United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2020



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-24498

DIAMOND HILL INVESTMENT GROUP ~~INC~~.INC.

(Exact name of registrant as specified in its charter)



~~Ohio~~		~~65-0190407~~
~~(State of~~ ~~incorporation)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~


Ohio						65-0190407
(State of incorporation)						(I.R.S. Employer Identification No.)

325 John H. McConnell Blvd, Suite 200,, Columbus,, Ohio43215

(Address of principal executive offices) (Zip Code)

(~~614~~) (614) 255-3333

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

DHIL

The NASDAQ Stock Market LLC

The number of shares outstanding of the issuer’s common stock, as of August 5, 2020, is 3,213,987 shares.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

~~Large accelerated filer~~

☐

~~Accelerated filer~~

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No: x

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~The number of shares outstanding of the issuer’s common stock, as of October 29, 2019, is 3,384,158 shares.~~

Table of Contents

DIAMOND HILL INVESTMENT GROUP, INC.


			PAGE

				~~PAGE~~

Part I: FINANCIAL INFORMATION		3

Item 1.	Consolidated Financial Statements		3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1918

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		2930

Item 4.	Controls and Procedures		2930

Part II: OTHER INFORMATION					2930

Item 1.	Legal Proceedings		2930

Item 1A.	Risk Factors		2930

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2931

Item 3.	Defaults Upon Senior Securities		3032

Item 4.	Mine Safety Disclosures		3032

Item 5.	Other Information		3032

Item 6.	Exhibits		3133

Signatures					3234

Table of Contents



PART I:			FINANCIAL INFORMATION



ITEM 1:			Consolidated Financial Statements

Diamond Hill Investment Group, Inc.

Consolidated Balance Sheets


	9/30/2019			12/31/2018				6/30/2020		12/31/2019
	(Unaudited)							(Unaudited)
ASSETS							ASSETS
Cash and cash equivalents	$	118,113,741		$	84,430,059		Cash and cash equivalents	$	111,339,859	$	93,176,253
Investments	133,978,699			203,488,217			Investments	114,348,626		139,437,178
Accounts receivable	16,269,731			20,290,283			Accounts receivable	13,992,464		17,223,362
Prepaid expenses	2,941,894			2,372,712			Prepaid expenses	2,934,506		2,857,468
Income taxes receivable							Income taxes receivable	—		3,849,099
Property and equipment, net of depreciation	6,018,420			3,680,472			Property and equipment, net of depreciation	5,866,569		5,733,737
Deferred taxes	12,388,377			11,466,100			Deferred taxes	11,181,715		10,386,853
Total assets	$	289,710,862		$	325,727,843		Total assets	$	259,663,739	$	272,663,950
LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities							Liabilities
Accounts payable and accrued expenses	$	7,651,105		$	15,561,491		Accounts payable and accrued expenses	$	8,239,646	$	8,671,731
Accrued incentive compensation	18,342,000			26,754,167			Accrued incentive compensation	12,953,820		26,615,510
Income taxes payable	1,416,612			2,768,681			Income taxes payable	2,054,572		—
Deferred compensation	28,416,798			22,387,874			Deferred compensation	26,692,713		30,342,204
Total liabilities	55,826,515			67,472,213			Total liabilities	49,940,751		65,629,445
Redeemable noncontrolling interest	10,662,345			62,679,687			Redeemable noncontrolling interest	9,571,722		14,178,824
Permanent Shareholders’ equity							Permanent Shareholders’ equity
Common stock, no par value: 7,000,000 shares authorized; 3,403,739 issued and outstanding at September 30, 2019 (inclusive of 235,144 unvested shares); 3,499,285 issued and outstanding at December 31, 2018 (inclusive of 211,575 unvested shares)	111,265,293			124,933,060
Common stock, no par value: 7,000,000 shares authorized; 3,212,924 issued and outstanding at June 30, 2020 (inclusive of 190,484 unvested shares); 3,294,672 issued and outstanding at December 31, 2019 (inclusive of 227,844 unvested shares)							Common stock, no par value: 7,000,000 shares authorized; 3,212,924 issued and outstanding at June 30, 2020 (inclusive of 190,484 unvested shares); 3,294,672 issued and outstanding at December 31, 2019 (inclusive of 227,844 unvested shares)	86,189,846		95,853,477
Preferred stock, undesignated, 1,000,000 shares authorized and unissued	—			—			Preferred stock, undesignated, 1,000,000 shares authorized and unissued	—		—
Deferred equity compensation	(22,239,482		)	(22,008,054		)	Deferred equity compensation	(17,103,472)		(20,331,890)
Retained earnings	134,196,191			92,650,937			Retained earnings	131,064,892		117,334,094
Total permanent shareholders’ equity	223,222,002			195,575,943			Total permanent shareholders’ equity	200,151,266		192,855,681
Total liabilities and shareholders’ equity	$	289,710,862		$	325,727,843		Total liabilities and shareholders’ equity	$	259,663,739	$	272,663,950

Book value per share	$	65.58		$	55.89		Book value per share	$	62.30	$	58.54

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Diamond Hill Investment Group, Inc.

Consolidated Statements of Income (unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018				2020		2019		2020		2019
REVENUES:													REVENUES:
Investment advisory	$	32,498,101		$	34,928,205		$	94,521,491		$	103,085,767		Investment advisory	$	26,698,993	$	31,510,672	$	56,856,673	$	62,023,389
Mutual fund administration, net	2,094,271			2,543,442			6,195,272			8,095,596			Mutual fund administration, net	1,549,936		2,034,344		3,318,001		4,101,000
Total revenue	34,592,372			37,471,647			100,716,763			111,181,363			Total revenue	28,248,929		33,545,016		60,174,674		66,124,389
OPERATING EXPENSES:													OPERATING EXPENSES:
Compensation and related costs	16,071,176			15,441,623			47,665,109			44,401,217
Compensation and related costs, excluding deferred compensation expense (benefit)													Compensation and related costs, excluding deferred compensation expense (benefit)	12,557,769		14,341,924		27,974,945		27,899,046
Deferred compensation expense (benefit)													Deferred compensation expense (benefit)	3,825,540		1,282,627		(4,330,341)		3,694,886
General and administrative	3,543,236			2,962,220			10,331,295			8,748,419			General and administrative	2,899,853		3,543,527		4,828,509		6,788,059
Sales and marketing	1,443,328			1,281,856			4,261,311			3,793,382			Sales and marketing	1,148,782		1,447,266		2,604,464		2,817,982
Mutual fund administration	778,093			870,103			2,488,809			2,769,009			Mutual fund administration	789,316		849,676		1,604,269		1,710,717
Total operating expenses	21,835,833			20,555,802			64,746,524			59,712,027			Total operating expenses	21,221,260		21,465,020		32,681,846		42,910,690
NET OPERATING INCOME	12,756,539			16,915,845			35,970,239			51,469,336			NET OPERATING INCOME	7,027,669		12,079,996		27,492,828		23,213,699
Investment income, net	2,822,947			5,210,332			23,627,419			7,216,278
INCOME BEFORE TAXES	15,579,486			22,126,177			59,597,658			58,685,614
Investment income (loss), net													Investment income (loss), net	11,562,624		6,519,596		(10,835,468)		20,804,473
NET INCOME BEFORE TAXES													NET INCOME BEFORE TAXES	18,590,293		18,599,592		16,657,360		44,018,172
Income tax expense	(4,062,849		)	(5,726,807		)	(14,367,605		)	(14,446,092		)	Income tax expense	(4,951,814)		(4,442,023)		(5,547,249)		(10,304,756)
NET INCOME	11,516,637			16,399,370			45,230,053			44,239,522			NET INCOME	13,638,479		14,157,569		11,110,111		33,713,416
Net income attributable to redeemable noncontrolling interest	(99,177		)	(1,191,317		)	(3,684,799		)	(1,671,640		)
Net loss (income) attributable to redeemable noncontrolling interest													Net loss (income) attributable to redeemable noncontrolling interest	(1,437,789)		(962,417)		2,620,687		(3,585,622)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	11,417,460		$	15,208,053		$	41,545,254		$	42,567,882		NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	12,200,690	$	13,195,152	$	13,730,798	$	30,127,794
Earnings per share attributable to common shareholders													Earnings per share attributable to common shareholders
Basic	$	3.35		$	4.31		$	12.00		$	12.12		Basic	$	3.79	$	3.79	$	4.23	$	8.64
Diluted	$	3.35		$	4.31		$	12.00		$	12.11		Diluted	$	3.79	$	3.79	$	4.23	$	8.64
Weighted average shares outstanding													Weighted average shares outstanding
Basic	3,411,632			3,530,586			3,460,959			3,512,547			Basic	3,220,973		3,478,307		3,246,867		3,486,032
Diluted	3,411,632			3,532,346			3,461,159			3,514,517			Diluted	3,220,973		3,478,307		3,246,867		3,486,504

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Diamond Hill Investment Group, Inc.

Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited)

Three Months Ended September 30, 2019

Shares
Outstanding

Common
Stock

Deferred Equity
Compensation

Retained
Earnings
Total Redeemable Noncontrolling Interest
Balance at June 30, 2019 3,443,464
$ 116,835,709
$ (21,919,702 ) $ 122,778,731
$ 217,694,738
$ 34,076,350
Issuance of restricted stock grants 23,219
3,207,195
(3,207,195 ) —
—
—
Amortization of restricted stock grants —
—
1,498,405
—
1,498,405
—
Issuance of common stock related to 401k plan match 4,551
628,465
—
—
628,465
—
Shares withheld related to employee tax withholding (3,088 ) (437,631 ) —
—
(437,631 ) —
Forfeiture of restricted stock grants (7,200 ) (1,389,010 ) 1,389,010
—
—
—
Repurchase of common stock (57,207 ) (7,579,435 ) —
—
(7,579,435 ) —
Net income —
—
—
11,417,460
11,417,460
99,177
Net subscriptions of Consolidated Funds —
—
—
—
—
538,128
Net deconsolidations of Company sponsored investments —
—
—
—
—
(24,051,310 )
Balance at September 30, 2019 3,403,739
$ 111,265,293
$ (22,239,482 ) $ 134,196,191
$ 223,222,002
$ 10,662,345

Three Months Ended September 30, 2018

Shares
Outstanding

Common
Stock

Deferred Equity
Compensation

Retained
Earnings
Total Redeemable Noncontrolling Interest
Balance at June 30, 2018 3,532,634
$ 130,369,411
$ (24,019,869 ) $ 100,729,501
$ 207,079,043
$ 50,777,801
Issuance of restricted stock grants 2,300
380,397
(380,397 ) —
—
—
Amortization of restricted stock grants —
—
1,798,230
—
1,798,230
—
Issuance of common stock related to 401k plan match 3,239
591,232
—
—
591,232
—
Shares withheld related to employee tax withholding (3,525 ) (685,364 ) —
—
(685,364 ) —
Forfeiture of restricted stock grants (500 ) (99,830 ) 99,830
—
—
—
Net income —
—
—
15,208,053
15,208,053
1,191,317
Net subscriptions of consolidated funds —
—
—
—
—
8,745,575
Balance at September 30, 2018 3,534,148
$ 130,555,846
$ (22,502,206 ) $ 115,937,554
$ 223,991,194
$ 60,714,693


	Three Months Ended June 30, 2020
	Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at March 31, 2020	3,247,515	$	90,602,468	$	(18,686,750)	$	118,864,202	$	190,779,920	$	9,554,350
Issuance of restricted stock grants	13,015	1,462,975		(1,462,975)		—		—		—
Amortization of restricted stock grants	—	—		560,606		—		560,606		—
Issuance of common stock related to 401(k) plan match	6,403	642,008		—		—		642,008		—
Shares withheld related to employee tax withholding	(13,631)	(1,230,062)		—		—		(1,230,062)		—
Forfeiture of restricted stock grants	(13,300)	(2,485,647)		2,485,647		—		—		—
Repurchase of common stock	(27,078)	(2,801,896)		—		—		(2,801,896)		—
Net income	—	—		—		12,200,690		12,200,690		1,437,789
Net redemptions of consolidated funds	—	—		—		—		—		(1,420,417)
Balance at June 30, 2020	3,212,924	$	86,189,846	$	(17,103,472)	$	131,064,892	$	200,151,266	$	9,571,722

	Three Months Ended June 30, 2019
	Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at March 31, 2019	3,494,599	$	124,484,045	$	(23,656,774)	$	109,583,579	$	210,410,850	$	36,249,454
Issuance of restricted stock grants	4,175	166,521		(166,521)		—		—		—
Amortization of restricted stock grants	—	—		1,853,743		—		1,853,743		—
Issuance of common stock related to 401(k) plan match	4,190	589,565		—		—		589,565		—
Shares withheld related to employee tax withholding	(4,300)	(602,000)		—		—		(602,000)		—
Forfeiture of restricted stock grants	(250)	(49,850)		49,850		—		—		—
Repurchase of common stock	(54,950)	(7,752,572)						(7,752,572)
Net income	—	—		—		13,195,152		13,195,152		962,417
Net subscriptions of consolidated funds	—	—		—		—		—		6,880,706
Net deconsolidations of Company sponsored investments	—	—		—		—		—		(10,016,227)
Balance at June 30, 2019	3,443,464	$	116,835,709	$	(21,919,702)	$	122,778,731	$	217,694,738	$	34,076,350

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Diamond Hill Investment Group, Inc.

Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interest (unaudited) ~~(Continued)~~


	Six Months Ended June 30, 2020
	Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at December 31, 2019	3,294,672	$	95,853,477	$	(20,331,890)	$	117,334,094	$	192,855,681	$	14,178,824
Issuance of restricted stock grants	16,865	1,810,399		(1,810,399)		—		—		—
Amortization of restricted stock grants	—	—		2,346,823		—		2,346,823		—
Common stock issued as incentive compensation	23,640	3,396,359						3,396,359
Issuance of common stock related to 401k plan match	11,719	1,289,108		—		—		1,289,108		—
Shares withheld related to employee tax withholding	(15,432)	(1,483,030)		—		—		(1,483,030)		—
Forfeiture of restricted stock grants	(14,525)	(2,691,994)		2,691,994		—		—		—
Repurchase of common stock	(104,015)	(11,984,473)		—		—		(11,984,473)		—
Net income (loss)	—	—		—		13,730,798		13,730,798		(2,620,687)
Net redemptions of Consolidated Funds	—	—		—		—		—		(1,986,415)
Balance at June 30, 2020	3,212,924	$	86,189,846	$	(17,103,472)	$	131,064,892	$	200,151,266	$	9,571,722

	Six Months Ended June 30, 2019
	Shares Outstanding	Common Stock		Deferred Equity Compensation		Retained Earnings		Total		Redeemable Noncontrolling Interest
Balance at December 31, 2018	3,499,285	$	124,933,060	$	(22,008,054)	$	92,650,937	$	195,575,943	$	62,679,687
Issuance of restricted stock grants	29,050	4,025,821		(4,025,821)		—		—		—
Amortization of restricted stock grants	—	—		3,375,716		—		3,375,716		—
Common stock issued as incentive compensation	24,048	3,655,296		—		—		3,655,296		—
Issuance of common stock related to 401k plan match	8,476	1,221,615		—		—		1,221,615		—
Shares withheld related to employee tax withholding	(4,300)	(602,000)		—		—		(602,000)		—
Forfeiture of restricted stock grants	(4,500)	(738,457)		738,457		—		—		—
Repurchase of common stock	(108,595)	(15,659,626)		—		—		(15,659,626)
Net income	—	—		—		30,127,794		30,127,794		3,585,622
Net subscriptions of Consolidated Funds	—	—		—		—		—		5,151,829
Net deconsolidations of Company sponsored investments	—	—		—		—		—		(37,340,788)
Balance at June 30, 2019	3,443,464	$	116,835,709	$	(21,919,702)	$	122,778,731	$	217,694,738	$	34,076,350

Nine Months Ended September 30, 2019

Shares
Outstanding

Common
Stock

Deferred Equity
Compensation

Retained
Earnings
Total Redeemable Noncontrolling Interest
Balance at December 31, 2018 3,499,285
$ 124,933,060
$ (22,008,054 ) $ 92,650,937
$ 195,575,943
$ 62,679,687
Issuance of restricted stock grants 52,269
7,233,016
(7,233,016 ) —
—
—
Amortization of restricted stock grants —
—
4,874,121
—
4,874,121
—
Issuance of stock grants 24,048
3,655,296
—
—
3,655,296
—
Issuance of common stock related to 401k plan match 13,027
1,850,080
—
—
1,850,080
—
Shares withheld related to employee tax withholding (7,388 ) (1,039,631 ) —
—
(1,039,631 ) —
Forfeiture of restricted stock grants (11,700 ) (2,127,467 ) 2,127,467
—
—
—
Repurchase of common stock (165,802 ) (23,239,061 ) —
—
(23,239,061 ) —
Net income —
—
—
41,545,254
41,545,254
3,684,799
Net subscriptions of Consolidated Funds —
—
—
—
—
5,689,957
Net deconsolidations of Company sponsored investments —
—
—
—
—
(61,392,098 )
Balance at September 30, 2019 3,403,739
$ 111,265,293
$ (22,239,482 ) $ 134,196,191
$ 223,222,002
$ 10,662,345

Nine Months Ended September 30, 2018

Shares
Outstanding

Common
Stock

Deferred Equity
Compensation

Retained
Earnings
Total Redeemable Noncontrolling Interest
Balance at December 31, 2017 3,470,428
$ 118,209,111
$ (19,134,963 ) $ 73,369,672
$ 172,443,820
$ 20,076,806
Issuance of restricted stock grants 63,950
12,298,334
(12,298,334 ) —
—
—
Amortization of restricted stock grants —
—
4,814,465
—
4,814,465
—
Issuance of stock grants 20,153
4,109,197
—
—
4,109,197
—
Issuance of common stock related to 401k plan match 8,481
1,658,358
—
—
1,658,358
—
Shares withheld related to employee tax withholding (7,964 ) (1,602,528 ) —
—
(1,602,528 ) —
Forfeiture of restricted stock grants (20,900 ) (4,116,626 ) 4,116,626
—
—
—
Net income —
—
—
42,567,882
42,567,882
1,671,640
Net subscriptions of consolidated funds —
—
—
—
—
22,521,607
Net consolidations of Company sponsored investments —
—
—
—
—
16,444,640
Balance at September 30, 2018 3,534,148
$ 130,555,846
$ (22,502,206 ) $ 115,937,554
$ 223,991,194
$ 60,714,693

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Diamond Hill Investment Group, Inc.

Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended September 30,							Six Months Ended June 30,
	2019			2018				2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	45,230,053		$	44,239,522		Net Income	$	11,110,111	$	33,713,416
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	892,463			868,243			Depreciation	507,737		569,896
Share-based compensation	6,724,201			6,472,823			Share-based compensation	3,635,931		4,597,331
Increase in accounts receivable	(4,067,885		)	(90,525		)
(Decrease) increase in current income taxes payable	(1,352,069		)	4,755,773
Decrease (increase) in accounts receivable							Decrease (increase) in accounts receivable	3,230,897		(3,094,071)
Change in current income taxes							Change in current income taxes	5,903,671		(513,313)
Change in deferred income taxes	(922,277		)	(1,709,775		)	Change in deferred income taxes	(794,862)		(823,883)
Net gains on investments	(17,465,565		)	(3,184,197		)
Net losses (gains) on investments							Net losses (gains) on investments	12,135,645		(16,091,598)
Net change in securities held by Consolidated Funds	10,149,201			(47,246,344		)	Net change in securities held by Consolidated Funds	169,476		17,041,017
(Decrease) increase in accrued incentive compensation	(4,756,871		)	321,697
Increase in deferred compensation	6,028,924			4,951,871
Decrease in accrued incentive compensation							Decrease in accrued incentive compensation	(10,265,331)		(12,078,871)
Increase (decrease) in deferred compensation							Increase (decrease) in deferred compensation	(3,649,491)		5,672,279
Other changes in assets and liabilities	(388,751		)	252,238			Other changes in assets and liabilities	(285,183)		(182,455)
Net cash provided by operating activities	40,071,424			9,631,326			Net cash provided by operating activities	21,698,601		28,809,748
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(609,836		)	(699,917		)
Purchases of Company sponsored investments	(10,955,556		)	(4,362,077		)
Proceeds from sale of Company sponsored investments	43,245,298			1,789,359
Purchase of property and equipment							Purchase of property and equipment	(864,508)		(131,734)
Purchase of Company sponsored investments							Purchase of Company sponsored investments	(11,879,416)		(5,973,680)
Proceeds from sale of Company-sponsored investments							Proceeds from sale of Company-sponsored investments	24,662,847		35,729,336
Net cash on deconsolidation of Company sponsored investments	(22,723,853		)	—			Net cash on deconsolidation of Company sponsored investments	—		(22,723,853)
Net cash provided by (used in) investing activities	8,956,053			(3,272,635		)
Net cash provided by investing activities							Net cash provided by investing activities	11,918,923		6,900,069
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Value of shares withheld related to employee tax withholding	(1,039,631		)	(1,602,528		)	Value of shares withheld related to employee tax withholding	(1,483,030)		(602,000)
Net subscriptions received from redeemable noncontrolling interest holders	8,934,897			19,261,162
Net subscriptions (redemptions) received from redeemable noncontrolling interest holders							Net subscriptions (redemptions) received from redeemable noncontrolling interest holders	(1,986,415)		8,396,769
Repurchase of common stock	(23,239,061		)	—			Repurchase of common stock	(11,984,473)		(15,659,626)
Net cash (used in) provided by financing activities	(15,343,795		)	17,658,634
Net cash used in financing activities							Net cash used in financing activities	(15,453,918)		(7,864,857)
CASH AND CASH EQUIVALENTS							CASH AND CASH EQUIVALENTS
Net change during the period	33,683,682			24,017,325			Net change during the period	18,163,606		27,844,960
At beginning of period	84,430,059			76,602,108			At beginning of period	93,176,253		84,430,059
At end of period	$	118,113,741		$	100,619,433		At end of period	$	111,339,859	$	112,275,019
Supplemental cash flow information:							Supplemental cash flow information:

Income taxes paid	$	16,641,951		$	11,400,094		Income taxes paid	$	438,440	$	11,641,951
Supplemental disclosure of non-cash transactions:							Supplemental disclosure of non-cash transactions:
Common stock issued as incentive compensation	$	3,655,296		$	4,109,197		Common stock issued as incentive compensation	$	3,396,359	$	3,655,296
Charitable donation of corporate investments	—			1,989,803
Net (redemptions) subscriptions of ETF shares for marketable securities	(3,244,940		)	3,260,445

Net redemptions of ETF shares for marketable securities							Net redemptions of ETF shares for marketable securities	—		(3,244,940)

The accompanying notes are an integral part of these consolidated financial statements.

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Diamond Hill Investment Group, Inc.

Notes to Consolidated Financial Statements (unaudited)

Note 1 Business and Organization

Diamond Hill Investment Group, Inc. (the "Company"), an Ohio corporation, derives ~~its~~ consolidated ~~revenues~~revenue and net income from investment advisory and fund administration services.

Diamond Hill Capital Management, Inc. ("DHCM"), an Ohio corporation, is a wholly owned subsidiary of the Company and a registered investment adviser. DHCM is the investment adviser to the Diamond Hill Funds (the "Funds"), a series of open-end mutual ~~funds, a private investment fund, and other separately managed accounts.~~funds. DHCM is also administrator for the Funds. The Company also provides investment advisory services to separately managed accounts and provides sub-advisory services to other mutual funds.

Note 2 Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, and for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, for Diamond Hill Investment Group, Inc. and its subsidiaries (referred to in these notes to the condensed consolidated financial statements as "the Company," "management," "we," "us," and "our") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (the "SEC") Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair statement of the financial condition and results of operations at the dates and for the interim periods presented have been included. ~~The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for any full fiscal year.~~ These unaudited condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in ~~the Company's~~its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 (the ~~"2018 Annual Report"~~"2019 Form 10-K") as filed with the SEC.

Operating results for the three- and six-month periods ended June 30, 2020 are not necessarily indicative of the results the Company may expect for the full fiscal year ending December 31, 2020 (“fiscal 2020”), particularly in light of the novel coronavirus pandemic (“COVID-19”) and its effects on the U.S. and global economies.

To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations, disrupting the global supply chain, and creating a reduction in demand for many products. This has negatively affected global financial markets and has caused significant financial market depreciation, thus reducing our assets under management ("AUM"), the revenue derived from our AUM, and the returns on corporate investments.

While we expect the effects of the pandemic and the related responses to negatively affect our results of operations, cash flows and financial position, at this time we cannot reasonably estimate the full impact, given the uncertainty over the duration and severity of the economic crisis.

For further information, refer to the consolidated financial statements and notes thereto included in the 2019 Form 10-K and “Part II – Item 1A – Risk Factors” of this Form 10-Q.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of ~~revenues~~revenue and ~~expenses~~expense during the period. Actual results could differ from those estimates.

Reclassification

Certain prior period amounts and disclosures may have been reclassified to conform to the current period's financial presentation.

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Principles of Consolidation

The accompanying consolidated financial statements include the operations of the Company and its controlled subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

The Company holds certain investments in the Funds ~~and previously held an investment in an exchange traded fund (the "ETF") advised by the Company,~~ for general corporate investment purposes, to provide seed capital for newly formed strategies or to add capital to existing strategies. The Funds are organized in a series fund structure in which there are multiple mutual funds within one ~~Trust.~~trust (the "Trust"). The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the"1940 Act"). The ETF was an individual series of ETF Series Solutions which was also an open-end investment company registered under the 1940 Act. The ETF liquidated and its assets were distributed to its shareholders on April 5, 2019. Each of the individual mutual funds represents (and the ETF represented) a separate share class of a legal entity organized under the Trust.

The Company performs its analysis at the individual mutual fund ~~and ETF~~ level and has concluded the mutual funds are ~~and the ETF was,~~ voting rights entities ("VREs") because the structure of the investment product is such that the shareholders are deemed to have the power through voting rights to direct the activities that most significantly impact the entity's economic performance. To the extent material, these investment products are consolidated if Company ownership, directly or indirectly, represents a majority interest (greater than 50%). The Company records redeemable noncontrolling interests in consolidated investments for which the Company's ownership is less than 100%. The Company has consolidated

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the Diamond Hill International Fund and the Diamond Hill Global Fund (collectively the "Consolidated Funds") as of ~~September~~June 30, 2019. The Company deconsolidated the ETF, the Diamond Hill Core Bond Fund and the Diamond Hill High Yield Fund during the nine months ended September 30, 2019, as the Company's ownership declined to less than 50%.

DHCM is the managing member of Diamond Hill General Partner, LLC (the “General Partner”), which is the general partner of Diamond Hill Investment Partners, L.P. (“DHIP”) whose underlying assets consist primarily of marketable securities.

DHCM is wholly owned by the Company and is consolidated by us. Further, DHCM, through its control of the General Partner, has the power to direct DHIP's economic activities and the right to receive investment advisory fees that may be significant to DHIP.

The Company concluded it did not have a variable interest in DHIP as the fees paid to the General Partner are considered to contain customary terms and conditions as found in the market for similar products and the Company has no equity ownership in DHIP.

2020.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest represents third-party interests in the Consolidated Funds. This interest is redeemable at the option of the investors and therefore is not treated as permanent equity. Redeemable noncontrolling interest is recorded at redemption value, which approximates the fair value each reporting period.

Segment Information

Management has determined that the Company operates in 1 business segment, which is providing investment management and administration services to mutual funds, separately managed accounts, and a private investment fund. Therefore, nothe Company does not present disclosures relating to operating segments ~~are presented~~ in ~~the Company's~~ annual or interim financial statements.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market mutual funds held by DHCM.

Accounts Receivable

~~Accounts~~The Company records accounts receivable ~~are recorded~~ when they are due and ~~are presented~~presents them on the balance sheet net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical losses, existing conditions in the industry, and the financial stability of the individual or entity that owes the receivable. No allowance for doubtful accounts was deemed necessary at ~~September~~June 30, ~~2019~~2020 or December 31, ~~2018.~~2019. Accounts receivable from the Funds were ~~$9.9~~$8.5 million as of ~~September~~June 30, ~~2019~~2020 and ~~$9.4~~$10.7 million as of December 31, ~~2018.~~2019.

Investments

Management determines the appropriate classification of its investments at the time of purchase and re-evaluates its determination at each reporting period.

Investments in the Funds we advise where the Company has neither control nor the ability to exercise significant influence, as well as securities held in the Consolidated Funds, are measured at fair value based on quoted market prices. Unrealized gains and losses are recorded as investment income (loss) in the Company's consolidated statements of income.

Investments classified as equity method investments represent investments in which the Company owns between 20-50% of the outstanding voting interests in the entity or when it is determined that the Company is able to exercise significant influence but not control over the investments. When using the equity method, the Company recognizes its respective share of the investee's net income or loss for the period, which is recorded as investment income in the Company's consolidated statements of income.

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Property and Equipment

Property and equipment, consisting of leasehold improvements, right-of use lease assets, computer equipment, furniture, and fixtures, are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated lives of the assets.

Revenue Recognition – General

~~Revenue is recognized~~The Company recognizes revenue when it satisfies performance obligations under the terms of a contract with a ~~client are satisfied.~~client. The Company earns substantially all of its revenue from investment advisory and fund administration contracts. Investment advisory and administration fees, generally calculated as a percentage of ~~assets under management ("AUM"),~~AUM, are recorded as revenue as services are performed. In addition to fixed fees based on a percentage of AUM, certain client accounts also provide periodic variable rate fees.

