
(1,303 )
(819 )
Net cash used in financing activities
(4,528 )
(4,326 )
Net increase in cash and cash equivalents
$
3,446 $
1,989
The increase in cash provided by operating activities of $2.1 million was mainly due to increased net income in the
current period.
The increase in cash used in investing activities of $0.5 million was due to the purchase of assets related to the
management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG STF.
The increase in cash used in financing activities of $0.2 million was due to repurchases of shares underlying vested
restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of
RSUs in the current period.
Dividend Payments. We have consistently paid dividends each year since 2005. Our quarterly dividend rate remained
constant during fiscal years 2024 and 2023, and our dividend payments totaled $4.2 million in each such fiscal year.
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.
37
RESULTS OF OPERATIONS
The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue:
Fiscal Years Ended September 30,
2024
2023
Amounts
Percent of
Total
Revenue Amounts
Percent of
Total
Revenue
(In thousands, except percentages)
Revenue
Investment advisory fees
$
27,524
92.8 % $
22,090
92.0 %
Shareholder service fees
2,122
7.2
1,930
8.0
Total revenue
29,646
100.0
24,020
100.0
Operating expenses
Compensation and benefits
9,064
30.5
7,732
32.2
General and administrative
6,484
21.9
5,479
22.8
Fund distribution and other
818
2.8
486
2.0
Sub-advisory fees
4,169
14.1
3,759
15.6
Depreciation
244
0.8
230
1.0
Total operating expenses
20,779
70.1
17,686
73.6
Net operating income
8,867
29.9
6,334
26.4
Interest income
(3,112 )
(10.5 )
(2,522 )
(10.5 )
Interest expense
2,275
7.7
2,256
9.4
Income before income tax expense
9,704
32.7
6,600
27.5
Income tax expense
2,607
8.8
1,829
7.6
Net income
$
7,097
23.9 % $
4,771
19.9 %
Revenue – Investment Advisory Fees and Shareholder Service Fees
Total revenue comprises investment advisory fees and shareholder service fees. Comparing fiscal year 2024 to fiscal
year 2023, total revenue increased by 23.4%, from $24.0 million to $29.6 million, investment advisory fees increased by
24.6%, from $22.1 million to $27.5 million, and shareholder service fees increased by 9.9%, from $1.9 million to $2.1 million.
The increase in investment advisory fees was due mainly to increased average daily net assets of the Hennessy Funds.
The increase in shareholder service fees was due to an increase in the average daily net assets held in Investor Class shares of
the Hennessy Mutual Funds. Assets held in Investor Class shares of the Hennessy Mutual Funds are subject to a shareholder
service fee, whereas assets held in Institutional Class shares of the Hennessy Mutual Funds are not subject to a shareholder
service fee.
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 2024
was $3.7 billion, which represents an increase of $0.7 billion, or 23.2%, compared to fiscal year 2023. The Hennessy Fund
with the largest average daily net assets for fiscal year 2024 was the Hennessy Cornerstone Mid Cap 30 Fund, with $981
million. We collect an investment advisory fee from the Hennessy Cornerstone Mid Cap 30 Fund at an annual rate of 0.74% of
average daily net assets. The Hennessy Fund with the second largest average daily net assets for fiscal year 2024 was the
Hennessy Focus Fund, with $645 million. We collect an investment advisory fee from the Hennessy Focus Fund at an annual
rate of 0.90% of average daily net assets. However, we pay a sub-advisory fee at an annual rate of 0.29% to the fund’s
sub-advisor, which reduces the net operating profit contribution of the fund to our financial operations.
38
Total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or
53.1%, compared to the end of fiscal year 2023. The increase in total assets was attributable to market appreciation, net inflows
of the Hennessy Funds, and the purchase of assets related to the management of two mutual funds previously managed by
CCM that were reorganized into the Hennessy Stance ESG ETF.
The Hennessy Funds with the three largest amounts of net inflows were as follows:
Fiscal Year Ended September 30, 2024
Fund Name
Amount
Hennessy Cornerstone Mid Cap 30 Fund
$
564 million
Hennessy Cornerstone Growth Fund
$
252 million
Hennessy Japan Fund
$
29 million
The Hennessy Funds with the three largest amounts of net outflows were as follows:
Fiscal Year Ended September 30, 2024
Fund Name
Amount
Hennessy Focus Fund
$
(95 ) million
Hennessy Gas Utility Fund
$
(81 ) million
Hennessy Value Fund
$
(28 ) million
Redemptions as a percentage of assets under management decreased from an average of 2.5% per month during fiscal
year 2023 to an average of 2.3% per month during fiscal year 2024.
