- Assets Under Management increased
16% year-over-year to $1.6 billion
- Quarterly net income was $11.8
million, or $0.51 per share
- Shares outstanding were
22,991K
- Quarter-end GAAP Book Value per
share was $39.66
Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the quarter ended June 30, 2018.
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Associated Capital Publications
Financial Highlights
($000s except per share data or as
noted)
Q2 Year-to-date 2018
2017 2018
2017 AUM - end of period
(in millions) $ 1,633 $ 1,408 $ 1,633 $ 1,408 Revenues 4,796 5,095
9,499 10,082 Operating loss (3,446 ) (6,453 ) (7,696 ) (10,785 )
Investment and other non-operating income/(expense), net 19,697
10,769 (5,159 ) (6,340 ) Income/(loss) before income taxes 16,251
4,316 (12,855 ) (17,125 ) Net income/(loss) 11,824 4,596 (10,405 )
(8,482 ) Net income/(loss) per share – diluted $ 0.51 $ 0.19 $
(0.45 ) $ (0.36 ) Shares outstanding at June 30 (thousands)
22,991 23,898
22,991 23,898
Second Quarter Overview
Second quarter revenues were $4.8 million, down $0.3 million
from $5.1 million in the prior year period. Operating expenses were
$8.2 million, $3.3 million, or 29%, lower than $11.5 million of
expenses in the year ago quarter. The lower expenses were primarily
driven by the absence of stock-based compensation in 2018 versus
the acceleration of RSA vesting in the year ago quarter. The
operating loss for the quarter was $3.4 million, 47% lower than the
operating loss of $6.5 million in the 2017 second quarter.
Second quarter investment and other net non-operating income
resulted in a gain of $19.7 million (+83%) compared to a $10.8
million gain in the second quarter of 2017. This was primarily the
result of mark-to-market gains on 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 second quarter 2017 investment and other
non-operating income, net would have been a gain of $13.8
million.
The Company recorded income tax expense in the current quarter
of $3.4 million compared to a benefit of $0.3 million in the
comparable quarter of 2017. The current period provision reflects
the increase in income and the impact of the reduction in the
federal corporate income tax rate to 21% from 35% in the prior
year.
Net income for the second quarter was $11.8 million, or $0.51
per diluted share, compared to net income of $4.6 million, or $0.19
per diluted share, in the second quarter of 2017. On a comparable
basis of accounting for AFS securities, the year ago period would
have reported net income of $6.5 million, or $0.27 per diluted
share.
Financial Condition
As part of AC’s spin-off In November 2015, GAMCO (“GBL”) issued
a PIK note to AC with an initial face value of $250 million (the
“GAMCO Note”). AC has received principal repayments totaling $230
million on the GAMCO Note, of which $20 million was received during
the quarter, leaving an outstanding principal balance of $20
million. Under GAAP, the balance of the GAMCO Note is treated as a
reduction of equity.
At June 30, 2018, AC’s book value on a GAAP basis was $912
million, or $39.66 per share, compared to $918 million, or $38.84
per share, at December 31, 2017. The increase in GAAP book value
per share primarily reflects the repayment of the GAMCO Note
partially offset by our year-to-date net loss.
Management believes that the analysis of adjusted economic book
value (“AEBV”), defined as total GAAP equity plus the outstanding
balance of the GAMCO Note, and AEBV per share are useful in
analyzing the Company’s financial condition. Please note that these
are non-GAAP financial measures. AEBV per share was $40.53 at June
30, 2018 compared to $40.96 per share at prior year-end:
($000s except per share data)
June 30, 2018 December 31, 2017
Total Per Share Total Per
Share Total equity as reported $ 911,936 $ 39.66 $ 918,147 $
38.84 Add: GAMCO Note 20,000 0.87 50,000
2.12 Adjusted economic book value $ 931,936 $ 40.53 $
968,147 $ 40.96
Second Quarter Results of
Operations
Assets Under Management (AUM)
June 30, March 31,
December 31, June 30, 2018 2018
2017 2017 (in millions) Event Merger Arbitrage $
1,480 $ 1,407 $ 1,384 $ 1,202 Event-Driven Value 87 88 91 142 Other
66 65 66 64 Total AUM $ 1,633 $ 1,560 $
1,541 $ 1,408
Assets under management at June 30, 2018 were $1.6 billion, an
increase of $225 million from $1.4 billion at June 30, 2017. This
increase reflects $35 million of net appreciation and $190 million
of net capital inflows. Year over year inflows includes The Gabelli
Merger Plus+ Trust PLC (GMP:LN), the Company’s first closed-end
fund, launched in July 2017. GAMCO International SICAV – GAMCO
Merger Arbitrage, our UCITS fund, continues to see significant
capital flows over the year. We have made our strategy available to
investors in new markets, launching a Yen-denominated share class
for Gabelli Associates, Ltd., our offshore arbitrage fund, based on
interest from Japanese institutional investors.
