Associated Capital Group(AC) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements present the financial position, results of operations, comprehensive income, changes in equity, and cash flows for Associated Capital Group, Inc. as of and for the three and nine months ended September 30, 2020, reflecting the consolidation of PMV Consumer Acquisition Corp. SPAC and the spin-off of Morgan Group Holding Co. as discontinued operations Condensed Consolidated Statements of Financial Condition - Total assets increased to $1.10 billion as of September 30, 2020, from $1.01 billion at December 31, 2019, largely driven by the consolidation of a Special Purpose Acquisition Corporation (SPAC), which added $175 million in 'Investments in government securities held in trust'[4] Condensed Consolidated Balance Sheet (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $47,331 | $342,001 | | Investments in government securities | $330,942 | $29,037 | | Investments in equity securities | $213,586 | $271,320 | | Investments in government securities held in trust | $175,002 | $0 | | Total Assets | $1,100,611 | $1,010,906 | | Liabilities & Equity | | | | Total liabilities | $42,280 | $63,086 | | Redeemable noncontrolling interests | $204,164 | $50,385 | | Total Associated Capital Group, Inc. equity | $852,095 | $896,432 | | Total Liabilities and Equity | $1,100,611 | $1,010,906 | Condensed Consolidated Statements of Income - For the nine months ended September 30, 2020, the company reported a net loss of $32.3 million, a significant reversal from a net income of $28.2 million in the same period of 2019, primarily driven by a net loss from investments of $34.8 million in 2020 compared to a net gain of $42.4 million in 2019[7] Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,945 | $2,754 | $6,974 | $8,211 | | Operating Loss | ($3,552) | ($2,593) | ($7,853) | ($11,148) | | Net Gain/(Loss) from Investments | $15,603 | $7,613 | ($34,770) | $42,358 | | Net Income/(Loss) Attributable to ACG | $5,815 | $5,951 | ($32,303) | $28,166 | | Diluted EPS - Total | $0.26 | $0.26 | ($1.44) | $1.25 | Condensed Consolidated Statements of Cash Flows - Cash and cash equivalents decreased by $294.7 million during the first nine months of 2020, ending the period at $47.3 million, primarily due to significant cash used in operating activities ($272.2 million) from investments in trading securities and investing activities ($176.8 million) related to the funding of a SPAC trust account[13][15] Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($272,203) | ($42,321) | | Net cash used in investing activities | ($176,792) | ($3,591) | | Net cash provided by (used in) financing activities | $154,211 | ($10,211) | | Net decrease in cash and cash equivalents | ($294,670) | ($58,630) | Notes to Condensed Consolidated Financial Statements - On September 22, 2020, the company's SPAC, PMV Consumer Acquisition Corp., completed a $175 million IPO, leading AC to consolidate PMV, which significantly impacts the balance sheet by adding assets held in trust and redeemable noncontrolling interests[20][22][52] - On August 5, 2020, the company completed the spin-off of Morgan Group Holding Co. to its shareholders, with its historical financial results now presented as discontinued operations[26][27][87] Revenue Breakdown - Nine Months Ended Sep 30 (in thousands) | Revenue Type | 2020 | 2019 | | :--- | :--- | :--- | | Asset-based advisory fees | $4,284 | $5,208 | | Performance-based advisory fees | $8 | $61 | | Sub-advisory fees | $2,132 | $2,930 | | Total Investment advisory and incentive fees | $6,424 | $8,199 | - The company declared dividends of $0.10 per share for the nine months ended September 30, 2020 and repurchased approximately 143,000 shares for $5.4 million during the same period[76] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a year-to-date operating loss of $7.9 million, an improvement from an $11.1 million loss in the prior year, despite lower revenues, with the overall net loss driven by mark-to-market losses on the investment portfolio, and key strategic developments including the spin-off of Morgan Group Holding Co. and the successful $175 million IPO of the PMV Consumer Acquisition Corp. SPAC, while Assets Under Management (AUM) declined to $1.25 billion due to market depreciation and redemptions Results of Operations - Q3 2020 vs Q3 2019: The operating loss widened to $3.6 million from $2.6 million, driven by lower revenues and higher operating expenses, however, higher net investment gains of $15.6 million (vs. $7.6 million in Q3 2019) resulted in income from continuing operations of $6.0 million, comparable to the prior year[123][130] - Nine Months 2020 vs 2019: The operating loss narrowed to $7.9 million from $11.1 million due to lower compensation and the absence of a management fee expense, however, a significant swing in investment performance from a $42.4 million gain in 2019 to a $34.8 million loss in 2020 led to a net loss from continuing operations of $31.7 million[132][138] Key Performance Indicators (in thousands) | Metric | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Total Revenues | $6,974 | $8,211 | | Total Expenses | $14,827 | $19,359 | | Operating Loss | ($7,853) | ($11,148) | | Net (Loss)/Gain from Investments | ($34,770) | $42,358 | | Net (Loss)/Income from Continuing Operations | ($31,671) | $30,307 | Assets Under Management - Total Assets Under Management (AUM) decreased to $1.25 billion as of September 30, 2020, a 27.1% decline from year-end 2019, attributed to market depreciation and investor redemptions[142] AUM by Strategy (in millions) | Strategy | Sep 30, 2020 | Dec 31, 2019 | % Change | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,091 | $1,525 | (28.5)% | | Event-Driven Value | $105 | $132 | (20.5)% | | Other | $55 | $59 | (6.8)% | | Total AUM | $1,251 | $1,716 | (27.1)% | Liquidity and Capital Resources - The company's cash and cash equivalents decreased significantly to $47.3 million from $342.0 million at the start of the year, mainly due to cash used in operations for purchasing trading securities ($283.1 million) and cash used in investing for funding the PMV SPAC trust account ($175 million)[147][148] - Financing activities provided $154.2 million in cash, primarily from $162.6 million in contributions from redeemable non-controlling interests related to the SPAC IPO, which offset cash used for dividends ($4.5 million) and stock buybacks ($5.4 million)[148] Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide this information - As a smaller reporting company, this information is not required to be provided[152] Controls and Procedures Management concluded that as of September 30, 2020, the company's disclosure controls and procedures were not effective, based on a material weakness in internal control over financial reporting identified in 2019, relating to insufficient personnel with technical accounting skills and a lack of segregation of duties, with a remediation plan in progress - Management identified a material weakness in internal control over financial reporting, concluding that controls were not effective as of September 30, 2020[153][158] - The material weakness stems from not having sufficient personnel with technical accounting skills, leading to a lack of segregation of duties between financial statement preparation and senior management review[159] - Remediation steps include appointing additional qualified personnel, assigning distinct preparation and review responsibilities, and searching for more finance staff, though the weakness is not yet considered fully remediated[162][163] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various legal actions and regulatory examinations from time to time, but management believes any potential losses are not material to the company's financial condition or results of operations as of September 30, 2020 - 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[165] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2020, the company repurchased a total of 29,737 shares of its Class A Common Stock at an average price of $37.03 per share under its publicly announced repurchase program Share Repurchases for Q3 2020 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jul 2020 | 804 | $35.94 | | Aug 2020 | 8,607 | $38.11 | | Sep 2020 | 20,326 | $36.62 | | Total | 29,737 | $37.03 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CAO certifications and XBRL data files - The filing includes required certifications from the CEO and CAO pursuant to Sarbanes-Oxley Act rules, as well as XBRL interactive data files[168]