Associated Capital Group(AC) - 2020 Q1 - Quarterly Report

PART I Item 1. Unaudited Condensed Consolidated Financial Statements Unaudited condensed consolidated financial statements for Associated Capital Group, Inc. as of March 31, 2020, are presented Condensed Consolidated Statements of Financial Condition Total assets decreased to $904.1 million from $1.01 billion, primarily due to investment declines Condensed Consolidated Statements of Financial Condition (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $904,090 | $1,010,906 | | Cash and cash equivalents | $358,594 | $348,588 | | Investments in securities | $222,807 | $300,357 | | Investments in affiliated registered investment companies | $121,734 | $159,311 | | Total Liabilities | $37,378 | $63,086 | | Compensation payable | $5,665 | $20,246 | | Total Equity | $820,803 | $897,435 | Condensed Consolidated Statements of Income The company reported a net loss of $77.4 million in Q1 2020, driven by a $102.1 million investment loss Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenues | $4,369 | $4,652 | | Total Expenses | $5,464 | $12,528 | | Operating Loss | $(1,095) | $(7,876) | | Net gain/(loss) from investments | $(102,090) | $34,979 | | Net Income/(Loss) | $(77,352) | $24,654 | | Net Income/(Loss) Attributable to ACG Shareholders | $(73,355) | $23,147 | | Diluted EPS | $(3.27) | $1.02 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities was $26.6 million in Q1 2020, leading to a $10.0 million increase in cash Summary of Cash Flows (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $26,617 | $(12,705) | | Net cash (used in) provided by investing activities | $(10,607) | $2,337 | | Net cash used in financing activities | $(6,004) | $(3,176) | | Net increase (decrease) in cash | $10,006 | $(13,544) | | Cash and cash equivalents at end of period | $358,594 | $396,220 | - The primary use of cash in investing activities during Q1 2020 was an $11.1 million purchase of a building[14] Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, business structure, revenue recognition, investment composition, and stockholders' equity - The company's business includes alternative investment management (GCIA), institutional research and underwriting (G.research), and direct investments, including SPACs[16][17][18] - On March 16, 2020, the Board of Directors approved the spin-off of Morgan Group Holding Co. to AC's shareholders[22] Total Revenues by Type (in thousands) | Revenue Source | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Investment advisory and incentive fees | $2,700 | $2,733 | | Institutional research services | $1,374 | $1,913 | | Other | $295 | $6 | | Total | $4,369 | $4,652 | - In Q1 2020, the company repurchased approximately 82,000 shares for $3.2 million; subsequently, an additional 16,749 shares were repurchased for an average price of $35.08 per share from April 1 to May 11, 2020[69][82] - On May 5, 2020, the company declared a semi-annual dividend of $0.10 per share, payable on June 30, 2020[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2020 financial performance, highlighting a net loss of $73.4 million due to investment losses - The operating loss for Q1 2020 decreased to $1.1 million from $7.9 million in Q1 2019, driven by lower compensation, the absence of a management fee, and reduced operating expenses[110] - The company reported a net loss of $73.4 million ($3.27 per share) in Q1 2020, compared to net income of $23.1 million ($1.02 per share) in Q1 2019, mainly due to a $102.1 million investment loss[110][119] - The COVID-19 pandemic led to significant market volatility, causing the worst first quarter for stocks since 1937 and adversely impacting the company's investments and AUM[96][97] - As of March 31, 2020, the company had approximately $823 million in cash and investments, providing flexibility for strategic objectives[106] Results of Operations Total revenues slightly decreased to $4.4 million, while total expenses significantly reduced to $5.5 million - Institutional research services revenues decreased by $0.5 million due to the termination of research agreements with GAMCO Assets and Gabelli Funds, Inc. and lower commissions[114] - Compensation expense decreased to $4.2 million from $5.9 million, driven by lower fixed compensation and variable payouts[115] - No management fee expense was recorded for Q1 2020 due to a pre-tax loss, compared to a $3.3 million expense in Q1 2019[117] Assets Under Management (AUM) Total Assets Under Management (AUM) decreased to $1.473 billion due to market depreciation and net cash outflows AUM by Strategy (in millions) | Strategy | March 31, 2020 | Dec 31, 2019 | March 31, 2019 | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,312 | $1,525 | $1,401 | | Event-Driven Value | $112 | $132 | $127 | | Other | $49 | $59 | $63 | | Total AUM | $1,473 | $1,716 | $1,591 | Q1 2020 AUM Fund Flow (in millions) | Metric | Amount | | :--- | :--- | | AUM at Dec 31, 2019 | $1,716 | | Market depreciation | $(154) | | Net cash flows | $(89) | | AUM at March 31, 2020 | $1,473 | Liquidity and Capital Resources The company maintains a highly liquid balance sheet with $359 million in cash and $464 million in net investments - The company's principal assets are highly liquid, consisting of cash, cash equivalents, and marketable securities[126] - G.research, a registered broker-dealer subsidiary, had net capital of $4.3 million, which was $4.1 million in excess of its required minimum of $250,000[131] 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[133] Item 4. Controls and Procedures Disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2020[133] - A material weakness in internal control over financial reporting was identified, caused by insufficient personnel with technical accounting skills and a lack of segregation of duties[139] - A remediation plan is underway, which includes appointing additional qualified personnel, assigning new review responsibilities, and searching for more finance staff[141] PART II Item 1. Legal Proceedings Management believes potential losses from legal proceedings are not material to the company's financial condition - Management believes that any potential losses from legal proceedings are not material to the company's financial condition as of March 31, 2020[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of 81,791 Class A Common Stock shares during Q1 2020 Share Repurchases for Q1 2020 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2020 | 17,929 | $46.46 | | Feb 2020 | 33,452 | $41.51 | | Mar 2020 | 30,410 | $33.01 | | Total | 81,791 | $39.43 | Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CAO certifications and XBRL data files - The exhibits include CEO and CAO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, along with XBRL instance and taxonomy documents[147]