Operating Expenses
Comparing fiscal year 2023 to fiscal year 2024, total operating expenses increased by 17.5%, from $17.7 million
to $20.8 million. As a percentage of total revenue, total operating expenses decreased 3.5 percentage points to 70.1%. The
increase in dollar value of operating expenses was primarily due to increases in compensation and benefits and general and
administrative expenses.
Compensation and Benefits Expense: Comparing fiscal year 2023 to fiscal year 2024, compensation and benefits
expense increased by 17.2%, from $7.7 million to $9.1 million. As a percentage of total revenue, compensation and benefits
expense decreased 1.7 percentage points to 30.5%. The increase in dollar value of compensation and benefits expense was due
primarily to an increase in incentive-based compensation during fiscal year 2024.
General and Administrative Expense: Comparing fiscal year 2023 to fiscal year 2024, general and administrative
expense increased by 18.3% from $5.5 million to $6.5 million. As a percentage of total revenue, general and administrative
expense decreased 0.9 percentage points to 21.9%. The dollar value increase in general and administrative expense was
primarily due to increases in sales and distribution expenses (not including fees paid to various financial institutions that offer
the Hennessy Funds as potential investments to their clients, which are reflected in “Fund Distribution and Other Expense”), as
well as professional services expenses, in the current period.
Fund Distribution and Other Expense: The distribution component of fund distribution and other expense consists of
fees paid to various financial institutions that offer the Hennessy Funds as potential investments to their clients. When the
Hennessy Funds are purchased through one of these financial institutions, the institution typically charges an asset-based fee,
which is recorded as a fund distribution expense on our statement of operations to the extent paid by us. The Hennessy Mutual
Funds, with the exception of the Hennessy Stance ESG ETF, may be purchased directly, and when purchased directly, we do
not incur any such expense. 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.
39
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 2023 to fiscal year 2024, fund distribution and other expense increased by 68.3%, from $0.49
million to $0.82 million. As a percentage of total revenue, fund distribution and other expense increased 0.8 percentage points
to 2.8%. The increase of fund distribution and other expense was due to increased average daily net assets of the Hennessy
Mutual Funds, which in turn increases the fees we pay to financial institutions. Additionally, fund distribution and other
expense increased due to the additional expenses relating to the Hennessy Stance ESG ETF resulting from the purchase of
assets related to the management of the two mutual funds previously managed by CCM that were reorganized into the
Hennessy Stance ESG ETF.
Sub-Advisory Fees Expense: Comparing fiscal year 2023 to fiscal year 2024, sub-advisory fees expense increased by
10.9%, from $3.8 million to $4.2 million. As a percentage of total revenue, sub-advisory fees expense decreased 1.5 percentage
points to 14.1%. The dollar value increase in sub-advisory fees expense was due to an increase in average daily net assets of
the sub-advised Hennessy Funds, with an additional increase due to the expense associated with new sub-advisory relationships
relating to the Hennessy Stance ESG ETF that began in December 2022.
Depreciation Expense: Comparing fiscal year 2023 to fiscal year 2024, depreciation expense increased by 6.1%
from $0.23 million to $0.24 million due to additional fixed asset purchases. As a percentage of total revenue, depreciation
expense decreased 0.2 percentage points to 0.8%.
Interest Income
Comparing fiscal year 2023 to fiscal year 2024, interest income increased from $2.52 million to $3.11 million. The
increase was due to increased interest rates and increased principal balances.
Interest Expense
Comparing fiscal year 2023 to fiscal year 2024, interest expense increased by 0.8% from $2.26 million to $2.28
million. The increase in interest expense was due to the manner in which interest expense is calculated under U.S. GAAP. The
issuance costs related to the 2026 Notes that have been capitalized are amortized over time and therefore increase the carrying
amount of the 2026 Notes. As the carrying amount of the 2026 Notes increases, the interest expense on the 2026 Notes for
financial statement purposes also increases.
Income Tax Expense
Comparing fiscal year 2023 to fiscal year 2024, income tax expense increased by 42.5%, from $1.8 million to $2.6
million. The increase in income tax expense was due to higher net operating income in the current period, partially offset by a
lower effective income tax rate in the current period. The lower effective tax rate in the current period is due to an increased tax
benefit in the current period due to restricted stock vesting at a higher share price.
Net Income
Comparing fiscal year 2023 to fiscal year 2024, net income increased by 48.8%, from $4.8 million to $7.1 million.
The increase in net income was primarily due to increased average assets under management in the current period, which
resulted in higher revenue and net operating income.
40
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally
accepted in the United States, which require the use of estimates, judgments, and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
periods presented. These accounting policies, methods, and estimates are an integral part of the financial statements prepared
by management and are based upon management’s current judgments. Those judgments are normally based on knowledge and
experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods,
and estimates are particularly sensitive because of their significance to the financial statements and because future events
affecting them may differ markedly from management’s current judgment. Described below are the accounting policies that we
believe are most critical to understanding our results of operations and financial position.