Revenue earned during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 under contracts with clients include:


	Three Months Ended September 30, 2019							Three Months Ended June 30, 2020
	Investment advisory		Mutual fund administration, net		Total revenue			Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	24,178,440	$	2,094,271	$	26,272,711	Proprietary funds	$	19,722,742	$	1,549,936	$	21,272,678
Sub-advised funds and separately managed accounts	8,319,661		—		8,319,661		Sub-advised funds and separately managed accounts	6,976,251		—		6,976,251
	$	32,498,101	$	2,094,271	$	34,592,372		$	26,698,993	$	1,549,936	$	28,248,929


	Three Months Ended September 30, 2018							Three Months Ended June 30, 2019
	Investment advisory		Mutual fund administration, net		Total revenue			Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	26,864,835	$	2,543,442	$	29,408,277	Proprietary funds	$	24,335,369	$	2,034,344	$	26,369,713
Sub-advised funds and separately managed accounts	8,063,370		—		8,063,370		Sub-advised funds and separately managed accounts	7,175,303		—		7,175,303
	$	34,928,205	$	2,543,442	$	37,471,647		$	31,510,672	$	2,034,344	$	33,545,016

Revenue earned during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 under contracts with clients include:


	Six Months Ended June 30, 2020
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	43,177,305	$	3,318,001	$	46,495,306
Sub-advised funds and separately managed accounts	13,679,368		—		13,679,368
	$	56,856,673	$	3,318,001	$	60,174,674

Nine Months Ended September 30, 2019
Investment advisory
Mutual fund
administration, net
Total revenue
Proprietary funds $ 72,093,686
$ 6,195,272
$ 78,288,958
Sub-advised funds and separately managed accounts 22,427,805
—
22,427,805
$ 94,521,491
$ 6,195,272
$ 100,716,763

Nine Months Ended September 30, 2018
Investment advisory Mutual fund
administration, net Total revenue
Proprietary funds $ 80,464,941
$ 8,095,596
$ 88,560,537
Sub-advised funds and separately managed accounts 22,620,826
—
22,620,826
$ 103,085,767
$ 8,095,596
$ 111,181,363

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	Six Months Ended June 30, 2019
	Investment advisory		Mutual fund administration, net		Total revenue
Proprietary funds	$	47,915,246	$	4,101,000	$	52,016,246
Sub-advised funds and separately managed accounts	14,108,143		—		14,108,143
	$	62,023,389	$	4,101,000	$	66,124,389

Revenue Recognition – Investment Advisory Fees

The Company's investment advisory contracts have a single performance obligation (the investment advisory services provided to the client) as the promised services are not separately identifiable from other promises in the contracts and, therefore, are not distinct. All performance obligations to provide advisory services are satisfied over time and the Company recognizes revenue as time passes.

The fees we receive for our services under our investment advisory contracts are based on ~~our~~ AUM, which changes based on the value of securities held under each advisory contract. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which our client is billed is no longer subject to market fluctuations.

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The Company also provides services to Unified Managed Account ("UMA") programs in which an investment manager provides its strategy model portfolio to the sponsor of the UMA. The Company is paid a portion of the UMA fee for our services by the program sponsor at a pre-determined rate based on assets in the program. UMA program revenue was $0.6 million and $0.4 million, respectively, for the three months ended June 30, 2020 and 2019, and $1.2 million and $0.8 million, respectively, for the six months ended June 30, 2020 and 2019. UMA program revenue is included in investment advisory fees in the consolidated statements of income.

Revenue Recognition – Variable Rate Fees

The Company manages certain client accounts that provide for variable rate fees. These fees are calculated based on client investment results over rolling ~~5-year~~five-year periods. The Company records variable rate fees at the end of the contract measurement period because the variable fees earned are constrained based on movements in the financial markets. ~~During~~The Company did not record any variable rate fees during either of the three ~~and nine months~~or six month periods ended ~~September~~June 30, ~~2019, the Company recorded $0.9 million in variable rate fees. During the three and nine months ended September~~2020 or June 30, ~~2018, the Company recorded $0.6 million in variable rate fees.~~2019. The table below shows AUM subject to variable rate fees and the amount of variable rate fees that would be recognized based upon investment results as of ~~September~~June 30, ~~2019:~~2020:

As of September 30, 2019
AUM subject to variable rate fees Unearned variable rate fees
Contractual Period Ending:
Quarter Ending December 31, 2019 $ 62,831,955
$ 612,273
Quarter Ending March 31, 2020 13,476,137
—
Quarter Ending September 30, 2020 37,469,889
179,474
Quarter Ending September 30, 2021 284,414,344
6,328,189
Total $ 398,192,325
$ 7,119,936


	As of June 30, 2020
	AUM subject to variable rate fees		Unearned variable rate fees
Contractual Period Ending:
Quarter Ending December 31, 2020	$	55,670,997	$	392,505
Quarter Ending September 30, 2021	267,848,876		7,990,983
Total	$	323,519,873	$	8,383,488

The contractual end dates highlight the time remaining until the variable rate fees are scheduled to be earned. The amount of variable rate fees that would be recognized based upon investment results as of ~~September~~June 30, ~~2019,~~2020, will increase or decrease based on future client investment results through the end of the contractual ~~period end. There can be no assurance~~period. We cannot assure that we will earn the unearned amounts ~~will ultimately be earned.~~set forth above.

Revenue Recognition – Mutual Fund Administration

DHCM has an administrative and transfer agency services agreement with the Funds under which DHCM performs certain services for each Fund. These services include performance obligations such as mutual fund administration, fund accounting, transfer agency, and other related functions. These services are performed concurrently under our agreement with the Funds, all performance obligations to provide these administrative services are satisfied over time, and the Company recognizes the related revenue as time ~~passes. For performing these services each~~progresses. Each Fund pays DHCM a fee for performing these services , which is calculated using an annual rate times the average daily net assets of each respective share class. These fees are thereby constrained and represent variable consideration, and they are excluded from revenue until the AUM on which we bill the Funds is no longer subject to market fluctuations.

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The Funds have selected and contractually engaged certain vendors to fulfill various services to benefit the Funds’ shareholders or to satisfy regulatory requirements of the Funds. These services include, among others, required shareholder mailings, federal and state registrations, and legal and audit services. DHCM, in fulfilling a portion of its role under the administration agreement with the Funds, acts as agent to pay these obligations of the Funds. Each vendor is independently responsible for fulfillment of the services it has been engaged to provide and negotiates its fees and terms directly with the management and board of trustees of the Funds. ~~The~~Each year, the Funds' board of trustees reviews the fee that each Fund pays to DHCM ~~is reviewed annually by the Funds’ board of trustees~~ and specifically takes into account the contractual expenses that DHCM pays on behalf of the Funds. As a result, DHCM is not involved in the delivery or pricing of these services, and bears no risk related to these services. Revenue has been recorded net of these Fund related expenses. In addition, DHCM advances the upfront commissions that are paid to brokers who sell Class C shares of the Funds. These advances are capitalized and amortized over 12 months to correspond with the repayments DHCM receives from the principal underwriter to recoup this commission advancement.

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Mutual fund administration gross and net revenue are summarized below:

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Mutual fund administration:
Administration revenue, gross $ 5,677,414
$ 6,169,984
$ 16,599,581
$ 18,771,040
Fund related expense (3,589,273 ) (3,638,618 ) (10,430,419 ) (10,702,498 )
Revenue, net of related expenses 2,088,141
2,531,366
6,169,162
8,068,542
DHCM C-Share financing:
Broker commission advance repayments 57,908
84,248
176,901
264,107
Broker commission amortization (51,778 ) (72,172 ) (150,791 ) (237,053 )
Financing activity, net 6,130
12,076
26,110
27,054
Mutual fund administration revenue, net $ 2,094,271
$ 2,543,442
$ 6,195,272
$ 8,095,596


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Mutual fund administration:
Administration revenue, gross	$	4,980,615	$	5,519,437	$	10,573,273	$	10,922,165
Fund related expense	(3,434,966)		(3,491,604)		(7,262,215)		(6,841,145)
Revenue, net of related expenses	1,545,649		2,027,833		3,311,058		4,081,020
C-Share financing:
Broker commission advance repayments	66,817		53,782		130,359		118,994
Broker commission amortization	(62,530)		(47,271)		(123,416)		(99,014)
Financing activity, net	4,287		6,511		6,943		19,980
Mutual fund administration revenue, net	$	1,549,936	$	2,034,344	$	3,318,001	$	4,101,000

Income Taxes

The Company accounts for current and deferred income taxes through an asset and liability approach. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company is subject to examination by federal and applicable state and local jurisdictions for various tax periods. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws among those jurisdictions, and the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments. The Company regularly assesses its ~~position~~positions with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, according to the principles of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, Income Taxes. The Company records interest and penalties within income tax expense on the income statement. See Note 8.

On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act”) was signed into legislation which includes various tax provisions. The Company does not expect the CARES Act to have a material impact on the Company's consolidated financial statements.

Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, which includes ~~participating securities.~~unvested restricted shares. Diluted EPS reflects the ~~potential dilution~~dilutive effect of ~~EPS due to~~any outstanding and unvested restricted stock units. See Note 9.

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~~Newly Issued But Not Yet~~Recently Adopted Accounting Guidance

In August 2018, the FASB issued Accounting Standards Update ~~(“ASU”~~("ASU") No. 2018-13, “Fair Value Measurements.” This update makes certain ~~removals from, changes to and additions~~revisions to existing disclosure requirements for fair value measurement. ASU 2018-13 does not change fair value measurements already required or permitted by existing standards. ASU No. 2018-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ~~Management does not believe that adoption of ASU 2018-13 will materially~~The Company adopted this guidance on January 1, 2020 without any impact on the Company’s consolidated financial statements.

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Note 3 Investments

The following table summarizes the carrying value of ~~these~~the Company's investments as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

As of
September 30, 2019 December 31, 2018
Fair value investments:
Securities held in Consolidated Funds^(a)
$ 29,635,079
$ 153,730,480
Company sponsored investments 43,200,396
33,418,088
Company sponsored equity method investments 61,143,224
16,339,649
Total Investments $ 133,978,699
$ 203,488,217


	As of
	June 30, 2020		December 31, 2019
Fair value investments:
Securities held in Consolidated Funds^(a)	$	29,262,767	$	36,248,360
Company sponsored investments	24,170,568		42,039,044
Company sponsored equity method investments	60,915,291		61,149,774
Total Investments	$	114,348,626	$	139,437,178

(a) Of the securities held in the Consolidated Funds as of ~~September~~June 30, ~~2019,~~2020, the Company directly held $18.8 million ~~were~~and noncontrolling shareholders held ~~directly by the Company and $10.8 million were held by noncontrolling shareholders.~~$10.5 million. Of the securities held in the Consolidated Funds as of December 31, ~~2018, $84.7 million were held directly by~~2019, the Company directly held $21.1 million and ~~$69.0 million were~~noncontrolling shareholders held ~~by noncontrolling shareholders.~~

$15.1 million.

The components of net investment income (loss) are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Realized gains (losses)	$	(925,889)	$	2,178,433	$	(1,743,428)	$	5,085,799
Unrealized gains (losses)	11,948,270		622,890		(10,519,328)		10,400,582
Dividends	570,538		3,242,662		1,464,951		4,248,382
Interest	—		495,409		—		987,630
Other investment income (loss)	(30,295)		(19,798)		(37,663)		82,080
Investment income (loss), net	$	11,562,624	$	6,519,596	$	(10,835,468)	$	20,804,473

Company deconsolidated the ETF, Diamond Hill Core Bond Fund and the Diamond Hill High Yield Fund during the nine months ended September 30, 2019. The ETF liquidated and its assets were distributed to its shareholders on April 5, 2019.

Sponsored Equity Method Investments

As of ~~September~~June 30, ~~2019,~~2020, our equity method investments consisted of the Diamond Hill Research Opportunities Fund and the Diamond Hill Core Bond Fund, and our ownership percentage in ~~each of~~ these investments was ~~22%~~35% and ~~38%~~23%, respectively. During the first half of 2019 there were periods of time where our ownership in the Diamond Hill International Equity Fund, L.P. and the Diamond Hill High Yield Fund was between 20% and 50% thus, a portion of their income is included in the table below for the nine months ended September 30, 2019.

The following table includes the condensed summary financial information from the Company's equity method investments as of and for the three and six month periods ended ~~September~~June 30, ~~2019:~~2020:

As of
September 30, 2019
Total assets $ 236,700,619
Total liabilities 41,168,623
Net assets 195,531,996
DHCM's portion of net assets 61,143,224

For the Three Months Ended For the Nine Months Ended
September 30, 2019 September 30, 2019
Investment income $ 962,281
$ 4,148,489
Expenses 345,111
955,320
Net realized gains 858,741
5,243,737
Net change in unrealized appreciation 1,719,459
11,782,498
Net income 3,195,370
20,219,404
DHCM's portion of net income 1,196,750
7,014,994



			As of
			June 30, 2020
Total assets			$	280,346,497
Total liabilities			33,583,129
Net assets			246,763,368
DHCM's portion of net assets			$	60,915,291

	For the Three Months Ended		For the Six Months Ended
	June 30, 2020		June 30, 2020
Investment income	$	1,470,082	$	2,669,802
Expenses	380,380		720,779
Net realized losses	(1,108,621)		(3,367,321)
Net unrealized appreciation (depreciation)	14,315,248		(4,496)
Net income (loss)	14,296,329		(1,422,794)
DHCM's portion of net income (loss)	$	3,959,381	$	283,826

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Note 4 Fair Value Measurements

The Company determines the fair value of our cash equivalents and certain investments using the following broad levels listed below:

Level 1 - Unadjusted quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuations in which all significant inputs are observable.

Level 3 - Valuations derived from techniques in which significant inputs are unobservable. We do not value any investments using Level 3 inputs.

These levels are not necessarily ~~an indication~~indicative of the risk or liquidity associated with investments.

The following table summarizes investments that are recognized in our consolidated balance sheet using fair value measurements (excluding investments classified as equity method investments) determined based upon the differing levels as of ~~September~~June 30, ~~2019:~~2020:


	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Cash equivalents (money market mutual funds)	$	116,193,674	$	—	$	—	$	116,193,674	Cash equivalents (money market mutual funds)	$	109,038,687	$	—	$	—	$	109,038,687
Fair value investments									Fair value investments
Securities held in Consolidated Funds^(a)	15,480,312		14,154,767		—		$	29,635,079	Securities held in Consolidated Funds^(a)	15,117,359		14,145,408		—		$	29,262,767
Company sponsored investments	43,200,396		—		—		$	43,200,396	Company sponsored investments	24,170,568		—		—		$	24,170,568

The Company determines transfers between fair value hierarchy levels at the end of the reporting period. There were no transfers in or out of the levels during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

Changes to fair values of the investments are recorded in the Company’s consolidated statements of income as investment income (loss), net.

Note 5 Line of Credit

The Company has a committed Line of Credit Agreement (the "Credit Agreement") with a commercial bank that matures on December ~~27, 2019~~25, 2020 and permits the Company to borrow up to $25.0 million. Borrowings under the Credit Agreement bear interest at a rate equal to LIBOR plus 1.00%. The Company pays a commitment fee on the unused portion of the facility, accruing at a rate per annum of 0.10%.

The Company has 0t borrowed funds under the Credit Agreement, ~~as of~~ and ~~for~~did not borrow funds under the ~~period~~Credit Agreement at any time during the six months ended ~~September~~June 30, ~~2019.~~2020.

The proceeds of the Credit Agreement may be used by the Company and its subsidiaries for ongoing working capital needs, to seed new and existing investment strategies, and for other general corporate purposes. The Credit Agreement contains representations, warranties and covenants that are customary for agreements of this type.

Note 6 Compensation Plans

Share-Based Payment Transactions

The Company issues restricted stock awards under ~~its~~the 2014 Equity and Cash Incentive Plan (the "2014 Plan"). Restricted stock awards represent common shares issued and outstanding upon grant subject to vesting restrictions. The following table represents a roll-forward of outstanding restricted stock and related activity during the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

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Shares
Weighted-Average
Grant Date Price
per Share
Outstanding restricted stock as of December 31, 2018 214,575
$ 177.22
Grants issued 49,269
146.81
Grants vested (17,000 ) 126.13
Grants forfeited (11,700 ) 181.83
Total outstanding restricted stock as of September 30, 2019 235,144
$ 174.44


	Shares	Weighted-Average Grant Date Price per Share
Outstanding restricted stock as of December 31, 2019	227,844	$	175.49
Grants issued	16,865	107.35
Grants vested	(39,700)	153.17
Grants forfeited	(14,525)	185.34
Total outstanding restricted stock as of June 30, 2020	190,484	$	175.66

As of ~~September~~June 30, ~~2019, there were 230,242~~2020, 223,034 common shares remained available for awards under the 2014 Plan.

