10-Q 1 ac20230930_10q.htm FORM 10-Q ac20230930_10q.htm
0001642122 Associated Capital Group, Inc. false --12-31 Q3 2023 48.0 36.7 0.001 0.001 10,000,000 10,000,000 0 0 0 0 - - 0.001 0.001 100,000,000 100,000,000 6,629,254 6,629,254 2,672,378 3,027,541 0.001 0.001 100,000,000 100,000,000 19,196,792 19,196,792 18,950,571 18,962,754 3,969,223 3,601,877 0.10 0.10 0 0 2019 2020 2021 2016 2017 2018 2019 2020 2021 2022 1 10 3 5 0 0.10 0.10 0.10 0 0.10 Represents the summation of multiple captions from the condensed consolidated statements of financial condition. Repurchases totaled $7.6 million and $1.3 million for the three-month periods ended June 30, 2023 and 2022, respectively. Repurchases totaled $9.6 million and $1.6 million for the six-month periods ended June 30, 2023 and 2022, respectively. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended September 30, 2023

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

Commission file number 001-37387

 

ASSOCIATED CAPITAL GROUP, INC.

 

(Exact name of registrant as specified in its charter)

 

Delaware

 

47-3965991

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

191 Mason Street, Greenwich, CT

 

06830

(Address of principal executive offices)

 

(Zip Code)

 

Registrants telephone number, including area code (203) 629-9595

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

 

AC

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer ☐

Accelerated filer ☐

 

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes No ☒.

 

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.

 

Class

 

Outstanding at November 1, 2023

Class A Common Stock, .001 par value

 

2,640,672

Class B Common Stock, .001 par value

 

18,950,571

 

As of November 1, 2023, 2,640,672 shares of class A common stock and 18,950,571 shares of class B common stock were outstanding. GGCP, Inc., a private company controlled by the Company’s Executive Chairman, held 77,165 shares of class A common stock and indirectly held 18,423,741 shares of class B common stock. Other executive officers and directors of GGCP, Inc. held 29,866 and 176,758 shares of class A and class B common stock, respectively. In addition, there are 251,350 Phantom Restricted Stock Awards outstanding as of September 30, 2023.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

Page

PART I. FINANCIAL INFORMATION  

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements:

 

 

Condensed Consolidated Statements of Financial Condition (Unaudited)

3

 

Condensed Consolidated Statements of Income (Unaudited)

4

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

5

 

Condensed Consolidated Statements of Equity (Unaudited)

6

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

 

Notes to the Condensed Consolidated Financial Statements:

 
 

1. Organization

9

 

2. Revenue

10

 

3. Investments in Securities

11

 

4. Investment Partnerships and Other Entities

11

 

5. Fair Value

14

 

6. Income Taxes

16

 

7. Earnings per Share

16

 

8. Equity

16

 

9. Goodwill

17

 

10. Guarantees, Contingencies and Commitments

18

 

11. Subsequent Events

18

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

PART II.

OTHER INFORMATION *

 

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 6.

Exhibits

27

 

 

 

 

Signature

29

 

*         Items other than those listed above have been omitted because they are not applicable.

 

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

UNAUDITED

(Dollars in thousands, except per share data)

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

ASSETS

        

Cash and cash equivalents (includes U.S. Treasury Bills with maturities of less than 3 months)

 $381,253  $218,462 

Investments in U.S. Treasury Bills with greater than 3 month maturities

  2,961   186,001 

Investments in equity securities (includes GAMCO stock with a fair value of $48.0 million and $36.7 million, respectively)

  213,345   195,585 

Investments in affiliated registered investment companies

  125,292   126,210 

Investments in partnerships

  142,874   150,498 

Receivable from brokers

  16,295   12,072 
Receivable from brokers (cash held for real estate purchase)  13,059   - 