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 2024 as the more-likely-than-not threshold was not met as of the end of
fiscal year 2024.
The costs related to our purchase of assets related to the management of investment funds are capitalized as incurred.
The costs are defined as an intangible asset per the FASB standard “Intangibles – Goodwill and Other.” The acquisition costs
include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts.
The amounts are included in the management contract asset, totaling $82.3 million as of the end of fiscal year 2024.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
We reviewed accounting pronouncements issued between December 7, 2023, the filing date of our most recent
previously filed Annual Report on Form 10-K, and December 11, 2024, the filing date of this Annual Report on Form 10-K,
and are currently in the process of evaluating the impact of adoption on our financial position, results of operations, and
disclosures.
There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2024.
41
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Report of Independent Registered Public Accounting Firm
42
Balance Sheets
43
Statements of Income
44
Statements of Changes in Stockholders’ Equity
45
Statements of Cash Flows
46
Notes to Financial Statements
47
42
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, 2024 and 2023, the
related statements of income, changes in stockholders’ equity and cash flows for each of the two years in the period ended September 30,
2024, 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, 2024 and 2023, and the results of its operations and its cash
flows for each of the two years in the period ended September 30, 2024, 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) relates 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 matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the 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 the management contract asset involves subjective
assumptions that include stock market returns, fund flows and weighted average cost of capital.
We have determined that the valuation of the management contract asset 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 the measurement of the Company’s estimated fair value of the
management contract asset.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2004.
San Francisco, CA
December 11, 2024
43
Hennessy Advisors, Inc.
Balance Sheets
(In thousands, except share and per share amounts)
September 30,
2024
2023
Assets
Current assets
Cash and cash equivalents
$
63,922 $
60,476
Investments in marketable securities, at fair value
11
10
Investment fee income receivable
2,964
2,046
Interest income receivable
250
253
Prepaid expenses
817
669
Other accounts receivable
312
247
Total current assets
68,276
63,701
Property and equipment, net of accumulated depreciation of $1,540 and $2,287,
respectively
374
305
Operating lease right-of-use asset
1,014
295
Management contracts
82,252
81,262
Other assets
183
156
Total assets
$
152,099 $
145,719
Liabilities and Stockholders' Equity
Current liabilities
Accrued liabilities and accounts payable
$
4,441 $
3,165
Operating lease liability
332
279
Income taxes payable
181
748
Total current liabilities
4,954
4,192
Notes payable, net of issuance costs
39,477
39,164
Long-term operating lease liability
695
-
Net deferred income tax liability
15,662
14,611
Total liabilities
60,788
57,967
Commitments and contingencies (Note 10)
Stockholders' equity
Common stock, no par value, 22,500,000 shares authorized; 7,778,335 shares
issued and outstanding as of September 30, 2024, and 7,671,099 as of
September 30, 2023
22,592
21,800
Retained earnings
68,719
65,952
Total stockholders' equity
91,311
87,752
Total liabilities and stockholders' equity
$
152,099 $
145,719
See Accompanying Notes to Financial Statements
44
Hennessy Advisors, Inc.
Statements of Income
(In thousands, except share and per share amounts)
Fiscal Years Ended
September 30,
2024
2023
Revenue
Investment advisory fees
$
27,524 $
22,090
Shareholder service fees
2,122
1,930
Total revenue
29,646
24,020
Operating expenses
Compensation and benefits
9,064
7,732
General and administrative
6,484
5,479
Fund distribution and other
818
486
Sub-advisory fees
4,169
3,759
Depreciation
244
230
Total operating expenses
20,779
17,686
Net operating income
8,867
6,334
Interest income
(3,112 )
(2,522 )
Interest expense
2,275
2,256
Income before income tax expense
9,704
6,600
Income tax expense
2,607
1,829
Net income
$
7,097 $
4,771
Earnings per share
Basic
$
0.92 $
0.63
Diluted
$
0.92 $
0.63
Weighted average shares outstanding
Basic
7,680,706
7,580,120
Diluted
7,721,781
7,603,676
Cash dividends declared per share
$
0.55 $
0.55
See Accompanying Notes to Financial Statements
45
Hennessy Advisors, Inc.
