- Assets Under Management (AUM)
increased +21% year over year to $1.5 billion
- GAAP book value at December 31
increased $2.80 per share to $38.84 compared to $36.04 per share at
prior year-end
- Fully diluted EPS of $0.37 for the
current year compared to $0.41 for the prior year; $0.67 for the
current quarter compared to $0.15 in the 2016 quarter
Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the fourth quarter and year ended December
31, 2017.
Financial Highlights
($000s except AUM and per share data)
Q4 Full Year 2017 2016 2017
2016 AUM - end of period (in millions) $ 1,541 $
1,272 $ 1,541 $ 1,272 Revenues 11,585 16,295 26,915 31,227
Operating income/(loss) before management fee (a) (2,776) 659
(19,673) (10,639) Investment and other non-operating income, net
25,478 (b) 4,599 26,650 (c) 26,577 Income before income taxes
21,989 4,731 6,264 14,345 Net income 15,800 3,647 8,837 10,218 Net
income per share - diluted $ 0.67 $ 0.15 $ 0.37 $ 0.41 Shares
outstanding at December 31 (thousands) 23,639
24,255 23,639
24,255 (a) See GAAP to non-GAAP
reconciliation on page 7. (b) Fourth quarter and full year 2017
includes a mark-to-market gain of $11.8 million resulting from a
reclassification of certain available-for-sale securities as
trading securities in connection with a capital contribution to the
Company’s indirect wholly-owned broker-dealer. (c) The full year
2017 includes the gain described in (b) above and an impairment
loss of $19.1 million incurred in Q1 on GBL shares required under
GAAP.
Fourth Quarter Overview
Fourth quarter operating revenues were $11.6 million versus
$16.3 million in the prior year quarter, reflecting lower incentive
fees and lower commissions generated by our institutional research
services partially offset by higher management fees based on higher
average AUM. Our operating loss for the quarter was $2.8 million
compared to operating income of $0.7 million in the comparable year
ago quarter. This was mainly attributable to the decrease in
revenue offset partially by lower compensation.
Fourth quarter investment and other non-operating income was
$25.5 million up from $4.6 million in the fourth quarter of 2016
primarily reflecting greater gains on our investment portfolio and
the absence of a $5.4 million charge due to the
shareholder-designated contribution in the year ago period.
The Company recorded an income tax expense in the fourth quarter
of 2017 of $6.2 million compared to $1.1 million in the comparable
quarter of 2016. The increase in taxes results from higher pre-tax
income offset by the revaluation of deferred tax items as a result
of the reduction in the federal corporate income tax rate to 21%
under the recently-enacted Tax Cut and Jobs Act. This benefit,
which is based on reasonable estimates, may require future
adjustment due to receipt of additional information from investment
funds, changes in the Company’s assumptions, and/or the
availability of further guidance and interpretations.
As a result of the factors noted above, net income for the
fourth quarter of 2017 was $15.8 million or $0.67 per diluted
share, versus net income of $3.6 million, or $0.15 per diluted
share in the fourth quarter of 2016.
Financial Condition
Our investment in 4.4 million shares of GBL at December 31, 2017
was valued at $130 million. For the quarter, approximately half of
this position was accounted for as an available for sale (“AFS”)
security and changes in its value were classified as other
comprehensive income. Beginning in 2018, the accounting treatment
will change and all mark-to-market movements will be reflected in
net income.
GAMCO issued a PIK note to AC with an initial face value of $250
million (the “GAMCO Note”) as part of AC’s spin-off in November
2015. During the fourth quarter of 2017, GBL repaid $20 million of
the GAMCO Note, reducing the outstanding principal to $50 million.
Total pre-payments on the GAMCO Note were $50 million for the full
year. Under GAAP, the GAMCO Note is treated as a reduction of
equity rather than an increase of assets. The pay down of the GAMCO
Note increased our GAAP book value by approximately $2 per
share.