Total deferred equity compensation related to unvested restricted stock was ~~$22.2~~$17.1 million as of ~~September~~June 30, ~~2019.~~2020. Compensation expense related to restricted stock is calculated based upon the fair market value of the common shares on grant date. The Company's policy is to adjust compensation expense for forfeitures as they occur. The recognition of compensation expense related to deferred compensation over the remaining vesting periods is as follows:

Three Months
Remaining In
2019 2020 2021 2022 2023 Thereafter Total
$ 1,888,550
$ 6,533,106
$ 5,252,547
$ 4,270,399
$ 2,174,456
$ 2,120,424
$ 22,239,482


Six Months Remaining In
2020		2021		2022		2023		2024		Thereafter		Total
$	3,003,503	$	5,224,294	$	4,255,418	$	2,267,092	$	1,163,473	$	1,189,692	$	17,103,472

Stock Grant Transactions

The following table represents common shares issued as part of our incentive compensation program during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Shares Issued Grant Date Value
September 30, 2019 24,048
$ 3,655,296
September 30, 2018 20,153
$ 4,109,197


	Shares Issued	Grant Date Value
June 30, 2020	23,640	$	3,396,359
June 30, 2019	24,048	$	3,655,296

Deferred Compensation Plans

The Company offers two deferred compensation plans, the Diamond Hill Fixed Term Deferred Compensation Plan and the Diamond Hill Variable Term Deferred Compensation Plan (collectively the “Plans”). Under the Plans, participants may elect to voluntarily defer, for a minimum of five years, certain incentive compensation, ~~which~~that the Company then contributes into the Plans. ~~Each participant is~~Participants are responsible for designating investment options for the assets they contribute, and the distribution paid to each participant reflects any gains or losses on the assets realized ~~while~~ in connection with the Plans. Assets held in the Plans are included in the Company’s investment portfolio, and the associated obligation to participants is included in deferred compensation liability. Deferred compensation liability was ~~$28.4~~$26.7 million and ~~$22.4~~$30.3 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Note 7 Operating Lease

The Company currently leases office space of approximately 37,829 square feet at 1 location.

In February 2016, the FASB issued ASU 2016-02, "Leases", which, among other things, requires lessees to recognize most leases on-balance sheet. The Company adopted this ASU on its effective date, January 1, 2019, using a modified retrospective approach without restating prior comparative periods. Upon implementation, the Company recorded a right-of use asset of approximately $2.9 million, which includes the lease liability amount less deferred rent liabilities and lease incentives received, and a lease liability of approximately $3.6 million related to our office lease. As of ~~September~~June 30, ~~2019,~~2020, the carrying value of ~~the~~this right-of use asset, which is included in property and equipment, net of deferred rent on the consolidated balance sheets, was approximately ~~$2.6~~$2.3 million. As of ~~September~~June 30, ~~2019,~~2020, the carrying value of the lease liability, which is included in accounts payable and accrued expenses on the consolidated balance sheets, was approximately ~~$3.2~~$2.8 million. ~~The adoption of this ASU had no impact on our consolidated statements of income and cash flows and there was no cumulative-effect adjustment required to opening retained earnings.~~

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The following table summarizes the total lease and operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	September 30, 2019		September 30, 2018			June 30, 2020		June 30, 2019
Three Months Ended	$	239,838	$	238,014	Three Months Ended	$	239,630	$	239,455
Nine Months Ended	$	731,366	$	732,318
Six Months Ended					Six Months Ended	$	465,488	$	491,528

The approximate future minimum lease payments under the operating lease are as follows:

Future Minimum Lease Payments
Three Months
Remaining In
2019 2020 2021 2022 2023 Thereafter Total
$ 146,587
$ 614,721
$ 624,179
$ 624,179
$ 624,179
$ 780,223
$ 3,414,068


Future Minimum Lease Payments
Six Months Remaining In
2020		2021		2022		2023		2024		Thereafter		Total
$	312,089	$	624,179	$	624,179	$	624,179	$	624,179	$	156,045	$	2,964,850

In addition to the above lease payments, the Company is also responsible for normal operating expenses of the leased property. These operating expenses were approximately $0.4 million in 2018, and are expected to be approximately the same in 2019.

Note 8 Income Taxes

The Company has determined its interim tax provision projecting an estimated annual effective tax rate.

~~For~~A reconciliation of the ~~nine months ended September 30, 2019,~~statutory federal tax rate to the ~~Company recorded~~Company’s effective income tax ~~expense of $14.4 million, yielding an effective tax~~ rate of 24.1%. The effective tax rate of 24.1% differed from the federal statutory tax rate of 21% due primarily to the additional income tax expense recorded in the state and city jurisdictions in which we do business, including new jurisdictions in which we are filing in 2019. This was partially offset by the benefit attributable to redeemable noncontrolling interests.is as follows:


	Six Months Ended June 30,
	2020		2019
Statutory U.S. federal income tax rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	4.3	%	4.1	%
Internal revenue code section 162 limitations	1.4	%	0.4	%
Other	2.1	%	—	%
Unconsolidated effective income tax rate	28.8	%	25.5	%
Impact attributable to redeemable noncontrolling interests^(a)	4.5	%	(2.1)	%
Effective income tax rate	33.3	%	23.4	%

(a) The provision for income taxes includes ~~a benefit attributable to~~ the ~~fact that~~impact of the ~~Company's~~ operations ~~include~~of the Consolidated Funds, which are not subject to federal income taxes. Accordingly, a portion of the ~~Company's~~Company’s earnings are not subject to corporate tax levels.

Absent the ~~benefit~~impact attributable to redeemable noncontrolling interests, the estimated unconsolidated effective income tax rate would have been 28.8%. Our actual effective tax rate ~~("unconsolidated effective tax rate") would have been 25.7%.~~

~~For the nine months ended September 30, 2018, the Company recorded income tax expense of $14.4 million, yielding an effective tax rate of 24.6%. The effective tax rate of 24.6% differed~~for fiscal 2020 could be materially different from the ~~federal statutory tax~~projected rate as of 21% due primarily to the additional income tax expense recorded in the state and city jurisdictions in which we do business, including new jurisdictions in which we filed in 2018, which was partially offset by $0.7 million of excess tax benefits from the vesting of stock awards and the benefit attributable to redeemable noncontrolling interests. The provision for income taxes includes a benefit attributable to the fact that the Company's operations include the Consolidated Funds which are not subject to federal income taxes. Accordingly, a portion of the Company's earnings are not subject to corporate tax levels. Absent the benefit attributable to redeemable noncontrolling interests, the effective tax rate ("unconsolidated effective tax rate") would have been 25.3%.June 30, 2020.

The net temporary differences incurred to date will reverse in future periods as the Company generates taxable earnings. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets recorded. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, no valuation allowance was deemed necessary.

FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are "more-likely-than-not" sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements.

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~~During the nine months ended September 30, 2019, the~~ The Company ~~completed our open examination~~did not record an accrual for tax years 2014 through 2016 with the New York State Department of Finance and Taxation. During the period the Company also filed a Voluntary Disclosure Agreement with the New York City Department of Finance. The Company remains under audit with the California Franchise Tax Board for the Company's 2015 and 2016 tax years.

The outcome of open examinations is not expected to have a material impact on the Company's financial statements. The Company believes that some of these audits and negotiations will conclude within the next 12 months and that any change in the amount of uncertain tax positions, including interest due to the settlement of audits, would be immaterial.

~~The amount of uncertain~~related uncertainties or unrecognized tax positions as of ~~September~~June 30, ~~2019, which would impact the Company’s effective tax rate if recognized and a reconciliation of the beginning and ending amounts of uncertain tax positions, is as follows:~~

Nine Months Ended September 30, 2019
Uncertain tax positions, as of January 1, 2019 $ 2,982,337
Gross addition for tax positions of the current year —
Gross additions for tax positions of prior years —
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations —
Settlements during the period (2,331,711 )
Changes in judgment/excess reserve 10,241
Uncertain tax positions, as of September 30, 2019 $ 660,867

2020 or December 31, 2019.

The Company did not recognize ~~additional~~any interest and penalties during the ~~nine~~six months ended ~~September~~June 30, ~~2019, related to uncertain tax positions.~~2020.

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Note 9 Earnings Per Share

The Company’s common shares outstanding consist of all shares issued and outstanding, including unvested restricted shares. Basic and diluted EPS are calculated under the two-class method. Restricted stock units are considered ~~dilutive.~~dilutive, although there were no restricted stock units outstanding during the six months ended June 30, 2020. The following table sets forth the computation for basic and diluted EPS and reconciliation between basic and diluted shares outstanding:

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net Income $ 11,516,637
$ 16,399,370
$ 45,230,053
$ 44,239,522
Less: Net income attributable to redeemable noncontrolling interest (99,177 ) (1,191,317 ) (3,684,799 ) (1,671,640 )
Net income attributable to common shareholders $ 11,417,460
$ 15,208,053
$ 41,545,254
$ 42,567,882

Weighted average number of outstanding shares - Basic 3,411,632
3,530,586
3,460,959
3,512,547
Dilutive impact of restricted stock units —
1,760
200
1,970
Weighted average number of outstanding shares - Diluted 3,411,632
3,532,346
3,461,159
3,514,517

Earnings per share attributable to common shareholders
Basic $ 3.35
$ 4.31
$ 12.00
$ 12.12
Diluted $ 3.35
$ 4.31
$ 12.00
$ 12.11


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net Income	$	13,638,479	$	14,157,569	$	11,110,111	$	33,713,416
Less: Net loss (income) attributable to redeemable noncontrolling interest	(1,437,789)		(962,417)		2,620,687		(3,585,622)
Net income attributable to common shareholders	$	12,200,690	$	13,195,152	$	13,730,798	$	30,127,794

Weighted average number of outstanding shares - Basic	3,220,973		3,478,307		3,246,867		3,486,032
Dilutive impact of restricted stock units	—		—		—		472
Weighted average number of outstanding shares - Diluted	3,220,973		3,478,307		3,246,867		3,486,504

Earnings per share attributable to common shareholders
Basic	$	3.79	$	3.79	$	4.23	$	8.64
Diluted	$	3.79	$	3.79	$	4.23	$	8.64

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Note 10 Commitments and Contingencies

The Company indemnifies its directors, officers and certain ~~of its~~ employees for certain liabilities that ~~might~~may arise from ~~their~~ performance of their duties to the Company. From time to time, the Company is involved in legal matters relating to claims arising in the ordinary course of business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.

Additionally, in the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and ~~which~~that provide general indemnification obligations. Certain agreements do not contain any limits on the Company’s liability and could involve future claims that may be made against the Company that have not yet occurred. Therefore, it is not possible to estimate the Company’s potential liability under these indemnities. Further, the Company maintains insurance policies that may provide coverage against certain of these liabilities.

~~Note 11~~ ~~Subsequent Event~~

On October 29, 2019, the Company’s board of directors approved a special cash dividend of $9.00 per share payable December 10, 2019 to shareholders of record on December 2, 2019. This dividend will reduce shareholders' equity by approximately $30.5 million.

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ITEM 2:			Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

Throughout this Quarterly Report on Form 10-Q, and other publicly available documents, including the documents incorporated herein by reference, the Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to such matters as anticipated operating results, prospects and levels of assets under management, technological developments, economic trends (including interest rates and market volatility), expected transactions and similar matters. The words “believe,” “expect,” “anticipate,” “estimate,” "may," "will," "likely," "project," “should,” “hope,” “seek,” “plan,” “intend” and similar expressions identify forward-looking statements that speak only as of the date thereof. While we believe that the assumptions underlying our forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, ~~our~~ actual results and experiences could differ materially from the anticipated results or other expectations expressed in our 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; the effect of national, regional and global economic conditions generally, including significant economic disruptions from COVID-19 and the actions taken in connection therewith; a decline in the performance of our products; changes in interest rates; changes in national and local economic and political conditions; the continuing economic uncertainty in various parts of the world; changes in government policy and regulation, including monetary policy; our inability 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 other public documents on file with the SEC.

General

The Company derives ~~its~~ consolidated revenue and net income from investment advisory and fund administration services provided by DHCM. DHCM is registered with the SEC as an investment adviser under the 1940 Act. DHCM sponsors, distributes, and provides investment advisory and related services to various clients through the ~~Funds,~~Funds. The Company also provides investment advisory services to separately managed accounts and ~~DHIP.~~provides sub-advisory services to other mutual funds.

The Company’s primary objective is to fulfill ~~our~~its fiduciary duty to ~~our~~its clients. Our secondary objective is to ~~grow~~increase the intrinsic value of the Company in order to achieve an adequate long-term return for our shareholders.

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughout the United States and other countries. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations, disrupting the global supply chain, and creating a reduction in demand for many products. This has negatively affected the global financial markets and has caused significant financial market depreciation, thus reducing AUM, the revenue derived from AUM and the returns on our corporate investments.

While we expect the effects of, and responses to, COVID-19 to negatively affect our results of operations, cash flows and financial position, at this time we cannot reasonably estimate the full impact, given the uncertainty surrounding the duration and severity of the same.

Assets Under Management

~~Our~~We derive revenue ~~is derived~~ primarily from investment advisory and administration fees. Investment advisory and administration fees paid to the Company are generally based on the value of the investment portfolios we manage and fluctuate with changes in the total value of our AUM. Fees are recognized in the period that the Company manages these assets.

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Our ~~revenues are~~revenue is highly dependent on both the value and composition of AUM. The following is a summary of our AUM by product and investment objective, ~~and~~as well as a roll-forward of the change in AUM, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Assets Under Management
	As of June 30,
(in millions, except percentages)	2020		2019		% Change
Proprietary funds	$	13,780	$	14,831	(7)	%
Sub-advised funds	2,463		1,776		39	%
Separately managed accounts	4,402		5,005		(12)	%
Total AUM	$	20,645	$	21,612	(4)	%

Assets Under Management
As of September 30,
(in millions, except percentages) 2019 2018 % Change
Proprietary funds $ 15,320
$ 16,148
(5 )%
Sub-advised funds 1,850
1,595
16 %
Separately managed accounts 5,033
4,886
3 %
Total AUM $ 22,203
$ 22,629
(2 )%

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	Assets Under Management by Investment Strategy									Assets Under Management by Investment Strategy
	As of September 30,									As of June 30,
(in millions, except percentages)	2019			2018			% Change		(in millions, except percentages)	2020		2019		% Change
Small Cap	$	793		$	1,452		(45	)%	Small Cap	$	475	$	867	(45)	%
Small-Mid Cap	3,081			3,419			(10	)%	Small-Mid Cap	2,347		3,090		(24)	%
Mid Cap	480			135			256	%	Mid Cap	837		394		112	%
Large Cap	11,609			11,654			—	%	Large Cap	11,409		11,374		—	%
All Cap Select	505			503			—	%	All Cap Select	343		498		(31)	%
Long-Short	3,582			4,281			(16	)%	Long-Short	2,202		3,541		(38)	%
Global/International	29			19			53	%	Global/International	28		22		27	%
Total Equity									Total Equity	17,641		19,786		(11)	%
Short Duration Fixed Income	738			490			51	%	Short Duration Fixed Income	855		661		29	%
Core Fixed Income	294			53			455	%	Core Fixed Income	401		217		85	%
Long Duration Fixed Income	54			25			NM		Long Duration Fixed Income	58		57		2	%
Corporate Credit	1,074			773			39	%	Corporate Credit	1,370		962		42	%
High Yield	123			54			128	%	High Yield	389		94		314	%
Total Fixed Income									Total Fixed Income	3,073		1,991		54	%
Total Equity and Fixed Income									Total Equity and Fixed Income	20,714		21,777		(5)	%
(Less: Investments in affiliated funds)^(a)	(159		)	(229		)	(31	)%	(Less: Investments in affiliated funds)^(a)	(69)		(165)		(58)	%
Total AUM	$	22,203		$	22,629		(2	)%	Total AUM	$	20,645	$	21,612	(4)	%

(a) Certain of the Funds own shares of the Diamond Hill Short Duration Total Return Fund. The Company reduces ~~its~~the total AUM by these investments held in this affiliated fund.