Statements of Changes in Stockholders' Equity
(In thousands, except share data)
Common Stock
Retained
Total
Stockholders'
Shares Amount Earnings
Equity
Balance at September 30, 2022
7,571,741 $
20,951 $
65,347 $
86,298
Net income
-
-
4,771
4,771
Dividends paid
-
-
(4,166 )
(4,166 )
Employee and director restricted stock vested
124,015
-
-
-
Repurchase of vested employee restricted stock for tax
withholding
(34,192 )
(233 )
-
(233 )
Shares issued for auto-investments pursuant to the 2021
Dividend Reinvestment and Stock Purchase Plan
1,206
9
-
9
Shares issued for dividend reinvestment pursuant to the 2021
Dividend Reinvestment and Stock Purchase Plan
8,329
64
-
64
Stock-based compensation
-
1,026
-
1,026
Employee restricted stock forfeiture
-
(17 )
-
(17 )
Balance at September 30, 2023
7,671,099 $
21,800 $
65,952 $
87,752
Net income
-
-
7,097
7,097
Dividends paid
-
-
(4,222 )
(4,222 )
Employee and director restricted stock vested
133,744
-
-
-
Repurchase of vested employee restricted stock for tax
withholding
(39,410 )
(295 )
(108 )
(403 )
Shares issued for auto-investments pursuant to the 2021
Dividend Reinvestment and Stock Purchase Plan
1,245
8
-
8
Shares issued for dividend reinvestment pursuant to the 2021
Dividend Reinvestment and Stock Purchase Plan
2,625
17
-
17
Shares issued for auto-investments pursuant to the 2024
Dividend Reinvestment and Stock Purchase Plan
2,243
19
-
19
Shares issued for dividend reinvestment pursuant to the 2024
Dividend Reinvestment and Stock Purchase Plan
6,789
53
-
53
Stock-based compensation
-
990
-
990
Balance at September 30, 2024
7,778,335 $
22,592 $
68,719 $
91,311
See Accompanying Notes to Financial Statements
46
Hennessy Advisors, Inc.
Statements of Cash Flows
(In thousands)
Fiscal Years Ended
September 30,
2024
2023
Cash flows from operating activities
Net income
$
7,097 $
4,771
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation
244
230
Unrealized gain on marketable securities
(1 )
(1 )
Change in right-of-use asset and operating lease liability
29
(11 )
Amortization of note issuance costs
313
294
Deferred income taxes
1,051
1,123
Employee restricted stock forfeiture
-
(17 )
Stock-based compensation
990
1,026
Change in operating assets and liabilities:
Investment fee income receivable
(918 )
5
Interest income receivable
3
(153 )
Prepaid expenses
(148 )
84
Other accounts receivable
(65 )
10
Other assets
(27 )
-
Accrued liabilities and accounts payable
1,276
(155 )
Income taxes payable
(567 )
(72 )
Net cash provided by operating activities
9,277
7,134
Cash flows from investing activities
Purchases of property and equipment
(313 )
(215 )
Payments related to management contracts
(990 )
(604 )
Net cash used in investing activities
(1,303 )
(819 )
Cash flows from financing activities
Repurchase of vested employee restricted stock for tax withholding
(403 )
(233 )
Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and Stock
Repurchase Plan
8
9
Proceeds from shares issued pursuant to the 2024 Dividend Reinvestment and Stock
Repurchase Plan
19
-
Dividend payments
(4,152 )
(4,102 )
Net cash used in financing activities
(4,528 )
(4,326 )
Net increase in cash and cash equivalents
3,446
1,989
Cash and cash equivalents at the beginning of the period
60,476
58,487
Cash and cash equivalents at the end of the period
$
63,922 $
60,476
Supplemental disclosures of cash flow information
Cash paid for income taxes
$
2,124 $
779
Cash paid for interest
$
1,962 $
1,962
Dividend investment issued in shares
$
70 $
64
See Accompanying Notes to Financial Statements
47
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;
●
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;
48
●
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 officers and employing other staff such as legal,
marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as
management executives;
●
providing a quarterly compliance certification to the Board of Trustees of Hennessy Funds Trust (the
“Funds’ Board of Trustees”); and
●
preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with
the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and
education of the Funds’ Board of Trustees.
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 of each Hennessy Fund 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 of
the Hennessy Funds. 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.
49
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 2024 and 2023. Accordingly, the fair values presented in the Company’s financial statements as of the end of
fiscal years 2024 and 2023 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 2024
and 2023.
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 12 purchases of the assets related to the management of
33 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 2024 and 2023 by applying the income
approach and was based on management estimates and assumptions, including third-party valuations that utilize
50
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 2024.
The Company completed its most recent asset purchases on November 10, 2023, and February 23, 2024, when it
purchased assets related to the management of the CCM Small/Mid-Cap Impact Value Fund and the CCM Core Impact
Equity Fund (each, a “CCM Fund”), respectively. These asset purchases added approximately $12 million and $59
million to the Company’s assets under management at the time of closing with respect to the CCM Small/Mid-Cap
Impact Value Fund and the CCM Core Impact Equity Fund, respectively. Each 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. Upon completion of each transaction, the assets of the applicable
CCM Fund were reorganized into the Hennessy Stance ESG ETF. In fiscal year 2024, the Company capitalized
$1.0 million in purchase price and other costs for the purchase of assets related to the management of the CCM Funds.