At December 31, 2017, AC’s book value on a GAAP basis was $918
million, or $38.84 per share, compared to $874 million, or $36.04
per share, at December 31, 2016. The increase in GAAP book value
per share was primarily the result of the comprehensive income for
the year, the repayments of the GAMCO Note, and the buyback of
approximately 600,000 shares over the prior year. Our liquid
financial resources provide flexibility to pursue strategic
objectives which may include acquisitions, lift-outs, seeding new
investment strategies, and co-investing, as well as shareholder
compensation in the form of share repurchases and dividends.
Management believes that the analysis of adjusted economic book
value (“AEBV”), defined as total GAAP equity plus the outstanding
balance of the GAMCO Note, is useful in analyzing the Company’s
financial condition. Please see the “Notes on Non-GAAP Financial
Measures” on page 7. ABEV per share was $40.96 at December 31, 2017
compared to $40.16 per share at prior year-end.
Fourth Quarter Results of
Operations
Assets Under Management (AUM)
December 31, September 30, June 30,
December 31, 2017 2017 2017 2016
(in millions) Event Merger Arbitrage $ 1,384 $ 1,395 $ 1,202 $
1,076 Event-Driven Value 91 85 142 133 Other 66 65 64 63 Total AUM
$ 1,541 $ 1,545 $ 1,408 $ 1,272
Assets Under Management at December 31, 2017 were $1.5 billion,
an increase of $269 million from $1.3 billion at December 31, 2016.
This increase reflects $77 million of net appreciation and $192
million of net capital inflows. Asset flows included Gabelli Merger
Plus+ Trust PLC (GMP:LN), our first closed end fund which launched
in July. GAMCO International SICAV – GAMCO Merger Arbitrage, our
UCITS fund, also saw significant capital flows over the year as it
gains traction on a number of platforms.
Revenues
Total operating revenues for the three months ended December 31,
2017 were $11.6 million versus $16.3 million in the comparable
prior year period:
- The company earned incentive fees of
$4.6 million in the fourth quarter, down from $9.3 million in the
prior year period, due primarily to lower investment returns in our
merger arbitrage funds partially offset by higher asset
levels;
- Investment advisory fees increased to
$2.6 million in the fourth quarter of 2017, up from $2.4 million in
the comparable 2017 quarter, due to higher assets under
management.
Investment and other non-operating income, net
During the fourth quarter of 2017, investment and other
non-operating income, net was $25.5 million versus $4.6 million in
the fourth quarter of 2016. Investment gains were $21.6 million in
the 2017 quarter compared to $7.1 million in the comparable 2016
quarter, primarily a function of mark-to-market changes in the
value of our investments and the transfer of securities described
below.
During the quarter, AC contributed securities to our
wholly-owned broker-dealer subsidiary. A portion of the contributed
securities had qualified for AFS accounting under current generally
accepted accounting principles while held by AC. Changes in the
market value of AFS securities are generally recorded in other
comprehensive income rather than net income. The contribution of
the AFS securities to the broker-dealer resulted in the recognition
of net income during the quarter since the broker-dealer does not
qualify for AFS accounting treatment. The unrealized gain on the
contributed AFS securities recognized in net income was
reclassified from other comprehensive income in the amount of $11.8
million.
Dividends on the GBL shares and interest income from the GAMCO
Note were $0.6 million in the 2017 quarter versus $1.0 million in
the comparable quarter in 2016 primarily due to the reduction in
the balance of the GAMCO Note.
Business and Investment Highlights
Event Driven Asset Management
Our merger arbitrage fund launched in February 1985 returned
+2.9% net of expenses for the full year. Global M&A activity
was robust for 2017 totaling $3.6 trillion, and setting a record
for the number of announced deals worldwide. We continue to find
attractive opportunities investing in announced mergers and expect
future deal activity will provide further prospects to generate
returns not correlated to the market.
We look forward to publishing a follow up to our 1999 book,
Deals…Deals…And More Deals, in the coming months. The new
publication is comprised of extensive interviews and contains tales
of how arbitrageurs generate returns by investing in announced
transactions.
