- Quarterly net income was $23.1
million, or $1.02 per share
- Quarter-end Book Value per share was
$39.38
Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the first quarter ended March 31, 2019.
Financial Highlights
($000s except per share data or as noted)
Q1
2019 2018 AUM - end of period (in
millions) $ 1,591 $ 1,560 Revenues 4,652 4,703 Operating loss
before management fee (4,616 ) (4,250 ) Investment and other
non-operating income/(expense), net 38,721 (24,856 ) Income/(loss)
before income taxes 30,845 (29,106 ) Net income/(loss) 23,147
(22,229 ) Net income/(loss) per share – diluted $ 1.02 $ (0.95 )
Shares outstanding at March 31 (thousands)
22,575 23,133
First Quarter Overview
First quarter revenues of $4.7 million were in line with the
prior year quarter. Reflecting $0.3 million higher operating
expenses, the operating loss was $4.6 million for the quarter
compared to an operating loss of $4.3 million in last year’s first
quarter.
Net investment and other non-operating income rose to $38.7
million, a $63.6 million swing from the $24.9 million loss in the
first quarter of 2018, reflecting the mark-to-market increase in
our investment portfolio.
AC recorded an income tax expense in the current quarter of $6.2
million versus a tax benefit of $6.7 million in the comparable
quarter of 2018.
Net income for the first quarter of 2019 was $23.1 million, or
$1.02 per share, compared to a net loss of $22.2 million, or $0.95
per share, in the prior year’s quarter.
Commitment to Community
Continuing with the tradition in place prior to our spin-off
from GAMCO, (y)our Company gives back to the community.
Over our first three years as a public company, AC shareholders
recommended approximately $15 million to charities of their choice
that address a broad range of local, national and international
concerns. Over 95 organizations received support through 2019.
Financial Condition
At March 31, 2019, AC’s book value was $889 million, or $39.38
per share, compared to $866 million, or $38.36 per share, at
December 31, 2018.
First Quarter Results of Operations
Assets Under Management (AUM)
Assets under management at March 31, 2019 were $1.6 billion, an
increase of $31.0 million from March 31, 2018. This increase
reflects $31.8 million of net appreciation offset by $0.8 million
of net capital outflows.
March 31, December
31, March 31, 2019 2018 2018
(in millions) Event Merger Arbitrage $ 1,401 $ 1,342 $ 1,407
Event-Driven Value 127 118 88 Other 63 60 65
Total AUM $ 1,591 $ 1,520 $ 1,560
Revenues
Total operating revenues for the three months ended March 31,
2019 of $4.7 million were unchanged from the comparable prior year
period:
- Investment advisory fees increased to
$2.7 million, up $0.2 million from the prior year period.
- Institutional research services revenue
was $1.9 million, down $0.2 million from the prior year
period.
Incentive fees are not recognized until the measurement period
ends and the fee is crystalized, typically annually on December 31.
If the measurement period had ended on March 31, we would have
recognized $3.7 million of incentive fees versus a negligible
incentive fee in the prior year quarter.
Investment and other non-operating income/(expense),
net
During the quarter, investment and other non-operating
income/(expense), net resulted in a gain of $38.7 million compared
to a loss of $24.9 million in the first quarter of 2018. Portfolio
mark-to-market changes were a gain of $35.0 million and a loss of
$27.5 million in the 2019 and 2018 quarters, respectively. This was
largely driven by investment gains due to the higher market values
in the 2019 quarter, with $10.9 million attributable to the 3
million GAMCO shares held with the remainder from our diverse
portfolio.
Business and Investment Highlights
Event-Driven Asset Management
Our merger arbitrage fund returned +2.04% net of fees (+2.81%
gross) for the first quarter of 2019. Global M&A activity
totaled $959 billion in the first quarter, making it the fourth
highest total for a first quarter on record. Healthcare, financials
and technology were the most active sectors for consolidation in
the first quarter. Our arb team expects dealmaking to remain
vibrant as the drivers for M&A remain, including higher
interest rates that are expected to contribute to wider deal
spreads, and market volatility that creates opportunities to
purchase shares of target companies at more favorable prices.
