- Book Value per share of $39.51 vs. $38.36 at year-end 2018
- AUM $1.7 billion vs. $1.6 billion at year end 2018
- Completed Merger of G.research, LLC with Morgan Group on
October 31, 2019
- Semi-annual dividend of $0.10 per share declared
- Board Approved $0.20 per share 2019 Charitable Program
Associated Capital Group, Inc. (“AC” or the “Company”) reported
its financial results for the quarter ended September 30, 2019.
Financial Highlights ($000s except per share data or as
noted)
(Unaudited)
Third Quarter
Year-to-date
2019
2018
2019
2018
AUM - end of period (in millions)
$
1,651
$
1,619
$
1,651
$
1,619
Revenues
5,118
4,666
14,591
14,165
Operating loss
(3,009
)
(3,499
)
(14,036
)
(11,195
)
Investment and other non-operating
income/(expense), net
10,155
(4,581
)
51,902
(9,740
)
Income/(loss) before income taxes
7,146
(8,080
)
37,866
(20,935
)
Net income/(loss)
5,951
(7,379
)
28,166
(17,784
)
Net income/(loss) per share – diluted
$
0.26
$
(0.32
)
$
1.25
$
(0.77
)
Shares outstanding at September 30
(thousands)
22,496
22,971
22,496
22,971
Third Quarter Overview
Third quarter revenues were $5.1 million, $0.4 million higher
than the third quarter of 2018. Operating expenses of $8.1 million,
were $0.1 million lower than the year ago quarter. The operating
loss declined to $3.0 million versus $3.5 million in last year’s
third quarter.
Net investment and other non-operating income was $10.2 million,
a $14.8 million increase from the $(4.6) million reported in the
year ago quarter. AC recorded an income tax expense of $1.6 million
versus a tax benefit of $(0.9) million in comparable quarter of
2018.
Net income for the third quarter was $6.0 million, or $0.26 per
share, compared to net loss of $(7.4) million, or $(0.32) per
share, in the prior year’s quarter.
Commitment to Community
Our firm has long held the belief that generating returns for
our stakeholders, while important, is not the only factor in
measuring our corporate success. The importance of the way we and
others conduct business is a key facet of our principles. As
evidence of this, we have been involved in the field of responsible
investing since 2015. In our program of corporate giving, our
shareholder designated charitable contribution program, AC
shareholders select which organizations will be recipients of
charitable grants. This year, the majority of our shareholders
registered their shares and were eligible to designate a 501(c)(3)
organization. With this year’s $4.5 million distribution, we have
donated more than $15 million to over 160 charities across the
United States since the inception of this program in 2015. In
September 2019, the Board declared an additional $0.20 per share
shareholder designated charitable contribution to registered
shareholders of record as of November 30, 2019.
Financial Condition
As of September 30, 2019, AC’s book value was $889 million, or
$39.51 per share versus $39.21 on June 30, 2019 and $38.36 per
share at December 31, 2018.
Third Quarter Results of Operations
Assets Under Management (AUM)
Assets under management at September 30, 2019 were $1.7 billion,
an increase of $44.0 million from June 30, 2019. This increase
reflects $48 million of net capital inflows, offset by a modest
performance driven decline in the portfolios.
September 30,
June 30,
December 31,
September 30,
2019
2019
2018
2018
(in millions)
Event Merger Arbitrage
$
1,466
$
1,422
$
1,342
$
1,466
Event-Driven Value
128
127
118
89
Other
57
58
60
64
Total AUM
$
1,651
$
1,607
$
1,520
$
1,619
Revenues
Total operating revenues for the three months ended September
30, 2019 were $5.1 million, an increase of $0.4 million from prior
year period at $4.7 million.
- Investment advisory fees of $2.8 million
were unchanged from the prior year period.
- Institutional research services revenue was
$2.4 million, up $0.5 million from the prior year period.
Incentive fees are not recognized until the measurement period
ends and the fee is crystalized, typically annually on December 31.
If the measurement period had ended on September 30, we would have
recognized $5.3 million for the nine months ended September 30,
2019, a $2.3 million increase over the unrealized incentive fees
for the nine months ended September 30, 2018.