Investment advisory fees receivable

  1,271   3,807 

Receivable from affiliates

  345   2,517 

Income taxes receivable, including deferred tax assets, net

  7,879   10,320 

Goodwill

  3,519   3,519 

Other assets

  18,364   18,699 

Total assets

 $926,457  $927,690 
         

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

        
         

Payable to brokers

 $5,618  $7,784 

Compensation payable

  10,915   13,936 

Securities sold, not yet purchased

  5,090   2,874 

Accrued expenses and other liabilities

  1,965   2,707 

Total liabilities

  23,588   27,301 
         

Redeemable noncontrolling interests

  7,133   10,193 
         

Commitments and contingencies (Note 10)

          
         

Equity:

        

Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding

  -   - 

Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,629,254 shares issued; 2,672,378 and 3,027,541 shares outstanding, respectively

  6   6 

Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued; 18,950,571 and 18,962,754 outstanding, respectively

  19   19 

Additional paid-in capital

  999,047   999,047 

Retained earnings

  34,047   15,126 

Treasury stock, at cost (3,969,223 and 3,601,877 shares, respectively)

  (137,383)  (124,002)

Total Associated Capital Group, Inc. equity

  895,736   890,196 

Total liabilities and equity

 $926,457  $927,690 

 

As of September 30, 2023 and December 31, 2022, certain balances include amounts related to consolidated variable interest entities (“VIEs”) and voting interest entities (“VOEs”). See Note 4.

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(In thousands, except per share data)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues

                               

Investment advisory and incentive fees

  $ 2,098     $ 2,472     $ 6,789     $ 7,409  

Other revenues

    102       90       258       281  

Total revenues

    2,200       2,562       7,047       7,690  

Expenses

                               

Compensation

    4,078       3,591       11,437       10,531  

Management fee

    (12 )     -       3,075       -  

Other operating expenses

    1,655       2,100       4,660       5,805  

Total expenses

    5,721       5,691       19,172       16,336  

Operating loss

    (3,521 )     (3,129 )     (12,125 )     (8,646 )

Other income/(expense)

                               

Net gain/(loss) from investments

    (2,173 )     (19,314 )     21,635       (72,727 )

Interest and dividend income

    6,336       2,797       17,497       5,533  

Interest expense

    (134 )     (66 )     (388 )     (145 )

Shareholder-designated contribution

    (235 )     (1,206 )     (1,604 )     (1,414 )

Total other income/(expense), net

    3,794       (17,789 )     37,140       (68,753 )

Income/(loss) before income taxes

    273       (20,918 )     25,015       (77,399 )

Income tax expense/(benefit)

    166       (4,914 )     3,586       (17,798 )

Income/(loss) before noncontrolling interests

    107       (16,004 )     21,429       (59,601 )

Income attributable to noncontrolling interests

    123       494       320       2,970  

Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders

  $ (16 )   $ (16,498 )   $ 21,109     $ (62,571 )
                                 

Net income/(loss) per share attributable to Associated Capital Group, Inc.'s shareholders:

                               

Basic

  $ 0.00     $ (0.75 )   $ 0.97     $ (2.84 )

Diluted

  $ 0.00     $ (0.75 )   $ 0.97     $ (2.84 )
                                 

Weighted average shares outstanding (in thousands):

                               

Basic

    21,672       22,010       21,836       22,033  

Diluted

    21,672       22,010       21,836       22,033  
                                 

Actual shares outstanding (in thousands)

    21,623       22,004       21,623       22,004  

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(Dollars in thousands)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net income/(loss) before noncontrolling interests

  $ 107     $ (16,004 )   $ 21,429     $ (59,601 )

Less: Comprehensive income attributable to noncontrolling interests

    123       494       320       2,970  

Comprehensive income/(loss) attributable to Associated Capital Group, Inc.

