Associated Capital Group(AC) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reporting period Item 1. Unaudited Condensed Consolidated Financial Statements The unaudited financial statements for Q1 2021 show a significant net income turnaround driven by investment gains and stable total assets Condensed Consolidated Statements of Financial Condition Total assets slightly decreased to $1.171 billion, while total equity increased to $915.7 million as of March 31, 2021 Key Balance Sheet Items (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $279,725 | $39,509 | | Investments in U.S. Treasury Bills | $75,000 | $344,453 | | Total assets | $1,171,266 | $1,174,545 | | Liabilities & Equity | | | | Total liabilities | $60,450 | $66,328 | | Total equity | $915,746 | $901,389 | | Total liabilities and equity | $1,171,266 | $1,174,545 | Condensed Consolidated Statements of Income The company reported a net income of $18.6 million for Q1 2021, a significant improvement driven by investment gains Income Statement Summary (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Total revenues | $2,325 | $2,962 | | Total expenses | $8,690 | $3,602 | | Operating loss | $(6,365) | $(640) | | Net gain/(loss) from investments | $31,321 | $(102,089) | | Net income/(loss) attributable to ACG | $18,555 | $(73,355) | | Diluted EPS | $0.83 | $(3.27) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $243.6 million, ending Q1 2021 with $279.7 million in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $243,568 | $27,535 | | Net cash provided by/(used in) investing activities | $710 | $(10,607) | | Net cash (used in) financing activities | $(4,062) | $(6,004) | | Net increase in cash | $240,216 | $10,006 | | Cash at end of period | $279,725 | $352,007 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, significant disclosures including SPAC consolidation, revenue breakdown, and subsequent events - The company sponsored the $175 million IPO of its SPAC, PMV Consumer Acquisition Corp. (NYSE:PMVC), in September 2020[33][34] - AC consolidates PMV as it is the primary beneficiary of the Sponsor VIE, resulting in the consolidation of $177.4 million of assets and $154.5 million of redeemable noncontrolling interests as of March 31, 2021[35] - The spin-off of Morgan Group Holding Co. was completed on August 5, 2020, with its historical financial results presented as discontinued operations through March 31, 2020[39][40][96] Revenue Breakdown (in thousands) | Revenue Source | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Asset-based advisory fees | $1,183 | $1,820 | | Performance-based advisory fees | $9 | $0 | | Sub-advisory fees | $1,033 | $880 | | Total Inv. advisory & incentive fees | $2,225 | $2,700 | - For the three months ended March 31, 2021, the company repurchased 0.1 million shares at an average price of $35.24 per share for a total of $4.2 million[89][90] - As of March 31, 2021, 774,015 shares remained available for repurchase under the program[90] - Subsequent to the quarter's end, on May 5, 2021, the board declared a semi-annual dividend of $0.10 per share[101] - Between April 1 and May 6, 2021, the company repurchased another 40,229 shares[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q1 2021 financial performance, highlighting net income growth from investment gains and AUM increase Results of Operations Operating loss widened to $6.4 million due to increased expenses, but overall profitability was driven by significant investment gains - The primary reason for the shift from a net loss of $73.4 million in Q1 2020 to a net income of $18.6 million in Q1 2021 was the mark-to-market changes in the investment portfolio, resulting in a gain of $30.7 million in 'Other income' versus a loss of $100.1 million in the prior year[125] - Compensation expense rose to $3.9 million from $2.2 million year-over-year, largely due to an increase in stock-based compensation from $(0.8) million to $0.4 million, reflecting the recovery of AC's stock price[127] - A management fee expense of $2.7 million was recorded in Q1 2021, payable to the Executive Chairman based on 10% of aggregate pre-tax profits, with no such fee recorded in Q1 2020 due to a pre-tax loss[128] Assets Under Management Assets Under Management reached $1.495 billion, increasing 10.7% from year-end 2020 due to net inflows and market appreciation AUM by Strategy (in millions) | Strategy | March 31, 2021 | Dec 31, 2020 | March 31, 2020 | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,253 | $1,126 | $1,312 | | Event-Driven Value | $196 | $180 | $112 | | Other | $46 | $45 | $49 | | Total AUM | $1,495 | $1,351 | $1,473 | AUM Flow for Q1 2021 (in millions) | Metric | Amount | | :--- | :--- | | AUM at Dec 31, 2020 | $1,351 | | Market appreciation | $33 | | Net cash flows | $111 | | AUM at March 31, 2021 | $1,495 | Liquidity and Capital Resources The company maintains a strong liquidity position with $279.7 million in cash and significant operating cash flow - The company ended Q1 2021 with cash and cash equivalents of $279.7 million, Investments in U.S. Treasury Bills of $75.0 million, and $566.7 million of investments net of securities sold short[136] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from providing quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company - The company is exempt from providing quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company[141] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in internal control over financial reporting, with remediation ongoing - Management concluded that disclosure controls and procedures were not effective as of March 31, 2021, due to a material weakness in internal control over financial reporting[142] - The material weakness, identified in 2019, was caused by insufficient personnel with technical accounting skills, leading to a lack of segregation of duties between financial statement preparation and senior management review[147] - Remediation steps include hiring additional qualified personnel, assigning distinct preparation and review responsibilities, and documenting these processes[150] - The material weakness will not be considered fully remediated until the new controls have operated effectively for a sufficient period[150] PART II. OTHER INFORMATION This section details legal proceedings, unregistered sales of equity securities, and a list of exhibits filed with the report Item 1. Legal Proceedings As of March 31, 2021, the company is not subject to any legal proceedings expected to materially impact its financial condition or operations - As of March 31, 2021, the company is not subject to any legal proceedings where a claim for damages exceeds 10% of its consolidated assets[153] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2021, the company repurchased 119,087 shares of its Class A Stock at an average price of $35.24 per share Class A Stock Repurchases for Q1 2021 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2021 | 28,026 | $34.84 | | Feb 2021 | 33,792 | $35.35 | | Mar 2021 | 57,269 | $35.39 | | Total | 119,087 | $35.24 | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data files