Associated Capital Group(AC) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter of 2019 Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2019, highlighting a significant turnaround to profitability driven by investment gains and providing detailed notes on accounting policies and financial items Condensed Consolidated Statements of Financial Condition As of March 31, 2019, total assets increased to $994.7 million from $954.4 million, primarily due to higher investment values, with total liabilities and equity also rising Condensed Consolidated Statement of Financial Condition (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $396,020 | $409,564 | | Investments in securities | $219,104 | $179,011 | | Total Assets | $994,696 | $954,433 | | Liabilities & Equity | | | | Total liabilities | $54,911 | $38,385 | | Total Associated Capital Group, Inc. stockholders' equity | $889,004 | $866,248 | | Total Liabilities and Equity | $994,696 | $954,433 | Condensed Consolidated Statements of Income The company reported $24.7 million net income in Q1 2019, a significant reversal from a $22.4 million net loss in Q1 2018, primarily driven by a $35.0 million net gain from investments Condensed Consolidated Statement of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total revenues | $4,652 | $4,703 | | Total expenses | $12,528 | $8,953 | | Operating loss | $(7,876) | $(4,250) | | Net gain/(loss) from investments | $34,979 | $(27,530) | | Net income/(loss) attributable to ACG shareholders | $23,147 | $(22,229) | | Diluted EPS | $1.02 | $(0.95) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $12.7 million for Q1 2019, resulting in a $13.5 million net decrease in cash and equivalents, ending the quarter with $396.2 million Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,705) | $(29,388) | | Net cash provided by investing activities | $2,337 | $15,000 | | Net cash (used in) provided by financing activities | $(3,176) | $5,201 | | Net decrease in cash and cash equivalents | $(13,544) | $(9,187) | Notes to Condensed Consolidated Financial Statements These notes detail the company's business structure, accounting policies, revenue sources, investment portfolio, and significant events including stock repurchases and subsequent board actions - The company's business includes alternative investment management (equity event-driven value strategies), institutional research, and underwriting services through its subsidiaries GCIA and G.research[16][18][19] Revenue Breakdown (in thousands) | Revenue Source | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Investment advisory and incentive fees | $2,733 | $2,529 | | Institutional research services | $1,913 | $2,152 | | Other | $6 | $22 | | Total | $4,652 | $4,703 | - During Q1 2019, the company repurchased approximately 10,000 shares for $0.4 million. In Q1 2018, it repurchased 13,000 shares for $0.5 million[68] - Subsequent to the quarter's end, the Board approved a semi-annual dividend of $0.10 per share, issued a $2.1 million promissory note to the Executive Chairman, and approved the purchase of a building for its corporate offices[81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2019 performance, highlighting a shift to $23.1 million net income driven by investment gains, AUM growth, and a strong liquidity position Overview This overview details the company's alternative investment management, institutional research, and direct investing segments, noting strong fund performance and strategic considerations for the research business - The company's event-driven 'Associates Funds' (merger arbitrage) returned +2.04% net of fees for the first quarter of 2019[89] - The Board has formed a special committee to negotiate a transaction for its institutional research services business, with a sale or spin-off being considered[91] - The direct investment business is structured around three pillars: Gabelli Private Equity Partners, LLC (GPEP), the SPAC business, and Gabelli Principal Strategies Group, LLC (GPS)[94] Results of Operations Operating loss widened to $7.9 million in Q1 2019 due to a new management fee, but a $35.0 million net investment gain resulted in $23.1 million net income Results of Operations Comparison (in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Total revenues | $4,652 | $4,703 | | Operating loss | $(7,876) | $(4,250) | | Net gain/(loss) from investments | $34,979 | $(27,530) | | Net income/(loss) attributable to ACG shareholders | $23,147 | $(22,229) | - The increase in operating loss was primarily driven by a new management fee expense of $3.3 million paid to the Executive Chairman, which was not incurred in Q1 2018 due to a pre-tax loss in that period[112] - Investment advisory fees increased to $2.7 million from $2.5 million due to higher AUM. If incentive fees had crystallized at quarter-end, an additional $3.7 million would have been recognized[108] Assets Under Management Total Assets Under Management (AUM) grew to $1.591 billion by March 31, 2019, driven by market appreciation and net cash inflows AUM by Strategy (in millions) | Strategy | March 31, 2019 | Dec 31, 2018 | March 31, 2018 | | :--- | :--- | :--- | :--- | | 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 | AUM Roll-Forward for Q1 2019 (in millions) | | AUM at Dec 31, 2018 | Market Appreciation | Net Cash Flows | AUM at March 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total | $1,520 | $36 | $35 | $1,591 | Liquidity and Capital Resources The company maintains a strong liquidity position with $396 million in cash and equivalents, and its broker-dealer subsidiary remains well-capitalized - The company's principal assets are highly liquid, consisting of cash and cash equivalents, marketable securities, and investments in funds and partnerships[120] Cash Flow Summary for Q1 2019 (in thousands) | Activity | Amount | | :--- | :--- | | Net cash used in operating activities | $(12,705) | | Net cash provided by investing activities | $2,337 | | Net cash used in financing activities | $(3,176) | - The broker-dealer subsidiary, G.research, had net capital of $8.4 million at March 31, 2019, which was $8.1 million in excess of its required minimum[125] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that as a smaller reporting company, it is not required to provide information for this item - As a smaller reporting company, this information is not required to be provided[127] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting - The CEO and CAO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[128] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[129] PART II. OTHER INFORMATION This section covers other information including legal proceedings, equity security sales, and exhibits filed with the report Item 1. Legal Proceedings Management assesses that potential losses from legal proceedings and regulatory examinations are not material to the company's financial condition or results of operations - Management believes that potential losses from any current legal proceedings or regulatory matters are not material to the company's financial condition as of March 31, 2019[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity, noting 9,776 Class A Common Stock shares repurchased in March 2019 at $40.03 per share Share Repurchases in Q1 2019 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2019 | - | - | | Feb 2019 | - | - | | Mar 2019 | 9,776 | $40.03 | | Total | 9,776 | $40.03 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CAO certifications and XBRL data files for financial reporting - The filing includes CEO and CAO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350 (Sarbanes-Oxley Act of 2002)[134] - XBRL data files, including the Instance Document and various taxonomy extension documents, are included as exhibits[134]