Institutional Research
In the first quarter, G.research, our institutional research
services business, in cooperation with Gabelli Funds, concluded its
29th annual Pump, Valve, & Water Systems conference on February
28, 10th annual Specialty Chemicals on March 13 and 5th annual
Waste & Environmental Services on March 26. During the second
quarter of 2019, we hosted the 13th annual
Buffett/Berkshire-related Omaha Research Trip on May 3-4 and will
host the 11th annual Entertainment & Broadcasting Conference on
June 6, 2019. If you’re interested in joining please contact C.V.
McGinity at CMcGinity@gabelli.com or call him directly at (914) 921
7732.
In addition, G.research continues to sponsor non-deal roadshows
providing corporate management access to our institutional
clients.
For frequent, real-time updates from our research team on social
media platforms, we invite you to visit GabelliTV, our online
portal, at YouTube (www.youtube.com/GabelliTV) or Facebook
(www.facebook.com/GabelliTV).
Shareholder Compensation
During the first quarter, AC repurchased approximately 10,000
shares at an average investment of $40.03 per share, for a total
outlay of $0.4 million.
At March 31, 2019, there were 3.6 million Class A shares and
19.0 million Class B shares outstanding, of which a private company
controlled by our Executive Chairman owns approximately 18.4
million Class B shares.
Since the spin-off of the Company from GAMCO, we have returned
approximately $103 million to shareholders through share
repurchases and exchange offers representing approximately three
million shares.
About Associated Capital Group, Inc.
The Company has been publicly traded since November 30, 2015
following its spin-off from GAMCO Investors, Inc. Our focus is on
merger arbitrage and the creation of private equity. In concert
with this we have created a special purpose acquisition vehicle
(“SPAC”) in Italy.
The Company operates its investment management business via
Gabelli & Company Investment Advisers, Inc. (“GCIA”
f/k/a Gabelli Securities, Inc.), its 100% owned subsidiary. GCIA
and its wholly-owned subsidiary, Gabelli & Partners,
collectively serve as general partners or investment managers to
investment funds including limited partnerships, offshore companies
and separate accounts. The Company primarily manages assets in
equity event-driven strategies, across a range of risk and event
arbitrage portfolios and earns management and incentive fees from
its advisory activities. GCIA is registered with the Securities and
Exchange Commission as an investment advisor under the Investment
Advisers Act of 1940, as amended.
The Company operates its institutional research services
business through G.research, LLC, an indirect wholly-owned
subsidiary of the Company. G.research is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, that
provides institutional research services and acts as an
underwriter.
The Company also derives investment income/(loss) from
proprietary trading of assets awaiting deployment in its operating
businesses.
NOTES ON NON-GAAP FINANCIAL MEASURES
Operating Loss Before Management Fee
Operating loss before management fee expense is used by
management to evaluate its business operations. We believe
this measure is useful in illustrating the operating results of the
Company as management fee expense is based on pre-tax income before
management fee expense, which includes non-operating items
including investment gains and losses from the Company’s
proprietary investment portfolio and interest expense. The
reconciliation of operating loss before management fee expense to
operating loss is provided below.
Q1 (In thousands)
2019
2018 Operating loss before management fee $(4,616) $(4,250)
Deduct: management fee expense 3,260 - Operating loss $(7,876)
$(4,250)
Table I
ASSOCIATED CAPITAL GROUP, INC. UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in
thousands) March 31, December 31,
March 31, 2019 2018 2018
ASSETS Cash and cash equivalents $ 396,020 $ 409,564
$ 283,972 Investments 495,806 439,876 549,255 Investment in GAMCO
stock (3,016,501, 3,016,501 and 3,726,250 shares, respectively)
61,838 50,949 92,523 Receivable from brokers 26,980 24,629 18,535
Deferred tax assets, net 6,871 9,422 1,241 Other receivables 2,671
15,425 4,280 Other assets 4,510 4,568 5,537
Total assets $ 994,696 $ 954,433 $ 955,343
LIABILITIES AND EQUITY Payable to brokers $
17,423 $ 5,511 $ 5,621 Income taxes payable and deferred tax
liabilities, net 7,222 3,577 - Compensation payable 7,511 11,388
2,982 Securities sold short, not yet purchased 17,118 9,574 5,211
Accrued expenses and other liabilities 5,637 8,335
3,131 Sub-total 54,911 38,385 16,945
Redeemable noncontrolling interests (a) 50,781 49,800
50,604 Equity 889,004 866,248 927,794 4% PIK
Note due from GAMCO - - (40,000 ) Total equity
889,004 866,248 887,794 Total
liabilities and equity $ 994,696 $ 954,433 $ 955,343 (a)
Represents third-party capital balances in consolidated
investment funds.
