Diamond Hill Investment Group, Inc. Reports 2010 Financial Results

Company Release - 2/18/2011 4:15 PM ET

COLUMBUS, Ohio, Feb. 18, 2011 /PRNewswire/ -- Diamond Hill Investment Group, Inc.  (Nasdaq: DHIL) today reported results for the year ended December 31, 2010.  The company plans to file its 2010 Form 10-K on Friday, February 25, 2011 and we urge investors to read and consider the information in that filing. Whenever possible, we will post information on a Friday afternoon so that investors have a maximum amount of time to digest the information.

Revenue increased 30% to $56.7 million for the year compared to 2009.  Net operating income for the year was $18.5 million, an increase of 53% from 2009.  Net income for the year was $12.4 million, or $4.48 per diluted share, compared to $11.4 million, or $4.40 per diluted share, in 2009.  The increase in net income is primarily due to a $6.4 million increase in net operating income driven by a 37% increase in assets under management from 2009 to 2010, offset by a $4.2 million decrease in the corporate investment return in 2010 compared to 2009.  Excluding the corporate investment return, net operating income after tax increased 48% to $11.6 million for the year compared to $7.9 million in 2009.  Assets under management ended the year at $8.6 billion as compared to $6.3 billion at the end of 2009.

Operating profit margin increased to 33% for 2010 from 28% for 2009.  The Company anticipates operating profit margin will fluctuate from period to period based on the impact to incentive compensation from several factors including revenues; investment results; employee performance; staffing levels; development of investment strategies, products, or channels; and industry comparisons.  

Ric Dillon, president and chief investment officer, stated, "Our primary business objective is to fulfill our fiduciary responsibility to our clients by achieving excellent long-term investment results.  While our since inception results are satisfactory for all of our strategies, our five year results were mixed, with some strategies achieving only average results during the most recent five year period.  We continue our efforts intended to improve our client results over the next five years, and beyond."

Jim Laird, chief financial officer, stated, "New client investments for the year ended December 31, 2010 were $1.7 billion, up significantly from the $579 million for the year ended December 31, 2009.  In the fourth quarter of 2010, new client investments totaled $908 million, which included a significant new sub-advised mutual fund mandate, compared to $431 million in new client investments during fourth quarter 2009."

Cash and Investment Portfolio – the company had $17.3 million in cash and investments at the end of 2010, down from $27.9 million at the beginning of the year. The decline was largely due to the special $13.00 per share dividend paid in the fourth quarter, which totaled $36.3 million offset by cash generated through operations.

Special Dividend – the company paid a $13.00 per share dividend on December 15, 2010.  The company also paid a $10.00 per share dividend in the fourth quarter of 2009.  A significant portion of the 2010 and 2009 dividends were deemed a return of capital.  Further details are available at the investor relations section of the company's website.

2011 Annual Meeting of ShareholdersDiamond Hill announced that the 2011 Annual Shareholder meeting will be held April 26, 2011 at 12:00 pm Eastern Time along with an investor conference call.

Summary of Results of Operations

(in thousands, except per share figures)



Three Months Ended



Year Ended




December 31,

%


December 31,

%



2010

2009

Change


2010

2009

Change

Revenues:









Investment advisory

$             13,619

$         11,700

16%


$         49,249

$         37,472

31%


Mutual fund administration

1,897

2,015

-6%


7,455

6,090

22%


Total Revenue

15,516

13,715

13%


56,704

43,562

30%










Operating Expenses

9,272

9,110

2%


38,231

31,450

22%

Net Operating Income

6,244

4,605

36%


18,473

12,112

53%











Investment Return

974

881



1,205

5,399











Net Income Before Taxes

7,218

5,486

32%


19,678

17,511

12%

Net Income

$               4,464

$           3,504

27%


$         12,402

$         11,374

9%










Earnings per share (diluted)

$                 1.60

$             1.34

19%


$             4.48

$             4.40

2%

Operating Margin

40%

34%



33%

28%


Operating Margin - Excluding Beacon Hill

42%

36%



35%

31%


New client investments, net of withdrawals

$           908,000

$       431,000

111%


$    1,698,000

$       579,000

193%












Selected Balance Sheet Data

(in thousands, except per share figures)



December 31,



2010


2009

Assets





Cash equivalents and investment portfolio

$       17,303


$       27,943


Accounts receivable

8,695


10,144


Deferred tax asset

874


521


Other assets

1,694


1,897


Total assets

$       28,566


$       40,505






Liabilities

21,068


17,524






Total shareholders' equity

7,498


22,981






Total liabilities and shareholders' equity

$       28,566


$       40,505






Book value per share(a)

$           2.68


$           8.58

Outstanding shares

2,796


2,678






(a) – A $13 per share special dividend was paid in December 2010 and a $10 per share special dividend was paid in December 2009.