(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 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.”
51
The Company is subject to income tax in the U.S. federal jurisdiction and various state jurisdictions. The
Company’s U.S. federal income taxes for 2019 through 2023 remain open and subject to examination. 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 2024 Omnibus Incentive Plan
Effective as of February 8, 2024, the Company adopted, and the Company’s shareholders approved, the 2024
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 Omnibus
Plan replaced the Amended and Restated 2013 Omnibus Incentive Plan. Under the Omnibus Plan, participants may be
granted RSUs, among other awards, each of which represents an unfunded, unsecured right to receive a share of the
Company’s common stock on the dates 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.
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.
The Omnibus Plan contains change of control provisions whereby, among other things, all outstanding RSUs and
other securities issued under the Omnibus Plan will vest immediately upon the occurrence of the following events
constituting a change of control of the Company: (i) an acquisition, in any one transaction or series of transactions, after
which any individual, entity or group has beneficial ownership of 50% or more of either the then outstanding shares of
the common stock or combined voting power of the Company’s then outstanding voting securities, but excluding an
acquisition (A) by the Company or any of its employee benefit plans (or related trusts), (B) by Neil J. Hennessy or any
affiliate, or (C) by any corporation which, following the acquisition, is beneficially owned, directly or indirectly, in
substantially the same proportions, by the beneficial owners of the common stock and voting securities of the Company
immediately prior to such acquisition, (ii) 50% or more of the members of the Company’s Board of Directors (A) are not
continuing directors, or (B) are nominated or elected by the same beneficial owner or are elected or appointed in
connection with an acquisition of the Company, or (iii) the (A) consummation of a reorganization, merger, share
exchange, consolidation or similar transaction, with respect to which the beneficial owners of the Company immediately
prior to such transaction do not, following such transaction, beneficially own more than 50% of the then outstanding
shares of common stock and voting securities of the corporation resulting from the transaction, (B) consummation of the
sale or other disposition of all or substantially all of the assets of the Company or (C) approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.
All compensation costs related to RSUs vested during fiscal years 2024 and 2023 have been recognized in the
financial statements.
52
The Company has available up to 3,671,300 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,
2024
2023
Shares
Weighted
Average
Grant Date
Fair Value
per Share
Shares
Weighted
Average
Grant Date
Fair Value
per Share
Non-vested balance at beginning of year
345,155 $
6.91
315,561 $
8.15
Granted
163,700
8.96
159,700
5.53
Vested
(121,161 )
(7.38 )
(124,746 )
(8.22 )
Forfeited
-
(5,360 )
(8.12 )
Non-vested balance at end of year
387,694 $
7.63
345,155 $
6.91
Additional information related to RSUs is as follows:
September 30, 2024
(In thousands,
except years)
Unrecognized compensation expense related to RSUs
$
2,862
Weighted average remaining period to expense for RSUs (in years)
3.1
Dividend Reinvestment and Stock Purchase Plan
In January 2024, 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 2021.
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
and its predecessor plan, the Company issued 12,902 and 9,535 shares of common stock in fiscal years 2024 and 2023,
respectively. The maximum number of shares that may be issued under the DRSPP is 1,530,000, of which
1,520,968 shares remained available for issuance as of September 30, 2024.
-
53
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. A total of
1,096,368 shares remain 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 2024.
(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.
54
Based on the definitions, the following table represents the Company’s assets categorized in the Level 1 to Level 3
hierarchies:
September 30, 2024
Level 1
Level 2
Level 3
Total
(In thousands)
Money market fund deposits
$
60,946 $
- $
- $
60,946
Mutual fund investments
11
-
-
11
Total
$
60,957 $
- $
- $
60,957
Amounts included in
Cash and cash equivalents
$
60,946 $
- $
- $
60,946
Investments in marketable securities
11
-
-
11
Total
$
60,957 $
- $
- $
60,957
September 30, 2023
Level 1
Level 2
Level 3
Total
(In thousands)
Money market fund deposits
$
59,382 $
- $
- $
59,382
Mutual fund investments
10
-
-
10
Total
$
59,392 $
- $
- $
59,392
Amounts included in
Cash and cash equivalents
$
59,382 $
- $
- $
59,382
Investments in marketable securities
10
-
-
10
Total
$
59,392 $
- $
- $
59,392
There were no transfers between levels during fiscal years 2024 or 2023.
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 $38.3 million as of September 30, 2024, based on the last trading price of the notes on that date
(Level 1). The Company did not elect to apply the fair value option to the carrying value of the 2026 Notes under
Accounting Standards Codification 825 — Financial Instruments.