Revenues
Total operating revenues for the three months ended June 30,
2018 were $4.8 million versus $5.1 million in the comparable prior
year period:
- Investment advisory fees increased to
$2.6 million, up $0.3 million due to higher assets under
management.
- Institutional research services revenue
was $2.2 million, down $0.6 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 June 30, we would have
recognized $2.3 million and $3.1 million for the six months ended
June 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 gain of $19.7 million compared to $10.8
million in the second quarter of 2017. Investment gains were $16.6
million and $8.1 million in the 2018 and 2017 quarters,
respectively, primarily a function of mark-to-market changes in the
value of our investments.
Dividends and interest from our GAMCO investment were $0.3
million in the 2018 quarter, down from $0.9 million in the
comparable quarter in 2017, primarily due to the reduction in the
outstanding balance of the GAMCO Note, from $40 million to $20
million during the quarter. As of June 30, we held approximately
3.7 million GAMCO shares compared to approximately 4.4 million at
year-end.
Business and Investment Highlights
Event-Driven Asset Management
Our merger arbitrage fund launched in February 1985 returned
+1.8% net of fees for the quarter, bringing the year-to-date return
to +1.7%. This compares favorably to the Credit Suisse Merger
Arbitrage Liquid index return over various time horizons. Global
M&A activity remained vibrant with year to date activity up 61%
over the 2017 period; cross-border deals were especially strong. We
expect that corporate confidence, strong balance sheets,
accommodative credit markets and repatriation of overseas profits
as a result of tax reform will continue to propel corporate merger
activity. Merger arbitrage returns should also benefit from a
rising interest rate environment and increasing deal spreads as a
result of heightened market volatility.
In 1999, we published one of the few books on merger arbitrage,
Deals…Deals…and More Deals. Our new publication, Merger Masters:
Tales of Arbitrage, profiles leading investors who share our
enthusiasm for merger arbitrage and have utilized the investment
discipline in various forms over the last half-century. It also
includes the perspective of iconic CEOs who have used M&A to
build value and, in the process, tangled with the arbitrage
community. Scheduled for publication on November 6, Merger Masters
is now available for pre-order on Amazon.com.
See above for cover images.
Institutional Research
During the past quarter, Gabelli & Company, our
institutional research services business, sponsored its tenth
annual Entertainment and Broadcasting investment conference and
hosted its twelfth annual Omaha Research Trip. It is actively
preparing for the Aerospace and Defense conference to be held on
September 13. It continues to host non-deal roadshows to connect
institutional investors and senior executives of companies followed
by our research analysts.
Our research team also provides frequent, real-time updates on
social media platforms. We invite you to follow us on the Gabelli
TV channel on YouTube (www.youtube.com) or Facebook
(www.facebook.com/GabelliTV).
Private Equity Initiative
In August 2017, we launched a private equity business for direct
investing. We have begun initial outreach to business owners,
corporate managements and various financial sponsors.
Our acquisition criteria mirror those set out by Warren Buffet
in Berkshire Hathaway’s annual report. That is, we seek simple
businesses with consistent earning power that generate good returns
with little or no debt. We will only engage with sellers with
management in place and which have determined an initial offering
price. In order to maximize the possibility of success, we will pay
appropriate finders' fees to those who introduce successfully
executed transactions.
