HENNESSY ADVISORS INC

Previous wording

Long-term U.S. bond yields were close to flat during the three months ended June 30, 2025. Inflation remains above the Federal Reserve’s 2% inflation goal. Projections compiled by Bloomberg estimate that the Consumer Price Index will advance by 2.9% in 2025 after increasing by 3.0% in 2024. Even in 2027, the estimate for CPI only moderates to 2.4% growth. With this being the case, we expect investors will be focused on the implications for a slowdown in economic activity as the full weight of government and corporate layoffs and tariffs continue to be digested by the market. According to Bloomberg, Federal Funds futures are currently pricing in approximately two interest rate cuts in 2025.

Current wording

Long-term U.S. bond yields were close to flat during the three months ended December 31, 2025. While inflation remains above the Federal Reserve’s 2% goal, economic data points to a continued moderation in the pace of inflation, despite a resilient global economy. Projections compiled by Bloomberg estimate that the Consumer Price Index will advance by 2.8% in 2025 and in 2026, after increasing by 3.0% in 2024. Investors may continue to focus on inflation data and its implications for future interest rate cuts. On the labor front, the unemployment rate is 4.6%, as of November 2025, which is up from 4.2% a year earlier.

Previous wording

The Japanese equity market was up 8.40% in U.S. dollar terms over the nine months ended June 30, 2025, as measured by the Tokyo Stock Price Index. During the period, Japanese equities traded higher as global trade tension eased considerably during the most recent quarter.

Current wording

The Japanese equity market was up 2.53% in U.S. dollar terms over the three months ended December 31, 2025, as measured by the Tokyo Stock Price Index. During the period, Japanese equities traded higher as strong foreign capital inflows, structural corporate reforms, positive policy expectations, and earnings resilience propelled an increase in shares value.

Previous wording

For the twelve months ended June 30, 2025, all 17 Hennessy Funds generated positive total returns. In addition, for the three‑year period ending June 30, 2025, all 17 Hennessy Funds posted positive annualized total returns. Lastly, over the longer term, the 16 Hennessy Funds with over five and ten years of operating history all posted positive returns in the five- and ten-year periods ended June 30, 2025.

Current wording

For the twelve months ended December 31, 2025, all but one of the Hennessy Funds generated positive total returns. In addition, for the three‑year period ending December 31, 2025, all 17 Hennessy Funds posted positive annualized total returns. Over the longer term, the 16 Hennessy Funds with over five and ten years of operating history all posted positive returns in the five- and ten-year periods ended December 31, 2025.

Previous wording

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 two to three days.

Current wording

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.

Previous wording

We provide service to nearly 190,000 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 11,100 financial advisors who utilize the Hennessy Funds on behalf of their clients, including roughly 300 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 over 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.

Current wording

We provide service to nearly 175,000 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 10,300 financial advisors who utilize the Hennessy Funds on behalf of their clients, including roughly 200 who purchased one of our Funds for the first time during the most recent quarter. Approximately 18% 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.

Previous wording

Total assets under management as of June 30, 2025, was $4.3 billion, an increase of $0.3 billion, or 6.3%, compared to June 30, 2024. The increase in total assets was attributable to market appreciation, partly offset by net outflows from the Hennessy Funds.

Current wording

Total assets under management as of December 31, 2025, was $4.1 billion, a decrease of $0.7 billion, or 14.3%, compared to December 31, 2024. The decrease in total assets was attributable to net outflows from the Hennessy Funds, partly offset by market appreciation.

Previous wording

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, 2025, this asset had a net balance of $82.4 million, compared to $82.3 million as of September 30, 2024. The increase was due to costs associated with the pending purchase of assets related to the management of the STF ETFs.

Current wording

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 December 31, 2025, 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 recent termination of the definitive agreement signed with STF Management, LP in March 2025.

Previous wording

The 2026 Notes are the principal liability on our balance sheet at $39.7 million, net of issuance costs.

Current wording

The 2026 Notes are the principal liability on our balance sheet at $39.9 million, net of issuance costs. At December 31, 2025, the 2026 Notes were reclassified from long-term to current as the maturity date is within twelve months.

Previous wording

Our total assets under management as of June 30, 2025, was $4.3 billion, an increase of $0.3 billion, or 6.3%, compared to June 30, 2024. 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, 2025, was $4.6 billion, an increase of $1.1 billion, or 31.6%, compared to the nine months ended June 30, 2024. As of June 30, 2025, we had cash and cash equivalents of $70.3 million.