55
(3) Investments
The cost, gross unrealized gains, gross unrealized losses, and fair market value of the Company’s trading
investments were as follows:
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
(In thousands)
2024
Mutual fund investments
$
10 $
1 $
- $
11
Total
10
1
-
11
2023
Mutual fund investments
$
9 $
1 $
- $
10
Total
9
1
-
10
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:
September 30,
2024
2023
(In thousands)
Equipment
$
324 $
786
Leasehold improvements
154
154
Furniture and fixtures
344
399
IT infrastructure
87
87
Software
1,005
1,166
Property and equipment, gross
1,914
2,592
Accumulated depreciation
(1,540 )
(2,287 )
Property and equipment, net
$
374 $
305
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 2024 and 2023, depreciation expense was
$0.2 million.
(5) Management Contracts
The costs related to the Company’s purchase of assets related to management contracts are capitalized as incurred
and comprise the management contract asset. This asset was $82.3 million as of the end of fiscal year 2024, an increase
of $1.0 million from the end of fiscal year 2023. The increase was related to expenses incurred in connection with the
purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized
into the Hennessy Stance ESG ETF. The 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.
56
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 direct or indirect
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.
(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. There
were no long-term operating leases as of September 30, 2023. During the quarter ended March 31, 2024, the Company
renewed the lease for its office in Novato, California for an additional three years. The renewed lease will expire on July 31,
2027. The renewal created a long-term operating lease asset recorded during the quarter ended March 31, 2024. There were no
other long-term operating leases as of September 30, 2024.
Upon renewal of the lease for its office in Novato, California, the Company recorded a right-of-use asset of
$1.1 million on its balance sheet. 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 exercised, and, therefore, the amounts are not
recognized as part of operating lease right-of-use assets or operating lease liabilities. Leases with initial terms of 12 months or
less, and certain office equipment leases that are deemed insignificant, are not recorded on the balance sheet and are expensed
as incurred and included within rent expense under general and administrative expense. Lease expense related to operating
leases is recognized on a straight-line basis over the expected lease terms.
57
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:
September 30,
2024
(In thousands,
except years and
percentages)
Operating lease right-of-use assets
$
1,014
Current operating lease liability
$
332
Long-term operating lease liability
$
695
Weighted average remaining lease term
2.8
Weighted average discount rate
6.15 %
Operating lease liabilities arising from obtaining right-of-use assets
$
1,055
For fiscal years 2024 and 2023, the Company’s lease payments related to its operating lease right-of-use assets
totaled $0.41 million and $0.37 million, respectively, and total rent expense for all offices, which is recorded under
general and administrative expense in the statements of income, totaled $0.56 million and $0.51 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:
September 30,
2024
(In thousands)
Fiscal year 2025
$
384
Fiscal year 2026
395
Fiscal year 2027
338
Total undiscounted cash flows
1,117
Present value discount
(90 )
Total operating lease liabilities
$
1,027
(8) Accrued Liabilities and Accounts Payable
Details relating to the accrued liabilities and accounts payable reflected on the Company’s balance sheet are as
follows:
September 30,
2024
2023
(In thousands)
Accrued bonus liabilities
$
2,943 $
2,260
Accrued sub-advisor fees
376
310
Other accrued expenses
1,122
595
Total accrued expenses
$
4,441 $
3,165
(9) Debt Outstanding
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.
58
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 future secured
indebtedness, and structurally subordinate to all 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. Such contractual expense ratio limitations will expire
February 28, 2025, unless extended. Total fees waived during fiscal years 2024 and 2023 were $0.18 million and
$0.15 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.
In November 2024, the Company entered into a settlement agreement with respect to employment-related claims
made by a former employee in fiscal year 2024. The Company believed the settlement provided for an efficient and
effective resolution to the matter. The Company has employment practices liability insurance for such claims, and
therefore paid the amount of the settlement not covered by the employment practices liability insurance.
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
2024 and 2023. 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 2024 and 2023, 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. As of September 30, 2024, and September 30, 2023,the Company’s net liability for accrued interest and
penalties was $0.4 million and $0.3 million, respectively. The Company has elected to recognize interest and penalties
related to unrecognized tax benefits as a component of income tax expense. The Company recognized approximately
$0.05 million in interest and penalties during each of the years ended September 30, 2024, and September 30, 2023.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Fiscal Years Ended September 30,
2024
2023
(In thousands)
Beginning year balance
$
353 $
353
Changes related to prior year tax positions
-
-
Ending year balance
$
353 $
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.