  $ (16 )   $ (16,498 )   $ 21,109     $ (62,571 )

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

(Dollars in thousands)

 

For the three months ended March 31, 2023, June 30, 2023 and September 30, 2023

 

          

Additional

          

Redeemable

 
  

Common

  

Retained

  

Paid-in

  

Treasury

  

Total

  

Noncontrolling

 
  

Stock

  

Earnings

  

Capital

  

Stock

  

Equity

  

Interests

 

Balance at December 31, 2022

 $25  $15,126  $999,047  $(124,002) $890,196  $10,193 

Redemptions of noncontrolling interests

  -   -   -   -   -   (3,228)

Net income

  -   17,754   -   -   17,754   268 

Purchases of treasury stock

  -   -   -   (1,949)  (1,949)  - 

Balance at March 31, 2023

 $25  $32,880  $999,047  $(125,951) $906,001  $7,233 

Redemptions of noncontrolling interests

  -   -   -   -   -   (76)

Net income/(loss)

  -   3,371   -   -   3,371   (71)

Dividends declared ($0.10 per share)

  -   (2,188)  -   -   (2,188)  - 

Purchases of treasury stock

  -   -   -   (7,617)  (7,617)  - 

Balance at June 30, 2023

 $25  $34,063  $999,047  $(133,568) $899,567  $7,086 

Redemptions of noncontrolling interests

  -   -   -   -   -   (76)

Net income/(loss)

  -   (16)  -   -   (16)  123 

Purchases of treasury stock

  -   -   -   (3,815)  (3,815)  - 

Balance at September 30, 2023

 $25  $34,047  $999,047  $(137,383) $895,736  $7,133 

 

See accompanying notes.

 

For the three months ended March 31, 2022, June 30, 2022 and September 30, 2022

 

  

Associated Capital Group, Inc. shareholders

             
          

Additional

                  

Redeemable

 
  

Common

  

Retained

  

Paid-in

  

Treasury

      

Noncontrolling

  

Total

  

Noncontrolling

 
  

Stock

  

Earnings

  

Capital

  

Stock

  

Total

  

Interests

  

Equity

  

Interests

 

Balance at December 31, 2021

 $25  $68,435  $990,069  $(121,427) $937,102  $(1,756) $935,346  $202,456 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (486)

Net income/(loss)

  -   (16,186)  -   -   (16,186)  197   (15,989)  2,484 

Purchases of treasury stock

  -   -   -   (293)  (293)  -   (293)  - 

Accretion of redeemable noncontrolling interest

  -   -   (584)  -   (584)  (292)  (876)  876 

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (10)

Balance at March 31, 2022

 $25  $52,249  $989,485  $(121,720) $920,039  $(1,851) $918,188  $205,320 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (486)

Net income/(loss)

  -   (29,887)  -   -   (29,887)  83   (29,804)  (288)

Dividends declared ($0.10 per share)

  -   (2,203)  -   -   (2,203)  -   (2,203)  - 

Purchases of treasury stock

  -   -   -   (1,317)  (1,317)  -   (1,317)  - 

Accretion of redeemable noncontrolling interest

  -   -   662   -   662   331   993   (993)

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (226)

Balance at June 30, 2022

 $25  $20,159  $990,147  $(123,037) $887,294  $(1,437) $885,857  $203,327 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (29,001)

Net income/(loss)

  -   (16,498)  -   -   (16,498)  -   (16,498)  494 

Purchases of treasury stock

  -   -   -   (441)  (441)  -   (441)  - 

Accretion of redeemable noncontrolling interest

  -   -   8,900   -   8,900   4,305   13,205   (13,205)

Effect of deconsolidation

  -   -   -   -   -   (2,868)  (2,868)  (152,100)

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   263 

Balance at September 30, 2022

 $25  $3,661  $999,047  $(123,478) $879,255  $-  $879,255  $9,778 

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)

 

   

Nine Months Ended

 
   

September 30,

 
   

2023

   

2022

 

Operating activities

               

Net income/(loss)

  $ 21,429     $ (59,601 )

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

               

Equity in net losses from partnerships

    848       7,710  

Depreciation and amortization

    270       251  

Deferred income taxes

    (246 )     (17,959 )

