- AUM $1.6 billion
- Quarter-end Book Value per share was $39.21 vs. $38.36 as of
year-end 2018
- G.research, LLC and Morgan Group Holding Co. Merger in
Process
Associated Capital Group, Inc. (“AC” or the “Company”) reported
its financial results for the quarter ended June 30, 2019.
Financial Highlights
($000s except per share data or as noted)
(Unaudited)
Second Quarter
First Half
2019
2018
2019
2018
AUM - end of period (in millions)
$ 1,607
$ 1,633
$ 1,607
$ 1,633
Average AUM (in millions)
1,592
1,589
1,576
1,568
Revenues
4,821
4,796
9,473
9,499
Operating loss
(3,285)
(3,446)
(7,901)
(7,696)
Investment and other non-operating
income/(expense), net
3,026
19,697
41,747
(5,159)
Income/(loss) before income taxes
(125)
16,251
30,720
(12,855)
Net income/(loss)
(932)
11,824
22,215
(10,405)
Net income/(loss) per share – diluted
$ (0.04)
$ 0.51
$ 0.98
$ (0.45)
Shares outstanding at June 30
(thousands)
22,533
22,991
22,533
22,991
Second Quarter Overview
Second quarter revenues of $4.8 million were unchanged from the
prior year period. Operating expenses were $8.0 million, $0.3
million lower than the year ago quarter. The operating loss
declined to $3.2 million from $3.5 million in last year’s second
quarter. Net investment and other non-operating income was $3.0
million, $16.7 million less than the $19.7 million reported in the
second quarter of 2018. AC recorded an income tax benefit of
$300,000 in the second quarter of 2019 versus a tax expense of $3.4
million in comparable quarter of 2018.
The Company recorded a net loss for the second quarter of 2019
of $0.9 million, or $0.04 per share, compared to net income of
$11.8 million, or $0.51 per share, in the prior year’s quarter.
Commitment to Community
Our firm has long understood that success is measured by not
only generating returns for our clients, but also aligning their
values with their investment portfolio. AC has been involved in the
field of responsible investing since its inception, which has
evolved into integrating environmental, social and governance (ESG)
factors into clients’ portfolio analysis.
Over our first three years as a public company, AC made
approximately $15 million of donations to 501(c)3 eligible
organizations chosen by shareholders addressing a broad range of
community and social needs. More than 95 such organizations
received support through 2019.
Financial Condition
As of June 30, 2019, AC’s book value was $884 million, or $39.21
per share, vs. a book value of $912 million, or $39.66 per share,
as June 30, 2018.
At March 31, 2019, AC’s book value $889 million, or $39.38 per
share compared to $866 million, or $38.36 per share, at December
31, 2018.
First Quarter Results of Operations
Assets Under Management (AUM)
Assets under management at June 30, 2019 were $1.6 billion, an
increase of $16.0 million from March 31, 2019. This increase
reflects $15.6 million of net appreciation plus $0.4 million of net
capital inflows.
June 30,
March 31,
December 31,
June 30,
2019
2019
2018
2018
(in millions)
Event Merger Arbitrage
$ 1,422
$ 1,401
$ 1,342
$ 1,480
Event-Driven Value
127
127
118
87
Other
58
63
60
66
Total AUM
$ 1,607
$ 1,591
$ 1,520
$ 1,633
Revenues
Total operating revenues for the three months ended June 30,
2019 were unchanged from the prior year period at $4.8 million.
- Investment advisory fees increased to $2.7 million, up $0.1
million from the prior year period.
- Institutional research services revenue was $2.1 million, down
$0.1 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 June 30, we would have
recognized $3.2 million for the six months ended June 30, 2019, a
$0.9 million increase over the unrealized incentive fees for the
six months ended June 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 $3.0 million compared
to a profit of $19.7 million in the prior year quarter. Portfolio
mark-to-market changes were a loss of $(0.2) million and a gain of
$16.7 million in the 2019 and 2018 quarters, respectively. This was
driven by investment mark-to-market declines in portfolio values in
the 2019 quarter, including $4.0 million of the decline
attributable to the 3 million GAMCO shares held largely offset by
increases in valuations of other securities. Interest and dividend
income increased to $3.2 million in the second quarter of 2019 from
$2.8 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 +2.2% return net of fees (+3.26% gross) for the
first half of 2019. This strategy benefits from corporate merger
and acquisitions (“M&A”) activity which reached $2.0 trillion
globally in the first half 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. 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 such potential combination, a portion of the
institutional research business could trade separately from A.C.