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	Change in Assets Under Management							Change in Assets Under Management
	For the Three Months Ended September 30,							For the For the Three Months Ended June 30,
(in millions)	2019			2018			(in millions)	2020		2019
AUM at beginning of the period	$	21,612		$	21,827		AUM at beginning of the period	$	17,496	$	20,880
Net cash inflows (outflows)							Net cash inflows (outflows)
proprietary funds	327			(158		)	proprietary funds	(59)		(531)
sub-advised funds	50			(130		)	sub-advised funds	146		76
separately managed accounts	(45		)	(82		)	separately managed accounts	144		38
	332			(370		)		231		(417)
Net market appreciation and income	259			1,172			Net market appreciation and income	2,918		1,149
Increase during the period	591			802			Increase during the period	3,149		732
AUM at end of the period	$	22,203		$	22,629		AUM at end of the period	$	20,645	$	21,612

Average AUM during the period							Average AUM during the period	$	19,729	$	21,526

								Change in Assets Under Management
								For the Six Months Ended June 30,
(in millions)							(in millions)	2020		2019
AUM at beginning of the period							AUM at beginning of the period	$	23,399	$	19,108
Net cash inflows (outflows)							Net cash inflows (outflows)
proprietary funds							proprietary funds	(47)		(815)
sub-advised funds							sub-advised funds	691		135
separately managed accounts							separately managed accounts	(162)		(171)
								482		(851)
Net market (depreciation) appreciation and income							Net market (depreciation) appreciation and income	(3,236)		3,355
Increase (decrease) during the period							Increase (decrease) during the period	(2,754)		2,504
AUM at end of the period							AUM at end of the period	$	20,645	$	21,612

Average AUM during the period							Average AUM during the period	$	20,591	$	21,008


	Net Cash Inflows (Outflows) Further Breakdown For the Three Months Ended June 30,
(in millions)	2020		2019
Net cash inflows (outflows)
Equity	$	(374)	$	(691)
Fixed Income	605		274
	$	231	$	(417)

	Net Cash Inflows (Outflows) Further Breakdown For the Six Months Ended June 30,
(in millions)	2020		2019
Net cash inflows (outflows)
Equity	(192)		(1,285)
Fixed Income	674		434
	482		(851)

Change in Assets
Under Management
For the Nine Months Ended
September 30,
(in millions) 2019 2018
AUM at beginning of the period $ 19,108
$ 22,317
Net cash inflows (outflows)
proprietary funds (488 ) (332 )
sub-advised funds 185
(3 )
separately managed accounts (216 ) (171 )
(519 ) (506 )
Net market appreciation and income 3,614
818
Increase during the period 3,095
312
AUM at end of the period $ 22,203
$ 22,629

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AUM increased $3.1 billion during the three months ended June 30, 2020, due primarily to the rebound in the financial markets during the period. Our equity strategies experienced negative net flows and our fixed income strategy experienced positive net flows during this period. Flows in our equity strategies were largely driven by our Mid Cap and Large Cap strategies, which experienced a combined $406 million in net inflows. These net inflows were offset by net flows out of our Long-Short, All Cap Select, SMID and Small Cap strategies totaling approximately $770 million. Each of our fixed income strategies had net positive flows during this period, totaling $605 million.

AUM decreased $2.8 billion during the six months ended June 30, 2020, due primarily to the decline in the financial markets at the end of the first quarter of 2020, which rebounded during the second quarter. Our equity strategies experienced negative net flows during the six months ended June 30, 2020, and our fixed income strategies experienced positive net flows during the period. Flows in our equity strategies were largely driven by our Mid Cap and Large Cap strategies, which experienced a combined $1.0 billion in net inflows. These net inflows were offset by net flows out of our Long-Short, All Cap Select, SMID, Small Cap and Research Opportunities strategies totaling approximately $1.2 billion. Each of our fixed income strategies had net positive flows during the six months ended June 30, 2020, totaling $674 million.

UMA Programs

The Company provides a strategy model portfolio to sponsors of UMA programs. We do not have discretionary investment authority over individual client accounts in UMA programs, and these assets are not included in our AUM. The Company provides an updated strategy model portfolio to the UMA program sponsors on a periodic basis and is paid for services by the program sponsor at a pre-determined rate based on the amount of assets in the program. Assets in the UMA programs for which we provide strategy model portfolios were $0.9 billion as of June 30, 2020 and December 31, 2019.

Consolidated Results of Operations

The following is a table and discussion of our consolidated results of operations.


	Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended June 30,													Six Months Ended June 30,
(in thousands, except per share amounts and percentages)	2019			2018			% Change	2019			2018			% Change	(in thousands, except per share amounts and percentages)	2020			2019			% Change	2020			2019			% Change
Total revenue	$	34,592		$	37,472		(8)%	$	100,717		$	111,181		(9)%	Total revenue	$	28,249		$	33,545		(16)%	$	60,175		$	66,124		(9)%
Net operating income	$	12,757		$	16,916		(25)%	$	35,970		$	51,469		(30)%	Net operating income	$	7,028		$	12,080		(42)%	$	27,493		$	23,214		18%
Net operating income, as adjusted^(a)	$	13,114		$	17,899		(27)%	$	40,022		$	52,392		(24)%	Net operating income, as adjusted^(a)	$	10,854		$	13,363		(19)%	$	23,163		$	26,909		(14)%
Investment income (loss), net															Investment income (loss), net	$	11,563		$	6,520		NM	$	(10,835)		$	20,804		NM
Net income attributable to common shareholders	$	11,417		$	15,208		(25)%	$	41,545		$	42,568		(2)%	Net income attributable to common shareholders	$	12,201		$	13,195		(8)%	$	13,731		$	30,128		(54)%
Earnings per share attributable to common shareholders (diluted)	$	3.35		$	4.31		(22)%	$	12.00		$	12.11		(1)%	Earnings per share attributable to common shareholders (diluted)	$	3.79		$	3.79		—%	$	4.23		$	8.64		(51)%
Operating profit margin	37		%	45		%		36		%	46		%		Operating profit margin	25		%	36		%		46		%	35		%
Operating profit margin, as adjusted^(a)	38		%	48		%		40		%	47		%		Operating profit margin, as adjusted^(a)	38		%	40		%		38		%	41		%

(a) Net operating income, as adjusted, and operating profit margin, as adjusted, are non-GAAP performance measurements. See the "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

Summary Discussion of Consolidated Results of Operations - Three Months Ended ~~September~~June 30, ~~2019~~2020 compared with Three Months Ended ~~September~~June 30, ~~2018~~2019

~~The Company generated net income attributable to common shareholders of $11.4 million ($3.35 per diluted share)~~Operating results for the three months ended ~~September~~June 30, ~~2019, compared with net income attributable~~2020, are not necessarily indicative of the results that may be expected for fiscal 2020, particularly in light of COVID-19 and its continuing effect on the U.S. and global economies. While we expect the effects of the pandemic and the related responses to ~~common shareholders~~continue to negatively affect our results of ~~$15.2 million ($4.31 per diluted share)~~operations, cash flows and financial position, at this time we cannot reasonably estimate the full impact, given the uncertainty over the duration and severity of the pandemic and its related economic impacts.

Revenue for the three months ended ~~September~~June 30, ~~2018. Revenue~~2020 decreased ~~$2.9~~$5.3 million ~~period over period,~~compared to the three months ended June 30, 2019, primarily due to aan 8% decrease in average AUM and a decrease in the average advisory fee ~~rate.~~ rate from 0.59% to 0.55% quarter-over-quarter. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies.

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Operating expenses increased period over period by $1.3 million, primarily related to increases in compensation expense and general and administrative expenses. The Company had $2.8 million in investment income due to market appreciationprofit margin was 25% for the three months ended ~~September~~June 30, ~~2019, compared to investment income of $5.2 million~~2020, and 36% for the three months ended ~~September~~June 30, ~~2018.~~

Income tax expense decreased $1.7 million from the three months ended September 30, 2018, to the three months ended September 30, 2019, due primarily to the reduction of pretax income period over period. The effective tax rate of 26.1% differed from the federal statutory tax rate of 21% due primarily to the additional income tax expense recorded in the state and city jurisdictions in which we do business. This is partially offset by the benefit attributable to redeemable noncontrolling interests. The provision for income taxes includes a benefit attributable to the fact that the Company's operations include the Consolidated Funds which are not subject to federal income taxes. Accordingly, a portion of the Company's earnings are not subject to corporate tax levels. Absent the benefit attributable to redeemable noncontrolling interests, the effective tax rate ("unconsolidated effective tax rate") would have been 26.2%.

~~Operating profit margin was 37% for the three months ended September 30, 2019 and 45% for the three months ended September 30, 2018.~~2019. Operating profit margin, as adjusted, ~~decreased to~~was 38% for the three months ended ~~September~~June 30, ~~2019 from 48%~~2020, and 40% for the three months ended ~~September~~June 30, ~~2018.~~ 2019. Operating profit margin, as adjusted, excludes deferred compensation expense (benefit) from operating income because it is offset by an equal amount in investment income below net operating income on the income statement and thus has no effect on net income attributable to the Company. We believe this non-GAAP measure helps the reader to understand our core operating results and increases comparability period-to-period. See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

We expect that our operating margin ~~may~~will fluctuate from period-to-period based on various factors, including revenues; investment results; employee performance; staffing levels; gains and losses on investments held in deferred compensation plans; the impact of COVID-19; and development of investment strategies, products, or channels. ~~Our~~We compensate portfolio managers ~~are compensated~~ based on long-term performance, so when ~~revenues~~revenue and long-term performance are misaligned, ~~our~~ operating margins can fluctuate materially.

~~See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.~~

~~Revenue~~

Three Months Ended September 30,
(in thousands, except percentages) 2019 2018 % Change
Investment advisory $ 32,498
$ 34,928
(7 )%
Mutual fund administration, net 2,094
2,544
(18 )%
Total $ 34,592
$ 37,472
(8 )%

~~Investment Advisory Fees.~~ ~~Investment advisory fees decreased $2.4~~The Company recognized $11.6 million or 7%, from the three months ended September 30, 2018, to the three months ended September 30, 2019. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates, which vary byin investment ~~product. The decrease in investment~~

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~~advisory fees was primarily~~income due to ~~a decrease of 3% in average AUM quarter over quarter and a decrease of three basis points in the average advisory fee rate from 0.62%~~market appreciation for the three months ended ~~September~~June 30, ~~2018 to 0.59%~~2020, compared with investment income of $6.5 million for the three months ended ~~September~~June 30, 2019. The ~~decrease in average advisory fee rate was driven by an increase in the mix~~$11.6 million of ~~assets held in lower fee rate strategies during~~investment income for the three months ended ~~September~~June 30, 2020, was inclusive of gains on deferred compensation investments of $3.8 million and net income attributable to redeemable noncontrolling interest of $1.4 million. The $6.5 million of investment income for the three months ended June 30, 2019, was inclusive of gains on deferred compensation investments of $1.3 million and net income attributable to redeemable noncontrolling interest of $1.0 million.

Income tax expense increased $0.5 million for the three months ended June 30, 2020, compared to the three months ended ~~September 30, 2018.~~

~~Mutual Fund Administration Fees.~~ ~~Mutual fund administration fees decreased $0.4 million, or 18%, from the three months ended September 30, 2018, to the three months ended September~~June 30, 2019. ~~Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of average Funds' AUM.~~ The ~~decrease was primarily due to a 6% decrease in average Funds' AUM from the three months ended September 30, 2018, to the three months ended September 30, 2019 along with an~~ increase in ~~administrative expenses paid on behalf of the Funds.~~

~~Expenses~~

Three Months Ended September 30,
(in thousands, except percentages) 2019 2018 % Change
Compensation and related costs, excluding deferred compensation expense $ 15,714
$ 14,459
9 %
Deferred compensation expense 357
983
(64 )%
General and administrative 3,543
2,962
20 %
Sales and marketing 1,443
1,282
13 %
Mutual fund administration 779
870
(10 )%
Total $ 21,836
$ 20,556
6 %

~~Compensation and Related Costs, Excluding Deferred Compensation Expense.~~ ~~Employee compensation and benefits increased by $1.3 million, or 9%, from the three months ended September 30, 2018, compared to the three months ended September 30, 2019. This increase~~income tax expense was primarily due to an increase in ~~incentive compensation~~the Company's effective tax rate from 23.9% to 26.6% period-over-period, which was mostly attributable to a tax deficit of ~~$1.1~~$0.6 million ~~and an increase in salary and related benefits~~recorded upon vesting of ~~$0.5 million, partially offset by a decrease in~~ restricted stock expense of $0.3 million. Incentive compensation expense can fluctuate significantly period over period as we evaluate investment performance, individual performance, Company performance and other factors.

~~Deferred Compensation Expense.~~ ~~Deferred compensation expense decreased by $0.6 million from~~during the three months ended ~~September~~June 30, 2018, to the three months ended September 30, 2019. The gain on deferred compensation plan investments increases the deferred compensation expense included in operating income. Deferred compensation expense is offset by an equal amount in investment income below net operating income on the consolidated statements of income, and thus has no impact on net income attributable to the Company.

~~General and Administrative.~~ General and administrative expenses increased by $0.6 million, or 20%, from the three months ended September 30, 2018, to the three months ended September 30, 2019. This increase was due primarily to corporate recruiting fees of $0.4 million and an increase in IT software expense of $0.2 million.

~~Sales and Marketing.~~ Sales and marketing expenses increased by $0.2 million from the three months ended September 30, 2018, to the three months ended September 30, 2019. The increase was primarily due to our branding and public relations initiatives, which were primarily focused on our fixed income strategies, and additional sales data costs.

~~Mutual Fund Administration.~~ Mutual fund administration expenses decreased by $0.1 million, or 10%, from the three months ended September 30, 2018, to the three months ended September 30, 2019. Mutual fund administration expenses consist of both variable and fixed expenses. The variable expenses are based on Fund AUM and the number of shareholder accounts. The decrease was primarily due to a 6% decrease in average Funds' AUM from the three months ended September 30, 2018, to the three months ended September 30, 2019.

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~~Nine Months Ended September 30, 2019 compared with Nine Months Ended September 30, 2018~~2020.

The Company generated net income attributable to common shareholders of ~~$41.5~~$12.2 million ($~~12.00~~3.79 per diluted share) for the ~~nine~~three months ended ~~September~~June 30, ~~2019,~~2020, compared with net income attributable to common shareholders of ~~$42.6~~$13.2 million ($~~12.11~~3.79 per diluted share) for the ~~nine~~three months ended ~~September~~June 30, ~~2018. Revenue decreased $10.5 million period over period,~~2019, primarily due to ~~decreases in average AUM~~decreased revenues and in the average advisory fee rate. Operating expenses increased $5.0 million, primarily due to increases in compensation expense and general and administrative costs. The Company had $23.6 million in investment income due to market appreciation for the nine months ended September 30, 2019, compared to investment income of $7.2 million for the nine months ended September 30, 2018.