Table
II ASSOCIATED CAPITAL GROUP, INC. UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in
thousands, except per share data) For the quarter
ended March 31, 2019 2018 Investment
advisory and incentive fees $ 2,733 $ 2,529 Institutional research
services 1,913 2,152 Other revenues 6 22
Total revenues 4,652 4,703
Compensation costs 5,896 6,324 Stock-based compensation 415
72 Other operating expenses 2,957 2,557
Total expenses 9,268 8,953
Operating loss before management fee (4,616 ) (4,250
) Investment gain/(loss) 34,979 (27,530 ) Interest and
dividend income from GAMCO - 590 Interest and dividend income, net
3,742 2,084 Investment and other
non-operating income/(expense), net 38,721
(24,856 ) Gain/(loss) before management fee and income taxes
34,105 (29,106 ) Management fee 3,260 -
Income/(loss) before income taxes 30,845 (29,106 ) Income tax
expense/(benefit) 6,191 (6,734 ) Net
income/(loss) 24,654 (22,372 ) Net income/(loss) attributable to
noncontrolling interests 1,507 (143 ) Net
income/(loss) attributable to Associated Capital Group, Inc. $
23,147 $ (22,229 ) Net income/(loss) per share
attributable to Associated Capital Group, Inc.: Basic $ 1.02 $
(0.95 ) Diluted 1.02 (0.95 ) Weighted average shares
outstanding: Basic 22,584 23,508 Diluted 22,584 23,508
Actual shares outstanding - end of period 22,575 23,133
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
The financial results set forth in this press release are
preliminary. Our disclosure and analysis in this press release,
which do not present historical information, contain
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements convey our current expectations or forecasts of future
events. You can identify these statements because they do not
relate strictly to historical or current facts. They use words such
as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” and other words and terms of similar meaning. They also
appear in any discussion of future operating or financial
performance. In particular, these include statements relating to
future actions, future performance of our products, expenses, the
outcome of any legal proceedings, and financial results. Although
we believe that we are basing our expectations and beliefs on
reasonable assumptions within the bounds of what we currently know
about our business and operations, the economy and other
conditions, there can be no assurance that our actual results will
not differ materially from what we expect or believe. Therefore,
you should proceed with caution in relying on any of these
forward-looking statements. They are neither statements of
historical fact nor guarantees or assurances of future
performance.
Forward-looking statements involve a number of known and unknown
risks, uncertainties and other important factors, some of which are
listed below, that are difficult to predict and could cause actual
results and outcomes to differ materially from any future results
or outcomes expressed or implied by such forward-looking
statements. Some of the factors that could cause our actual results
to differ from our expectations or beliefs include a decline in the
securities markets that adversely affect our assets under
management, negative performance of our products, the failure to
perform as required under our investment management agreements, and
a general downturn in the economy that negatively impacts our
operations. We also direct your attention to the more specific
discussions of these and other risks, uncertainties and other
important factors contained in our Form 10 and other public
filings. Other factors that could cause our actual results to
differ may emerge from time to time, and it is not possible for us
to predict all of them. We do not undertake to update publicly any
forward-looking statements if we subsequently learn that we are
unlikely to achieve our expectations whether as a result of new
information, future developments or otherwise, except as may be
required by law.
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version on businesswire.com: https://www.businesswire.com/news/home/20190507006131/en/
Kenneth D. MasielloChief Accounting Officer(203)
629-2726Associated-Capital-Group.com
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