59
The Company’s income tax expense was as follows:
Fiscal Years Ended September 30,
2024
2023
(In thousands)
Current
Federal
$
1,179 $
485
State
377
221
Total current
1,556
706
Deferred
Federal
828
955
State
223
168
Total deferred
1,051
1,123
Total
$
2,607 $
1,829
The principal reasons for the differences from the federal statutory income tax rate and the Company’s effective
tax rate were as follows:
Fiscal Years Ended September 30,
2024
2023
Federal statutory income tax rate
21.0 %
21.0 %
State income taxes, net of federal benefit
4.1
4.0
Permanent and other differences
0.8
(0.4 )
Difference due to executive compensation
1.5
0.7
Tax return to provision adjustments
(0.1 )
0.8
Uncertain tax position
0.5
0.9
Stock-based compensation
(0.9 )
0.7
Effective income tax rate
26.9 %
27.7 %
60
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities
were as follows:
Fiscal Years Ended September 30,
2024
2023
(In thousands)
Deferred tax assets
Accrued compensation
$
- $
37
Stock compensation
33
18
State taxes
224
176
Capital loss carryforward
-
7
Lease liability
258
70
Gross deferred tax assets
515
308
Disallowed capital loss
-
(7 )
Net deferred tax assets
515
301
Deferred tax liabilities
Property and equipment
(28 )
(31 )
Management contracts
(15,895 )
(14,807 )
ROU asset
(254 )
(74 )
Total deferred tax liabilities
(16,177 )
(14,912 )
Net deferred tax liabilities
$
(15,662 ) $
(14,611 )
(13) Earnings per Share
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:
September 30,
2024
2023
Weighted average common stock outstanding, basic
7,680,706
7,580,120
Dilutive impact of RSUs
41,075
23,556
Weighted average common stock outstanding, diluted
7,721,781
7,603,676
For fiscal years 2024 and 2023, the Company excluded 162,315 and 100,569 common stock equivalents,
respectively, from the diluted earnings per share calculations because they were not dilutive. In each case, the excluded
common stock equivalents consisted of non-vested RSUs.
(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, 2024, exceeded the insurance limits of the Federal Deposit
Insurance Corporation by approximately $2.7 million. In addition, total cash and cash equivalents include $60.9 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
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures,” which expands disclosures about a public entity’s reportable segments and requires
more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public
entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment
performance and allocating resources. The guidance is effective for financial statements issued for annual periods
beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.
The Company is required to adopt this standard in the first quarter of fiscal year 2025. The Company does not believe
adoption of this standard will have a material impact on its financial statements.
61
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax
Disclosures,” which requires more detailed income tax disclosures. The guidance requires entities to disclose
disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes
paid by jurisdiction. The guidance is effective for financial statements issued for annual periods beginning after
December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in
fiscal year 2026. The Company is currently in the process of evaluating the impact of adoption on its financial
statements.
There have been no other significant changes to the Company’s critical accounting policies and estimates during
fiscal year 2024.
(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) Subsequent Events
As of December 11, 2024, 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 2024, and determined the following to be a subsequent
event:
On October 30, 2024, the Company announced a quarterly cash dividend of $0.1375 per share paid on November
2024, to shareholders of record as of November 14, 2024. 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.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27,
62
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, 2024,
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,
2024, 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, 2024, 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, 2024, and that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
63
ITEM 9B.
OTHER INFORMATION
(c) Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a
“Rule 10b5-1 trading arrangement,” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of
Regulation S-K.
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 2025 Annual Meeting (“Proxy
Statement”) under the captions “Election of Directors,” “Corporate Governance,” "Section 16(A) Beneficial Ownership
Reporting Compliance," 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
64
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 “Security Ownership of
Certain Beneficial Owners and Management.” 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.
September 30, 2024
Plan Category
Number of Securities
to Be Issued upon
Exercise of
Outstanding Options,
Warrants, and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants, and Rights
Number of Securities
Available for Future
Issuance Under
Equity Compensation
Plans (2)
Equity compensation plans approved by
security holders (1)
387,694
-
3,671,300
Equity compensation plans not approved by
security holders
-
-
-
Total
387,694
-
3,671,300
(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 3,835,000 shares.
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 “Ratification of
Selection of Independent Registered Public Accounting Firm.” Such information is incorporated by reference as if fully set
forth in this report.