Donated securities

    1,107       517  

Unrealized (gains)/losses on securities

    (15,703 )     73,569  

Loss on deconsolidation of subsidiary

    -       3,634  

Realized gains on sales of securities

    (4,108 )     (11,684 )

(Increase)/decrease in assets:

               

Investments in trading securities

    184,788       (89,282 )

Investments in partnerships:

               

Contributions to partnerships

    (2,390 )     (6,410 )

Distributions from partnerships

    9,166       5,143  

Receivable from affiliates

    2,172       4,893  

Receivable from brokers

    (1,877 )     19,428  

Investment advisory fees receivable

    2,536       6,976  

Income taxes receivable

    2,644       (1,746 )

Other assets

    65       2,770  

Increase/(decrease) in liabilities:

               

Payable to brokers

    (2,166 )     47,017  

Income taxes payable

    43       (2,040 )

Compensation payable

    (3,021 )     (12,068 )

Accrued expenses and other liabilities

    (742 )     (1,676 )

Total adjustments

    173,386       29,043  

Net cash provided by/(used in) operating activities

    194,815       (30,558 )
                 

Investing activities

               

Purchases of securities

    (1,162 )     (5,882 )

Proceeds from sales of securities

    2,245       620  

Return of capital on securities

    1,247       1,918  

Deconsolidation of subsidiary cash

    -       (1,471 )

Proceeds from maturities of debt securities held to maturity

    -       5,066  

Net provided by investing activities

  $ 2,330     $ 251  

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED (continued)

(Dollars in thousands)

 

   

Nine Months Ended

 
   

September 30,

 
   

2023

   

2022

 

Financing activities

               

Dividends paid

  $ (2,188 )   $ (2,203 )

Purchases of treasury stock

    (13,381 )     (2,051 )

Redemptions of redeemable noncontrolling interests

    (3,380 )     (1,196 )

Net cash used in financing activities

    (18,949 )     (5,450 )

Net increase in cash, cash equivalents and restricted cash

    178,196       (35,757 )

Cash, cash equivalents and restricted cash at beginning of period

    221,269       328,594  

Cash, cash equivalents and restricted cash at end of period

  $ 399,465     $ 292,837  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ 134     $ 145  

Cash paid for taxes

  $ 849     $ 3,947  
                 

Reconciliation of Cash, cash equivalents and restricted cash at end of period:

               

Cash and cash equivalents

  $ 381,253     $ 288,178  
Cash held for real estate purchase included in receivable from brokers     13,059       -  

Restricted cash included in receivable from brokers

    5,153       4,659  

Cash, cash equivalents and restricted cash

  $ 399,465     $ 292,837  

 

Non-cash activity:

- For 2022, the Company deconsolidated certain subsidiaries which resulted in a reduction of $176.9 million of assets, $7.4 million of liabilities and $165.0 million of Redeemable noncontrolling interests. The deconsolidated assets are almost entirely attributable to $175.4 million of Investments in marketable securities held in trust and $1.5 million of cash held by Consolidated PMV (as defined in Note 1), the latter of which is reflected as an Investing outflow. The deconsolidated liabilities are almost entirely attributable to $6.1 million Deferred underwriting fee payable, and $0.9 million of PMV warrant liability. As a result of deconsolidation, $9.9 million of Investments in securities and $1.0 million of Investment partnerships, which were previously eliminated in consolidation, were recognized in the condensed consolidated statement of financial condition as of September 30, 2022.

- For 2022, $29.0 million of redeemable noncontrolling interest holders tendered their shares in our consolidated VOE prior to September 30, 2022. The cash payment for this tender occurred in October 2022.

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(UNAUDITED)

 

 

1.    Organization

 

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.”, "Associated Capital", “AC Group”, “the Company”, “AC”, “we”, “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries.

 

We are a Delaware corporation that provides alternative investment management, and we derive investment income/(loss) from proprietary investment of cash and other assets in our operating business.

