Diamond Hill Investment Group, Inc. Reports 2011 Financial Results

Company Release - 2/24/2012 4:15 PM ET

COLUMBUS, Ohio, Feb. 24, 2012 /PRNewswire/ -- Diamond Hill Investment Group, Inc. (NASDAQ: DHIL) today reported results for the year ended December 31, 2011.  The Company plans to file its 2011 Form 10-K on Friday, March 9, 2012 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 13% to $63.8 million for the year compared to 2010.  Net operating income for the year was $23.0 million, an increase of 25% from 2010.  Net income for the year was $14.3 million, or $4.86 per share, compared to $12.4 million, or $4.48 per share, in 2010.  Excluding the corporate investment return, net operating income after tax increased 24% to $14.4 million for the year compared to $11.6 million in 2010.  Assets under management ended the year at $8.7 billion as compared to $8.6 billion at the end of 2010.

Operating profit margin increased to 36% for 2011 from 33% for 2010.  The Company expects that its operating margin will fluctuate from year to year based on various factors including revenues; investment results; employee performance; staffing levels; development of investment strategies, products, or channels; and industry comparisons.  

Cash and Investment Portfolio – the Company had $23.4 million in cash and investments at the end of 2011, up from $17.3 million at the beginning of the year.

Special Dividend – the Company paid a $5.00 per share dividend on December 19, 2011.  The 2011 special dividend represents a qualified dividend for tax purposes.  Further details regarding the tax character of all special dividends paid by the Company are available at the investor relations section of the Company's website.  

2012 Annual Meeting of ShareholdersDiamond Hill announced that the 2012 Annual Shareholder meeting will be held April 25, 2012 at 2:00 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,

%



2011

2010

Change


2011

2010

Change

Revenues:









Investment advisory

$             13,311

$         13,619

-2%


$         56,016

$         49,249

14%


Mutual fund administration

1,879

1,897

-1%


7,822

7,455

5%


Total Revenue

15,190

15,516

-2%


63,838

56,704

13%










Operating Expenses

8,873

9,272

-4%


40,777

38,231

7%

Net Operating Income

6,317

6,244

1%


23,061

18,473

25%











Investment Return

781

974



(67)

1,205











Net Income Before Taxes

7,098

7,218

-2%


22,994

19,678

17%

Net Income

$               4,453

$           4,464

0%


$         14,353

$         12,402

16%










Earnings per share (diluted)

$                 1.49

$             1.60

-7%


$             4.86

$             4.48

8%

Operating profit margin

42%

40%



36%

33%


New client investments, net of withdrawals

$             69,400

$       908,000



$           3,200

$    1,698,000













Selected Balance Sheet Data

(in thousands, except per share figures)




December 31,



2011


2010

Assets





Cash equivalents and investment portfolio

$       23,451


$       17,303


Accounts receivable

10,296


8,695


Deferred tax asset

2,083


874


Other assets

1,890


1,694


Total assets

$       37,720


$       28,566






Liabilities

19,670


21,068






Total shareholders' equity

18,050


7,498






Total liabilities and shareholders' equity

$       37,720


$       28,566






Book value per share (a)

$           6.03


$           2.68

Outstanding shares

2,996


2,796








(a) – A $5 per share special dividend was paid in December 2011 and a $13 per share special dividend was paid in December 2010.



Beacon Hill Fund Services - For the year ended December 31, 2011, Beacon Hill generated an operating loss of $470 thousand on revenue of $1.8 million compared to an operating loss of $540 thousand on revenue of $1.6 million for the year ended December 31, 2010.

Assets Under Management - As of December 31, 2011, assets under management ("AUM") totaled $8.7 billion, a 1% increase in comparison to December 31, 2010.  The following is a roll-forward of AUM activity for the years ended December 31, 2011 and 2010:



Change in Assets Under Management



For the Year Ended December 31,

(in millions)

2011

2010

AUM at beginning of the year

$       8,623

$       6,283

Net cash inflows (outflows)




mutual funds

77

467


sub-advised mutual funds

21

714


separate accounts

(74)

532


private investment funds

(21)

(15)



3

1,698

Net market appreciation and income

45

642

Increase during the year

48

2,340

AUM at end of the year

$       8,671

$       8,623



About Diamond Hill:

Diamond Hill is an independent investment management firm with significant employee ownership and $8.7 billion in assets under management as of December 31, 2011. The firm provides investment management services to institutions and individuals through mutual funds, institutional separate accounts, and private investment funds. Diamond Hill's entire investment team shares the same intrinsic value investment philosophy focused on absolute returns, and the firm's interests are firmly aligned with its clients through significant investment in its strategies. 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, 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 non-GAAP 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)

2011


2010

Net operating income, GAAP basis

$ 23,061


$ 18,473

Non-GAAP adjustments:




Tax provision excluding impact of investment return

8,667


6,830

Net operating income after tax, non-GAAP basis

$ 14,394


$ 11,643





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

$     4.88


$     4.21





Diluted weighted average shares outstanding, GAAP basis

2,952


2,768



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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to such matters as anticipated operating results, prospects for achieving the critical threshold of assets under management, technology 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.

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