Associated Capital Group(AC) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the unaudited interim financial statements for Associated Capital Group, Inc. as of June 30, 2019 Condensed Consolidated Statements of Financial Condition Total assets increased to $1.004 billion from $954.4 million, driven by investments, while liabilities rose to $70.3 million Condensed Consolidated Statements of Financial Condition (in thousands) | Account | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,004,160 | $954,433 | | Cash and cash equivalents | $361,564 | $409,564 | | Investments in securities | $260,608 | $179,011 | | Total Liabilities | $70,304 | $38,385 | | Securities sold, not yet purchased | $46,010 | $9,574 | | Total Stockholders' Equity | $884,188 | $866,248 | Condensed Consolidated Statements of Income Q2 2019 saw a net loss of $0.9 million due to investment performance, but H1 2019 reported net income of $22.2 million from strong gains Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Q2 2019 (in thousands) | Q2 2018 (in thousands) | Six Months 2019 (in thousands) | Six Months 2018 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $4,821 | $4,796 | $9,473 | $9,499 | | Operating Loss | $(3,151) | $(3,446) | $(11,027) | $(7,696) | | Net gain/(loss) from investments | $(234) | $16,571 | $34,745 | $(10,959) | | Net income/(loss) attributable to ACG | $(932) | $11,824 | $22,215 | $(10,405) | | Diluted EPS | $(0.04) | $0.51 | $0.98 | $(0.45) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $36.1 million for H1 2019, contributing to a $48.1 million overall decrease in cash and equivalents Summary of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(36,080) | $(51,568) | | Net cash provided by (used in) investing activities | $(3,856) | $15,000 | | Net cash provided by (used in) financing activities | $(8,126) | $17,179 | | Net (decrease) in cash and cash equivalents | $(48,062) | $(19,389) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, revenue recognition, investments, and equity transactions, providing context for financial results - The company's primary business activities are alternative investment management through Gabelli & Company Investment Advisers, Inc. (GCIA) and institutional research and underwriting services through G.research, LLC[13][15][16] Total Revenues by Type (Six Months Ended June 30, in thousands) | Revenue Source | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Investment advisory and incentive fees | $5,446 | $5,144 | | Institutional research services | $3,989 | $4,324 | | Other | $38 | $31 | | Total | $9,473 | $9,499 | - The company declared dividends of $0.10 per share to both class A and class B shareholders during Q2 2019, consistent with the prior year[77] - In Q2 2019, the company repurchased approximately 43,000 shares for $1.6 million. This is a decrease from Q2 2018 when 141,000 shares were repurchased for $5.4 million[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and operations, covering business segments, operating results, AUM, and liquidity Overview The company provides alternative investment management, institutional research, and proprietary investment income, with a proposed merger for G.research - The event-driven asset management business, focusing on merger arbitrage, returned +2.2% net of fees for the first half of 2019, benefiting from global M&A activity[100] - A proposed merger transaction was approved by the board on June 17, 2019, where Morgan Group Holding, Co. would acquire G.research. The transaction is pending definitive agreements and regulatory approvals[102] - The direct investment business is developing through three pillars: Gabelli Private Equity Partners, LLC (GPEP), special purpose acquisition vehicles (SPACs), and Gabelli Principal Strategies Group, LLC (GPS)[109] Results of Operations Q2 2019 net loss of $0.9 million contrasts with H1 2019 net income of $22.2 million, driven by investment performance fluctuations - Q2 2019 vs Q2 2018: The decrease in profitability was primarily driven by a net investment loss of $(0.2) million compared to a gain of $16.6 million in the prior-year quarter, reflecting mark-to-market changes[122][129] - Six Months 2019 vs 2018: The significant increase in net income was mainly due to investment gains of $34.7 million in H1 2019 versus an $11.0 million loss in H1 2018[131][140] - Other operating expenses for the first six months of 2019 increased by $3.4 million to $8.3 million, primarily due to expenses from a consolidated fund launched in a prior year[139] Assets Under Management AUM increased to $1.607 billion as of June 30, 2019, reflecting market appreciation and net inflows in the first half of the year AUM by Strategy (in millions) | Strategy | June 30, 2019 (in millions) | Dec 31, 2018 (in millions) | June 30, 2018 (in millions) | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,422 | $1,342 | $1,480 | | Event-Driven Value | $127 | $118 | $87 | | Other | $58 | $60 | $66 | | Total AUM | $1,607 | $1,520 | $1,633 | Fund Flows for Six Months Ended June 30, 2019 (in millions) | Metric | Amount (in millions) | | :--- | :--- | | AUM at Dec 31, 2018 | $1,520 | | Market appreciation | $52 | | Net flows | $35 | | AUM at June 30, 2019 | $1,607 | Liquidity and Capital Resources The company maintains a strong liquid position with $362 million in cash, despite a $48.1 million net cash outflow in H1 2019 - The company's registered broker-dealer subsidiary, G.research, had net capital of $4.3 million, exceeding its minimum requirement of $250,000 by $4.1 million as of June 30, 2019[151] - Net cash used in operating activities was $36.1 million for H1 2019. Investing activities used $3.9 million, mainly for the purchase of a building. Financing activities used $8.1 million, largely for dividends and stock buybacks[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is omitted as the company qualifies as a smaller reporting company - As a smaller reporting company, this information is not required to be provided[154] Item 4. Controls and Procedures A material weakness in internal control over financial reporting was identified due to personnel turnover, impacting separation of duties - A material weakness in internal control over financial reporting was identified as of June 30, 2019[155] - The weakness resulted from turnover in the accounting department, which prevented sufficient separation between the preparation and senior management review of interim financial statements[156] - As a result of the material weakness, management concluded that internal controls over financial reporting were not effective as of the period end[158] PART II. OTHER INFORMATION Item 1. Legal Proceedings Management believes current legal and regulatory matters will not materially impact the company's financial condition or results of operations - Management does not believe that any current legal proceedings or regulatory matters will have a material impact on the company's financial condition, results of operations, or cash flows[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 42,613 shares of Class A Common Stock at an average price of $38.15 per share during Q2 2019 Share Repurchases (Q2 2019) | Period | Total Shares Repurchased (in shares) | Average Price Paid Per Share (in dollars) | | :--- | :--- | :--- | | April 2019 | 21,428 | $39.57 | | May 2019 | 5,693 | $38.86 | | June 2019 | 15,492 | $36.11 | | Total | 42,613 | $38.15 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CAO certifications and XBRL data files