 

Gabelli & Company Investment Advisors, Inc. (“GCIA”), a wholly-owned subsidiary of AC, and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets across a range of risk and event arbitrage portfolios and in equity event-driven value strategies. The businesses earn management and incentive fees from their advisory activities. Management fees are largely based on a percentage of assets under management. Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

 

PMV Consumer Acquisition Corp.

 

PMV Consumer Acquisition Corp. ("PMV"), a special purpose acquisition corporation, and its sponsor, PMV Consumer Acquisition Holding Company, LLC (“Sponsor”, collectively "Consolidated PMV") were previously consolidated in the financial statements of AC because AC had a controlling financial interest in these entities through AC's 100% ownership of the manager of the Sponsor. Commencing in August 2022, as a result of management and organization restructuring negotiations at the Sponsor to extend the life of PMV, AC no longer controlled the manager of the Sponsor and thus no longer controlled Consolidated PMV. As a result, Consolidated PMV was deconsolidated from the financial statements in August 2022.  

 

AC Spin-off

 

On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GAMI”) distributed all the outstanding shares of each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common stock (the “Spin-off”).

 

As part of the Spin-off, AC received 4,393,055 shares of GAMCO Class A common stock for $150 million. The Company held 2,397,974 shares as of September 30, 2023 and 2,407,000 shares as of  December 31, 2022.

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements of AC Group included herein have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP in the United States for complete financial statements. The unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year’s results.

 

The interim condensed consolidated financial statements include the accounts of AC Group and its subsidiaries. All intercompany transactions and balances have been eliminated. The details on the impact of consolidating certain partnership entities on the condensed consolidated financial statements can be seen in Note 4. Investment Partnerships and Other Entities.

 

These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported on the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 

 

9

 

Recent Accounting Developments

 

In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. The condensed consolidated statements of income will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller reporting companies for three years. This guidance is effective for the Company on January 1, 2023. We adopted this standard on January 1, 2023 and the adoption of this standard did not have a material impact on our financial condition or results of operations.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other, to simplify the process used to test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill allocated to that reporting unit. As a smaller reporting company pursuant to ASU 2019-10, the ASU is effective for the Company on January 1, 2023. We adopted this standard on January 1, 2023 and the adoption of this standard did not have a material impact on our financial condition or results of operations.

 

 

2.    Revenue

 

Refer to the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for the Company’s revenue recognition policy.

 

The Company’s major revenue sources are as follows for the three and nine months ended September 30, 2023 and 2022 (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Investment advisory and incentive fees

                               

Asset-based advisory fees

  $ 1,265     $ 1,269     $ 3,871     $ 3,882  

Performance-based advisory fees

    1       2       2       46  

Sub-advisory fees

    832       1,201       2,916       3,481  

Sub-total

    2,098       2,472       6,789       7,409  
                                 

Other

                               

Miscellaneous

    102       90       258       281  
                                 

Total

  $ 2,200     $ 2,562     $ 7,047     $ 7,690  

 

 

 

10

 
 

3.    Investments in Securities

 

Investments in securities at September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

 

   

September 30, 2023

   

December 31, 2022

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Debt - Trading Securities:

                               

U.S. Treasury Bills

  $ 2,961     $ 2,961     $ 184,636     $ 186,001  

Equity Securities:

                               

Common stocks

    223,961       208,154       221,794       189,977  

Mutual funds

    566       1,055       539       906  

Other investments

    5,275       4,136       6,364       4,702  

Total investments in equity securities

    229,802       213,345       228,697       195,585  

Total investments in securities

  $ 232,763     $ 216,306     $ 413,333     $ 381,586  

 

Securities sold, not yet purchased at September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

 

   

September 30, 2023

   

December 31, 2022

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Equity securities:

                               

