Associated Capital Group(AC) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements This section presents Associated Capital Group, Inc.'s unaudited condensed consolidated financial statements and accompanying notes for the periods ended September 30, 2023 Condensed Consolidated Statements of Financial Condition Total assets remained stable at $926.5 million as of September 30, 2023, with a notable shift towards increased cash and reduced Treasury Bill investments Condensed Consolidated Statements of Financial Condition (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $381,253 | $218,462 | | Investments in equity securities | $213,345 | $195,585 | | Investments in partnerships | $142,874 | $150,498 | | Total assets | $926,457 | $927,690 | | Liabilities & Equity | | | | Total liabilities | $23,588 | $27,301 | | Total Associated Capital Group, Inc. equity | $895,736 | $890,196 | | Total liabilities and equity | $926,457 | $927,690 | Condensed Consolidated Statements of Income For the nine months ended September 30, 2023, the company achieved a $21.1 million net income, a significant turnaround from a $62.6 million net loss in the prior year, driven by investment gains Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total revenues | $7,047 | $7,690 | | Operating loss | $(12,125) | $(8,646) | | Net gain/(loss) from investments | $21,635 | $(72,727) | | Net income/(loss) attributable to ACG | $21,109 | $(62,571) | | Diluted EPS | $0.97 | $(2.84) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $194.8 million for the nine months ended September 30, 2023, leading to a $178.2 million overall increase in cash and equivalents Summary of Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $194,815 | $(30,558) | | Net cash provided by investing activities | $2,330 | $251 | | Net cash used in financing activities | $(18,949) | $(5,450) | | Net increase/(decrease) in cash | $178,196 | $(35,757) | Notes to the Condensed Consolidated Financial Statements The notes detail the company's accounting policies, including revenue recognition, investment composition, fair value measurements, income taxes, equity structure, and subsequent events - The company's primary revenue sources are asset-based advisory fees and sub-advisory fees, which were largely stable for the nine-month period year-over-year[42] - The company's effective tax rate for the nine months ended September 30, 2023 was 14.3%, down from 23.0% in the same period of 2022, primarily due to deferred tax benefits from a foreign investment[70] - During the nine months ended September 30, 2023, the company repurchased 367,346 shares for a total of $13.4 million under its stock repurchase program[82][83] - Subsequent to the quarter end, the company repurchased an additional 36,986 shares and the Board of Directors declared a semi-annual dividend of $0.10 per share[89] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business overview, financial performance, and condition, highlighting the significant improvement in net income driven by positive securities portfolio performance and strong liquidity - The company operates in two main segments: alternative investment management through its subsidiary GCIA, and a direct investment business utilizing proprietary capital[93][94][97] Key Financial Metrics | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | AUM - end of period (in millions) | $1,588 | $1,752 | | Net income/(loss) per share-diluted | $0.00 | $(0.75) | | Book value per share at September 30 | $41.43 | $39.96 | Results of Operations The company achieved a $21.1 million net income for the nine months ended September 30, 2023, a reversal from a prior-year loss, primarily driven by investment gains and increased interest income - The primary driver for the turnaround from a net loss in the first nine months of 2022 to a net income in 2023 was the performance of the company's securities portfolio, which experienced market appreciation in the current period[115][119] - Compensation expense for the nine-month period increased to $11.4 million from $10.5 million year-over-year, mainly due to higher fixed compensation including stock-based compensation[117] - Interest and dividend income more than tripled to $17.5 million for the nine-month period in 2023 from $5.5 million in 2022, driven by higher interest rates[119] Assets Under Management Assets Under Management (AUM) decreased to $1.6 billion as of September 30, 2023, primarily due to investor outflows, despite a net increase in Q3 2023 driven by inflows and market appreciation AUM by Strategy (in millions) | Strategy | Sep 30, 2023 | Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Merger Arbitrage | $1,322 | $1,518 | (12.9)% | | Long/Short Value | $233 | $203 | 14.8% | | Other | $33 | $31 | 6.5% | | Total AUM | $1,588 | $1,752 | (9.4)% | - In Q3 2023, AUM saw a net increase of $39 million, driven by net inflows of $28 million and market appreciation of $33 million, which was partially offset by negative currency effects[125][126] Liquidity and Capital Resources The company maintains a strong liquidity position with $381.3 million in cash and equivalents, with operating activities providing $194.8 million in cash for the first nine months of 2023 - The company's cash, cash equivalents, and restricted cash increased by $178.2 million in the first nine months of 2023, ending the period at $399.5 million[129] - Net cash from operating activities was $194.8 million, largely due to net decreases of securities and distributions from investment partnerships[130] 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 classified as a smaller reporting company and is therefore exempt from this disclosure requirement[133] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the most recent fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[134] - No material changes were identified in the company's internal control over financial reporting during the third quarter of 2023[135] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any legal proceedings expected to be material to its 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[138] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of 103,169 Class A shares at an average price of $36.98 per share during Q3 2023 under its stock repurchase program Class A Stock Repurchases (Q3 2023) | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jul 2023 | 37,257 | $36.74 | | Aug 2023 | 34,295 | $37.17 | | Sep 2023 | 31,617 | $37.06 | | Total | 103,169 | $36.98 | Exhibits This section lists the exhibits filed with the Form 10-Q, including various agreements, CEO and CFO certifications, and interactive data files - Exhibits filed include certifications from the CEO and CFO pursuant to Sarbanes-Oxley Act rules and the Inline XBRL documents[146][147]