65
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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
Amended and Restated Articles of Incorporation (9)
3.2
Sixth Amended and Restated Bylaws (19)
4.1
Description of Securities (15)
4.2
Indenture, dated as of October 20, 2021, by and between the Registrant and U.S. Bank National Association, as trustee (14)
4.3
First Supplemental Indenture, dated as of October 20, 2021, by and between the Registrant and U.S. Bank National
Association, as trustee (14)
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)
10.3
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)
10.4
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) (6)
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) (8)
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) (16)
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) (16)
10.8
Investment Advisory Agreement, dated as of December 22, 2022, between the registrant and Hennessy Funds Trust (on
behalf of the Hennessy Stance ESG ETF) (16)
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) (16)
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) (6)
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) (12)
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)) (16)
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)) (16)
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)) (16)
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) (16)
10.19 Hennessy Advisors, Inc. 2024 Omnibus Incentive Plan (1)(17)
10.20 Form of Restricted Stock Unit Award Agreement for Employees (1)(17)
66
10.21 Form of Restricted Stock Unit Award Agreement for Directors and Advisory Committee Members (1)(17)
10.22 Second Amended and Restated Bonus Agreement, dated as of January 26, 2018, between the registrant and Teresa M. Nilsen
(1)(11)
10.23 Amended and Restated Bonus Agreement, dated as of October 10, 2016, between the registrant and Daniel B. Steadman
(1)(8)
10.24 Employment Agreement, dated as of January 26, 2018, between the registrant and Teresa M. Nilsen (1)(11)
10.25 Fourth Amended and Restated Employment Agreement, dated as of February 22, 2019, between the registrant and Neil J.
Hennessy (1)(13)
10.26 First Amendment to the Fourth Amended and Restated Employment Agreement, dated as of February 8, 2024, between the
registrant and Neil J. Hennessy (1)(17)
10.27 First Amendment to Employment Agreement, dated as of February 8, 2024, between the registrant and Teresa M. Nilsen
(1)(17)
10.28 Second Amendment to the Fourth Amended and Restated Employment Agreement, dated as of September 20, 2024, between
the registrant and Neil J. Hennessy (1)(20)
10.29 Second Amendment to Employment Agreement, dated as of September 20, 2024, between the registrant and Teresa M.
Nilsen (1)(20)
19
Code of Ethics (which includes the Company’s Insider Trading Policy)
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
Hennessy Advisors, Inc. Compensation Recovery Policy (1)(16)
101
The following materials from the Annual Report on Form 10-K of the registrant for the year ended September 30, 2024, filed
on December 11, 2024, formatted in Inline 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; (v) the Notes to
Financial Statements; (vi) the information in Part I, Item 1C Cybersecurity; and (vii) the information in Part II, Item 9B Other
Information.
104
The Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).
Notes:
(1)
Management contract or compensatory plan or arrangement.
(2)
Incorporated by reference from the Company’s Form SB-2 registration statement (SEC File No. 333-66970) filed August 6, 2001.
(3)
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.
(4)
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.
(5)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 000-49872) filed September 18, 2013.
(6)
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.
(7)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed October 13, 2016.
(8)
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.
(9)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed March 7, 2017.
(10)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed May 11, 2017.
(11)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed January 25, 2018.
(12)
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.
(13)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed February 25, 2019.
(14)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423), filed October 20, 2021.
(15)
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.
(16)
Incorporated by reference from the Company’s Form 10-K for the fiscal year ended September 30, 2023 (SEC File No. 001-36423),
filed December 7, 2023.
(17)
Incorporated by reference from the Company’s Form 10-Q for the quarter ended December 31, 2023 (SEC File No. 001-36423), filed
February 8, 2024.
(18)
Incorporated by reference to Annex A to the Company’s definitive proxy statement on Schedule 14A for the Company’s Annual
Meeting of Shareholders held on February 8, 2024.
(19)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed May 8, 2024.
(20)
Incorporated by reference from the Company’s Current Report on Form 8-K (SEC File No. 001-36423) filed September 20, 2024.
ITEM 16.
FORM 10-K SUMMARY
None.
67
SIGNATURES
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:
Hennessy Advisors, Inc.
(Registrant)
Date: December 11, 2024
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)
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:
By: /s/ Kathryn R. Fahy
Date: December 11, 2024
Kathryn R. Fahy
Chief Financial Officer and Senior Vice President
(Principal Financial and Accounting Officer)
By: /s/ Neil J. Hennessy
Date: December 11, 2024
Neil J. Hennessy
Chief Executive Officer and Chairman of the Board of
Directors
By: /s/ Henry Hansel
Date: December 11, 2024
Henry Hansel
Director
By: /s/ Brian A. Hennessy
Date: December 11, 2024
Brian A. Hennessy
Director
By: /s/ Lydia Knight-O’Riordan
Date: December 11, 2024
Lydia Knight-O’Riordan
Director
By: /s/ Kiera Newton
Date: December 11, 2024
Kiera Newton
Director
By: /s/ Susan W. Pomilia
Date: December 11, 2024
Susan W. Pomilia
Director
By: /s/ Thomas L. Seavey
Date: December 11, 2024
Thomas L. Seavey
Director
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 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 11, 2024
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 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 11, 2024
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, 2024 (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 11, 2024
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, 2024 (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 11, 2024
(This page intentionally left blank.)
(This page intentionally left blank.)
SKU: 001CSN5A62