Common stocks

  $ 4,598     $ 4,796     $ 2,918     $ 2,509  

Other investments

    125       294       499       365  

Total securities sold, not yet purchased

  $ 4,723     $ 5,090     $ 3,417     $ 2,874  

 

Investments in affiliated registered investment companies at September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

 

   

September 30, 2023

   

December 31, 2022

 
   

Cost

   

Fair Value

   

Cost

   

Fair Value

 

Equity securities:

                               

Closed-end funds

  $ 42,960     $ 54,558     $ 45,029     $ 56,772  

Mutual funds

    50,052       70,734       50,224       69,438  

Total investments in affiliated registered investment companies

  $ 93,012     $ 125,292     $ 95,253     $ 126,210  

 

 

4.    Investment Partnerships and Other Entities

 

The Company is general partner or co-general partner of various affiliated entities whose underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in unaffiliated partnerships, offshore funds and other entities of $32.9 million and $35.8 million at September 30, 2023, and December 31, 2022, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.

 

Investments in partnerships that are not required to be consolidated are accounted for using the equity method and are included in investments in partnerships on the condensed consolidated statements of financial condition. The Company had investments in Affiliated Entities totaling $109.9 million and $114.7 million at September 30, 2023 and December 31, 2022, respectively. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the condensed consolidated statements of income.

 

Capital may generally be redeemed from Affiliated Entities on a monthly basis upon adequate notice as determined in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may generally be redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days. Certain Unaffiliated Entities and Affiliated Entities may require a minimum investment period before capital can be voluntarily redeemed (a “Lockup Period”). No investment in any Investment Partnership has an unexpired Lockup Period. The Company has no outstanding capital commitments to any Affiliated or Unaffiliated Entity.

 

PMV Consumer Acquisition Corp.

 

Commencing in August 2022, as a result of management and organization restructuring negotiations at the Sponsor to extend the life of PMV, AC no longer controlled Consolidated PMV. As a result, Consolidated PMV was deconsolidated from the financial statements and a loss of $3.6 million was recognized and recorded in Net gain/(loss) from investments in the consolidated statements of income. The loss represented the difference between the carrying value and fair value of our remaining interest as of the transaction date. Prior to August 2022, AC consolidated the assets, liabilities and the results of operations of both PMV and Sponsor. AC invested $4.0 million, or approximately 62% of the $6.48 million total Sponsor partnership commitment. The Sponsor was managed primarily by AC executives. AC determined that the Sponsor was a variable interest entity (VIE) and that AC was the primary beneficiary and therefore consolidated the assets and liabilities and results of operations of the Sponsor. In addition, AC had determined that PMV was a VIE due to the lack of equity at risk and was consolidated by the Sponsor, who was deemed to be the primary beneficiary. Neither AC nor PMV had a right to the benefits from nor did it bear the risks associated with the marketable securities held in trust assets held by PMV. 

 

 

 

11

 

The following table reflects the net impact of the consolidated investment partnerships and other entities (“Consolidated Entities”) on the condensed consolidated statements of financial condition (in thousands):

 

  

September 30, 2023

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $377,742  $3,511  $381,253 

Investments in U.S. Treasury Bills

  -   2,961   2,961 

Investments in securities

  148,132   65,213   213,345 

Investments in affiliated registered investment companies

  179,571   (54,279)  125,292 

Investments in partnerships

  161,180   (18,306)  142,874 

Receivable from brokers(1)

  22,309   7,045   29,354 

Investment advisory fees receivable

  1,281   (10)  1,271 

Other assets(1)

  27,086   3,021   30,107 

Total assets

 $917,301  $9,156  $926,457 

Liabilities and equity

            

Securities sold, not yet purchased

 $4,891  $199  $5,090 

Payable to brokers and other liabilities(1)

  16,674   1,824   18,498 

Redeemable noncontrolling interests

  -   7,133   7,133 

Total equity

  895,736   -   895,736 

Total liabilities and equity

 $917,301  $9,156  $926,457 

 

  