Beacon Hill Fund Services - For the year ended December 31, 2010, Beacon Hill generated an operating loss of $819 thousand on revenue of $1.6 million compared to an operating loss of $976 thousand on revenue of $1.0 million for the year ended December 31, 2009.

Assets Under Management - As of December 31, 2010, assets under management ("AUM") totaled $8.6 billion, a 37% increase in comparison to December 31, 2009.  The following is a roll-forward of AUM activity for the years ended December 31, 2010 and 2009:



Change in Assets Under Management




For the Year Ended December 31,


(in millions)

2010

2009


AUM at beginning of the period

$                      6,283

$                      4,510


Net cash inflows (outflows)





mutual funds

467

(109)



sub-advised mutual funds

714

6



separate accounts

532

734



private investment funds

(15)

(52)




1,698

579


Net market appreciation (depreciation) and income

642

1,194


Increase during the period

2,340

1,773


AUM at end of the period

$                      8,623

$                      6,283




About Diamond Hill:

Diamond Hill provides investment management services to institutions and financial intermediaries seeking to preserve and build capital. The firm currently manages mutual funds, separate accounts and private investment funds.  For more information on Diamond Hill, visit www.diamond-hill.com.

Use of Supplemental Data as Non-GAAP Performance Measure

Net Operating Income After Tax

As supplemental information, we are providing performance measures that are based on methodologies other than generally accepted accounting principles ("non-GAAP") for "Net Operating Income After Tax" that management uses as benchmarks in evaluating and comparing the period-to-period operating performance of the company and its subsidiaries.

The company defines "net operating income after tax" as the company's net operating income less income tax provision, excluding investment return and the tax impact related to the investment return. The company believes that "net operating income after tax" provides a good representation of the company's operating performance, as it excludes the impact of investment return on financial results. The amount of the investment portfolio and market fluctuations on the investments can change significantly from one period to another, as seen over the past year, which can distort the underlying earnings potential of a company. We also believe "net operating income after tax" is an important metric in estimating the value of an asset management business. This measure is provided in addition to net income and net operating income and is not a substitute for net income or net operating income and may not be comparable to non-GAAP performance measures of other companies.



Year Ended December 31,

(in thousands, except per share data)


2010


2009

Net operating income, GAAP basis


$ 18,473


$ 12,112

Non-GAAP Adjustments:





Tax provision excluding impact of investment return


6,830


4,245

Net operating income after tax, non-GAAP basis


11,643


7,867






Net operating income after tax per diluted share, non-GAAP basis  


$     4.21


$     3.04






Diluted weighted average shares outstanding, GAAP basis


2,768


2,588



The tax provision excluding impact of investment return is calculated by applying the tax rate calculated from the income statement to net operating income. The company's management does not promote that investors consider the above non-GAAP financial measures alone, or as a substitute for, financial information prepared in accordance with GAAP.

Throughout this press release, the Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to such matters as anticipated operating results, prospects for achieving the critical threshold of assets under management, technological developments, economic trends (including interest rates and market volatility), expected transactions and acquisitions and similar matters. The words "believe," "expect," "anticipate," "estimate," "should," "hope," "seek," "plan," "intend" and similar expressions identify forward-looking statements that speak only as of the date thereof.  While the Company believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and accordingly, the actual results and experiences of the Company could differ materially from the anticipated results or other expectations expressed by the Company in its forward-looking statements. Factors that could cause such actual results or experiences to differ from results discussed in the forward-looking statements include, but are not limited to: the adverse effect from a decline in the securities markets; a decline in the performance of the Company's products; changes in interest rates; a general or prolonged downturn in the economy; changes in government policy and regulation, including monetary policy; changes in the Company's ability to attract or retain key employees; unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations; and other risks identified from time-to-time in the Company's other public documents on file with the U.S. Securities and Exchange Commission.

SOURCE Diamond Hill Investment Group, Inc.

Contact: Investors: James F. Laird-Chief Financial Officer, +1-614-255-3353, jlaird@diamond-hill.com
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