Hennessy Advisors Inc: Form 10-Q for the period ended Jun 30, 2026

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 our Annual Report on Form 10‑K for the fiscal year ended September 30, 2025, including under the section entitled “Risk Factors” in such report. 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 the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025. 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.

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.

On a total return basis, the Dow Jones Industrial Average was up 14.18% for the nine months ended June 30, 2026. During the most recent quarter, equity prices advanced despite heightened geopolitical risks, predominantly in the Middle East. Strong corporate earnings reports from the first quarter have reassured investors that the fundamental backdrop for equities is sound. While investors continue to closely monitor peace talks between the United States, Israel and Iran, the increased adoption of and interest in artificial intelligence has been a boon for the stock market. Employment and wage growth also remain on firm footing. The Bureau of Labor Statistics, for June, reported that unemployment stands at 4.2% with year-over-year average hourly earnings increasing 3.5%. These reports run counter to skeptics pointing out that the adoption of artificial intelligence could wreak havoc on employment trends.

Long-term U.S. bond yields rose during the three months ended June 30, 2026. With the unrest in the Middle East and the uncertainty in the Strait of Hormuz, energy prices remain elevated, despite coming down in recent months. These disruptions have given rise to inflation concerns. According to data compiled by Bloomberg, Federal Funds futures no longer price in the chance for a rate cut in 2026. Rather, there is a reasonable chance, based on this data, that the Federal Reserve will raise its benchmark interest rate before the end of the year. This contrasts sharply with data from early January that indicated the market was pricing in roughly two interest rate cuts by the end of 2026.

The Japanese equity market was up 17.24% in U.S. dollar terms over the nine months ended June 30, 2026, as measured by the Tokyo Stock Price Index. During the period, Japanese equities traded higher as the boom in artificial intelligence and semiconductor demand coupled with an accommodative political agenda seemed to have given hope to investors for sustained economic growth.

For the one‑, three‑, five-, and ten-year periods ending June 30, 2026, all 17 Hennessy Funds posted positive total returns (except that the Hennessy Sustainable ETF does not have ten years of performance history).

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 to 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 campaigns have resulted in the Hennessy brand name appearing on TV, radio, print, or online media on average once every four days.

We provide service to nearly 170,000 fund accounts nationwide, including accounts held by investors who employ financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us. We serve approximately 10,200 financial advisors who utilize the Hennessy Funds on behalf of their clients, including roughly 150 who purchased one of our Funds for the first time during the most recent quarter. Approximately 17% of such advisors own two or more Hennessy Funds, and approximately 700 advisors hold a position of over $500,000. While numbers have declined in recent years, we continue to focus significant efforts on building and maintaining brand loyalty among our top tier of advisors.

Total assets under management as of June 30, 2026, was $4.4 billion, an increase of $0.1 billion, or 2.6%, compared to June 30, 2025. The increase in total assets was attributable to market appreciation, substantially offset by net outflows from the Hennessy Funds.

The following table illustrates the quarter‑by‑quarter changes in our assets under management since the quarter ended June 30, 2025:

(In thousands)

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 for each quarter since the quarter ended June 30, 2025:

(In thousands)

The principal asset on our balance sheet, the management contract asset, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of investment funds. As of June 30, 2026, this asset had a net balance of $82.3 million, compared to $82.6 million as of September 30, 2025. This decrease is related to a current period expense of previously capitalized costs as a result of the termination on January 1, 2026 of the definitive agreement signed with STF Management, LP in March 2025.

Following the redemption of the 2026 Notes, as discussed in Note 8, the principal liability on our balance sheet is the net deferred tax liability of $17.4 million arising from the continued write-off of our management contracts asset for tax purposes, which creates a book-to-tax difference.

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 June 30, 2026, 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. The 2026 Notes were redeemed in whole on June 30, 2026.

Our total assets under management as of June 30, 2026, was $4.4 billion, an increase of $0.1 billion, or 2.6%, compared to June 30, 2025. The primary sources of our revenue, 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 the nine months ended June 30, 2026, was $4.2 billion, a decrease of $0.4 billion, or 7.8%, compared to the nine months ended June 30, 2025. As of June 30, 2026, we had cash and cash equivalents of $35.4 million and no debt.

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

(In thousands)

The decrease in cash provided by operating activities of $3.3 million was primarily due to decreased net income and decreased accrued liabilities and accounts payable in the current period.

