- Assets Under Management increased 5%
year-over-year to $1.6 billion
- Quarterly net loss was $7.4 million,
or $0.32 per share
- Quarter-end Book Value per share was
$40.22
- Semi-annual dividend of $0.10 per
share declared
- Board approves 2018
Shareholder-Designated Contribution Program
Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the quarter ended September 30, 2018.
Financial Highlights
($000s except per share data or as
noted)
Q3 Year-to-date 2018
2017 2018 2017 AUM - end of
period (in millions) $ 1,619 $ 1,545 $ 1,619 $ 1,545 Revenues 4,666
5,248 14,165 15,330 Operating loss (3,499 ) (6,112 ) (11,195 )
(16,897 ) Investment and other non-operating income/(expense), net
(4,581 ) 7,512 (9,740 ) 1,172 Income/(loss) before income taxes
(8,080 ) 1,400 (20,935 ) (15,725 ) Net income/(loss) (7,379 ) 1,519
(17,784 ) (6,963 ) Net income/(loss) per share – diluted $ (0.32 )
$ 0.06 $ (0.77 ) $ (0.29 ) Shares outstanding at September 30
(thousands) 22,971 23,786
22,971 23,786
Third Quarter Overview
Third quarter revenues were $4.7 million, down $0.5 million from
$5.2 million in the prior year period. Reflecting lower
compensation, operating expenses of $8.2 million were 28% lower
than the $11.4 million incurred in the year ago quarter. The
operating loss for the quarter was $3.5 million compared to a loss
of $6.1 million in the 2017 third quarter.
Third quarter net investment and other non-operating income
swung to a loss of $4.6 million compared to a $7.5 million gain in
the third quarter of 2017. This was primarily the result of
mark-to-market changes in the value of our investment portfolio. In
addition, the accounting treatment of available for sale (“AFS”)
equity securities has changed. Beginning in 2018, the
mark-to-market adjustments for all equities flow through net
income. Previously, the 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 third quarter 2017 investment and other
non-operating income, net would have been a gain of $10.1
million.
The Company recorded an income tax benefit in the current
quarter of $0.9 million compared to an expense of $0.1 million in
the comparable quarter of 2017. The current period provision
reflects the change in income and the lower federal corporate
income tax rate over the prior year.
Net loss for the third quarter was $7.4 million, or $(0.32) per
share, compared to net income of $1.5 million, or $0.06 per share,
in the third quarter of 2017. On a comparable basis of accounting
for AFS securities, the year ago period would have reported net
income of $3.2 million, or $0.13 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 our
Shareholder-Designated Contribution Program. Over 90 organizations
received support in 2017 alone.
The Board of Directors authorized a 2018 Shareholder Designated
Contribution Program. Each shareholder of record on November 30,
2018 will be eligible to identify a qualified charity to which AC
will make a twenty-five cent ($0.25) per share donation on the
shareholder’s behalf. As in the past, shares held in nominee or
street name will not be eligible to participate.
Financial Condition
At September 30, 2018, AC’s book value on a GAAP basis was $924
million, or $40.22 per share, compared to $918 million, or $38.84
per share, at December 31, 2017.
During the quarter, the outstanding balance of $20 million of
the $250 million PIK note that GAMCO Investors, Inc. issued in
connection with AC’s spin-off was repaid. Under GAAP, the
outstanding balance of this note was treated as a reduction of
equity.
Third Quarter Results of Operations
Assets Under Management (AUM)
September 30, June 30,
September 30, 2018 2018 2017 (in
millions) Event Merger Arbitrage $ 1,466 $ 1,480 $ 1,395
Event-Driven Value 89 87 85 Other 64 66 65
Total AUM $ 1,619 $ 1,633 $ 1,545
Assets under management at September 30, 2018 were $1.6 billion,
an increase of $74 million from September 30, 2017. This increase
reflects $30 million of net appreciation and $44 million of net
capital inflows.
Revenues
Total operating revenues for the three months ended September
30, 2018 were $4.7 million versus $5.2 million in the comparable
prior year period:
- Investment advisory fees increased to
$2.8 million, up $0.2 million due to higher assets under
management.
- Institutional research services revenue
was $1.9 million, down $0.7 million.
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 $3.0 million and $3.5 million for the nine months ended
September 30, 2018 and 2017, respectively.
Investment and other non-operating income/(expense),
net
During the quarter, investment and other non-operating
income/(expense), net was a loss of $4.6 million compared to a gain
of $7.5 million in the third quarter of 2017. Portfolio
mark-to-market changes were $(8.0) million and $5.2 million in the
2018 and 2017 quarters, respectively. This was largely driven by
the performance of the approximately 3.7 million GAMCO shares we
held during the current quarter.
Business and Investment Highlights
Event-Driven Asset Management
Our merger arbitrage fund launched in February 1985 returned
+0.6% net of fees for the quarter, bringing the year-to-date return
to +2.3%. Global M&A activity slowed a bit in the quarter but
still reported record levels; year-to-date activity was up 37% over
2017 with a strong showing from cross-border deals. Mega deals
accounted for the increase, however, and deal volume actually
decreased to a three-year low for the nine month period. We expect
to see continued corporate merger activity due to a number of
market factors.
