Associated Capital Group(AC) - 2022 Q3 - 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. as of September 30, 2022, and for the three and nine-month periods then ended Condensed Consolidated Statements of Financial Condition The company's total assets decreased to $986.8 million as of September 30, 2022, from $1.20 billion at December 31, 2021, primarily due to decreased investments and deconsolidation of marketable securities held in trust Condensed Consolidated Statements of Financial Condition (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $986,761 | $1,203,336 | | Cash and cash equivalents | $288,178 | $319,048 | | Investments in equity securities | $238,974 | $273,087 | | Investments in marketable securities held in trust | $0 | $175,109 | | Total Liabilities | $97,728 | $65,534 | | Total Equity | $879,255 | $935,346 | Condensed Consolidated Statements of Income For Q3 2022, the company reported a net loss of $16.5 million or ($0.75) per share, a significant shift from Q3 2021 net income, primarily due to substantial net losses from investments Q3 Financial Performance (in thousands, except EPS) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total Revenues | $2,562 | $2,112 | | Operating Loss | ($3,129) | ($169) | | Net (Loss)/Gain from Investments | ($19,314) | $5,676 | | Net (Loss)/Income Attributable to Shareholders | ($16,498) | $1,503 | | Diluted EPS | ($0.75) | $0.07 | Nine Months Financial Performance (in thousands, except EPS) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total Revenues | $7,690 | $6,926 | | Operating Loss | ($8,646) | ($16,945) | | Net (Loss)/Gain from Investments | ($72,727) | $79,303 | | Net (Loss)/Income Attributable to Shareholders | ($62,571) | $49,774 | | Diluted EPS | ($2.84) | $2.25 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $30.6 million for the nine months ended September 30, 2022, a significant decrease from the $488.1 million provided in the prior year, primarily due to net loss and changes in trading securities Nine-Month Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | ($30,558) | $488,071 | | Net cash provided by investing activities | $251 | $53,254 | | Net cash used in financing activities | ($5,450) | ($11,058) | | Net (decrease)/increase in cash | ($35,757) | $530,267 | Notes to the Condensed Consolidated Financial Statements The notes provide crucial context to the financial statements, detailing the company's organization, revenue recognition, investment composition, fair value measurements, and equity structure - In August 2022, the company deconsolidated PMV Consumer Acquisition Corp. ("PMV") after determining it no longer had a controlling financial interest, resulting in a $3.6 million loss[30][51] Revenue Breakdown (in thousands) | Revenue Source | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Asset-based advisory fees | $1,269 | $3,882 | | Sub-advisory fees | $1,201 | $3,481 | | Performance-based advisory fees | $2 | $46 | | Total Inv. advisory & incentive fees | $2,472 | $7,409 | - The company's stock repurchase program has an authorization for 622,564 shares remaining as of September 30, 2022, with 54,580 shares repurchased for a total of $2.1 million during the nine months ended September 30, 2022[88][89] - Subsequent to the quarter's end, on November 11, 2022, the Board of Directors declared a semi-annual dividend of $0.10 per share[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant net loss for Q3 and the first nine months of 2022 primarily to mark-to-market losses in its proprietary securities portfolio, driven by market volatility, rising interest rates, and inflation Results of Operations The company's results shifted from a $1.5 million net income to a $16.5 million net loss in Q3 2022, driven by a $25 million negative swing in net investment gains/losses - Q3 2022 operating loss increased to $3.1 million from $0.2 million in Q3 2021, partly due to a $2.4 million one-time credit recorded in Q3 2021[120] - Net investment loss was $19.3 million in Q3 2022 compared to a gain of $5.7 million in Q3 2021, attributed to market volatility from rising interest rates, geo-political factors, and inflation[125] - For the nine months ended Sep 30, 2022, no management fee expense was recorded due to a pre-tax loss, compared to a $7.2 million expense in the same period of 2021[130] Assets Under Management Assets Under Management (AUM) stood at $1.75 billion as of September 30, 2022, representing a 1.6% decrease from year-end 2021 but a 4.3% increase from September 30, 2021 AUM by Strategy (in millions) | Strategy | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | :--- | | Merger Arbitrage | $1,518 | $1,542 | $1,438 | | Event-Driven Value | $203 | $195 | $198 | | Other | $31 | $44 | $44 | | Total AUM | $1,752 | $1,781 | $1,680 | Q3 2022 AUM Change (in millions) | Component | Amount | | :--- | :--- | | AUM at June 30, 2022 | $1,802 | | Market Appreciation | $8 | | Foreign Currency | ($39) | | Net Inflows/(Outflows) | ($19) | | AUM at Sep 30, 2022 | $1,752 | Liquidity and Capital Resources The company maintains a strong liquidity position, ending Q3 2022 with $288.2 million in cash and cash equivalents and $133.8 million in U.S. Treasury Bills - As of September 30, 2022, the company had cash and cash equivalents of $288.2 million and Investments in U.S. Treasury Bills of $133.8 million[140] - Book value per share was $39.96 as of September 30, 2022, a decrease from $42.48 at December 31, 2021, largely due to the net loss for the period[111][117] 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 a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[144] 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 covered by this report - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer and Co-Chief Financial Officers concluded that the company's disclosure controls and procedures were effective[144] - No changes in internal control over financial reporting occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[145] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company states that it is not currently subject to any legal proceedings that would be material to its consolidated financial condition, operations, or cash flows as of September 30, 2022 - The company is not subject to any legal proceedings that individually or in the aggregate involved a claim for damages in excess of 10% of its consolidated assets[149] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of its Class A stock during the third quarter of 2022, with 11,752 shares repurchased at an average price of $37.52 per share Q3 2022 Share Repurchases | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 4,100 | $36.42 | | August 2022 | 695 | $39.51 | | September 2022 | 6,957 | $37.97 | | Total Q3 | 11,752 | $37.52 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and Co-CFOs and interactive data files (XBRL)