- Quarterly net loss was $40.3
million, or $1.77 per share; full year loss was $58.1 million, or
$2.52 per share
- Year-end Book Value per share was
$38.36
Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the quarter and year ended December 31,
2018.
Financial Highlights
($000s except per share data or as
noted)
Q4 Full Year 2018
2017 2018 2017 AUM - end of
period (in millions) $ 1,520 $ 1,541 $ 1,520 $ 1,541 Revenues 8,614
11,585 22,779 26,915 Operating loss (2,285 ) (2,776 ) (13,480 )
(19,673 ) Investment and other non-operating income/(expense), net
(a) (46,014 ) 25,478 (55,754 ) 26,650 Income/(loss) before income
taxes (48,299 ) 21,989 (69,234 ) 6,264 Net income/(loss) (40,315 )
15,800 (58,099 ) 8,837 Net income/(loss) per share – diluted $
(1.77 ) $ 0.67 $ (2.52 ) $ 0.37 Shares outstanding at December 31
(thousands) 22,585
23,639 22,585 23,639
(a) 2018 results include a loss of
$21.8 million and $47.0 million for the quarter and full year
periods, respectively, related to GAMCO Investors, Inc. (“GAMCO”)
common stock held by AC that it received at the time of its
spin-off from GAMCO.
Fourth Quarter Overview
Fourth quarter revenues were $8.6 million, down $3.0 million
from $11.6 million in the prior year period. Operating expenses of
$10.9 million were $3.5 million lower (24%) than the $14.4 million
incurred in the year ago quarter. Largely due to lower
compensation, the operating loss for the quarter decreased to $2.3
million compared to a loss of $2.8 million in the 2017 fourth
quarter.
Fourth quarter net investment and other non-operating income
swung to a loss of $46 million from a $25.5 million gain in the
fourth quarter of 2017. This was primarily the result of the
mark-to-market decline in the value of our investment portfolio.
Beginning in 2018, the accounting treatment of available for sale
(“AFS”) equity securities changed. Mark-to-market adjustments for
all equities now flow through net income. Previously, any change in
unrealized gains or losses attributable to AFS equity securities
was reflected in equity and classified as other comprehensive
income rather than net income. On a comparable basis, the fourth
quarter 2017 investment and other non-operating income, net would
have been a gain of $11.6 million if market appreciation for all
securities including AFS securities had been included in net
income.
The Company recorded an income tax benefit in the current
quarter of $7.3 million compared to an expense of $6.2 million in
the comparable quarter of 2017. The current period provision
reflects the change in income, the lower federal corporate income
tax rate over the prior year, and the effect of certain capital
losses and charitable contributions for which the Company does not
expect to realize a corresponding tax benefit in future years.
Net loss for the fourth quarter was $40.3 million, or $1.77 per
share, compared to net income of $15.8 million, or $0.67 per share,
in the fourth quarter of 2017. The reported loss is within the
range indicated in our preliminary guidance dated January 24, 2019.
On a comparable basis of accounting for AFS securities, the year
ago period would have reported net income of $7.0 million, or $0.29
per share.
Commitment to Community
Continuing with the tradition in place prior to our spin-off
from GAMCO, (y)our Company seeks to be a good corporate citizen in
our community through the way we conduct our business activities as
well as by other measures such as serving our community, sponsoring
local organizations and developing our teammates.
Over its first two years as a public company, AC donated
approximately $10 million to qualified charities that address a
broad range of local, national and international concerns. The
recipients were identified by our shareholders through AC’s
Shareholder-Designated Contribution Program. Over 90 organizations
received support in 2017 alone.
The Company’s 2018 Shareholder Designated Contribution Program,
approved by our Board in November 2018, allows each shareholder of
record on December 31, 2018 to designate a qualified charity to
receive a $0.25 per share donation from AC. If all eligible
shareholders participate, the Company’s total contributions under
this program will be approximately $5 million bringing cumulative
donations to approximately $15 million.
Financial Condition
At December 31, 2018, AC’s book value was $866 million, or
$38.36 per share, compared to $918 million, or $38.84 per share, at
December 31, 2017.
Fourth Quarter Results of Operations
Assets Under Management (AUM)
December 31, December 31,
2018 2017 (in millions) Event Merger Arbitrage $
1,342 $ 1,384 Event-Driven Value 118 91 Other 60 66
Total AUM $ 1,520 $ 1,541
Assets under management at December 31, 2018 were $1.5 billion,
approximately 1.4% lower than December 31, 2017. This decrease
reflects $12 million of net capital outflows and $9 million of
market losses.
Revenues
Total operating revenues for the three months ended December 31,
2018 were $8.6 million versus $11.6 million in the comparable prior
year period:
- The company earned incentive fees of
$4.0 million in the fourth quarter, down from $4.6 million in the
prior year period, primarily due to lower investment returns in our
merger arbitrage funds;
- Investment advisory fees were unchanged
at $2.5 million; and
- Institutional research services revenue
was $2.1 million, down 50% from the prior period.
Investment and other non-operating income/(expense),
net
During the quarter, investment and other non-operating
income/(expense), net resulted in a loss of $46 million compared to
a gain of $25.5 million in the fourth quarter of 2017. Portfolio
mark-to-market changes were a loss of $46.6 million and a gain of
$21.6 million in the 2018 and 2017 quarters, respectively. This was
largely driven by unrealized losses due to the lower market value
of the approximately 3 million GAMCO shares we held at
year-end.