The decrease in cash used in investing activities of $0.3 million was due to capitalized costs associated with a former asset purchase agreement in the previous period.

The increase in cash used in financing activities of $40.5 million was due to the redemption of the 2026 Notes on June 30, 2026.

Results of Operations

The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue:

(In thousands, except percentages)

(In thousands, except percentages)

18

Revenue – Investment Advisory Fees and Shareholder Service Fees

Total revenue comprises investment advisory fees and shareholder service fees. Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, total revenue increased by 4.2%, from $8.1 million to $8.4 million, investment advisory fees increased by 4.2%, from $7.5 million to $7.8 million, and shareholder service fees increased by 3.1%, from $0.5 million to $0.6 million. In the three-month period, the increase in investment advisory fees was due mainly to increased average daily net assets of the Hennessy Funds in the current period, and 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 in the current period. 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.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, total revenue decreased by 8.1%, from $27.0 million to $24.8 million, investment advisory fees decreased by 8.2%, from $25.2 million to $23.2 million, and shareholder service fees decreased by 6.8%, from $1.8 million to $1.7 million. In the nine-month period, the decrease in investment advisory fees was due mainly to decreased average daily net assets of the Hennessy Funds in the current period, and the decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Mutual Funds in the current period. 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 of the Hennessy Funds 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 the three months ended June 30, 2026, was $4.3 billion, which represents an increase of $0.2 billion, or 4.0%, compared to the three months ended June 30, 2025, and average daily net assets of the Hennessy Funds for the nine months ended June 30, 2026, was $4.2 billion, which represents a decrease of $0.4 billion, or 7.8%, compared to the nine months ended June 30, 2025. The Hennessy Fund with the largest average daily net assets for the three and nine months ended June 30, 2026, was the Hennessy Cornerstone Mid Cap 30 Fund, with $1.3 billion and $1.2 billion, respectively. 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 assets for the three months ended June 30, 2026, was the Hennessy Gas Utility Fund, with $0.5 billion. We collect an investment advisory fee from the Hennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets. The Hennessy Fund with the second largest average daily assets for the nine months ended June 30, 2026 was the Hennessy Focus Fund, with $0.5 billion. 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.

Total assets under management as of June 30, 2026, was $4.4 billion, an increase of $0.1 billion, or 2.6%, compared to June 30, 2025. The increase in total assets was attributable to market appreciation, substantially offset by net outflows from the Hennessy Funds.

The only Hennessy Fund with net inflows was as follows:

Three Months Ended June 30, 2026

None of the Hennessy Funds had net inflows during the nine months ended June 30, 2026.

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

Redemptions as a percentage of assets under management decreased from an average of 3.6% per month during the three months ended June 30, 2025, to an average of 1.8% per month during the three months ended June 30, 2026. Redemptions as a percentage of assets under management decreased from an average of 3.9% per month during the nine months ended June 30, 2025 to an average of 2.5% per month during the nine months ended June 30, 2026.

Operating Expenses

Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, total operating expenses increased by 5.2% from $5.2 million to $5.5 million. As a percentage of total revenue, total operating expenses increased 0.7 percentage points to 65.3%. The increase in operating expenses was due to increases in the compensation and benefits, general and administrative, sub-advisory fees, and depreciation categories, partly offset by a decrease in fund distribution and other expense.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, total operating expenses decreased by 1.1% from $16.9 million to $16.7 million. As a percentage of total revenue, total operating expenses increased 4.8 percentage points to 67.3%. The dollar value decrease in operating expenses was due to decreases in the compensation and benefits, fund distribution and other, and sub-advisory fees categories, partly offset by increases in general and administrative and depreciation expense categories.

Compensation and Benefits Expense: Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, compensation and benefits expense increased by 1.9%, from $2.5 million to $2.6 million. As a percentage of total revenue, compensation and benefits expense decreased 0.7 percentage points to 30.4%. The dollar value increase in compensation and benefits expense was due to an increase in salaries due to higher headcount, partially offset by a decrease in incentive-based compensation, in the current period.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, compensation and benefits expense decreased by 4.5%, from $7.9 million to $7.6 million. As a percentage of total revenue, compensation and benefits expense increased 1.2 percentage points to 30.6%. The dollar value decrease in compensation and benefits expense was due to a decrease in incentive-based compensation in the current period.

