- Book Value Finishes Quarter at $36.65 per share
- Quarter-end AUM at $1.5 billion
- Board authorizes Distribution of Morgan Group
Shares
Associated Capital Group, Inc. (“AC” or the “Company”), a
diversified financial services and investment management company,
today reported its financial results for the first quarter ended
March 31, 2020.
As world leaders focused on the unprecedented human and economic
challenges of COVID-19, global equity markets plunged in reaction
to the spreading coronavirus pandemic. The events unfolding in
March resulted in the worst month for stocks since 2008 and the
worst first quarter since 1937.
(Y)our team is observing social distancing guidelines and
remains fully operational and focused, with teammates in the office
on a rotating schedule. Over the years we have invested in
technology and infrastructure that allow teammates to work remotely
in anticipation of the need to invest seamlessly from remote
locations.
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. One key facet of our principles is
how we conduct our business. Since our spin off in 2015, we have
offered a program of corporate giving through our
shareholder-designated charitable contribution (SDCC) program.
Through the SDCC program, AC shareholders select organizations to
receive charitable grants from Associated Capital. This year, the
majority of our shareholders participated by designating their
preferred 501(c)(3) organizations for our corporate giving. We
contributed $4.5 million to such charities in 2019. Since the
inception of this program in 2015, we have donated more than $20.0
million to over 160 charities across the United States.
First Quarter Results
- Book value ended the quarter at $36.65 per
share versus $39.93 per share at December 31, 2019.
- The markets’ impact on our investment
portfolio translated into a $100.1 million net loss in the first
quarter versus a gain of $38.7 million in last year’s first
quarter. This reflects the mark-to-market impact of our entire
investment portfolio. It is important to note that none of the
deals in our Merger Arbitrage portfolio were terminated in
March.
- The net loss for the quarter was $3.27 per
share as compared to a gain of $1.02 per share in the prior year’s
first quarter.
- Assets under management ended the quarter
at $1.5 billion compared to $1.6 billion at March 31, 2019.
Financial Highlights ($000s except per share data or as
noted)
Q1
2020
2019
AUM - end of period (in millions)
$
1,473
$
1,591
Revenues
4,369
4,652
Operating loss before management fee
(1,095
)
(4,616
)
Investment and other non-operating
income/(expense), net
(100,056
)
38,721
Income/(loss) before income taxes
(101,151
)
30,845
Net income/(loss)
(73,355
)
23,147
Net income/(loss) per share – diluted
$
(3.27
)
$
1.02
Shares outstanding at March 31
(thousands)
22,394
22,575
First Quarter Overview
First quarter 2020 revenues were $4.4 million, $0.3 million
(6.4%) lower than the $4.7 million in last year’s first quarter.
Lower compensation costs from headcount reductions at G.research
and related stock compensation helped to reduce operating expenses
to $5.5 million, down 40.9%, or $3.8 million, from the $9.3 million
in the year ago quarter. No management fees were earned in the
quarter compared to a $3.3 million management fee in last year’s
first quarter.
Net investment and other non-operating losses were $100.1
million for the quarter versus a gain of $38.7 million a year ago.
This reflects the mark-to-market impact of our ownership of 2.9
million shares of GBL as well as the mark-to-market losses on our
entire investment portfolio, including our investment in the
Gabelli Merger Plus+ Trust (GMP:LSE).
The benefit for income taxes was $23.8 million for the first
quarter of 2020 versus a tax provision of $6.2 million in the
comparable quarter of 2019.
Assets Under Management (AUM)
Assets under management at March 31, 2020 were $1.5 billion,
$243 million lower than December 31, 2019. The portfolios declined
by $154 million in addition to $89 million in net redemptions.
March 31, 2020
December 31, 2019
March 31, 2019
(in millions)
Event Merger Arbitrage
$
1,312
$
1,525
$
1,401
Event-Driven Value
112
132
127
Other
49
59
63
Total AUM
$
1,473
$
1,716
$
1,591
Alternative Investment Management
Associated Capital has two major businesses, Event-Driven Asset
Management and Direct Investing, in addition to its 83.3% ownership
of G.research’s Institutional Research operation which was merged
into Morgan Group Holdings last year.
- Event-Driven Asset Management
The alternative investment strategies focus on fundamental,
active, event-driven special situations and merger arbitrage.
During the quarter merger arbitrage was not immune to the market’s
volatility. Merger spreads widened as levered multi-strategy and
quantitative hedge funds faced margin calls, forcing them to sell
positions indiscriminately to de-lever and raise cash. For the
quarter, our fund slipped -7.1%, (-7.4% net of fees). It is
important to note that none of the deals in our portfolio were
terminated in March. The strategy is offered domestically through
partnerships and to institutional investors. Internationally, the
strategy is offered through corporations and EU regulated UCITS
structures and the London Stock Exchange listed investment company,
Gabelli Merger Plus Trust (GMP-LN).
We launched our direct private equity and merchant banking
activities in August 2017. Direct Investing is developing along
three core pillars; the first is Gabelli Private Equity Partners,
LLC (“GPEP”), with $150 million of authorized capital as a
“fund-less” sponsor. Next we added Gabelli Special Purpose
Acquisition Vehicles (“SPAC”) in 2018. Gabelli Value for Italy
(VALU), our initial vehicle launched and listed on the Italian
Borsa, approached its second anniversary at the apex of the
pandemic in Italy. In light of this challenge, the board voted to
commence liquidation. The VALU effort successfully canvassed
private company opportunities in Italy, with deal flow expanding
throughout Europe. We believe the platform is in place to further
expand our direct investment efforts across the European
continent.