Investment and other non-operating income/(expense),
net
During the quarter, investment and other non-operating
income/(expense), net resulted in a profit of $10.2 million
compared to a loss of $4.6 million in the prior year quarter.
Portfolio mark-to-market changes were a gain of $7.6 million and a
loss of $(8.0) million in the 2019 and 2018 quarters, respectively.
This was driven by investment mark-to-market increases and declines
in portfolio values in the 2019 and 2018 quarters, respectively,
including a $1.1 million gain attributable to the GAMCO holding
during 2019 vs a $11.9 million decline in the year ago quarter.
Interest and dividend income decreased to $2.6 million in the third
quarter of 2019 from $3.4 million in the prior quarter.
Business and Investment Highlights
Alternative Investment Management
- Event-Driven Asset Management
The alternative investment strategies focus on fundamental,
active, event driven special situations and arbitrage. It is led by
merger arbitrage portfolios, the “Associates Funds” which returned
an unleveraged +3.51% return net of fees (+5.17% gross) for the
first nine months of 2019. This strategy benefits from corporate
merger and acquisitions (“M&A”) activity which reached $2.8
trillion globally in the first nine months of 2019. Healthcare,
E&P and technology were the most active sectors for deals. Our
arbitrage team expects dealmaking to remain vibrant as the drivers
for M&A are unchanged. The strategy is offered domestically
through partnerships and separately managed accounts.
Internationally, the strategy is offered through corporations and
EU regulated UCITS structures. The team continues to build new
channel partnerships including managing the Gabelli Merger Plus
Trust (“GMP”), an LSE-listed investment company. While these
initiatives serve to deepen and lengthen the franchise, they also
broaden the client base globally.
- Direct Investing Business
We launched our direct private equity and merchant banking
activities in August 2017. Our objective is to partner with
management teams to identify and surface value through strategic
direction, operational improvements and financial structuring. In
this effort, we seek to collaborate with the management of target
companies, establish common goals, support the restructuring and
growth process, and more importantly, add value by bringing in
creative capital solutions and our accumulated and compounded
knowledge in selected industries.
Our direct investment business is developing along three core
pillars; Gabelli Private Equity Partners, LLC (“GPEP”), formed in
August 2017 with $150 million of authorized capital as a
“fund-less” sponsor; the formation of Gabelli special purpose
acquisition vehicles, the SPAC business (“SPAC”), with the initial
vehicle launched and listed on the Italian Borsa in April 2018;
and, the formation of Gabelli Principal Strategies Group, LLC.
(“GPS”) to pursue strategic operating initiatives. These businesses
are organized to directly invest with a focus on leveraged buyouts
and restructurings of small and mid-sized companies. GPEP has the
flexibility to form partnerships with former executives of global
industrial conglomerates to create long-term value with no
pre-determined exit timetable. The Gabelli SPAC business allows us
to leverage our capital markets expertise through a direct
investing vehicle.
Institutional Research Services
In May, our Board formed a special committee to negotiate a
transaction between our institutional research services business,
G.research and Morgan Group Holding Co., an affiliated entity. As a
result of the combination, the institutional research business now
trades separately from AC following the closing of the transaction
on October 31, 2019 with AC owning 83.3%.
Included in AC’s consolidated income is G.research’s operating
losses of $(5.9) million for the year ending December 31, 2018 and
$(2.9) million for the nine months ending September 30, 2019.
Through G.research, we provide institutional research services
and act as an underwriter. G.research is regulated by FINRA.
G.research’s revenues are derived primarily from revenue generating
institutional research services, sales manager fees, underwriting
fees and selling concessions. On July 11, we co-hosted a conference
on Rule 852(b)(6), the Dynamics and Implications for the Fund
Industry. Industry participants and members from the academic
community covered a number of topics including “heartbeat trades”
and innovations in the active ETF market. During the past quarter,
G.research, in coordination with Gabelli Funds, also co-hosted the
25th Aerospace and Defense Conference in New York on September
5th.