Shareholder Compensation
At June 30, 2018, there were 3.9 million Class A and 19.1
million Class B shares outstanding. GGCP, Inc., a private company
controlled by the Company’s Executive Chairman, indirectly owns
approximately 18.4 million Class B shares.
During the second quarter, the Company repurchased approximately
141,000 shares at an average investment of $38.06 per share, for a
total of $5.4 million. Since the spin-off of the Company from
GAMCO, we have returned approximately $86 million to shareholders
through the repurchase of approximately 2.6 million shares. At its
May meeting, the Board of Directors authorized the repurchase of up
to an additional 500,000 shares of the Company’s stock.
In addition, the Company paid a semi-annual $0.10 dividend per
share to shareholders on July 2.
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 the first
two years as a separate 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.
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 (which does business as Gabelli &
Company), 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) June
30, December 31, 2018 2017
ASSETS Cash and cash equivalents $ 273,770 $
293,112 Investments 595,689 513,888 Investment in GAMCO
stock (3,726,250 and 4,393,055 shares, respectively) 99,714 130,254
Receivable from brokers 21,105 34,881 Other receivables 4,352
30,877 Other assets 4,298 3,903
Total assets $ 998,928 $
1,006,915
LIABILITIES AND EQUITY
Payable to brokers $ 13,034 $ 13,281 Income taxes payable and
deferred tax liabilities 1,685 5,484 Compensation payable 4,829
12,785 Securities sold short, not yet purchased 13,332 5,731
Accrued expenses and other liabilities 2,805
5,257 Sub-total 35,685 42,538
Redeemable noncontrolling interests 51,307
46,230 Equity 931,936 961,435 4% PIK
Note due from GAMCO (20,000 ) (50,000 ) Accumulated comprehensive
income - 6,712 Total
equity 911,936 918,147
Total liabilities and equity $ 998,928 $
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 June
30, Six months ended June 30, 2018 2017
2018 2017 Investment advisory and incentive
fees $ 2,615 $ 2,330 $ 5,144 $ 4,731 Institutional research
services 2,172 2,751 4,324 5,333 Other revenues 9
14 31 18 Total revenues
4,796 5,095 9,499
10,082 Compensation costs 5,870 6,421 12,194 13,204
Stock-based compensation - 2,920 72 3,364 Other operating expenses
2,372 2,207 4,929
4,299 Total expenses 8,242 11,548
17,195 20,867 Operating
loss before management fee (3,446 ) (6,453 )
(7,696 ) (10,785 ) Investment gain/(loss) 16,571
8,149 (10,959 ) (6,252 ) Interest and dividend income from GAMCO
345 921 935 2,008 Interest and dividend income, net 2,781 1,699
4,865 2,799 Shareholder-designated contribution -
- - (4,895 ) Investment and
other non-operating income/(expense), net 19,697
10,769 (5,159 ) (6,340 )
Gain/(loss) before management fee and income taxes 16,251 4,316
(12,855 ) (17,125 ) Management fee - -
- - Income/(loss) before income taxes
16,251 4,316 (12,855 ) (17,125 ) Income tax expense/(benefit)
3,388 (310 ) (3,346 ) (8,734 )
Net income/(loss) 12,863 4,626 (9,509 ) (8,391 ) Net income
attributable to noncontrolling interests 1,039
30 896 91 Net income/(loss)
attributable to Associated Capital Group, Inc. $ 11,824 $
4,596 $ (10,405 ) $ (8,482 ) Net income/(loss) per
share attributable to Associated Capital Group, Inc.: Basic $ 0.51
$ 0.19 $ (0.45 ) $ (0.36 ) Diluted 0.51 0.19 (0.45 ) (0.36 )
Weighted average shares outstanding: Basic 23,080 23,808 23,293
23,818 Diluted 23,080 24,041 23,293 23,818 Actual shares
outstanding - end of period 22,991 23,898 22,991 23,898
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. Conroy, Interim Chief
Financial Officer203-629-2726Associated-Capital-Group.com
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