Institutional Research
During the past year, Gabelli & Company, our institutional
research services business, sponsored nine investment conferences,
seven of which are presented annually:
Pump, Valve, & Water Systems – 27th
AnnualWaste & Environmental Services – 3rd AnnualSpecialty
Chemicals – 8th AnnualOmaha Research Trip – 11th AnnualMovie &
Entertainment – 9th AnnualTelevision BroadcastingAircraft Supplier
& Connectivity – 23rd AnnualAutomotive Aftermarket – 41st
AnnualDigital Evolution within Financial Services
We also hosted 30 roadshows with institutional investors and
senior executives of companies followed by our research
analysts.
We continue to increase the presence of our analysts on social
media platforms. We invite you to follow us on the Gabelli TV
channel on YouTube (www.youtube.com) or Facebook
(www.facebook.com/GabelliTV) and receive regular updates from our
analysts.
Shareholder Compensation
At December 31, 2017, there were 4.5 million Class A and 19.2
million Class B shares outstanding.
During the fourth quarter, the Company repurchased approximately
147,000 shares at an average investment of $36.34 per share, for a
total of $5.3 million. Since the spin-off of the Company from
GAMCO, we have returned approximately $63 million to shareholders
through the repurchase of approximately 2 million shares.
In addition, the Company has paid semi-annual dividends totaling
$9.7 million including $2.4 million paid in January 2018.
On February 1, AC commenced an exchange offer for up to one
million of its Class A shares. Tendering shareholders will receive
1.35 GAMCO Class A shares that the Company currently holds,
together with cash in lieu of any fractional share. Based on the
closing prices on January 31, the exchange offer represents a 15%
premium over the current stock price. As the exchange ratio is
fixed, however, the actual value received by a tendering
shareholder will be determined by the relative prices of GAMCO and
AC stock as of the conclusion of the exchange period. The exchange
offer is scheduled to expire at 5:00 p.m., New York City time, on
March 5, 2018, unless earlier extended or terminated.
About Associated Capital Group, Inc.
The Company has been publicly traded since November 30, 2015
following its spin-off from GAMCO Investors, 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. Management fees are largely based on a
percentage of assets under management. Incentive fees are based on
a percentage of the investment returns of certain clients’
portfolios. 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 G.research (which does business as Gabelli &
Company), an indirect wholly-owned subsidiary 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
Adjusted Economic Book Value
Management believes the analysis of adjusted economic book value
(“AEBV”) and AEBV per share, both non-GAAP financial measures, are
useful in analyzing the Company's financial condition during the
period in which it builds its core operating business. As discussed
above, for GAAP purposes, the outstanding principal amount of the
GAMCO Note, which was issued to the Company as part of the spin-off
transaction, is treated as a reduction of equity. As GBL makes
principal payments, the Company’s total equity will increase. Once
the GAMCO Note is fully repaid, the Company’s total equity and AEBV
will be the same. AEBV and AEBV per share represent book value and
book value per share, respectively, increased by the principal
balance of the GAMCO Note. The calculations of AEBV and AEBV per
share at December 31, 2017 are shown below.
($000s except per share data)
Total Per Share Total equity as reported $918,147
$38.84 Add: GAMCO Note 50,000 2.12 Adjusted economic book value
$968,147 $40.96
Operating Income/(Loss) Before Management Fee
Operating income/(loss) before management fee expense is 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
reconciliation of operating income/(loss) before management fee
expense to operating income/(loss) is provided below.