~~Income tax expense remained flat from the nine months ended September 30, 2018, to the nine months ended September 30, 2019. This was due to~~partially offset by an increase in pretax income which was offset by a decrease of the Company's effective tax rate from 24.6% to 24.1%. The effective tax rate of 24.1% differed from the federal statutory tax rate of 21% due primarily to the additional income tax expense recorded in the state and city jurisdictions in which we do business. This is partially offset by the benefit attributable to redeemable noncontrolling interests. The provision for income taxes includes a benefit attributable to the fact that the Company's operations include the Consolidated Funds which are not subject to federal income taxes. Accordingly, a portion of the Company's earnings are not subject to corporate tax levels. Absent the benefit attributable to redeemable noncontrolling interests, the effective tax rate would have been 25.7%.investment income.

Operating profit margin was 36% for the nine months ended September 30, 2019, and 46% for the nine months ended September 30, 2018. Operating profit margin, as adjusted, was 40% for the nine months ended September 30, 2019 and 47% for the nine months ended September 30, 2018. We expect that our operating margin will fluctuate from period to period based on various factors, including revenues; investment results; employee performance; staffing levels; gains and losses on investments held in deferred compensation plans; and development of investment strategies, products, or channels. Our portfolio managers are compensated based on long-term performance, so when revenues and long-term performance are misaligned, our operating margins can fluctuate materially.

~~See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.~~

Revenue


	Nine Months Ended September 30,							Three Months Ended June 30,
(in thousands, except percentages)	2019		2018		% Change		(in thousands, except percentages)	2020		2019		% Change
Investment advisory	$	94,521	$	103,086	(8	)%	Investment advisory	$	26,699	$	31,511	(15)	%
Mutual fund administration, net	6,196		8,095		(23	)%	Mutual fund administration, net	1,550		2,034		(24)	%
Total	$	100,717	$	111,181	(9	)%	Total	$	28,249	$	33,545	(16)	%

Investment Advisory Fees. Investment advisory fees decreased ~~$8.6~~$4.8 million, or 8%15%, from the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, to the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates, which vary by investment product. The decrease in investment advisory fees was primarily due to ~~decreases~~a decrease of 5%8% in average AUM ~~period over period~~ and a decrease ~~of three basis points~~ in the average advisory fee rate from ~~0.62% for the nine months ended September 30, 2018,~~0.59% to ~~0.59% for the nine months ended September 30, 2019.~~0.55% quarter-over-quarter. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies during the ~~nine~~three months ended ~~September~~June 30, ~~2019,~~2020, compared to the ~~nine~~three months ended ~~September~~June 30, ~~2018.~~2019.

Mutual Fund Administration Fees. Mutual fund administration fees decreased ~~$1.9~~$0.5 million, or ~~23%~~24%, from the ~~nine~~three months ended ~~September~~June 30, ~~2018~~2019, to the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds' average ~~Funds'~~ AUM. ~~The~~This decrease was primarily due to ~~a reduction~~an 11% decrease in the ~~administration fee rates~~Funds' average AUM from the three months ended June 30, 2019, to the three months ended June 30, 2020, and an increase in expenses paid by the ~~Funds and a 7% decrease in average Funds' AUM from the nine months ended September 30, 2018, to the nine months ended September 30, 2019, along with an increase in administrative expenses paid~~Company on behalf of the Funds. ~~The table below summarizes the decreases in the administration fee rates during the periods indicated:~~

Class A & C Class I Class Y
1/1/2018 - 2/27/2018 0.23% 0.18% 0.08%
2/28/2018 - 9/30/19 0.21% 0.17% 0.05%

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Expenses


	Nine Months Ended September 30,							Three Months Ended June 30,
(in thousands, except percentages)	2019		2018		% Change		(in thousands, except percentages)	2020		2019		% Change
Compensation and related costs, excluding deferred compensation expense	$	43,614	$	43,478	NM		Compensation and related costs, excluding deferred compensation expense	$	12,558	$	14,342	(12)	%
Deferred compensation expense (benefit)	4,052		923		339	%
Deferred compensation expense							Deferred compensation expense	3,826		1,283		198	%
General and administrative	10,331		8,749		18	%	General and administrative	2,900		3,544		(18)	%
Sales and marketing	4,261		3,793		12	%	Sales and marketing	1,149		1,447		(21)	%
Mutual fund administration	2,489		2,769		(10	)%	Mutual fund administration	788		849		(7)	%
Total	$	64,747	$	59,712	8	%	Total	$	21,221	$	21,465	(1)	%

Compensation and Related Costs, Excluding Deferred Compensation Expense. Employee compensation and benefits ~~increased~~decreased by ~~$0.1~~$1.8 million, or 12%, from the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, compared to the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020. This ~~slight increase is~~decrease was primarily due to a decrease in accrued incentive compensation of $1.0 million and a decrease in restricted stock expense of $1.0 million, partially offset by an increase in salary and related benefits ~~and restricted stock expense~~ of ~~$2.0 million, partially offset by a decrease in incentive compensation of $1.9~~$0.2 million. Incentive compensation expense can fluctuate significantly ~~period over period~~period-over-period as we evaluate investment performance, individual performance, Company performance and other factors.

Deferred Compensation ~~Expense (Benefit).~~Expense. Deferred compensation expense ~~(benefit) increased by $3.1~~was $3.8 million ~~from~~for the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2020 due to market appreciation on our deferred compensation plan investments compared to an expense of $1.3 million for the ~~nine~~three months ended ~~September~~June 30, 2019.

The gain on deferred compensation plan investments increases deferred compensation expense and is included in operating income. Deferred compensation expense is offset by an equal amount in investment income below net operating income on the consolidated statements of income statement, and thus has no impact on net income attributable to the Company.

General and Administrative. General and administrative expenses ~~increased~~decreased by ~~$1.6~~$0.6 million, or 18%, from the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, to the ~~nine~~three months ended ~~September~~June 30, ~~2019. This increase~~2020. The decrease was due primarily ~~due~~ to a decrease in corporate recruiting fees of ~~$0.8~~$0.4 million ~~an increase in research expenses to support our~~and reduced investment team ~~of $0.5 million, and an increase in IT software~~travel expense of ~~$0.3~~$0.2 million.

Sales and Marketing. Sales and marketing expenses ~~increased~~decreased by ~~$0.5~~$0.3 million ~~or 12%,~~ from the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, to the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease was primarily due a reduction in payments made to third party intermediaries related to the sale of our ~~branding~~proprietary funds and ~~public relations initiatives, which were primarily focused on our fixed income strategies,~~a reduction in sales and ~~additional sales data costs.~~marketing travel and related expense.

Mutual Fund Administration. Mutual fund administration expenses decreased by ~~$0.3~~$0.1 million, or ~~10%~~7%, from the ~~nine~~three months ended ~~September~~June 30, ~~2018~~2019, to the ~~nine~~three months ended ~~September~~June 30, ~~2019.~~2020. Mutual fund administration expenses consist of both variable and fixed expenses. The variable expenses are based on Fund AUM and the number of shareholder accounts. This decrease was primarily due to an 11% decrease in the Funds' average AUM from the three months ended June 30, 2019, to the three months ended June 30, 2020, partially offset by an increase in other administration expense.

Summary Discussion of Consolidated Results of Operations - Six Months Ended June 30, 2020 compared with Six Months Ended June 30, 2019

Operating results for the six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for fiscal 2020, particularly in light of COVID-19 and its continuing effect on the U.S. and global economies. While we expect the effects of the pandemic and the related responses to negatively affect our results of operations, cash flows and financial position, at this time we cannot reasonably estimate the full impact, given the uncertainty over the duration and severity of the pandemic and its related economic impacts.

Revenue for the six months ended June 30, 2020, decreased $5.9 million compared to revenue for the six months ended June 30, 2019, primarily due to a decrease in the average advisory fee rate from 0.60% to 0.56% and a decrease in average AUM of 2% period-over-period. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies during the six months ended June 30, 2020, compared to the six months ended June 30, 2019.

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Operating profit margin was 46% for the six months ended June 30, 2020, and 35% for the six months ended June 30, 2019. Operating profit margin, as adjusted, was 38% for the six months ended June 30, 2020, and 41% for the six months ended June 30, 2019. Operating profit margin, as adjusted excludes deferred compensation expense (benefit) from operating income because it is offset by an equal amount in investment income below net operating income on the income statement and thus has no effect on net income attributable to the Company. We believe this non-GAAP measure helps the reader to understand our core operating results and increases comparability period-to-period. See "Use of Supplemental Data as Non-GAAP Performance Measure" section within this report.

We expect that our operating margin will fluctuate from period to period based on various factors, including revenues; investment results; employee performance; staffing levels; gains and losses on investments held in deferred compensation plans; the continuing impact of COVID-19; and development of investment strategies, products, or channels. We compensate portfolio managers based on long-term performance, so when revenue and long-term performance are misaligned, operating margins can fluctuate materially.

The Company had $10.8 million in losses on investments because of market depreciation for the six months ended June 30, 2020, compared with investment income of $20.8 million for the six months ended June 30, 2019. COVID-19 negatively affected market valuations during the six months ended June 30, 2020. The $10.8 million of losses on investments for the six months ended June 30, 2020, was inclusive of losses on deferred compensation investments of $4.3 million and net loss attributable to redeemable noncontrolling interest of $2.6 million. The $20.8 million of gains on investments for the six months ended June 30, 2019, was inclusive of gains on deferred compensation investments of $3.7 million and net income attributable to redeemable noncontrolling interest of $3.6 million.

Income tax expense decreased $4.8 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease in income tax expense was mainly due to the decrease in DHCM's income before taxes which was mainly attributable to the investment losses incurred during the six months ended June 30, 2020. The provision for income taxes includes the effect of the operations of the Consolidated Funds that are not subject to federal income taxes. Accordingly, a portion of the Company's earnings are not subject to corporate tax levels. The effective tax rate of 33.3% differed from the federal statutory tax rate of 21% due primarily to state and local taxes, a tax deficit of $0.6 million recorded upon vesting of restricted stock and the impact of redeemable noncontrolling interests. Absent the effect attributable to redeemable noncontrolling interests, the estimated unconsolidated effective tax rate would have been 28.8%. The actual effective tax rate for fiscal 2020 could be materially different from the projected rate as of June 30, 2020.

The Company generated net income attributable to common shareholders of $13.7 million ($4.23 per diluted share) for the six months ended June 30, 2020, compared with net income attributable to common shareholders of $30.1 million ($8.64 per diluted share) for the six months ended June 30, 2019. The decrease in net income and earnings per diluted share was primarily driven by the losses on investments during the six months ended June 30, 2020.

Revenue


	Six Months Ended June 30,
(in thousands, except percentages)	2020		2019		% Change
Investment advisory	$	56,857	$	62,023	(8)	%
Mutual fund administration, net	3,318		4,101		(19)	%
Total	$	60,175	$	66,124	(9)	%

Investment Advisory Fees. Investment advisory fees decreased $5.2 million, or 8%, from the six months ended June 30, 2019, to the six months ended June 30, 2020. Investment advisory fees are calculated as a percentage of the market value of client accounts at contractual fee rates, which vary by investment product. The decrease in investment advisory fees was primarily due to a decrease in the average advisory fee rate from 0.60% to 0.56% and a decrease in average AUM of 2% period-over-period. The decrease in average advisory fee rate was driven by an increase in the mix of assets held in lower fee rate strategies during the six months ended June 30, 2020, compared to the six months ended June 30, 2019.

Mutual Fund Administration Fees. Mutual fund administration fees decreased $0.8 million, or 19%, from the six months ended June 30, 2019 to the six months ended June 30, 2020. Mutual fund administration fees include administration fees received from the Funds, which are calculated as a percentage of the Funds' average AUM. The decrease was primarily due to a 3% decrease in the Funds' average AUM from the six months ended June 30, 2019, to the six months ended June 30, 2020 and an increase in expenses paid by the Company on behalf of the Funds.

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Expenses


	Six Months Ended June 30,
(in thousands, except percentages)	2020		2019		% Change
Compensation and related costs, excluding deferred compensation expense	$	27,975	$	27,899	—	%
Deferred compensation expense (benefit)	(4,330)		3,695		NM
General and administrative	4,829		6,788		(29)	%
Sales and marketing	2,604		2,818		(8)	%
Mutual fund administration	1,604		1,711		(6)	%
Total	$	32,682	$	42,911	(24)	%

Compensation and Related Costs, Excluding Deferred Compensation Expense (Benefit). Employee compensation and benefits increased by $0.1 million from the six months ended June 30, 2019, to the six months ended June 30, 2020. This increase was primarily due to an increase in incentive compensation of $1.8 million, partially offset by a decrease in restricted stock expense of $0.7 million and a decrease in salary and related benefits, including severance, of $1.0 million. Incentive compensation expense can fluctuate significantly period-over-period as we evaluate investment performance, individual performance, Company performance and other factors.

Deferred Compensation Expense (Benefit). Deferred compensation benefit was $4.3 million for the six months ended June 30, 2020, due to market depreciation on deferred compensation plan investments. For the six months ended June 30, 2019, the Company recorded $3.7 million of deferred compensation expense due to market appreciation on our deferred compensation plan investments.

The gain (loss) on deferred compensation plan investments increases (decreases) deferred compensation expense (benefit) and is included in operating income. Deferred compensation expense is offset by an equal amount in investment income below net operating income on the consolidated statements of income statement, and thus has no impact on net income attributable to the Company.

General and Administrative. General and administrative expense decreased by $2.0 million, or 29%, from the six months ended June 30, 2019, to the six months ended June 30, 2020. This decrease was primarily due to a non-recurring $1.1 million refund received in 2020 related to our Ohio commercial activity tax, which is a gross receipts tax and is therefore not included in income taxes. The decrease was also due to a decrease in corporate recruiting fees of $0.5 million and a reduction in ~~outsourced administration services~~investment team travel and related expenses period-over-period.

Sales and Marketing. Sales and marketing expense decreased by $0.2 million, or 8%, from the six months ended June 30, 2019, to the six months ended June 30, 2020. The decrease was primarily due a reduction in payments made to third party intermediaries related to the sale of our proprietary funds and a 7%reduction in sales and marketing travel and related expense.

Mutual Fund Administration. Mutual fund administration expenses decreased $0.1 million from the six months ended June 30, 2019 to the six months ended June 30, 2020. Mutual fund administration expense consists of both variable and fixed expenses. The variable expenses are based on Fund AUM levels and the number of shareholder accounts. The slight decrease was primarily due to a decrease in average ~~Funds' AUM from the nine months ended September 30, 2018, to the nine months ended September 30, 2019.~~Fund AUM.

Liquidity and Capital Resources

Sources of Liquidity

Our current financial condition is ~~highly~~ liquid, with a significant amount of our assets comprised of cash and cash equivalents, investments, accounts receivable, and other current assets. Our main source of liquidity is cash flows from operating activities, which are generated from investment advisory and mutual fund administration fees. Cash and cash equivalents, investments held directly by DHCM, accounts receivable, and other current assets represented ~~$232.0~~$205.4 million and ~~$216.5~~$211.0 million of total assets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. We believe these sources of liquidity, as well as our continuing cash flows from operating activities, will be sufficient to meet our current and future operating needs for the next 12 months.

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COVID-19 could continue to create uncertainty and volatility in the financial markets which may impact our ability to access capital and liquidity, and the terms under which we can do so. We will continue to assess our liquidity needs as the impact of COVID-19 on the economy and our operations continues to evolve.

