Associated Capital Group(AC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Associated Capital Group, Inc. show increased assets and a significant net income turnaround driven by investment gains Condensed Consolidated Statements of Financial Condition As of June 30, 2021, total assets increased to $1.208 billion, driven by higher cash and equity investments, with corresponding increases in liabilities and equity Condensed Consolidated Statements of Financial Condition (in thousands) | Account | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,207,951 | $1,174,545 | | Cash and cash equivalents | $269,271 | $39,509 | | Investments in equity securities | $284,916 | $249,887 | | Investments in U.S. Treasury Bills | $74,993 | $344,453 | | Total Liabilities | $78,917 | $66,328 | | Total Equity | $932,465 | $901,389 | Condensed Consolidated Statements of Income For the six months ended June 30, 2021, net income attributable to shareholders was $48.3 million, a significant turnaround from a prior-year loss, primarily due to substantial investment gains Key Income Statement Data (in thousands) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,489 | $2,067 | $4,814 | $5,029 | | Operating loss | $(10,411) | $(3,661) | $(16,776) | $(4,301) | | Net gain/(loss) from investments | $42,306 | $51,685 | $73,627 | $(50,404) | | Net income/(loss) attributable to AC | $29,716 | $35,237 | $48,271 | $(38,118) | | Diluted EPS | $1.34 | $1.57 | $2.18 | $(1.70) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash provided by operating activities significantly reversed to $231.7 million, leading to a substantial increase in cash and cash equivalents Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $231,661 | $(253,046) | | Net cash provided by/(used in) investing activities | $5,602 | $(10,016) | | Net cash provided by (used in) financing activities | $(7,501) | $(9,200) | | Net increase in cash and cash equivalents | $229,762 | $(272,262) | | Cash and cash equivalents at end of period | $269,271 | $69,739 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, investment portfolio composition, the impact of consolidating entities like the PMV SPAC, and disclosures on revenue, taxes, equity, and discontinued operations - The company provides alternative investment management services and derives income from proprietary investments. Key corporate events include the 2020 spin-off of Morgan Group and the sponsorship of PMV Consumer Acquisition Corp., a SPAC, which is consolidated in the financial statements[34][36][42] Revenue Breakdown (in thousands) | Revenue Source | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Asset-based advisory fees | $1,249 | $1,303 | $2,432 | $3,123 | | Sub-advisory fees | $1,092 | $555 | $2,125 | $1,435 | | Total Inv. advisory & incentive fees | $2,388 | $1,858 | $4,613 | $4,558 | - The consolidation of PMV SPAC and its Sponsor significantly impacts the balance sheet, adding $177.2 million in assets and $155.7 million in redeemable noncontrolling interests as of June 30, 2021[38][61] - The company's effective tax rate for the six months ended June 30, 2021 was 23.31%, differing from the 21% U.S. corporate rate primarily due to state/local taxes and the dividends received deduction[89] - During the six months ended June 30, 2021, the company repurchased 0.2 million shares for $6.1 million. As of June 30, 2021, 720,023 shares remained authorized for repurchase[109] - The spin-off of Morgan Group was completed on August 5, 2020. Its historical financial results are presented as discontinued operations. For the six months ended June 30, 2020, discontinued operations resulted in a net loss of $493,000 attributable to AC shareholders[43][113][114] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant improvement in net income for the first six months of 2021 to strong investment performance and AUM growth, while maintaining a robust liquidity position Results of Operations Q2 2021 net income decreased due to higher operating expenses, but the six-month period saw a significant net income turnaround driven by investment gains - Q2 2021 vs Q2 2020: The operating loss increased to $10.4 million from $3.7 million, primarily due to a $4.3 million increase in management fees and a $1.9 million rise in compensation costs[137] - Six Months 2021 vs 2020: The operating loss widened to $16.8 million from $4.3 million. However, a significant swing in investment performance (a $73.6 million gain vs a $50.4 million loss) led to net income of $48.3 million compared to a net loss of $38.1 million in the prior year[141] - Interest and dividend income for the six months of 2021 increased to $8.0 million from $3.5 million in 2020, mainly due to a special dividend from GAMCO holdings[145] Assets Under Management Total Assets Under Management (AUM) reached $1.611 billion as of June 30, 2021, driven by both market appreciation and significant net inflows Assets Under Management by Strategy (in millions) | Strategy | June 30, 2021 | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | :--- | | Event Merger Arbitrage | $1,364 | $1,126 | $1,147 | | Event-Driven Value | $201 | $180 | $104 | | Other | $46 | $45 | $54 | | Total AUM | $1,611 | $1,351 | $1,305 | - In Q2 2021, AUM increased by $116 million, resulting from $75 million in net cash flows and $41 million in market appreciation[149] Liquidity and Capital Resources The company maintains a strong liquidity position with substantial cash and investments, with operating activities generating significant cash in the first half of 2021 Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $231,661 | $(253,046) | | Investing activities | $5,602 | $(10,016) | | Financing activities | $(7,501) | $(9,200) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Associated Capital Group, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[156] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2021, due to a material weakness in internal control over financial reporting stemming from insufficient technical accounting personnel - Management concluded that disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness in internal control over financial reporting[157] - The material weakness, identified in 2019, was caused by insufficient personnel with technical accounting skills, resulting in a lack of segregation of duties[163] - Remediation steps include hiring additional qualified personnel and reassigning financial reporting responsibilities. The material weakness will not be considered remediated until the new controls operate effectively for a sufficient period[165] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any legal proceedings expected to have a material impact on its consolidated financial condition, operations, or cash flows - The company is not subject to any legal proceedings where a claim for damages exceeds 10% of its consolidated assets. Management believes any current matters are not material to the company's financial condition[169] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, the company repurchased 53,992 shares of its Class A Stock for approximately $1.9 million as part of its stock repurchase program Class A Stock Repurchases for Q2 2021 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2021 | 33,913 | $34.44 | | May 2021 | 14,639 | $35.73 | | June 2021 | 5,440 | $37.13 | | Total | 53,992 | $35.06 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - The report includes standard exhibits such as CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files (101 series)[174][175]