General and Administrative Expense: Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, general and administrative expense increased by 10.3%, from $1.4 million to $1.6 million. As a percentage of total revenue, general and administrative expense increased 1.1 percentage points to 18.9%. The increase in general and administrative expense was primarily due to increased business development expense in the current period.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, general and administrative expense increased by 5.1%, from $4.9 million to $5.1 million. As a percentage of total revenue, general and administrative expense increased 2.5 percentage points to 20.6%. The increase in general and administrative expense was primarily due to the termination on January 1, 2026, of the definitive agreement signed with STF Management, LP in March 2025 and the related expense of previously capitalized costs in the current period.

Fund Distribution and Other Expense: Fund distribution and other expense consists primarily of financial institution fees incurred by us for distribution of the Hennessy Funds and also for the operations of the Hennessy Sustainable ETF. Fund distribution and other expense does not include sub‑advisory fees, which are shown separately.

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, but not the Hennessy Sustainable 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.

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 Sustainable ETF. We receive a unitary investment advisory fee from the Hennessy Sustainable 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 the three months ended June 30, 2025, to the three months ended June 30, 2026, fund distribution and other expense decreased by 3.6%, from $0.3 million to $0.2 million. As a percentage of total revenue, fund distribution and other expense decreased 0.2 percentage points to 2.9%.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, fund distribution and other expense decreased by 9.8%, from $0.77 million to $0.69 million. As a percentage of total revenue, fund distribution and other expense remained the same at 2.8%.

In both periods, the dollar value decrease in fund distribution and other expense was primarily due to decreased operating expenses relating to the Hennessy Sustainable ETF in the current period.

Sub-Advisory Fees Expense: Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, sub-advisory fees expense increased by 8.7%, from $0.94 million to $1.02 million. As a percentage of total revenue, sub-advisory fees expense increased 0.5 percentage points to 12.2%. The increase in sub-advisory fees expense was due to increased average daily net assets of the sub‑advised Hennessy Funds in the current period.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, sub-advisory fees expense remained the same at $3.1 million. As a percentage of total revenue, sub-advisory fees expense increased 1.0 percentage points to 12.4%.

Depreciation Expense: Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, depreciation expense increased by 4.1% from $0.07 million to $0.08 million. As a percentage of total revenue, depreciation expense remained the same at 0.9%.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, depreciation expense increased by 12.3% from $0.20 million to $0.23 million. As a percentage of total revenue, depreciation expense increased 0.1 percentage points to 0.9%.

In each period, the increase in depreciation expense resulted from more fixed asset purchases in the current period.

Interest Income

Interest income consists of interest earned on cash and cash equivalents.

Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, interest income decreased from $0.7 million to $0.6 million. Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, interest income decreased from $2.1 million to $1.9 million. In each period, the decrease in interest income resulted from decreased interest rates in the current period.

Interest Expense

Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, interest expense increased from $0.57 million to $0.76 million. Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, interest expense increased from $1.72 million to $1.91 million. In each period, the increase in interest expense was primarily due to the redemption of the 2026 Notes on June 30, 2026, and the related expense of unamortized issuance costs in the current period.

Income Tax Expense

Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, income tax expense remained the same at $0.8 million.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, income tax expense decreased by 23.3%, from $2.9 million to $2.3 million. The decrease in income tax expense was due to decreased net operating income in the current period.

Net Income

Comparing the three months ended June 30, 2025, to the three months ended June 30, 2026, net income decreased by 5.8%, from $2.1 million to $2.0 million. The decrease in net income was primarily due to the redemption of the 2026 Notes on June 30, 2026, and the related expense of unamortized issuance costs in the current period.

Comparing the nine months ended June 30, 2025, to the nine months ended June 30, 2026, net income decreased by 22.5%, from $7.5 million to $5.8 million. The decrease in net income was primarily due to decreased revenue in the current period.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes are prepared in accordance with U.S. GAAP, 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. For a discussion of the accounting policies and estimates that we believe are most critical to understanding our results of operations and financial position, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10‑K for the fiscal year ended September 30, 2025. There has been no material change to our critical accounting estimates disclosed in such Annual Report.

Evaluation of Disclosure Controls and Procedures

Management performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, management, including the Company’s principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act that occurred during the fiscal quarter ended June 30, 2026, and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.