10-Q: Hennessy Advisors Q1 2026: Revenue, Net Income Decline

Hennessy Advisors reports a significant decrease in revenue and net income for Q1 2026, driven by net outflows and lower average assets under management.

Summary

• Net income decreased by 31.9% to $1.9 million for the three months ended December 31, 2025, compared to $2.8 million in the prior year quarter.
• Total revenue declined by 14.3% to $8.3 million, down from $9.7 million in the same period last year.
• Investment advisory fees decreased by 14.3% to $7.8 million, and shareholder service fees decreased by 13.6% to $0.56 million.
• Average assets under management (AUM) for the quarter decreased by 13.5% to $4.2 billion, from $4.8 billion in the prior year quarter.
• Total AUM as of December 31, 2025, was $4.1 billion, a 14.3% decrease from $4.8 billion as of December 31, 2024.
• The decrease in total AUM was primarily attributable to net outflows from the Hennessy Funds, partly offset by market appreciation.
• An agreement to purchase assets related to the management of two ETFs with STF Management, LP, signed in March 2025, was terminated on January 1, 2026, resulting in a $0.3 million expense of previously capitalized costs.
• Operating expenses decreased by 2.8% to $5.7 million, but increased as a percentage of total revenue to 68.7% from 60.5% in the prior year quarter.
• Cash and cash equivalents stood at $72.0 million as of December 31, 2025.
• The 4.875% Notes due 2026, with an aggregate principal amount of $40.25 million, were reclassified from long-term to current liabilities as they mature on December 31, 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative report due to substantial declines in revenue, net income, and AUM, driven by significant net outflows, alongside the termination of a strategic acquisition.

Positives

• All but one of the Hennessy Funds generated positive total returns for the twelve months ended December 31, 2025.
• All 17 Hennessy Funds posted positive annualized total returns for the three-year period ending December 31, 2025.
• 16 Hennessy Funds with over five and ten years of operating history all posted positive returns in the fiveand ten-year periods ended December 31, 2025.
• Management anticipates that cash and other liquid assets on hand as of December 31, 2025, will be sufficient to meet capital requirements for one year from the issuance date of the report, as well as longer-term capital requirements.
• Disclosure controls and procedures were evaluated and deemed effective as of the end of the period covered by the report.

Negatives

• Net income decreased by 31.9% to $1.9 million for the three months ended December 31, 2025, from $2.8 million in the prior year quarter.
• Total revenue decreased by 14.3% to $8.3 million for the three months ended December 31, 2025, from $9.7 million in the prior year quarter.
• Average assets under management (AUM) decreased by 13.5% to $4.2 billion for the three months ended December 31, 2025, from $4.8 billion in the prior year quarter.
• Total AUM as of December 31, 2025, was $4.1 billion, a 14.3% decrease from $4.8 billion as of December 31, 2024.
• The decrease in AUM was primarily attributable to net outflows from the Hennessy Funds.
• None of the Hennessy Funds had net inflows during the three months ended December 31, 2025.
• Redemptions as a percentage of assets under management increased from an average of 2.6% per month during the three months ended December 31, 2024, to an average of 3.1% per month during the three months ended December 31, 2025.
• Termination of the definitive agreement with STF Management, LP resulted in a $0.3 million expense of previously capitalized costs.
• Operating expenses increased as a percentage of total revenue to 68.7% from 60.5% in the prior year quarter.
• Cash provided by operating activities decreased by $1.6 million, primarily due to decreased accrued liabilities and accounts payable and decreased net income.

Risks

• Redemptions by investors in the Hennessy Funds.
• General economic and business conditions, interest rate movements, inflation, and the personal savings rate.
• Competitive conditions and industry regulation.
• Fluctuations in the stock market.
• The business and regulatory environments remain complex, uncertain, and subject to change, potentially incurring additional administrative and compliance costs.
• The success of the business strategy (acquisitions and organic growth) may be influenced by factors discussed in the Risk Factors section of the Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
• No assurance that additional capital can be raised if liquid resources and cash provided by operations are inadequate to meet long-term capital requirements.

Future Outlook

Management anticipates that current cash and liquid assets will be sufficient to meet capital requirements for both the next year and longer-term periods. The company's business strategy focuses on identifying, completing, and integrating future acquisitions, as well as achieving organic growth through asset retention and new inflows. Regulatory requirements and developments are expected to cause additional administrative and compliance costs. The market is pricing in between two and three interest rate cuts for the balance of calendar year 2026, and projections estimate the Consumer Price Index will advance by 2.8% in 2025 and 2026.

Management Comments

• "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."
• "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."
• "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 continue to focus significant efforts on building and maintaining brand loyalty among our top tier of advisors."

Industry Context

StockSavvy.ai notes that the reported decline in AUM and revenue for Hennessy Advisors reflects broader challenges in the active fund management industry, where passive investment vehicles and fee compression continue to exert pressure. The increase in redemptions as a percentage of AUM suggests a competitive environment and potential investor shifts, despite positive long-term fund performance. The termination of the ETF acquisition agreement highlights the difficulties in executing growth strategies in a consolidating market.

Stakeholder Impact

• Shareholders: Experienced decreased net income and earnings per share, but consistent cash dividends declared per share ($0.14). There is a potential for dilution if capital is raised via equity.
• Employees: Compensation and benefits expense decreased due to lower incentive-based compensation.
• Customers (Investors in Hennessy Funds): Experienced net outflows from funds, but the company emphasizes its commitment to superior service and disciplined investing. All funds showed positive long-term returns.
• Creditors: The 4.875% Notes due 2026 are now a current liability, indicating repayment is due within the next year.

Next Steps

• Continue focusing on investment performance of the Hennessy Funds.
• Provide high-quality customer service to investors.
• Identify, complete, and integrate future acquisitions.
• Achieve organic growth through retention of current fund assets and generation of inflows.
• Evaluate the impact of adopting ASU 2023-09 (Income Taxes) in fiscal year 2026.
• Evaluate the impact of adopting ASU 2024-03 (Income Statement Expenses) in fiscal year 2027.
• Redeem the 4.875% Notes due 2026 by December 31, 2026.

Key Dates

Recommendation

The significant year-over-year declines in revenue, net income, and assets under management, driven by substantial net outflows, indicate fundamental business challenges. The termination of a planned acquisition further dampens growth prospects. While the company maintains sufficient liquidity for the short term, the overall trend suggests a deteriorating financial position and competitive pressures that warrant a cautious stance for investors.

Keywords

Investment Advisory, Mutual Funds, ETF, Assets Under Management, Financial Services, SEC Filing, HNNA, Quarterly Report, Fund Management, Shareholder Services