The third leg of our private equity activities was the formation
of Gabelli Principal Strategies Group, LLC. (“GPS”) to pursue
strategic operating initiatives. These businesses are organized to
invest directly in various ways, with a focus on leveraged buyouts
and restructurings of small and mid-sized companies. These vehicles
allow us to acquire companies and create long-term value with no
pre-determined exit timetable, leveraging our capital markets
expertise through direct investing vehicles.
G.research – Spin-off
On October 31, 2019, we consummated the merger between
G.research, LLC (“G.research”) and Morgan Group Holding Co.
(“Morgan Group”). As a result of the transaction, G.research became
a wholly owned subsidiary of Morgan Group (MGHL:OTC). Associated
Capital holds 83.3% of the outstanding shares of Morgan Group.
On March 16, 2020 our board of directors approved the
distribution of AC’s shares of Morgan Group to shareholders.
G.research provides institutional research services and
underwriting activities. G.research’s revenues are derived
primarily from revenue generating institutional research services,
sales manager fees, underwriting fees and selling concessions.
During the first quarter, G.research marketed the 30th Annual Pump,
Valve and Water Systems Symposium on February 27th and the 11th
Annual Specialty Chemicals Virtual Conference on March 12th.
G.research’s net loss of $282,000 for the quarter ending March
31, 2020 compared to a $1.0 million net loss for the same period a
year ago.
Shareholder Dividends and Buybacks
At its meeting on May 5, 2020 the Board of Directors declared a
semi-annual dividend of $0.10 per share payable June 30, 2020 to
shareholders of record on June 16, 2020.
During the first quarter, AC repurchased approximately 82,000
Class A shares at an average investment of $39.43 per share for a
total outlay of $3.2 million.
Since our spin-off from GBL on November 30, 2015, AC has
returned $109.6 million to shareholders through share repurchases
and exchange offers, reducing its outstanding shares by 3.2 million
shares, in addition to paying dividends of $16 million.
At March 31, 2020, there were 3.4 million Class A shares and
19.0 million Class B shares outstanding.
About Associated Capital Group, Inc.
Associated Capital Group, Inc. (NYSE:AC), based in Greenwich
Connecticut, is a diversified global financial services company
that provides alternative investment management through Gabelli
& Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli
Securities, Inc.). The proprietary capital is earmarked for our
direct investment business that invests in new and existing
businesses. The 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 SPAC business (Gabelli special purpose
acquisition vehicles), launched in April 2018; and, Gabelli
Principal Strategies Group, LLC (“GPS”) created to pursue strategic
operating initiatives.
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.
The reconciliation of operating loss to operating loss before
management fee expense (non-GAAP) is provided below.
Year-to-date
(In thousands)
2020
2019
Operating loss
$
(1,095
)
$
(7,876
)
Add: management fee expense
-
3,260
Operating loss before management fee
$
(1,095
)
$
(4,616
)
Table I ASSOCIATED CAPITAL GROUP, INC. UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31,
December 31,
March 31,
2020
2019
2019
ASSETS Cash and cash equivalents
$
358,594
$
348,588
$
396,020
Investments
449,218
547,829
495,806
Investment in GAMCO stock (2,935,401, 2,935,401 and 3,016,501
shares, respectively)
32,260
57,211
61,838
Receivable from brokers
17,403
24,150
26,980
Deferred tax assets (including taxes receivable of $1,297 in 2020)
22,128
2,004
6,871
Other receivables
2,784
17,470
1,919
Other assets
21,704
13,654
5,262
Total assets
$
904,091
$
1,010,906
$
994,696
LIABILITIES AND EQUITY Payable to brokers
$
8,819
$
14,889
$
17,423
Income taxes payable and deferred tax liabilities, net
-
3,676
7,222
Compensation payable
5,665
20,247
7,511
Securities sold short, not yet purchased
17,422
16,419
17,118
Accrued expenses and other liabilities
5,473
7,856
5,637
Sub-total
37,379
63,087
54,911
Redeemable noncontrolling interests (a)
45,909
50,384
50,781
Total equity
820,803
897,435
889,004
Total liabilities and equity
$
904,091
$
1,010,906
$
994,696
(a) Represents third-party capital balances in consolidated
investments funds.
Table II ASSOCIATED CAPITAL
GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (Amounts in thousands, except per share data)
For the quarter ended March
31,
2020
2019
Investment advisory and incentive fees
$
2,700
$
2,733
Institutional research services
1,374
1,913
Other revenues
295
6
Total revenues
4,369
4,652
Compensation costs
4,193
5,896
Stock-based compensation
(818
)
415
Other operating expenses
2,089
2,957
Total expenses
5,464
9,268
Operating loss before management fee
(1,095
)
(4,616
)
Investment gain/(loss)
(102,090
)
34,979
Dividend income from GAMCO
59
60
Interest and dividend income, net
2,202
3,682
Shareholder-designated contribution
(227
)
-
Investment and other non-operating income/(expense), net
(100,056
)
38,721
Gain/(loss) before management fee and income taxes
(101,151
)
34,105
Management fee
-
3,260
Income/(loss) before income taxes
(101,151
)
30,845
Income tax expense/(benefit)
(23,799
)
6,191
Net income/(loss)
(77,352
)
24,654
Net income/(loss) attributable to noncontrolling interests
(3,997
)
1,507
Net income/(loss) attributable to Associated Capital Group, Inc.
$
(73,355
)
$
23,147
Net income/(loss) per share attributable to Associated
Capital Group, Inc.: Basic
$
(3.27
)
$
1.02
Diluted
$
(3.27
)
$
1.02
Weighted average shares outstanding: Basic
22,441
22,584
Diluted
22,441
22,584
Actual shares outstanding - end of period
22,394
22,575
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/20200506005630/en/
Kenneth D. Masiello Chief Accounting Officer (203) 629-2726
Associated-Capital-Group.com
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