The schedule of conferences for the fourth quarter include:
- the 43rd Annual Gabelli Automotive
Aftermarket Conference on November 4th – 6th
- The Gabelli – Columbia Business School
Healthcare Symposium on November 22nd.
In addition, G.research continues to sponsor non-deal roadshows
providing corporate management access to our institutional
clients.
For frequent, real-time updates from our research team on social
media platforms, we invite you to visit GabelliTV, our
jointly-operated online portal, at YouTube
(www.youtube.com/GabelliTV) or Facebook
(www.facebook.com/GabelliTV).
Shareholder Compensation
At its meeting on November 8, the Board of Directors declared a
semi-annual dividend of $0.10 per share payable January 9, 2020 to
shareholders of record on December 26, 2019.
During the third quarter, AC repurchased approximately 36,000
Class A shares at an average cost of $36.75 per share for a total
outlay of $1.3 million.
Since the spin-off from GBL, AC has returned approximately $106
million to shareholders through share repurchases and exchange
offers representing approximately 3.1 million shares in addition to
dividends of approximately $16 million.
At September 30, 2019, there were 3.5 million Class A shares and
19.0 million Class B shares outstanding. Of these, GGCP, a private
company, owns approximately 15.5 thousand and 18.4 million Class A
and Class B shares, respectively.
About Associated Capital Group, Inc.
The Company operates its investment management business via
Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a
Gabelli Securities, Inc.), its 100% owned subsidiary. GCIA and its
wholly-owned subsidiary, Gabelli & Partners, collectively serve
as general partners or investment managers to investment funds
including limited partnerships, offshore companies and separate
accounts. The Company primarily manages assets in equity
event-driven strategies, across a range of risk and event arbitrage
portfolios and earns management and incentive fees from its
advisory activities. GCIA is registered with the Securities and
Exchange Commission as an investment advisor under the Investment
Advisers Act of 1940, as amended.
The Company operates its institutional research services
business through an indirect majority-owned limited liability
company of the Company. G.research is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, that
provides institutional research services and acts as an
underwriter.
The Company also derives investment income/(loss) from
proprietary trading of assets awaiting deployment in its operating
businesses.
NOTES ON NON-GAAP FINANCIAL MEASURES
Operating Loss Before Management Fee
Operating loss before management fee expense represents a
non-GAAP financial measure used by management to evaluate its
business operations. We believe this measure is useful in
illustrating the operating results of the Company as management fee
expense is based on pre-tax income before management fee expense,
which includes non-operating items including investment gains and
losses from the Company’s proprietary investment portfolio and
interest expense. The management fee is calculated based on the
year to date income before management fee and income taxes. For the
quarter ending September 2018, the losses from the second quarter
were not recaptured during the nine month period and therefore, no
management fee is recognized.
The reconciliation of operating loss to operating loss before
management fee expense (non-GAAP) is provided below.
Year-to-date
(In thousands)
2019
2018
Operating loss
$
(14,036
)
$
(11,195
)
Add: management fee expense
3,959
-
Operating loss before management fee
$
(10,077
)
$
(11,195
)
Table I
ASSOCIATED CAPITAL GROUP, INC. UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in
thousands)
September 30,
December 31,
September 30,
2019
2018
2018
ASSETS
Cash and cash equivalents
$
350,934
$
409,564
$
348,887
Investments
541,174
439,875
557,143
Investment in GAMCO stock (3,016,501, 3,016,501
and 3,726,250 shares, respectively)
58,973
50,949
87,269
Receivable from brokers
23,702
24,629
18,352
Other assets
11,914
14,291
4,169
Deferred tax assets
4,403
9,422
-
Other receivables
2,025
5,703
5,169
Total assets
$
993,125
$
954,433
$
1,020,989
LIABILITIES AND EQUITY
Payable to
brokers
$
10,557
$
5,511
$
13,325
Income taxes payable
3,888
3,577
827
Compensation payable
11,594
11,388
6,790
Securities sold short, not yet purchased
25,475
9,574
22,353
Accrued expenses and other liabilities
3,115
8,335
2,750
Sub-total
54,629
38,385
46,045
Redeemable
noncontrolling interests (a)
49,699
49,800
51,119
Equity
888,797
866,248
923,825
Total equity
888,797
866,248
923,825
Total liabilities
and equity
$
993,125
$
954,433
$
1,020,989
(a)
Represents third-party capital balances in
consolidated investment funds.