Uses of Liquidity

In line with the Company’s primary objective to fulfill our fiduciary duty to clients and our secondary objective to achieve an adequate long-term return for shareholders, we anticipate our main uses of cash will be for operating expenses and seed capital to fund new and existing investment strategies.

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Our board of directors and management regularly review various factors to determine whether we have capital in excess of that required for our business and the appropriate use of any excess capital. The factors considered include our investment opportunities, capital needed for investment strategies, ~~risks,~~risk factors, and future dividend and capital gain tax rates. ~~Our~~

In September 2018, our board of directors ~~has also authorized management to~~approved a share repurchase program (the "2018 Repurchase Program") authorizing the ~~Company's common shares having an aggregate~~ purchase ~~price~~of up to $50.0 million of the Company's common shares. Under the 2018 Repurchase Program, the Company repurchased $4.0 million of its common shares during the first two months of 2020 which ~~$19.5~~completed the $50.0 million ~~is remaining as~~authorized.

On February 27, 2020, the board of ~~September~~directors approved a new repurchase program (the "2020 Repurchase Program") authorizing management to repurchase up to $50.0 million of the Company's common shares. Under the 2020 Repurchase Program, the Company repurchased $8.0 million of its common shares during the six months ended June 30, ~~2019.~~2020. As of June 30, 2020, $42.0 million remains available for repurchase under the 2020 Repurchase Program. The authority to repurchase shares may be exercised from time to time as market conditions warrant, ~~and~~ is subject to regulatory ~~considerations.~~constraints and will expire two years from the date of board approval, or upon the earlier repurchase in full of the authorized amount of shares. The timing, amount and other terms and conditions of any repurchases will be determined by the Company's management at its discretion based on a variety of factors, including the market price of such shares, corporate considerations, general market and economic conditions, legal requirements, and the expected and continued impact of COVID-19.

Working Capital

As of ~~September~~June 30, ~~2019,~~2020, the Company had working capital of approximately ~~$204.8~~$183.1 million, compared to ~~$180.4~~$176.7 million at December 31, ~~2018.~~2019. Working capital includes cash and cash equivalents, accounts receivable, investments, and other current assets of DHCM, net of accounts payable and accrued expenses, accrued incentive compensation, deferred compensation and other current liabilities of DHCM.

~~The Company has no debt, and we believe our available working capital is sufficient to cover current expenses and presently anticipated capital expenditures.~~

Below is a summary of securities owned by the Company as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.


	As of
	June 30, 2020		December 31, 2019
Corporate Investments:
Diamond Hill Core Bond Fund	$	46,469,654	$	43,691,925
Diamond Hill High Yield Fund	—		14,984,548
Diamond Hill Research Opportunities Fund	13,861,266		16,223,519
Diamond Hill Global Fund	8,829,463		11,073,515
Diamond Hill International Fund	7,987,432		8,039,570
Total Corporate Investments	77,147,815		94,013,077
Deferred Compensation Plan Investments in the Funds	26,692,713		30,342,204
Total investments held by DHCM	103,840,528		124,355,281
Investments in Consolidated Funds held by noncontrolling interests	10,508,098		15,081,897
Total Investment Portfolio	$	114,348,626	$	139,437,178

As of
September 30, 2019 December 31, 2018
Corporate Investments:
Diamond Hill Core Bond Fund $ 43,824,406
$ 37,197,134
Diamond Hill High Yield Fund 18,493,568
25,931,879
Diamond Hill Research Opportunities Fund 14,970,772
12,912,291
Diamond Hill Global Fund 10,135,814
8,482,790
Diamond Hill International Fund^(a)
7,325,924
—
Diamond Hill International Equity Fund, L.P.^(a)
—
1,057,445
Diamond Hill Mid Cap Fund —
15,035,251
Diamond Hill Valuation-Weighted 500 ETF^(b)
—
11,497,699
Total Corporate Investments 94,750,484
112,114,489
Deferred Compensation Plan Investments in the Funds 28,416,798
22,387,874
Total investments held by DHCM 123,167,282
134,502,363
Redeemable noncontrolling interest in Consolidated Funds^(c)
10,811,417
68,985,854
Total Investment Portfolio $ 133,978,699
$ 203,488,217

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~~(a) As of June 28, 2019, the Company converted the Diamond Hill International Equity Fund, L.P. into the Diamond Hill International Fund.~~

~~(b) The ETF liquidated on April 5, 2019.~~

(c) The Company deconsolidated the ETF, Diamond Hill Core Bond Fund and the Diamond Hill High Yield Fund during the nine months ended September 30, 2019, as the Company's ownership in each declined to less than 50%.

Cash Flow Analysis

Cash Flows from Operating Activities

The Company’s cash flows from operating activities are calculated by adjusting net income to reflect other significant operating sources and uses of cash, certain significant non-cash items, such as share-based compensation, and timing differences in the cash settlement of operating assets and liabilities. We expect that cash flows provided by operating activities will continue to serve as our primary source of working capital in the near future.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, net cash provided by operating activities totaled ~~$40.1~~$21.7 million. Cash inflows provided by operating activities was primarily driven by net income of ~~$45.2~~$11.1 million, the add back of share-based compensation of ~~$6.7~~$3.6 million, depreciation of ~~$0.9~~$0.5 million and the cash impact of timing differences in the settlement of assets and liabilities of $16.7 million. These increases were partially offset by the decrease in accrued incentive compensation of $10.3 million due to the payment of incentive compensation in the first quarter of 2020. Absent the cash used by Consolidated Funds to purchase securities into their investment portfolios, cash flows provided by operations was $21.5 million.

For the six months ended June 30, 2019, net cash provided by operating activities totaled $28.8 million. Cash inflows provided by operating activities was primarily driven by net income of $33.7 million, the add back of share-based compensation of $4.6 million, depreciation of $0.6 million, and net redemptions of securities held in the underlying investment portfolios of the Consolidated Funds of ~~$10.1~~$17.0 million. These cash inflows were partially offset by a decrease in accrued incentive compensation of ~~$4.8~~$12.1 million, and the cash impact of timing differences in the settlement of assets and liabilities of ~~$18.0~~$15.0 million. Absent the cash used by Consolidated Funds to purchase securities into their investment portfolios, cash ~~flow~~flows provided by operations was ~~$33.5~~$15.2 million.

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For the nine months ended September 30, 2018, net cash provided by operating activities totaled $9.6 million. Cash inflows provided by operating activities was primarily driven by net income of $44.2 million, the add back of share-based compensation of $6.5 million, depreciation of $0.9 million, and the cash impact of timing differences in the settlement of assets and liabilities of $5.2 million. These cash inflows were partially offset by net purchases of trading securities held in the underlying investment portfolio of the Consolidated Funds of $47.2 million. Absent the cash used by Consolidated Funds to purchase securities into their investment portfolios, cash flow provided by operations would have been $55.9 million.

Cash Flows from Investing Activities

The Company’s cash flows from investing activities consist primarily of capital expenditures and purchases and redemptions in our investment portfolio.

Cash flows provided by investing activities totaled ~~$9.0~~$11.9 million for the ~~nine~~six months ended ~~September~~June 30, 2020. Cash flows provided by investing activity were primarily driven by proceeds from the sale of investments of $24.7 million offset by investments purchased of $11.9 million and property and equipment purchased of $0.9 million.

Cash flows provided by investing activities totaled $6.9 million for the six months ended June 30, 2019. Cash flows provided by investing activity were primarily driven by proceeds from the sale of investments of ~~$43.2~~$35.7 million. The cash inflows were partially offset by investments purchased of ~~$11.0~~$6.0 million and property and equipment purchased of ~~$0.6~~$0.1 million. The remaining change in reported cash flows from investing activities was attributable to $22.7 million in net cash that was removed from our balance sheet ~~due to the deconsolidation of the ETF~~because we deconsolidated investment products during the period.

Cash flows used in investing activities totaled $3.3 million for the nine months ended September 30, 2018. The Company purchased investments of $4.4 million and purchased $0.7 million of property and equipment during the period. These cash outflows were partially offset by proceeds from sale of investments of $1.8 million.

Cash Flows from Financing Activities

The Company’s cash flows from financing activities consist primarily of ~~the payment of special dividends,~~ the repurchase of its common shares, shares withheld related to employee tax withholding, and distributions to, or contributions from, redeemable noncontrolling interest holders.

For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, net cash used in financing activities totaled ~~$15.3~~$15.5 million, consisting of repurchases of the Company’s common shares of ~~$23.2~~$12.0 million, net redemptions received in the Consolidated Funds from redeemable noncontrolling interest holders of $2.0 million and the value of shares withheld related to employee tax withholding of ~~$1.0~~$1.5 million.

For the six months ended June 30, 2019, net cash used in financing activities totaled $7.9 million, consisting of repurchases of the Company’s common shares of $15.7 million and the value of shares withheld related to employee tax withholding of $0.6 million, which were partially offset by net subscriptions received in the Consolidated Funds from redeemable noncontrolling interest holders of ~~$8.9 million.~~

For the nine months ended September 30, 2018, net cash provided by financing activities totaled $17.7 million, consisting of net subscriptions received in the Consolidated Funds from redeemable noncontrolling interest holders of $19.3 million, which were partially offset by the value of shares withheld related to employee tax withholding of $1.6$8.4 million.

Supplemental Consolidated Cash Flow Statement

Our consolidated balance sheets reflect the investments and other assets and liabilities of the Consolidated Funds, as well as redeemable noncontrolling interests for the portion of the Consolidated Funds that are held by third-party investors. Although we can redeem our net interest in the Consolidated Funds at any time, we cannot directly access or sell the assets held by the Consolidated Funds to obtain cash for general operations. Additionally, the assets of the Consolidated Funds are not available to our general creditors.

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The following table summarizes the condensed cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, that are attributable to ~~Diamond Hill Investment Group, Inc.~~the Company and to the Consolidated Funds, and the related eliminations required in preparing the consolidated statements.


	Six Months Ended June 30, 2020
	Cash flow attributable to Diamond Hill Investment Group, Inc.		Cash flow attributable to Consolidated Funds		Eliminations		As reported on the Consolidated Statement of Cash Flows
Cash flows from Operating Activities:
Net Income (Loss)	$	13,730,798	$	(6,816,118)	$	4,195,431	$	11,110,111
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	507,737		—		—		507,737
Share-based compensation	3,635,931		—		—		3,635,931
Net (gains)/losses on investments	9,514,958		6,816,118		(4,195,431)		12,135,645
Net change in securities held by Consolidated Funds	—		169,476		—		169,476
Other changes in assets and liabilities	(5,893,602)		33,303		—		(5,860,299)
Net cash provided by operating activities	21,495,822		202,779		—		21,698,601
Net cash provided by investing activities	10,135,287		—		1,783,636		11,918,923
Net cash used in financing activities	(13,467,503)		(202,779)		(1,783,636)		(15,453,918)
Net change during the period	18,163,606		—		—		18,163,606
Cash and cash equivalents at beginning of period	93,176,253		—		—		93,176,253
Cash and cash equivalents at end of period	$	111,339,859	$	—	$	—	$	111,339,859

Nine Months Ended September 30, 2019
Cash flow attributable to Diamond Hill Investment Group, Inc. Cash flow attributable to Consolidated Funds Eliminations As reported on the Consolidated Statement of Cash Flows
Cash flows from Operating Activities:
Net Income $ 41,545,254
$ 9,184,253
$ (5,499,454 ) $ 45,230,053
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 892,463
—
—
892,463
Share-based compensation 6,724,201
—
—
6,724,201
Net (gains)/losses on investments (13,780,766 ) (9,184,253 ) 5,499,454
(17,465,565 )
Net change in securities held by Consolidated Funds —
10,149,201
—
10,149,201
Other changes in assets and liabilities (1,924,789 ) (3,534,140 ) —
(5,458,929 )
Net cash provided by operating activities 33,456,363
6,615,061
—
40,071,424
Net cash provided by (used in) investing activities 24,506,012
(22,723,853 ) 7,173,894
8,956,053
Net cash (used in) provided by financing activities (24,278,693 ) 16,108,792
(7,173,894 ) (15,343,795 )
Net change during the period 33,683,682
—
—
33,683,682
Cash and cash equivalents at beginning of period 84,430,059
—
—
84,430,059
Cash and cash equivalents at end of period $ 118,113,741
$ —
$ —
$ 118,113,741

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Use of Supplemental Data as Non-GAAP Performance Measure

As supplemental information, we are providing performance measures that are based on methodologies other than U.S. generally accepted accounting principles (“non-GAAP”). We believe the non-GAAP measures below are useful measures of our core business activities, are important metrics in estimating the value of an asset management business, and may enable more appropriate comparison to our peers. These non-GAAP measures should not be a substitute for financial measures calculated in accordance with GAAP, and may be calculated differently by other companies. The following schedule reconciles GAAP measures to non-GAAP measures for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.


	Three Months Ended June 30,									Six Months Ended June 30,
(in thousands, except percentages and per share data)	2020			2019			2020			2019
Total revenue	$	28,249		$	33,545		$	60,175		$	66,124

Net operating income, GAAP basis	$	7,028		$	12,080		$	27,493		$	23,214
Non-GAAP adjustment:
Gains (losses) on deferred compensation plan investments, net⁽¹⁾	3,826			1,283			(4,330)			3,695
Net operating income, as adjusted, non-GAAP basis⁽²⁾	10,854			13,363			23,163			26,909
Non-GAAP adjustment:
Tax provision on net operating income, as adjusted, non-GAAP basis⁽³⁾	(3,133)			(3,366)			(6,665)			(6,858)
Net operating income, as adjusted, after tax, non-GAAP basis⁽⁴⁾	$	7,721		$	9,997		$	16,498		$	20,051

Net operating income, as adjusted after tax per diluted share, non-GAAP basis⁽⁵⁾	$	2.40		$	2.87		$	5.08		$	5.75
Diluted weighted average shares outstanding, GAAP basis	3,221			3,478			3,247			3,487

Operating profit margin, GAAP basis	25		%	36		%	46		%	35		%
Operating profit margin, as adjusted, non-GAAP basis⁽⁶⁾	38		%	40		%	38		%	41		%

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except percentages and per share data) 2019 2018 2019 2018
Total revenue $ 34,592
$ 37,472
$ 100,717
$ 111,181

Net operating income, GAAP basis $ 12,757
$ 16,916
$ 35,970
$ 51,469
Non-GAAP adjustment:
Gains on deferred compensation plan investments, net⁽¹⁾
357
983
4,052
923
Net operating income, as adjusted, non-GAAP basis⁽²⁾
13,114
17,899
40,022
52,392
Non-GAAP adjustment:
Tax provision on net operating income, as adjusted, non-GAAP basis⁽³⁾
(3,442 ) (4,896 ) (10,284 ) (13,275 )
Net operating income, as adjusted, after tax, non-GAAP basis⁽⁴⁾
$ 9,672
$ 13,003
$ 29,738
$ 39,117

Net operating income, as adjusted after tax per diluted share, non-GAAP basis⁽⁵⁾
$ 2.83
$ 3.68
$ 8.59
$ 11.13
Diluted weighted average shares outstanding, GAAP basis 3,412
3,532
3,461
3,515

Operating profit margin, GAAP basis 37 % 45 % 36 % 46 %
Operating profit margin, as adjusted, non-GAAP basis⁽⁶⁾
38 % 48 % 40 % 47 %

⁽¹⁾ Gains (losses) on deferred compensation plan investments, net: The gain (loss) on deferred compensation plan investments, which increases (decreases) deferred compensation expense included in operating income, is removed from operating income in the calculation because it is offset by an equal amount in investment income (loss) below net operating income on the income statement, and thus has no impact on net income attributable to the Company.