The transaction remains subject to regulatory approvals and
finalizing other conditions for closing. We cannot assure that a
transaction will be consummated.
G.research Institutional Services
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, underwriting fees and selling
concessions.
During the past quarter, G.research, in coordination with
Gabelli Funds, Co. hosted the 13th annual Omaha Research Symposium
on May 3-4 and the 11th annual Entertainment & Broadcasting
Conference on June 6, 2019. 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.
The schedule of upcoming conferences for the balance of the year
include:
- the 25th Aerospace and Defense Conference in New York on
September 5th
- 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
During the second quarter, AC repurchased approximately 43,000
Class A shares at an average cost of $38.23 per share for a total
outlay of $1.6 million.
Since the spin-off from GBL we have returned approximately $104
million to shareholders through share repurchases and exchange
offers representing approximately 3.0 million shares. In addition
to dividends of approximately $16 million.
At June 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 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.
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 June 2018, the losses from the first quarter were
not recaptured during the six 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
$(11,027)
$(7,696)
Add: management fee expense
3,126
-
Operating loss before management fee
$(7,901)
$(7,696)
Table I ASSOCIATED CAPITAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION (Dollars in thousands) June
30, December 31, June 30,
2019
2018
2018
ASSETS Cash and cash equivalents
$
361,564
$
409,564
$
273,770
Investments
544,886
439,876
595,689
Investment in GAMCO stock (3,016,501, 3,016,501 and 3,726,250
shares, respectively)
57,826
50,949
99,714
Receivable from brokers
24,163
24,629
21,105
Other assets
10,838
4,568
4,298
Deferred tax assets
2,998
9,422
Other receivables
1,885
15,425
4,352
Total assets
$
1,004,160
$
954,433
$
998,928
LIABILITIES AND EQUITY Payable to
brokers
$
9,347
$
5,511
$
13,034
Income taxes payable
872
3,577
1,685
Compensation payable
9,457
11,388
4,829
Securities sold short, not yet purchased
46,010
9,574
13,332
Accrued expenses and other liabilities
4,618
8,335
2,805
Sub-total
70,304
38,385
35,685
Redeemable noncontrolling interests (a)
49,668
49,800
51,307
Equity
884,188
866,248
931,936
4% PIK Note due from GAMCO
-
-
(20,000
)
Total equity
884,188
866,248
911,936
Total liabilities and equity
$
1,004,160
$
954,433
$
998,928
- 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 June 30, Six months ended June 30,
2019
2018
2019
2018
Investment advisory and incentive fees
$
2,713
$
2,615
$
5,446
$
5,144
Institutional research services
2,076
2,172
3,989
4,324
Other revenues
32
9
38
31
Total revenues
4,821
4,796
9,473
9,499
Compensation costs
5,584
5,870
$
11,480
$
12,194
Stock-based compensation
284
-
699
72
Other operating expenses
2,238
2,372
5,195
4,929
Total expenses
8,106
8,242
17,374
17,195
Operating loss before management fee
(3,285
)
(3,446
)
(7,901
)
(7,696
)
Investment gain/(loss)
(234
)
16,571
34,745
(10,959
)
Interest and dividend income from GAMCO
60
345
121
935
Interest and dividend income, net
3,200
2,781
6,881
4,865
Investment and other non-operating income/(expense), net
3,026
19,697
41,747
(5,159
)
Income/(loss) before management fee and income taxes
(259
)
16,251
33,846
(12,855
)
Management fee
(134
)
-
3,126
-
Income/(loss) before income taxes
(125
)
16,251
30,720
(12,855
)
Income tax expense/(benefit)
(277
)
3,388
5,914
(3,346
)
Net income/(loss)
152
12,863
24,806
(9,509
)
Net income attributable to noncontrolling interests
1,084
1,039
2,591
896
Net income/(loss) attributable to Associated Capital Group, Inc.
$
(932
)
$
11,824
$
22,215
$
(10,405
)
Net income/(loss) per share attributable to Associated
Capital Group, Inc.: Basic
$
(0.04
)
$
0.51
$
0.98
$
(0.45
)
Diluted
(0.04
)
0.51
0.98
(0.45
)
Weighted average shares outstanding: Basic
22,552
23,080
22,568
23,293
Diluted
22,552
23,080
22,568
23,293
Actual shares outstanding - end of period
22,533
22,991
22,533
22,991
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/20190807005897/en/
Kenneth D. Masiello Chief Accounting Officer (203) 629-2726
Associated-Capital-Group.com
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