Table II
ASSOCIATED CAPITAL GROUP, INC. UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in
thousands, except per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Investment advisory and incentive fees
$
2,753
$
2,805
$
8,199
$
7,949
Institutional research services
2,354
1,855
6,343
6,179
Other revenues
11
6
49
37
Total revenues
5,118
4,666
14,591
14,165
Compensation costs
4,808
5,907
$
16,288
$
17,812
Stock-based compensation
256
-
955
361
Other operating expenses
2,230
2,258
7,426
7,187
Total expenses
7,294
8,165
24,669
25,360
Operating loss before management fee
(2,176
)
(3,499
)
(10,078
)
(11,195
)
Investment gain/(loss)
7,606
(7,977
)
42,351
(18,936
)
Interest and dividend income from GAMCO
60
176
180
1,111
Interest and dividend income, net
2,489
3,220
9,372
8,085
Investment and other non-operating income/(expense), net
10,155
(4,581
)
51,903
(9,740
)
Income/(loss) before management fee and income taxes
7,979
(8,080
)
41,825
(20,935
)
Management fee
833
-
3,959
-
Income/(loss) before income taxes
7,146
(8,080
)
37,866
(20,935
)
Income tax expense/(benefit)
1,554
(858
)
7,468
(4,204
)
Net income/(loss)
5,592
(7,222
)
30,398
(16,731
)
Net income attributable to noncontrolling interests
(359
)
157
2,232
1,053
Net income/(loss) attributable to Associated Capital Group, Inc.
$
5,951
$
(7,379
)
$
28,166
$
(17,784
)
Net
income/(loss) per share attributable to Associated Capital Group,
Inc.: Basic
$
0.26
$
(0.32
)
$
1.25
$
(0.77
)
Diluted
0.26
(0.32
)
1.25
(0.77
)
Weighted average shares outstanding:
Basic
22,514
22,979
22,550
23,187
Diluted
22,514
22,979
22,550
23,187
Actual shares outstanding - end of period
22,496
22,971
22,496
22,971
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
The financial results set forth in this press release are
preliminary. Our disclosure and analysis in this press release,
which do not present historical information, contain
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements convey our current expectations or forecasts of future
events. You can identify these statements because they do not
relate strictly to historical or current facts. They use words such
as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” and other words and terms of similar meaning. They also
appear in any discussion of future operating or financial
performance. In particular, these include statements relating to
future actions, future performance of our products, expenses, the
outcome of any legal proceedings, and financial results. Although
we believe that we are basing our expectations and beliefs on
reasonable assumptions within the bounds of what we currently know
about our business and operations, the economy and other
conditions, there can be no assurance that our actual results will
not differ materially from what we expect or believe. Therefore,
you should proceed with caution in relying on any of these
forward-looking statements. They are neither statements of
historical fact nor guarantees or assurances of future
performance.
Forward-looking statements involve a number of known and unknown
risks, uncertainties and other important factors, some of which are
listed below, that are difficult to predict and could cause actual
results and outcomes to differ materially from any future results
or outcomes expressed or implied by such forward-looking
statements. Some of the factors that could cause our actual results
to differ from our expectations or beliefs include a decline in the
securities markets that adversely affect our assets under
management, negative performance of our products, the failure to
perform as required under our investment management agreements, and
a general downturn in the economy that negatively impacts our
operations. We also direct your attention to the more specific
discussions of these and other risks, uncertainties and other
important factors contained in our Form 10 and other public
filings. Other factors that could cause our actual results to
differ may emerge from time to time, and it is not possible for us
to predict all of them. We do not undertake to update publicly any
forward-looking statements if we subsequently learn that we are
unlikely to achieve our expectations whether as a result of new
information, future developments or otherwise, except as may be
required by law.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191111005625/en/
Kenneth D. Masiello Chief Accounting Officer (203) 629-2726
Associated-Capital-Group.com
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