⁽²⁾ Net operating income, as adjusted: This non-GAAP measure represents the Company’s net operating income adjusted to exclude the impact on compensation expense of gains and losses on investments in the deferred compensation plan.

⁽³⁾ Tax provision on net operating income, as adjusted: This non-GAAP measure represents the tax provision excluding the impact of investment related activity and is calculated by applying the unconsolidated effective tax rate to net operating income, as adjusted.

⁽⁴⁾ Net operating income, as adjusted, after tax: This non-GAAP measure deducts from the net operating income, as adjusted, the tax provision on net operating income, as adjusted.

⁽⁵⁾ Net operating income, as adjusted after tax per diluted share: This non-GAAP measure was calculated by dividing the net operating income, as adjusted after tax, by diluted weighted average shares outstanding.

⁽⁶⁾ Operating profit margin, as adjusted: This non-GAAP measure was calculated by dividing the net operating income, as adjusted, by total revenue.

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Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements. We do not have any obligation under a guarantee contract, or a retained or contingent interest in assets or similar arrangement that serves as credit, liquidity, or market risk support for such assets, or any other obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument or arising out of a variable interest.

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Critical Accounting Policies and Estimates

For a summary of the critical accounting policies important to understanding the condensed consolidated financial statements, please see Note 2, Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2018 Annual Report,~~2019 Form 10-K, and Note 2, Significant Accounting Policies, in the ~~2018 Annual Report for further information.~~2019 Form 10-K.



ITEM 3:			Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the information provided in Item 7A of the ~~Company’s 2018 Annual Report.~~2019 Form 10-K.



ITEM 4:			Controls and Procedures

Management, including the Chief Executive Officer and the Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We are continually monitoring and assessing the impact that COVID-19 could have on the design and operating effectiveness of our internal controls.



PART II:			OTHER INFORMATION



ITEM 1:			Legal Proceedings

From time to time, the Company is party to ordinary, routine litigation that is incidental to its business. There are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial statements.



ITEM 1A:			Risk Factors

There are certain risks and uncertainties in our business that could cause actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of our 2019 Form 10-K, as filed with the U.S. Securities and Exchange Commission on February 27, 2020, and available at www.sec.gov or at www.diamond-hill.com, we included a detailed discussion of our risk factors. Other than as noted below, our risk factors have not changed materially from those disclosed in the 2019 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2019 Form 10-K as well as any of the risks described below could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in the 2019 Form 10-K and the risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.

COVID-19 and other possible pandemics and similar outbreaks could result in material adverse effects on our business, financial position, results of operations and cash flows.

COVID-19 has resulted in temporary, and sometimes prolonged, closures of many corporate offices, retail stores, and manufacturing facilities and factories around the world. In addition, as COVID-19 continues to spread across the globe, supply chains worldwide have been ~~no material change~~interrupted, slowed, or rendered inoperable, and an increasing number of individuals have and may continue to become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governmental mandates to control the outbreak may require forced shutdowns and limited re-openings of various business facilities for extended or indefinite periods. COVID-19, and the various governmental, industry and consumer actions

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related thereto, are having and could continue to have negative effects on our business and risk exposure. These effects include, without limitation potential significant financial market volatility, decreases in the demand for our investment products, changes in consumer behavior and preferences, limitations on our employees’ ability to work and travel, potential financial difficulties of vendors and suppliers, significant changes in economic or political conditions, and financial market declines or recessions that could generally negatively affect the level of our AUM and consequently our revenue and net income (loss).

The global effect of COVID-19 is rapidly evolving, and it is uncertain what the effect of various legislation and other responses that have been taken and that may be taken in the future in the United States and other countries will have on the economy, financial markets, international trade, our industries, our businesses and the businesses of our clients and vendors. Many countries have reacted to the outbreak by instituting quarantines and restrictions on travel to and from, perhaps prolonged, affected areas, and the outbreak could have a continued adverse effect on economic and market conditions and trigger a period of global economic slowdown. The potential effect on global markets from COVID-19 is difficult to predict, and the extent that COVID-19 may negatively affect our operating results or the duration of any potential business disruption is uncertain. Any potential effect to our business and results of operations will depend to a large extent on future developments and new information ~~provided in Item 1A~~that may emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the spread of the ~~Company’s 2018 Annual Report.~~virus, all of which are beyond our control.

In addition, our reliance on work-from-home capabilities, the potential inability to maintain critical staff in our operational facilities due to stay-at-home orders, illness and quarantines present heightened cybersecurity, information security and operational risks. Any disruption to our ability to deliver services to our clients and customers could result in potential liability to our clients and customers, regulatory fines, penalties or other sanctions, increased operational costs or harm to our reputation.



ITEM 2:			Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended ~~September~~June 30, ~~2019,~~2020, the Company did not sell any common shares that were not registered under the Securities ~~Act of 1933.~~Act. The following table sets forth information regarding the Company’s ~~repurchase program~~repurchases of its common shares during the quarter ~~September~~ended June 30, ~~2019:~~2020:


Period	Total Number of Shares Purchased for Employee Tax Withholdings^(a)	Total Number of Shares Purchased as part of Publicly Announced Programs^(b)	Average Price Paid Per Share Purchased Under the Programs		Purchase Price of Shares Purchased Under the Programs		Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Program
April 1, 2020 through April 30, 2020	13,631	—	—		—		$	44,840,081
May 1, 2020 through May 31, 2020	—	16,487	$	102.79	$	1,694,647	$	43,145,434
June 1, 2020 through June 30, 2020	—	10,591	$	104.55	$	1,107,249	$	42,038,185
Total	13,631	27,078	$	103.47	$	2,801,896

(a)The Company regularly withholds common shares for tax payments due upon the vesting of employee restricted stock. During the quarter ended June 30, 2020, the Company purchased 13,631 common shares for employee tax withholdings at an average price paid per share of $90.24.

~~Table~~(b)On February 27, 2020, the Company announced the 2020 Repurchase Program, pursuant to which our board of ~~Contents~~directors authorized management to repurchase up to $50.0 million of the Company’s common shares in the open market and in private transactions in accordance with applicable securities laws. The 2020 Repurchase Program will expire in February 2022, or upon the earlier completion of all authorized purchases under such program.

Period
Total Number of Shares Purchased for Employee Tax Withholdings^(a)

Total Number
of Shares
Purchased
as part of Publicly
Announced Program^(b)

Average Price
Paid Per Share Purchased Under the Program

Purchase Price of Shares
Purchased
Under the Program
Aggregate Purchase Price Yet To Be Purchased Under the Program
July 1, 2019 through
   July 31, 2019
3,088
197
$ 134.62
$ 26,520
$ 27,084,605
August 1, 2019 through
   August 31, 2019
—
50,105
$ 132.14
$ 6,620,855
$ 20,463,750
September 1, 2019 through
   September 30, 2019
—
6,905
$ 134.98
$ 932,060
$ 19,531,690
Total 3,088
57,207
$ 132.49

$ 7,579,435


~~(a)~~	~~The Company regularly withholds shares for tax payments due upon employee restricted stock vestings. During~~From time to time the ~~quarter ended September 30, 2019, the Company purchased 3,088 shares for employee tax withholdings at an average price paid per share of $141.72.~~


~~(b)~~	The Company's current share repurchase program was announced on September 25, 2018. Our board of directors authorized management to repurchase up to $50,000,000 of the Company’s common shares in the open market and in private transactions in accordance with applicable securities laws. The Company’s share repurchase program will expire in September 2020.

~~The~~ Company has entered into a Rule 10b5-1 repurchase ~~plan in connection with its repurchase program.~~plan. This plan is intended to qualify for the safe harbor under Rule 10b5-1 of the ~~Securities~~ Exchange ~~Act of 1934.~~Act. A Rule 10b5-1 plan allows a company to purchase its shares at times when it would not ordinarily be in the market ~~due to~~because of its trading policies or the possession of material nonpublic information. Purchases may be made in the open market or through privately negotiated transactions. Purchases in the open market will be made in compliance with Rule 10b-18 under the Exchange Act. Because the repurchases under the 10b5-1 plan are subject to specified parameters and certain price, timing and volume restraints specified in the plan, there is no guarantee as to the exact number of shares that will be repurchased, or that there will be any repurchases at all pursuant to the plan.

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Through ~~September~~June 30, ~~2019,~~2020, the Company has repurchased ~~211,272~~75,654 of the Company's common shares under the ~~repurchase program~~2020 Repurchase Program at a total cost of ~~$30.5~~$8.0 million.



ITEM 3:			Defaults Upon Senior Securities

~~None~~None.



ITEM 4:			Mine Safety Disclosures

~~None~~None.



ITEM 5:			Other Information

~~None~~None.

Table of Contents



~~ITEM 6:~~	~~Exhibits~~



~~3.1~~ITEM 6:			Exhibits


3.1		Amended and Restated Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3(i) to the Current Report on Form 8-K ~~Current Report for the event on May 2, 2002~~ filed with the SEC on May 7, ~~2002;~~ 2002 )(File No. ~~000-24498.~~000-24498 ).

3.2		Certificate of Amendment by Shareholders to the Articles of Incorporation of the Company (Incorporated by reference from Exhibit 3.1 t o the Current Report on Form 8-K ~~Current Report for the event~~ filed with t he SEC on April 28, ~~2017;~~ 2017 )(File No. ~~000-24498.~~000-24498).

3.3		Amended and Restated Code of Regulations of the Company (Incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K ~~Current Report, Exhibit 3.2,~~ filed with the SEC on April 28, ~~2017;~~ 2017 )(File No. ~~000-24498.~~000-24498 ).

~~10.1~~31.1		Employment Agreement between Heather E. Brilliant and Diamond Hill Capital Management, Inc., dated July 5, 2019 (Incorporated by reference from Form 8-K Current Report, Exhibit 10.1, filed with the SEC on July 10, 2019; File No. 000-24498).

~~31.1~~	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).

32.1		Section 1350 Certifications. (Furnished herewith)

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

Table of Contents

DIAMOND HILL INVESTMENT GROUP, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DIAMOND HILL INVESTMENT GROUP, INC.

Date

Title

Signature

~~Date~~August 5, 2020

~~Title~~

~~Signature~~

~~October 29, 2019~~

Chief Executive Officer and President

/s/ Heather E. Brilliant

Heather E. Brilliant

~~October 29, 2019~~August 5, 2020

Chief Financial Officer and Treasurer

/s/ Thomas E. Line

Thomas E. Line

3234



	Nine Months Ended September 30, 2019
	Shares Outstanding		Common Stock			Deferred Equity Compensation			Retained Earnings		Total			Redeemable Noncontrolling Interest
Balance at December 31, 2018	3,499,285		$	124,933,060		$	(22,008,054	)	$	92,650,937	$	195,575,943		$	62,679,687
Issuance of restricted stock grants	52,269		7,233,016			(7,233,016		)	—		—			—
Amortization of restricted stock grants	—		—			4,874,121			—		4,874,121			—
Issuance of stock grants	24,048		3,655,296			—			—		3,655,296			—
Issuance of common stock related to 401k plan match	13,027		1,850,080			—			—		1,850,080			—
Shares withheld related to employee tax withholding	(7,388	)	(1,039,631		)	—			—		(1,039,631		)	—
Forfeiture of restricted stock grants	(11,700	)	(2,127,467		)	2,127,467			—		—			—
Repurchase of common stock	(165,802	)	(23,239,061		)	—			—		(23,239,061		)	—
Net income	—		—			—			41,545,254		41,545,254			3,684,799
Net subscriptions of Consolidated Funds	—		—			—			—		—			5,689,957
Net deconsolidations of Company sponsored investments	—		—			—			—		—			(61,392,098		)
Balance at September 30, 2019	3,403,739		$	111,265,293		$	(22,239,482	)	$	134,196,191	$	223,222,002		$	10,662,345

	Nine Months Ended September 30, 2018
	Shares Outstanding		Common Stock			Deferred Equity Compensation			Retained Earnings		Total			Redeemable Noncontrolling Interest
Balance at December 31, 2017	3,470,428		$	118,209,111		$	(19,134,963	)	$	73,369,672	$	172,443,820		$	20,076,806
Issuance of restricted stock grants	63,950		12,298,334			(12,298,334		)	—		—			—
Amortization of restricted stock grants	—		—			4,814,465			—		4,814,465			—
Issuance of stock grants	20,153		4,109,197			—			—		4,109,197			—
Issuance of common stock related to 401k plan match	8,481		1,658,358			—			—		1,658,358			—
Shares withheld related to employee tax withholding	(7,964	)	(1,602,528		)	—			—		(1,602,528		)	—
Forfeiture of restricted stock grants	(20,900	)	(4,116,626		)	4,116,626			—		—			—
Net income	—		—			—			42,567,882		42,567,882			1,671,640
Net subscriptions of consolidated funds	—		—			—			—		—			22,521,607
Net consolidations of Company sponsored investments	—		—			—			—		—			16,444,640
Balance at September 30, 2018	3,534,148		$	130,555,846		$	(22,502,206	)	$	115,937,554	$	223,991,194		$	60,714,693



	As of September 30, 2019
	AUM subject to variable rate fees		Unearned variable rate fees
Contractual Period Ending:
Quarter Ending December 31, 2019	$	62,831,955	$	612,273
Quarter Ending March 31, 2020	13,476,137		—
Quarter Ending September 30, 2020	37,469,889		179,474
Quarter Ending September 30, 2021	284,414,344		6,328,189
Total	$	398,192,325	$	7,119,936



	As of
	September 30, 2019		December 31, 2018
Fair value investments:
Securities held in Consolidated Funds^(a)	$	29,635,079	$	153,730,480
Company sponsored investments	43,200,396		33,418,088
Company sponsored equity method investments	61,143,224		16,339,649
Total Investments	$	133,978,699	$	203,488,217



Three Months Remaining In
2019		2020		2021		2022		2023		Thereafter		Total
$	1,888,550	$	6,533,106	$	5,252,547	$	4,270,399	$	2,174,456	$	2,120,424	$	22,239,482



	Nine Months Ended September 30, 2019
Uncertain tax positions, as of January 1, 2019	$	2,982,337
Gross addition for tax positions of the current year	—
Gross additions for tax positions of prior years	—
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations	—
Settlements during the period	(2,331,711		)
Changes in judgment/excess reserve	10,241
Uncertain tax positions, as of September 30, 2019	$	660,867



	Change in Assets Under Management
	For the Nine Months Ended September 30,
(in millions)	2019			2018
AUM at beginning of the period	$	19,108		$	22,317
Net cash inflows (outflows)
proprietary funds	(488		)	(332		)
sub-advised funds	185			(3		)
separately managed accounts	(216		)	(171		)
	(519		)	(506		)
Net market appreciation and income	3,614			818
Increase during the period	3,095			312
AUM at end of the period	$	22,203		$	22,629



	Three Months Ended September 30,
(in thousands, except percentages)	2019		2018		% Change
Investment advisory	$	32,498	$	34,928	(7	)%
Mutual fund administration, net	2,094		2,544		(18	)%
Total	$	34,592	$	37,472	(8	)%



	Class A & C	Class I	Class Y
1/1/2018 - 2/27/2018	0.23%	0.18%	0.08%
2/28/2018 - 9/30/19	0.21%	0.17%	0.05%

~~Title of each class~~

~~Trading Symbol(s)~~

~~Name of each exchange on which registered~~

~~Common Stock, no par value~~

~~The NASDAQ Stock Market LLC~~