- Board Narrows Alternatives for its
Institutional Research Services
- AUM increased to $1.59 billion
across event driven arbitrage portfolios
- Quarterly net income was $23.1
million, or $1.02 per share
- Quarter-end Book Value per share was
$39.38
Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the first quarter ended March 31, 2019
outlining growth in operations and plans for restructuring the
business to ensure greater shareholder alignment for growth.
Financial Highlights($000s except per share data or as
noted)
Q1 2019
2018 AUM - end of period (in
millions) $ 1,591 $ 1,560 Revenues 4,652 4,703 Operating loss
before management fee (4,616 ) (4,250 ) Investment and other
non-operating income/(expense), net 38,721 (24,856 ) Income/(loss)
before income taxes 30,845 (29,106 ) Net income/(loss) 23,147
(22,229 ) Net income/(loss) per share – diluted $ 1.02 $ (0.95 )
Shares outstanding at March 31 (thousands) 22,575
23,133
First Quarter Overview
First quarter revenues of $4.7 million were in line with the
prior year quarter. Reflecting $0.3 million higher operating
expenses, the operating loss was $4.6 million for the quarter
compared to an operating loss of $4.3 million in last year’s first
quarter.
Net investment and other non-operating income rose to $38.7
million, a $63.6 million difference from the $24.9 million loss in
the first quarter of 2018, reflecting a mark-to-market increase in
the investment portfolio.
AC recorded an income tax expense in the current quarter of $6.2
million versus a tax benefit of $6.7 million in the comparable
quarter of 2018.
Net income for the first quarter of 2019 was $23.1 million, or
$1.02 per share, compared to a net loss of $22.2 million, or $0.95
per share, in the prior year’s quarter.
Commitment to Community
Continuing with the tradition in place prior to our spin-off
from GAMCO, (y)our Company gives back to the community.
Over our first three years as a public company, AC shareholders
recommended approximately $15 million to charities of their choice
that address a broad range of local, national and international
concerns. Over 95 organizations received support through 2019.
Financial Condition
At March 31, 2019, AC’s book value was $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 March 31, 2019 were $1.6 billion, an
increase of $31.0 million from March 31, 2018. This increase
reflects $31.8 million of net appreciation offset by $0.8 million
of net capital outflows.
March 31,
December 31, March 31, 2019
2018 2018 (in millions) Event Merger Arbitrage $
1,401 $ 1,342 $ 1,407 Event-Driven Value 127 118 88 Other 63
60 65 Total AUM $ 1,591 $ 1,520 $ 1,560
Revenues
Total operating revenues for the three months ended March 31,
2019 of $4.7 million were unchanged from the comparable prior year
period:
- Investment advisory fees increased to
$2.7 million, up $0.2 million from the prior year period.
- Institutional research services revenue
was $1.9 million, down $0.2 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 March 31, we would have
recognized $3.7 million of incentive fees versus a negligible
incentive fee in the prior year quarter.
Investment and other non-operating income/(expense),
net
During the quarter, investment and other non-operating
income/(expense), net resulted in a gain of $38.7 million compared
to a loss of $24.9 million in the first quarter of 2018. Portfolio
mark-to-market changes were a gain of $35.0 million and a loss of
$27.5 million in the 2019 and 2018 quarters, respectively. This was
largely driven by investment gains due to the higher market values
in the 2019 quarter, with $10.9 million attributable to the 3
million GAMCO shares held with the remainder from our diverse
portfolio.
Business and Investment Highlights
Alternative Investment Management
i. Event-Driven Asset Management
The event driven asset management business approaches its 35th
anniversary in February 2020. The division 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 +2.04% net of fees (+2.81% gross) for
the first quarter of 2019. This business benefits from corporate
merger and acquisitions (“M&A”) activity. Global M&A
activity totaled $959 billion in the first quarter, making it the
fourth highest total for a first quarter on record. Healthcare,
financials and technology were the most active sectors for
consolidation in the first quarter. Our arbitrage group expect
dealmaking to remain vibrant as the drivers for M&A remain,
including higher interest rates that are expected to contribute to
wider deal spreads, and market volatility that creates
opportunities to purchase shares of target companies at more
favorable prices. 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.
ii. Direct Investing Business
The Gabelli direct investment business was re-launched after the
spin-off of Associated Capital in 2015. Our objective is to partner
with management to identify and surface value through strategic
direction, operational improvements and financial structuring. The
compounded, accumulated knowledge of our team in sectors across our
core competencies provides advantages to value creation. The steps
taken since formation are expected to grow long term value. 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 extensive industry insights. This
effort follows the framework we established with Gabelli-Rosenthal,
a private equity fund launched in 1985.
