Associated Capital Group(AC) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements The company's unaudited financial statements for the nine months ended September 30, 2019, show a significant turnaround to net income driven by investment gains Condensed Consolidated Statements of Financial Condition Total assets and stockholders' equity increased as of September 30, 2019, primarily due to a rise in investments in securities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $993,125 | $954,433 | | Cash and cash equivalents | $350,934 | $409,564 | | Investments in securities | $245,063 | $179,011 | | Total Liabilities | $54,629 | $38,385 | | Securities sold, not yet purchased | $25,475 | $9,574 | | Total Stockholders' Equity | $888,797 | $866,248 | Condensed Consolidated Statements of Income The company reversed a prior-year net loss to achieve net income in Q3 and the first nine months of 2019, driven by substantial net gains from investments Q3 2019 vs Q3 2018 Financial Performance (in thousands, except EPS) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | Total Revenues | $5,118 | $4,666 | | Operating Loss | $(3,009) | $(3,499) | | Net gain/(loss) from investments | $7,606 | $(7,977) | | Net Income/(Loss) to Shareholders | $5,951 | $(7,379) | | Diluted EPS | $0.26 | $(0.32) | Nine Months 2019 vs 2018 Financial Performance (in thousands, except EPS) | Metric | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Total Revenues | $14,591 | $14,165 | | Operating Loss | $(14,036) | $(11,195) | | Net gain/(loss) from investments | $42,351 | $(18,936) | | Net Income/(Loss) to Shareholders | $28,166 | $(17,784) | | Diluted EPS | $1.25 | $(0.77) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased significantly in the first nine months of 2019, leading to an overall decrease in cash and cash equivalents Nine-Month Cash Flow Summary (in thousands) | Activity | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Net cash from Operating Activities | $(44,828) | $4,617 | | Net cash from Investing Activities | $(3,591) | $15,000 | | Net cash from Financing Activities | $(10,211) | $36,111 | | Net (Decrease)/Increase in Cash | $(58,630) | $55,728 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, segment information, investment valuations, equity activities, and a significant subsequent corporate restructuring - The company's business includes alternative investment management, institutional research and underwriting services, and direct investments in operating businesses[14][16][17] Revenue Breakdown (in thousands) | Revenue Source | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Investment advisory & incentive fees | $2,753 | $2,805 | $8,199 | $7,949 | | Institutional research services | $2,354 | $1,855 | $6,343 | $6,179 | | Other | $11 | $6 | $49 | $37 | | Total | $5,118 | $4,666 | $14,591 | $14,165 | - During the nine months ended September 30, 2019, the company declared dividends of $0.10 per share and repurchased approximately 89,000 shares for $3.4 million[76][77] - Subsequent to the quarter end, the company's subsidiary G.research was acquired by Morgan Group Holding Co, with AC now holding an 83.3% ownership interest in the combined entity[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the significant improvement in net income to positive investment portfolio performance, which offset operating losses and supported AUM growth Business Overview The company operates across Event-Driven Asset Management, Institutional Research Services, and a Direct Investing Business - The core event-driven asset management strategy returned an unleveraged +3.51% net of fees for the first nine months of 2019, benefiting from global M&A activity[100] - The direct investment business is being developed through three pillars: Gabelli Private Equity Partners, LLC (GPEP), special purpose acquisition vehicles (SPACs), and Gabelli Principal Strategies Group, LLC (GPS)[107] Results of Operations The shift to net income in 2019 was driven by substantial investment gains that contrasted sharply with investment losses from the prior year - Q3 2019 net income was $5.9 million, or $0.26 per share, compared to a net loss of $7.4 million, or $0.32 per share, in Q3 2018, driven by mark-to-market changes in the investment portfolio[118] - Nine-month 2019 net income was $28.2 million, or $1.25 per share, compared to a net loss of $17.8 million, or $0.77 per share, in the prior year period, also due to investment portfolio gains[126] - Compensation expense decreased in both the three-month and nine-month periods of 2019 compared to 2018, primarily due to lower discretionary bonus accruals and variable compensation[123][131] Assets Under Management (AUM) Total AUM grew 8.6% to $1.651 billion in the first nine months of 2019, driven by market appreciation and net inflows AUM by Strategy (in millions) | Strategy | Sep 30, 2019 | Dec 31, 2018 | % Change | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,466 | $1,342 | 9.2% | | Event-Driven Value | $128 | $118 | 8.5% | | Other | $57 | $60 | (5.0)% | | Total AUM | $1,651 | $1,520 | 8.6% | Nine-Month Fund Flows (in millions) | Metric | Amount | | :--- | :--- | | AUM at Dec 31, 2018 | $1,520 | | Market appreciation | $40 | | Net cash flows | $91 | | AUM at Sep 30, 2019 | $1,651 | Liquidity and Capital Resources The company maintained a strong liquidity position, although net cash was used in operations, while its broker-dealer subsidiary remained well-capitalized - The company's broker-dealer subsidiary, G.research, had net capital of $3.9 million, significantly exceeding its minimum requirement of $250,000[146] 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[149] Item 4. Controls and Procedures Management identified and is remediating a material weakness in internal control over financial reporting related to insufficient segregation of duties - A material weakness in internal control over financial reporting was identified due to personnel turnover, resulting in insufficient segregation of duties[150][151] - Remediation steps taken include appointing additional qualified personnel and assigning distinct preparation and review responsibilities[154] - As of September 30, 2019, the material weakness has not been fully remediated, and thus internal control over financial reporting was not considered effective[155] PART II. OTHER INFORMATION Item 1. Legal Proceedings Management does not believe potential losses from any current legal proceedings would materially impact the company's financial condition - Management believes that potential losses from legal proceedings are not material to the Company's financial condition, results of operations, or cash flows at September 30, 2019[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 36,000 shares of its Class A Common Stock during the third quarter of 2019 Q3 2019 Share Repurchases | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2019 | 17,392 | $37.90 | | August 2019 | 8,574 | $35.82 | | September 2019 | 10,528 | $35.61 | | Total Q3 | 36,494 | $36.75 | Item 6. Exhibits This section lists the required Sarbanes-Oxley certifications and interactive data files filed with the report - Exhibits filed include CEO and CAO certifications pursuant to the Sarbanes-Oxley Act, as well as XBRL instance and taxonomy documents[163]