Current wording

Our total assets under management as of December 31, 2025, was $4.1 billion, a decrease of $0.7 billion, or 14.3%, compared to December 31, 2024. 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 three months ended December 31, 2025, was $4.2 billion, a decrease of $0.7 billion, or 13.5%, compared to the three months ended December 31, 2024. As of December 31, 2025, we had cash and cash equivalents of $72.0 million.

Previous wording

The increase in cash provided by operating activities of $4.2 million was primarily due to increased net income in the current period.

Current wording

The decrease in cash provided by operating activities of $1.6 million was primarily due to decreased accrued liabilities and accounts payable and decreased net income in the current period.

Previous wording

The increase in cash used in financing activities of $0.05 million was due to the increased dollar amount of dividends paid as a result of having more shares outstanding in the current period than in the prior comparable period.

Current wording

The increase in cash used in financing activities of $0.02 million was due to the increased dollar amount of dividends paid as a result of having more shares outstanding in the current period than in the prior comparable period.

Previous wording

In each period, the increase in investment advisory fees was due mainly to increased average daily net assets of the Hennessy Funds, 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. 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.

Current wording

The decrease in investment advisory fees was due mainly to decreased average daily net assets of the Hennessy Funds, 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. 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.

Previous wording

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, 2025, was $4.1 billion, which represents an increase of $0.2 billion, or 5.3%, compared to the three months ended June 30, 2024, and average daily net assets of the Hennessy Funds for the nine months ended June 30, 2025, was $4.6 billion, which represents an increase of $1.1 billion, or 31.6%, compared to the nine months ended June 30, 2024. The Hennessy Fund with the largest average daily net assets for the three and nine months ended June 30, 2025 was the Hennessy Cornerstone Mid Cap 30 Fund, with $1.3 billion and $1.6 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, 2025 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, 2025 was the Hennessy Focus Fund, with $0.6 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.

Current wording

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 December 31, 2025, was $4.2 billion, which represents a decrease of $0.7 billion, or 13.5%, compared to the three months ended December 31, 2024. The Hennessy Fund with the largest average daily net assets for the three months ended December 31, 2025, was the Hennessy Cornerstone Mid Cap 30 Fund, with $1.3 billion. 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 December 31, 2025, was the Hennessy Focus Fund, with $0.6 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.

Previous wording

Total assets under management as of June 30, 2025, was $4.3 billion, an increase of $0.3 billion, or 6.3%, compared to June 30, 2024. The increase in total assets was attributable to market appreciation, partly offset by net outflows from the Hennessy Funds.

Current wording

Total assets under management as of December 31, 2025, was $4.1 billion, a decrease of $0.7 billion, or 14.3%, compared to December 31, 2024. The decrease in total assets was attributable to net outflows from the Hennessy Funds, partly offset by market appreciation.

Previous wording

Redemptions as a percentage of assets under management increased from an average of 2.2% per month during the three months ended June 30, 2024, to an average of 3.6% per month during the three months ended June 30, 2025. Redemptions as a percentage of assets under management increased from an average of 2.4% per month during the nine months ended June 30, 2024, to an average of 3.9% per month during the nine months ended June 30, 2025.

Current wording

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.

Previous wording

Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, total operating expenses remained the same at $5.2 million. As a percentage of total revenue, total operating expenses decreased 2.2 percentage points to 64.6%. The flat dollar value in operating expenses was due to increases in the compensation and benefits, fund distribution and other, and depreciation expense categories offset by decreases in the sub-advisory fees and general and administrative expense categories.

Current wording

Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, total operating expenses decreased by 2.8% from $5.9 million to $5.7 million. As a percentage of total revenue, total operating expenses increased 5.1 percentage points to 68.7%. 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 offset by increases in general and administrative and depreciation expense categories.

Previous wording

Compensation and Benefits Expense: Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, compensation and benefits expense increased by 10.2%, from $2.3 million to $2.5 million. As a percentage of total revenue, compensation and benefits expense increased 1.9 percentage points to 31.1%.

Current wording

Compensation and Benefits Expense: Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, compensation and benefits expense decreased by 10.5%, from $2.8 million to $2.5 million. As a percentage of total revenue, compensation and benefits expense increased 2.2 percentage points to 29.7%. The dollar value decrease in compensation and benefit expense was due to a decrease in incentive-based compensation in the current period.