Business and Investment Highlights
Event-Driven Asset Management
Our merger arbitrage fund launched in February 1985 returned
+0.4% net of fees for the quarter, bringing the full year return to
+2.7%. Given the full year results of major equity market indices,
we believe that the fund’s performance highlights the ability of
the strategy to generate absolute returns. Full year global M&A
activity surpassed $4 trillion for only the third time on record, a
19% increase over 2017 with a strong showing from cross-border
deals. We are excited about the investment landscape for 2019: we
expect that dealmaking is likely to remain vibrant as the drivers
for M&A remain, higher interest rates are expected to
contribute to wider deal spreads, and market volatility creates
opportunities to purchase shares of target companies at more
favorable prices.
Merger Masters: Tales of Arbitrage, our recently-published book,
co-authored by Kate Welling and Mario Gabelli, profiles leading
merger arbitrageurs and corporate CEOs. The publication continues
to receive media coverage and positive reviews.
Institutional Research
In the fourth quarter, G.research, our institutional research
services business, concluded its 42nd annual Automotive Aftermarket
Symposium, one of the longest running institutional research
conferences. For the full year, we sponsored seven research
conferences covering broad sectors our research team follows.
During the first quarter of 2019, we will host three conferences:
Pump, Valve, & Water Systems on February 28, Specialty
Chemicals on March 15 and Waste & Environmental Services on
March 26. 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 online
portal, at YouTube (www.youtube.com/GabelliTV) or Facebook
(www.facebook.com/GabelliTV).
Shareholder Compensation
At December 31, 2018, there were 3.5 million Class A shares and
19.1 million Class B shares outstanding. GGCP, Inc., a private
company controlled by our Executive Chairman, indirectly owns
approximately 18.4 million Class B shares.
During the fourth quarter, AC repurchased approximately 12,000
shares at an average investment of $35.08 per share, for a total
outlay of $0.4 million. In addition, the Company completed an
exchange offer for its Class A shares on October 29. Tendering
shareholders received 1.9 shares of GAMCO for each AC share, and
the Company acquired approximately 370,000 Class A shares in
exchange for approximately 710,000 GAMCO shares with a value of
approximately $14.6 million.
Since the spin-off of the Company from GAMCO, we have returned
approximately $102 million to shareholders through share
repurchases and exchange offers representing approximately three
million shares.
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. 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, LLC, 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.
Table I ASSOCIATED CAPITAL
GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION (Dollars in thousands)
December 31, December 31, 2018 2017
ASSETS Cash and cash equivalents $ 409,564 $
293,112 Investments 439,876 513,888 Investment in GAMCO stock
(3,016,501 and 4,393,055 shares, respectively) 50,949 130,254
Receivable from brokers 24,629 34,881 Income taxes receivable and
deferred tax assets 5,845 - Other receivables 15,425 30,877 Other
assets 4,568 3,903 Total assets $
950,856 $ 1,006,915
LIABILITIES AND EQUITY
Payable to brokers $ 5,511 $ 13,281 Income taxes payable and
deferred tax liabilities - 5,484 Compensation payable 11,388 12,785
Securities sold short, not yet purchased 9,574 5,731 Accrued
expenses and other liabilities 8,335 5,257
Sub-total 34,808 42,538 Redeemable noncontrolling interests
(a) 49,800 46,230 Equity 866,248
961,435 4% PIK Note due from GAMCO - (50,000 ) Accumulated
comprehensive income - 6,712 Total equity
866,248 918,147 Total liabilities and
equity $ 950,856 $ 1,006,915 (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) For the quarter ended December
31, For the year ended December 31, 2018
2017 2018 2017 Investment advisory and
incentive fees $ 6,460 $ 7,233 $ 14,409 $ 14,551 Institutional
research services 2,105 4,282 8,284 12,199 Other revenues 49
70 86 165 Total
revenues 8,614 11,585 22,779
26,915 Compensation costs 8,125 10,948
25,937 30,644 Stock-based compensation 309 653 670 5,879 Other
operating expenses 2,465 2,760
9,652 10,065 Total expenses 10,899
14,361 36,259 46,588
Operating loss before management fee (2,285 )
(2,776 ) (13,480 ) (19,673 ) Investment
gain/(loss) (46,640 ) 21,616 (65,576 ) 20,598 Interest and dividend
income from GAMCO 60 598 1,171 3,461 Interest and dividend income,
net 3,866 2,591 11,951 6,813 Shareholder-designated contribution
(3,300 ) 673 (3,300 ) (4,222 )
Investment and other non-operating income/(expense), net
(46,014 ) 25,478 (55,754 ) 26,650
Gain/(loss) before management fee and income taxes
(48,299 ) 22,702 (69,234 ) 6,977 Management fee -
713 - 713 Income/(loss)
before income taxes (48,299 ) 21,989 (69,234 ) 6,264 Income tax
expense/(benefit) (7,274 ) 6,247
(11,478 ) (2,420 ) Net income/(loss) (41,025 ) 15,742
(57,756 ) 8,684 Net income/(loss) attributable to noncontrolling
interests (710 ) (58 ) 343 (153
) Net income/(loss) attributable to Associated Capital Group, Inc.
$ (40,315 ) $ 15,800 $ (58,099 ) $ 8,837 Net
income/(loss) per share attributable to Associated Capital Group,
Inc.: Basic $ (1.77 ) $ 0.67 $ (2.52 ) $ 0.37 Diluted (1.77 ) 0.67
(2.52 ) 0.37 Weighted average shares outstanding: Basic
22,721 23,691 23,070 23,792 Diluted 22,721 23,691 23,070 23,925
Actual shares outstanding - end of period 22,585 23,639
22,585 23,639
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/20190211005799/en/
Francis J. ConroyInterim Chief Financial Officer(203)
629-2726Associated-Capital-Group.com
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