($000s)
Q4 Full Year 2017 2016 2017
2016 Operating income/(loss) before management fee $ (2,776)
$ 659 $(19,673) $(10,639) Less: management fee expense 713 527 713
1,593 Operating income/(loss) $(3,489) $ 132 $(20,386) $(12,232)
Table I ASSOCIATED CAPITAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION (Dollars in thousands, except per share data)
December 31,
December 31, 2017 2016 ASSETS
Cash and cash equivalents $ 293,112 $ 314,093 Investments
513,888 468,139 Investment in GAMCO stock 130,254 135,701
Receivable from brokers 34,881 12,588 Other receivables 30,877
18,362 Other assets 3,903 3,720
Total assets $ 1,006,915 $ 952,603
LIABILITIES AND EQUITY Payable to brokers $ 13,281 $
2,396 Income taxes payable and deferred tax liabilities 5,484 6,978
Compensation payable 12,785 17,676 Securities sold short, not yet
purchased 5,731 9,984 Accrued expenses and other liabilities
5,257 37,317 Sub-total 42,538 74,351
Redeemable noncontrolling interests 46,230 4,230 Equity
961,435 972,705 4% PIK Note due from GAMCO (50,000 ) (100,000 )
Accumulated comprehensive income 6,712 1,317
Total equity 918,147 874,022
Total liabilities and equity $ 1,006,915 $ 952,603
Table II ASSOCIATED
CAPITAL GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Dollars in thousands, except per share
data) For the Quarter Ended December 31,
2017 2016 Investment advisory and incentive
fees $ 7,233 $ 11,734 Institutional research services 4,282 4,532
Other revenues 70 29 Total revenues
11,585 16,295 Compensation costs 10,948 12,800 Stock-based
compensation 653 449 Other operating expenses 2,760
2,387 Total expenses 14,361 15,636 Operating
income (loss) before management fee (2,776 ) 659 Investment
gain 21,616 7,139 Interest and dividend income from GAMCO 598 1,000
Interest and dividend income, net 2,591 1,871
Shareholder-designated contribution 673 (5,411
) Investment and other non-operating income, net 25,478
4,599 Gain before management fee and
income taxes 22,702 5,258 Management fee 713
527 Income before income taxes 21,989 4,731 Income tax
6,247 1,103 Net income 15,742 3,628 Net
loss attributable to noncontrolling interests (58 )
(19 ) Net income attributable to Associated Capital Group, Inc. $
15,800 $ 3,647 Net income per share
attributable to Associated Capital Group, Inc.: Basic $ 0.67
$ 0.15 Diluted $ 0.67 $ 0.15
Weighted average shares outstanding: Basic 23,691
24,845 Diluted 23,691
25,119 Actual shares outstanding 23,639
24,255 (a) Notes: (a) Includes 424,340 of RSAs
at December 31, 2016.
Table III ASSOCIATED CAPITAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) For
the Year Ended December 31, 2017 2016
Investment advisory and incentive fees $ 14,551 $ 18,320
Institutional research services 12,199 12,634 Other revenues
165 273 Total revenues 26,915 31,227
Compensation costs 30,644 30,968 Stock-based compensation 5,879
2,464 Other operating expenses 10,065 8,434
Total expenses 46,588 41,866 Operating loss before
management fee (19,673 ) (10,639 ) Investment gain 20,598
19,909 Interest and dividend income from GAMCO 3,461 8,012 Interest
and dividend income, net 6,813 4,067 Shareholder-designated
contribution (4,222 ) (5,411 ) Investment and other
non-operating income, net 26,650 26,577
Gain before management fee and income taxes 6,977 15,938
Management fee 713 1,593 Income before
income taxes 6,264 14,345 Income tax/(benefit) (2,420 )
3,876 Net income 8,684 10,469 Net income/(loss)
attributable to noncontrolling interests (153 ) 251
Net income attributable to Associated Capital Group, Inc. $
8,837 $ 10,218 Net income per share
attributable to Associated Capital Group, Inc.: Basic $ 0.37
$ 0.41 Diluted $ 0.37 $ 0.41
Weighted average shares outstanding: Basic 23,792
24,870 Diluted 23,923
25,175 Actual shares outstanding 23,639
24,255 (a) Notes: (a) Includes 424,340 of RSAs
at December 31, 2016.
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.
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version on businesswire.com: http://www.businesswire.com/news/home/20180221006423/en/
Associated Capital Group, Inc.Francis J. Conroy,
203-629-2726Interim Chief Financial
OfficerAssociated-Capital-Group.com
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