Previous wording

General and Administrative Expense: Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, general and administrative expense decreased by 8.0%, from $1.6 million to $1.4 million. As a percentage of total revenue, general and administrative expense decreased 2.1 percentage points to 17.8%. The decrease was primarily due to decreased commission expense on sales of the Hennessy Funds in the current period.

Current wording

General and Administrative Expense: Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, general and administrative expense increased by 15.8%, from $1.7 million to $1.9 million. As a percentage of total revenue, general and administrative expense increased 1.9 percentage points to 23.0%. The increase in general and administrative expense was primarily due to the recent termination of the definitive agreement signed with STF Management, LP in March 2025 and the related expense of previously capitalized costs in the current period.

Previous wording

Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, fund distribution and other expense increased by 10.5%, from $0.2 million to $0.3 million. As a percentage of total revenue, fund distribution and other expense increased 0.2 percentage points to 3.1%.

Current wording

Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, fund distribution and other expense decreased by 18.1%, from $0.3 million to $0.2 million. As a percentage of total revenue, fund distribution and other expense remained the same at 2.7%. The dollar value decrease in fund distribution and other expense was primarily due to decreased average daily net assets across the Hennessy Funds in the current period.

Previous wording

Sub-Advisory Fees Expense: Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, sub-advisory fees expense decreased by 13.0%, from $1.1 million to $0.9 million. As a percentage of total revenue, sub-advisory fees expense decreased 2.2 percentage points to 11.7%. The decrease in sub-advisory fees expense was due to decreased average daily net assets of the sub‑advised Hennessy Funds in the current period.

Current wording

Sub-Advisory Fees Expense: Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, sub-advisory fees expense decreased by 7.9%, from $1.1 million to $1.0 million. As a percentage of total revenue, sub-advisory fees expense increased 0.8 percentage points to 12.5%. The dollar value decrease in sub-advisory fees expense was due to decreased average daily net assets of the sub‑advised Hennessy Funds in the current period.

Previous wording

Depreciation Expense: Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, depreciation expense increased by 25.4% from $0.06 million to $0.07 million. As a percentage of total revenue, depreciation expense increased 0.1 percentage points to 0.9%.

Current wording

Depreciation Expense: Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, depreciation expense increased by 8.2% from $0.06 million to $0.07 million. As a percentage of total revenue, depreciation expense increased 0.2 percentage points to 0.8%. The increase in depreciation expense resulted from more fixed asset purchases in the current period.

Previous wording

Interest income consists of interest earned on cash and cash equivalents. Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, interest income decreased from $0.8 million to $0.7 million. Comparing the nine months ended June 30, 2024, to the nine months ended June 30, 2025, interest income decreased from $2.3 million to $2.1 million. In each period, the decrease in interest income resulted from decreased interest rates in the current period.

Current wording

Interest income consists of interest earned on cash and cash equivalents. Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, interest income decreased from $0.71 million to $0.65 million. The decrease in interest income resulted from decreased interest rates in the current period.

Previous wording

Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, interest expense increased from $0.569 million to $0.574 million. Comparing the nine months ended June 30, 2024, to the nine months ended June 30, 2025, interest expense increased from $1.704 million to $1.718 million. In each period, 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.

Current wording

Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, interest expense increased from $0.57 million to $0.58 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.

Previous wording

Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, income tax expense increased by 10.7%, from $0.76 million to $0.84 million. Comparing the nine months ended June 30, 2024, to the nine months ended June 30, 2025, income tax expense increased by 65.0%, from $1.8 million to $2.9 million. In each period, the increase in income tax expense was due to increased net operating income, as well as a higher effective income tax rate in the current period due to a greater exposure to state income tax liability based on the location of investors in the Hennessy Funds.

Current wording

Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, income tax expense decreased by 33.9%, from $1.1 million to $0.7 million. The decrease in income tax expense was due to decreased net operating income, as well as a lower effective income tax rate in the current period due to changes in exposure to state income tax liability based on the location of investors in the Hennessy Funds.

Previous wording

Comparing the three months ended June 30, 2024, to the three months ended June 30, 2025, net income increased by 4.5%, from $2.0 million to $2.1 million. Comparing the nine months ended June 30, 2024, to the nine months ended June 30, 2025, net income increased by 58.1%, from $4.8 million to $7.5 million. In each period, the increase in net income was primarily due to increased revenue in the current period.

Current wording

Comparing the three months ended December 31, 2024, to the three months ended December 31, 2025, net income decreased by 31.9%, from $2.8 million to $1.9 million. The decrease in net income was primarily due to decreased revenue in the current period.