We have received positive advance reviews of Merger Masters:
Tales of Arbitrage, our new book which was released today.
Co-authored by Kate Welling, former editor of Barron’s, and Mario
Gabelli, it profiles leading merger arbitrageurs and corporate
CEOs. It is now available at local bookstores as well as Amazon.com
and other online merchants.
Institutional Research
During the past quarter, G.research, our broker dealer and
research services business, hosted its 24th annual Aerospace &
Defense Conference for institutional investors. In addition, it
just successfully concluded its 42nd annual Automotive Aftermarket
Symposium, one of the longest running institutional research
conferences. In addition, G.research continues to sponsor non-deal
roadshows providing corporate management access to our
institutional clients.
Our research team continues to provide frequent, real-time
updates on social media platforms including YouTube
(www.youtube.com) and Facebook (www.facebook.com/GabelliTV).
Shareholder Compensation
At its meeting today, the Board of Directors declared a
semi-annual dividend of $0.10 per share payable to shareholders on
January 9, 2019.
At September 30, 2018, there were 3.9 million Class A 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 third quarter, AC repurchased approximately 20,000
shares at an average investment of $36.27 per share, for a total
outlay of $0.7 million. Since the spin-off of the Company from
GAMCO, we have returned approximately $87 million to shareholders
through the repurchase of approximately 2.6 million shares.
At the end of the quarter, the Company commenced an exchange
offer for 1.8 million Class A shares. Tendering shareholders
received 1.9 GAMCO shares for each Class A share. Upon expiration
on October 29, the Company acquired approximately 370,000 shares in
exchange for approximately 710,000 GAMCO shares with a value of
approximately $14.6 million.
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, 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)
September 30, December 31, 2018 2017
ASSETS Cash and cash equivalents $ 348,887 $
293,112 Investments 557,143 513,888 Investment in GAMCO stock
(3,726,250 and 4,393,055 shares, respectively) 87,269 130,254
Receivable from brokers 18,352 34,881 Other receivables 5,169
30,877 Other assets 4,169 3,903 Total
assets $ 1,020,989 $ 1,006,915
LIABILITIES AND
EQUITY Payable to brokers $ 13,325 $ 13,281 Income taxes
payable and deferred tax liabilities 827 5,484 Compensation payable
6,790 12,785 Securities sold short, not yet purchased 22,353 5,731
Accrued expenses and other liabilities 2,750 5,257
Sub-total 46,045 42,538 Redeemable noncontrolling
interests 51,119 46,230 Equity 923,825
961,435 4% PIK Note due from GAMCO - (50,000 ) Accumulated
comprehensive income - 6,712 Total equity
923,825 918,147 Total liabilities and
equity $ 1,020,989 $ 1,006,915
Table II ASSOCIATED CAPITAL GROUP,
INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (Amounts in thousands, except per share data)
Three months ended September 30, Nine months ended
September 30, 2018 2017 2018 2017
Investment advisory and incentive fees $ 2,805 $ 2,587 $
7,949 $ 7,318 Institutional research services 1,855 2,584 6,179
7,917 Other revenues 6 77 37
95 Total revenues 4,666
5,248 14,165 15,330
Compensation costs 5,618 6,492 17,812 19,696 Stock-based
compensation 289 1,862 361 5,226 Other operating expenses
2,258 3,006 7,187 7,305
Total expenses 8,165 11,360
25,360 32,227 Operating loss
before management fee (3,499 ) (6,112 )
(11,195 ) (16,897 ) Investment gain/(loss) (7,977 )
5,234 (18,936 ) (1,018 ) Interest and dividend income from GAMCO
176 855 1,111 2,863 Interest and dividend income, net 3,220 1,423
8,085 4,222 Shareholder-designated contribution -
- - (4,895 ) Investment and
other non-operating income/(expense), net (4,581 )
7,512 (9,740 ) 1,172 Gain/(loss)
before management fee and income taxes (8,080 ) 1,400 (20,935 )
(15,725 ) Management fee - - -
- Income/(loss) before income taxes (8,080 )
1,400 (20,935 ) (15,725 ) Income tax expense/(benefit) (858
) 67 (4,204 ) (8,667 ) Net
income/(loss) (7,222 ) 1,333 (16,731 ) (7,058 ) Net income/(loss)
attributable to noncontrolling interests 157
(186 ) 1,053 (95 ) Net income/(loss)
attributable to Associated Capital Group, Inc. $ (7,379 ) $ 1,519
$ (17,784 ) $ (6,963 ) Net income/(loss) per share
attributable to Associated Capital Group, Inc.: Basic $ (0.32 ) $
0.06 $ (0.77 ) $ (0.29 ) Diluted (0.32 ) 0.06 (0.77 ) (0.29 )
Weighted average shares outstanding: Basic 22,979 23,841
23,187 23,826 Diluted 22,979 23,841 23,187 23,826 Actual
shares outstanding - end of period 22,971 23,786 22,971 23,786
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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Associated Capital Group, Inc.Francis J. ConroyInterim Chief
Financial Officer(203) 629-2726Associated-Capital-Group.com
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