Associated Capital Group(AC) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents Associated Capital Group, Inc.'s unaudited interim financial statements as of June 30, 2020, including key financial statements and detailed accounting policy notes Condensed Consolidated Statements of Financial Condition As of June 30, 2020, total assets decreased to $926.6 million from $1.01 billion, primarily due to reduced cash, while total equity also declined to $852.7 million Condensed Consolidated Statements of Financial Condition (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $926,624 | $1,010,906 | | Cash and cash equivalents | $74,405 | $348,588 | | Investments in debt securities | $319,376 | $29,037 | | Investments in equity securities | $198,325 | $271,320 | | Total Liabilities | $26,759 | $63,086 | | Total Equity | $852,687 | $897,435 | Condensed Consolidated Statements of Income For the six months ended June 30, 2020, the company reported a net loss of $38.1 million, a reversal from prior-year net income, primarily driven by a $50.4 million net loss from investments Key Income Statement Data (in thousands, except per share data) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total Revenues | $7,506 | $9,473 | | Operating Loss | $(5,238) | $(11,027) | | Net (Loss)/Gain from Investments | $(50,376) | $34,745 | | Net (Loss)/Income Attributable to ACG | $(38,118) | $22,215 | | Diluted EPS | $(1.70) | $0.98 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2020, net cash used in operating activities significantly increased to $255.0 million, leading to a $274.2 million net decrease in cash and cash equivalents Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(254,967) | $(36,080) | | Net cash used in investing activities | $(10,016) | $(3,856) | | Net cash used in financing activities | $(9,200) | $(8,126) | | Net decrease in cash | $(274,183) | $(48,062) | | Cash at end of period | $74,405 | $361,564 | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies, business segments including alternative investment management and institutional research, the Morgan Group spin-off, revenue recognition, investment details, and stockholders' equity - The company's business includes alternative investment management through GCIA, institutional research and underwriting through G.research, and proprietary trading[15][16][17] - The company announced the spin-off of Morgan Group Holding Co. to its shareholders, with a distribution date of August 5, 2020[20][21] Total Revenues by Type (Six Months Ended June 30, in thousands) | Revenue Type | 2020 | 2019 | | :--- | :--- | :--- | | Investment advisory and incentive fees | $4,559 | $5,446 | | Institutional research services | $2,478 | $3,989 | | Other | $469 | $38 | | Total | $7,506 | $9,473 | - During Q2 2020, the company declared a dividend of $0.10 per share and repurchased approximately 31,000 shares for $1.1 million[81][82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, including revenue and net loss drivers, the impact of COVID-19, and the Morgan Group spin-off, noting a substantial decrease in AUM - The company's alternative investment strategies focus on event-driven special situations and merger arbitrage, achieving a gross return of 6.7% for Q2 2020[101] - The spin-off of Morgan Group to AC shareholders was approved, with a record date of July 30, 2020, and a distribution date of August 5, 2020[105] - The COVID-19 pandemic led to significant market volatility, adversely affecting AUM and revenues, though remote work arrangements have not materially impacted operations[109][110] Assets Under Management (in millions) | Strategy | June 30, 2020 | Dec 31, 2019 | % Change | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,147 | $1,525 | (24.8)% | | Event-Driven Value | $104 | $132 | (21.2)% | | Other | $54 | $59 | (8.5)% | | Total AUM | $1,305 | $1,716 | (24.0)% | Quantitative and Qualitative Disclosures About Market Risk This section is omitted as the company, a smaller reporting entity, is not required to provide market risk disclosures - As a smaller reporting company, Associated Capital Group, Inc. is not required to provide quantitative and qualitative disclosures about market risk[150] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2020, due to a material weakness in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting[151] - The material weakness stemmed from insufficient personnel with technical accounting skills, leading to a lack of segregation of duties between financial statement preparation and senior management review[157] - Remediation steps include appointing additional qualified personnel, assigning new preparation and review responsibilities, and searching for more finance staff[160] PART II. OTHER INFORMATION Legal Proceedings The company may be involved in various legal actions and regulatory examinations from time to time, but management believes any potential losses are not material to its financial condition or results of operations - Management believes that any probable or reasonably possible losses from legal proceedings are not material to the company's financial condition as of June 30, 2020[163] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of its Class A Common Stock during the second quarter of 2020, totaling 30,957 shares at an average price of $34.51 per share Share Repurchases for Q2 2020 | Period | Total Shares Repurchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | April 2020 | 6,049 | $34.77 | | May 2020 | 16,622 | $34.33 | | June 2020 | 8,286 | $34.66 | | Total | 30,957 | $34.51 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CAO certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL documents - The report includes required certifications from the CEO and CAO under Rules 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as XBRL data files[166]