Associated Capital Group(AC) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Associated Capital Group, Inc. for the periods ended June 30, 2022, including statements of financial condition, income, comprehensive income, equity, and cash flows, along with detailed notes explaining the basis of presentation and significant accounting policies Condensed Consolidated Statements of Financial Condition The company's total assets decreased to $1.12 billion as of June 30, 2022, from $1.20 billion at December 31, 2021, primarily driven by a reduction in the value of investments in equity securities and partnerships, while total equity also declined from $935.3 million to $885.9 million over the same period Condensed Consolidated Statements of Financial Condition (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,120,015 | $1,203,336 | | Total Liabilities | $30,831 | $65,534 | | Redeemable noncontrolling interests | $203,327 | $202,456 | | Total Equity | $885,857 | $935,346 | | Total Liabilities and Equity | $1,120,015 | $1,203,336 | - The decrease in total assets was mainly due to a decline in the fair value of investments in equity securities, which fell from $273.1 million to $247.8 million, and investments in partnerships, which decreased from $154.5 million to $146.6 million[11] Condensed Consolidated Statements of Income The company reported a significant net loss of $29.9 million for Q2 2022, a sharp reversal from a net income of $29.7 million in Q2 2021, with the six-month net loss at $46.1 million in 2022 compared to a net income of $48.3 million in 2021, primarily driven by a substantial net loss from investments in 2022 versus a large gain in 2021 Condensed Consolidated Statements of Income (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,546 | $2,489 | $5,128 | $4,814 | | Operating Loss | $(2,211) | $(10,411) | $(5,517) | $(16,776) | | Net gain/(loss) from investments | $(37,803) | $42,306 | $(53,413) | $73,627 | | Net income/(loss) attributable to ACG | $(29,887) | $29,716 | $(46,073) | $48,271 | | Diluted EPS | $(1.36) | $1.34 | $(2.09) | $2.18 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities was $29.3 million, a significant decrease from $231.7 million in the same period of 2021, mainly due to a net loss in 2022 compared to net income in 2021 and smaller gains from changes in investments in trading securities, while net cash used in financing activities was $5.0 million, primarily for dividends and stock repurchases Summary of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,272 | $231,661 | | Net cash provided by/(used in) investing activities | $(2,865) | $5,602 | | Net cash used in financing activities | $(5,010) | $(7,501) | | Net increase in cash | $21,397 | $229,762 | Notes to the Condensed Consolidated Financial Statements The notes provide detailed disclosures on the company's organization, revenue streams, investment composition, consolidation of entities like the PMV SPAC, fair value measurements, income taxes, equity structure, and other commitments, including the consolidation of PMV Consumer Acquisition Corp. (a VIE), the breakdown of investment securities, and the status of the stock repurchase program - The company's business includes alternative investment management through its subsidiary GCIA and proprietary investment activities. It also consolidates PMV Consumer Acquisition Corp. (PMV), a special purpose acquisition corporation (SPAC)[24][25][27] - The company consolidates several Variable Interest Entities (VIEs) and Voting Interest Entities (VOEs). The consolidation of PMV and its sponsor resulted in the inclusion of $162.0 million of assets and $165.0 million of redeemable noncontrolling interests as of June 30, 2022[28][46] - The company's investments in equity securities include a significant holding of GAMCO Investors, Inc. (GBL) stock, valued at $50.5 million as of June 30, 2022[11] Stock Repurchase Activity (Q2 2022) | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | 9,332 | $39.17 | | May 2022 | 8,166 | $38.13 | | June 2022 | 17,794 | $35.97 | | Total Q2 | 35,292 | $37.32 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a shift from net income in 2021 to a net loss in 2022, primarily driven by mark-to-market losses on its investment portfolio amid market uncertainty, with Assets Under Management (AUM) increasing to $1.8 billion and the company maintaining a strong liquidity position with approximately $885 million in cash and investments - The company's business is divided into two main segments: Alternative Investment Management and Proprietary Capital, which includes direct investments and sponsoring SPACs like PMV Consumer Acquisition Corp[90][91][95] - The company ended Q2 2022 with a strong liquidity position, holding approximately $885 million in cash and investments, net of securities sold