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”), launched 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. We invite you to visit our
activities on the corporate website:
https://www.associated-capital-group.com/DirectInvesting
Institutional Research Services
The Board of Associated Capital announced the formation of a
special committee to negotiate a transaction involving the
institutional research services business with a public company. The
Board is also considering a possible sale or spin-off of this
business to its shareholders. There are no assurances that a
transaction will result.
i. 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 institutional
research services, underwriting fees and selling concessions. In
the first quarter, G.research, our institutional research services
business, in cooperation with Gabelli Funds, concluded its 29th
annual Pump, Valve, & Water Systems conference on February 28,
10th annual Specialty Chemicals on March 13 and 5th annual Waste
& Environmental Services on March 26. During the second quarter
of 2019, we hosted the 13th annual Buffett/Berkshire-related Omaha
Research Trip on May 3-4 and will host the 11th annual
Entertainment & Broadcasting Conference on June 6, 2019. We
invite you to contact C.V. McGinity at CMcGinity@gabelli.com or
call him directly at (914) 921 7732 if you would like to
attend.
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
During the first quarter, AC repurchased approximately 10,000
shares at an average investment of $40.03 per share, for a total
outlay of $0.4 million.
At March 31, 2019, there were 3.6 million Class A shares and
19.0 million Class B shares outstanding, of which a private company
controlled by our Executive Chairman owns approximately 18.4
million Class B shares.
Since the spin-off of the Company from GAMCO, we have returned
approximately $103 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. Our focus is on
merger arbitrage and the creation of private equity. In concert
with this we have created a special purpose acquisition vehicle
(“SPAC”) in Italy.
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 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 loss before management fee expense to
operating loss is provided below.
Q1 (In thousands)
2019 2018
Operating loss before management fee $(4,616)
$(4,250) Deduct: management fee expense 3,260
- Operating loss $(7,876) $(4,250)
Table I ASSOCIATED CAPITAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION (Dollars in thousands) March
31, December 31, March 31, 2019
2018 2018 ASSETS Cash and
cash equivalents $ 396,020 $ 409,564 $ 283,972 Investments 495,806
439,876 549,255 Investment in GAMCO stock (3,016,501, 3,016,501 and
3,726,250 shares, respectively) 61,838 50,949 92,523 Receivable
from brokers 26,980 24,629 18,535 Deferred tax assets, net 6,871
9,422 1,241 Other receivables 2,671 15,425 4,280 Other assets
4,510 4,568 5,537 Total assets $
994,696 $ 954,433 $ 955,343
LIABILITIES AND
EQUITY Payable to brokers $ 17,423 $ 5,511 $ 5,621
Income taxes payable and deferred tax liabilities, net 7,222 3,577
- Compensation payable 7,511 11,388 2,982 Securities sold short,
not yet purchased 17,118 9,574 5,211 Accrued expenses and other
liabilities 5,637 8,335 3,131 Sub-total
54,911 38,385 16,945 Redeemable noncontrolling interests (a)
50,781 49,800 50,604 Equity
889,004 866,248 927,794 4% PIK Note due from GAMCO -
- (40,000 ) Total equity 889,004 866,248
887,794 Total liabilities and equity $ 994,696
$ 954,433 $ 955,343 (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 March 31, 2019 2018
Investment advisory and incentive fees $ 2,733 $ 2,529
Institutional research services 1,913 2,152 Other revenues 6
22 Total revenues 4,652
4,703 Compensation costs 5,896 6,324 Stock-based
compensation 415 72 Other operating expenses 2,957
2,557 Total expenses 9,268 8,953
Operating loss before management fee (4,616 )
(4,250 ) Investment gain/(loss) 34,979 (27,530 )
Interest and dividend income from GAMCO - 590 Interest and dividend
income, net 3,742 2,084 Investment and
other non-operating income/(expense), net 38,721
(24,856 ) Gain/(loss) before management fee and
income taxes 34,105 (29,106 ) Management fee 3,260
- Income/(loss) before income taxes 30,845 (29,106 )
Income tax expense/(benefit) 6,191 (6,734 )
Net income/(loss) 24,654 (22,372 ) Net income/(loss) attributable
to noncontrolling interests 1,507 (143 ) Net
income/(loss) attributable to Associated Capital Group, Inc. $
23,147 $ (22,229 ) Net income/(loss) per share
attributable to Associated Capital Group, Inc.: Basic $ 1.02 $
(0.95 ) Diluted 1.02 (0.95 ) Weighted average shares
outstanding: Basic 22,584 23,508 Diluted 22,584 23,508
Actual shares outstanding - end of period 22,575 23,133
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: https://www.businesswire.com/news/home/20190508005963/en/
Kenneth D. MasielloChief Accounting Officer203)
629-2726Associated-Capital-Group.com
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