Associated Capital Group(AC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements This section presents Associated Capital Group, Inc.'s unaudited interim financial statements for Q1 2023, covering financial condition, income, equity, and cash flows, along with detailed accounting notes Condensed Consolidated Statements of Financial Condition As of March 31, 2023, total assets increased to $942.9 million from $927.7 million at year-end 2022, primarily driven by a significant rise in cash and cash equivalents Condensed Consolidated Statements of Financial Condition (Unaudited) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents (in thousands) | $396,828 | $218,462 | | Investments in equity securities (in thousands) | $217,006 | $195,585 | | Investments in partnerships (in thousands) | $150,361 | $150,498 | | Total assets (in thousands) | $942,886 | $927,690 | | Liabilities and Equity | | | | Total liabilities (in thousands) | $29,652 | $27,301 | | Total Associated Capital Group, Inc. equity (in thousands) | $906,001 | $890,196 | | Total liabilities and equity (in thousands) | $942,886 | $927,690 | Condensed Consolidated Statements of Income For the three months ended March 31, 2023, the company reported a net income of $17.8 million, a significant turnaround from a net loss of $16.2 million in the same period of 2022, primarily driven by a substantial net gain from investments Condensed Consolidated Statements of Income (Unaudited) | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues (in thousands) | $2,465 | $2,582 | | Total expenses (in thousands) | $7,598 | $5,888 | | Operating loss (in thousands) | $(5,133) | $(3,306) | | Net gain/(loss) from investments (in thousands) | $20,511 | $(15,610) | | Income/(loss) before income taxes (in thousands) | $19,602 | $(18,353) | | Net income/(loss) attributable to ACG shareholders (in thousands) | $17,754 | $(16,186) | | Diluted EPS | $0.81 | $(0.73) | Condensed Consolidated Statements of Equity Total equity increased from $890.2 million at the end of 2022 to $906.0 million as of March 31, 2023, primarily due to net income partially offset by treasury stock purchases - For the three months ended March 31, 2023, total equity increased by $15.8 million, driven by net income of $17.8 million and offset by $1.9 million in treasury stock purchases[18] Condensed Consolidated Statements of Cash Flows For Q1 2023, net cash from operating activities significantly increased to $183.6 million, primarily due to changes in trading securities, while financing activities used $5.2 million Summary of Cash Flows (Unaudited) | (Dollars in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities (in thousands) | $183,592 | $28,558 | | Net cash used in investing activities (in thousands) | $(572) | $(1,773) | | Net cash used in financing activities (in thousands) | $(5,177) | $(779) | | Net increase in cash, cash equivalents and restricted cash (in thousands) | $177,843 | $26,006 | Notes to the Condensed Consolidated Financial Statements Detailed notes explain the company's accounting policies, investment composition, revenue recognition, equity structure, and subsequent events - The company's primary business involves providing alternative investment management services and generating income from proprietary investments[28] Revenue Sources (in thousands) | Revenue Source | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Asset-based advisory fees | $1,315 | $1,304 | | Sub-advisory fees | $1,095 | $1,138 | | Performance-based advisory fees | $1 | $44 | | Total | $2,411 | $2,486 | - As of March 31, 2023, the company held investments in securities with a fair value of $222.0 million and investments in affiliated registered investment companies valued at $128.5 million[41] - Subsequent to the quarter end, on May 10, 2023, the Board of Directors declared a semi-annual dividend of $0.10 per share[82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a shift to net income in Q1 2023 driven by investment gains, with AUM slightly decreasing and strong liquidity maintained Overview The company operates two main business lines: alternative investment management through GCIA and a direct investment business for proprietary capital - The company's investment management activities are conducted through its wholly-owned subsidiary, Gabelli & Company Investment Advisers, Inc. (GCIA), managing assets across risk and event arbitrage portfolios and equity event-driven value strategies[87] - The proprietary capital business focuses on direct private equity and merchant banking activities, primarily investing in small and mid-sized companies through vehicles like Gabelli Private Equity Partners, LLC ("GPEP") and Gabelli Principal Strategies Group, LLC ("GPS")[90][91] Financial Highlights Key financial metrics for Q1 2023 include an end-of-period AUM of $1.8 billion, diluted net income per share of $0.81, and a book value per share of $41.30 Q1 Financial Highlights | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | AUM - end of period (in millions) | $1,799 | $1,839 | | Net income/(loss) per share-diluted | $0.81 | $(0.73) | | Book value per share at March 31 | $41.30 | $41.72 | Results of Operations The company's net income swung from a $16.2 million loss to a $17.8 million gain in Q1 2023, primarily driven by a $20.5 million net gain from investments, offsetting a higher operating loss - The primary driver for the shift from net loss to net income was the performance of the investment portfolio, which generated a gain of $20.5 million in Q1 2023 versus a loss of $15.6 million in Q1 2022, attributed to market volatility in the prior year[102][107] - Operating loss increased to $5.1 million from $3.3 million, mainly due to a $2.5 million management fee expense recorded in Q1 2023, which was absent in Q1 2022 due to pre-tax losses[102][106] - Interest and dividend income rose significantly to $5.2 million from $0.8 million, driven by higher interest rates[107] Assets Under Management Total AUM slightly decreased to $1.80 billion as of March 31, 2023, primarily due to net investor outflows and market depreciation, partially offset by currency fluctuations AUM by Strategy (in millions) | Strategy | March 31, 2023 (in millions) | Dec 31, 2022 (in millions) | March 31, 2022 (in millions) | | :--- | :--- | :--- | :--- | | Merger Arbitrage | $1,537 | $1,588 | $1,606 | | Event-Driven Value | $229 | $222 | $191 | | Other | $33 | $32 | $42 | | Total AUM | $1,799 | $1,842 | $1,839 | - For the three months ended March 31, 2023, AUM decreased by a net $43 million, resulting from $55 million in net outflows and $4 million in market depreciation, offset by a $16 million positive impact from foreign currency fluctuations[111][112] Liquidity and Capital Resources The company maintains a strong liquidity position with $399.1 million in cash and equivalents, robust operating cash flow of $183.6 million, and $5.2 million used in financing activities - At March 31, 2023, the company had cash and cash equivalents of $396.8 million, U.S. Treasury Bills of $4.9 million, and net investments of $213.4 million[115] - Net cash provided by operating activities for Q1 2023 was $183.6 million, a significant increase from $28.6 million in Q1 2022[115][116] 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 - Smaller reporting companies are not required to provide the information required by this item[119] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes in 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 as of the end of the reporting period[120] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control[121] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any legal proceedings expected to have a material impact on its financial condition, operations, or cash flows - The company is not subject to any legal proceedings involving claims for damages exceeding 10% of its consolidated assets[124] - Management believes that any probable or reasonably possible losses from legal matters are not material to the Company's financial condition as of March 31, 2023[124] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 52,307 shares of Class A Stock at an average price of $37.27 per share under its stock repurchase program Class A Stock Repurchases for Q1 2023 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2023 | 8,723 | $38.75 | | Feb 2023 | 21,388 | $37.23 | | Mar 2023 | 22,196 | $36.72 | | Total | 52,307 | $37.27 | - As of March 31, 2023, the company had authorization to purchase an additional 557,045 shares under its repurchase program[127] Exhibits This section lists the exhibits filed with the Form 10-Q, including various agreements, corporate governance documents, and certifications by the CEO and Co-CFOs - Key exhibits filed include the Separation and Distribution Agreement with GAMCO, Amended and Restated Certificate of Incorporation, and various service and employment agreements[129][130][131] - Certifications from the CEO and Co-CFOs pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[132][133]