short. This provides flexibility for strategic objectives like acquisitions, seeding new strategies, and shareholder returns[107] Key Financial Metrics (Q2) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | AUM - end of period (in millions) | $1,802 | $1,611 | | Net income/(loss) per share-diluted | $(1.36) | $1.34 | | Book value per share at June 30 | $40.30 | $42.21 | Results of Operations The company's results swung from a net income of $29.7 million in Q2 2021 to a net loss of $29.9 million in Q2 2022, primarily caused by a net investment loss of $37.8 million compared to a gain of $42.3 million in the prior-year quarter, reflecting market volatility, while operating loss narrowed due to the absence of management fee expense and lower compensation costs in Q2 2022 - The primary driver of the net loss in Q2 2022 was a $(37.8) million net loss from investments, a stark contrast to the $42.3 million gain in Q2 2021, attributed to market uncertainty, rising interest rates, and inflation[111][116] - Compensation expense decreased to $3.0 million in Q2 2022 from $5.0 million in Q2 2021, mainly due to lower variable compensation tied to performance and a credit from mark-to-market changes on stock-based compensation[114] - No management fee expense was recorded in Q2 2022 due to a pre-tax loss for the period, compared to $4.3 million of expense in Q2 2021[115] Assets Under Management Assets Under Management (AUM) stood at $1.802 billion as of June 30, 2022, representing an increase of 1.2% from year-end 2021 and 11.9% from June 30, 2021, though during the second quarter, AUM decreased by a net $37 million as market depreciation and negative currency effects outweighed net inflows AUM by Strategy (in millions) | Strategy | June 30, 2022 | Dec 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | :--- | | Merger Arbitrage | $1,591 | $1,542 | $1,364 | | Event-Driven Value | $174 | $195 | $201 | | Other | $37 | $44 | $46 | | Total AUM | $1,802 | $1,781 | $1,611 | Q2 2022 AUM Change (in millions) | Component | Amount | | :--- | :--- | | AUM at March 31, 2022 | $1,839 | | Market Depreciation | $(66) | | Foreign Currency Impact | $(52) | | Net Inflows | $81 | | AUM at June 30, 2022 | $1,802 | Liquidity and Capital Resources The company maintains a strong liquidity position with $344.3 million in cash and cash equivalents and $25.0 million in U.S. Treasury Bills as of June 30, 2022, while net cash from operating activities for the first six months of 2022 was $29.3 million, significantly lower than the $231.7 million generated in the same period of 2021, reflecting the company's net loss and changes in working capital - The company's principal assets include cash, short-term treasuries, marketable securities (including 2.4 million shares of GAMCO), and interests in various funds, providing substantial liquidity[128] Six-Month Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating activities | $29,272 | $231,661 | | Investing activities | $(2,865) | $5,602 | | Financing activities | $(5,010) | $(7,501) | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Associated Capital Group, Inc. is not required to provide the information for this item - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company[136] Item 4. Controls and Procedures Management, including the CEO and Co-CFOs, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the period, with no material changes to the internal control over financial reporting during the quarter - Based on an evaluation, the Chief Executive Officer and Co-Chief Financial Officers concluded that the company's disclosure controls and procedures were effective for the period covered by the report[134] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[135] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any legal proceedings that would be material to its financial condition, operations, or cash flows, and management has determined that provisions for any probable or reasonably possible losses are not material - As of June 30, 2022, the company is not subject to any legal proceedings where a claim for damages exceeds 10% of its consolidated assets. Management believes any potential losses from existing matters are not material to the company's financial condition[138] Item 2. 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 2022, with a total of 35,292 shares repurchased at an average price of $37.32 per share Class A Stock Repurchases (Quarter Ended June 30, 2022) | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | 9,332 | $39.17 | | May 2022 | 8,166 | $38.13 | | June 2022 | 17,794 | $35.97 | | Total | 35,292 | $37.32 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files (XBRL) - The report includes standard exhibits such as CEO and Co-CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as Inline XBRL documents[143][144]