December 31, 2022

 
  

Prior to

  

Consolidated

     

Assets

 Consolidation  Entities  As Reported 

Cash and cash equivalents

 $209,941  $8,521  $218,462 

Investments in U.S. Treasury Bills

  183,528   2,473   186,001 

Investments in securities

  129,942   65,643   195,585 

Investments in affiliated registered investment companies

  178,689   (52,479)  126,210 

Investments in partnerships

  168,286   (17,788)  150,498 

Receivable from brokers(1)

  4,002   8,070   12,072 

Investment advisory fees receivable

  3,814   (7)  3,807 

Other assets(1)

  35,045   10   35,055 

Total assets

 $913,247  $14,443  $927,690 

Liabilities and equity

            

Securities sold, not yet purchased

 $2,678  $196  $2,874 

Payable to brokers and other liabilities(1)

  20,373   4,054   24,427 

Redeemable noncontrolling interests

  -   10,193   10,193 

Total equity

  890,196   -   890,196 

Total liabilities and equity

 $913,247  $14,443  $927,690 

 

(1) Represents the summation of multiple captions from the condensed consolidated statements of financial condition.

 

 

 

12

 

The following table reflects the net impact of the consolidated entities on the condensed consolidated statements of income (in thousands):

 

  

Three Months Ended September 30, 2023

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $2,310  $(110) $2,200 

Operating loss

  (3,156)  (365)  (3,521)

Total other income/(loss), net

  3,044   750   3,794 

Income/(loss) before noncontrolling interests

  (16)  123   107 

Income attributable to noncontrolling interests, net of taxes

  -   123   123 

Net income/(loss)

 $(16) $-  $(16)

 

  

Three Months Ended September 30, 2022

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $2,723  $(161) $2,562 

Operating loss

  (2,359)  (770)  (3,129)

Total other income/(loss), net

  (19,053)  1,264   (17,789)

Income/(loss) before noncontrolling interests

  (16,498)  494   (16,004)

Income attributable to noncontrolling interests, net of taxes

  -   494   494 

Net income/(loss)

 $(16,498) $-  $(16,498)

 

  

Nine Months Ended September 30, 2023

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $7,378  $(331) $7,047 

Operating loss

  (10,998)  (1,127)  (12,125)

Total other income/(loss), net

  38,670   (1,530)  37,140 

Income/(loss) before noncontrolling interests

  21,109   320   21,429 

Income attributable to noncontrolling interests, net of taxes

  -   320   320 

Net income/(loss)

 $21,109  $-  $21,109 

 

  

Nine Months Ended September 30, 2022

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $8,229  $(539) $7,690 

Operating loss

  (6,462)  (2,184)  (8,646)

Total other income/(loss), net

  (73,907)  5,154   (68,753)

Income/(loss) before noncontrolling interests

  (62,571)  2,970   (59,601)

Income attributable to noncontrolling interests, net of taxes

  -   2,970   2,970 

Net income/(loss)

 $(62,571) $-  $(62,571)

 

 

 

13

 

Variable Interest Entity

 

With respect to the consolidated VIE, its assets may only be used to satisfy its obligations. The investors and creditors of any consolidated VIE have no recourse to the Company’s general assets. In addition, the Company neither benefits from such VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.

 

The following table presents the balances related to the VIE that is consolidated and included on the condensed consolidated statements of financial condition as well as the Company’s net interest in the VIE (in thousands):

 

  

September 30, 2023

  

December 31, 2022

 

Cash and cash equivalents

 $427  $500 

Investments in securities

  8,967   8,396 

Receivable from brokers (1)

  20   304 

Accrued expenses and other liabilities (1)

  (34)  (33)

Redeemable noncontrolling interests

  (434)  (428)

AC Group's net interests in consolidated VIEs

 $8,946  $8,739 

 

(1) Represents the summation of multiple captions from the condensed consolidated statements of financial condition.

 

Voting Interest Entity

 

We have an investment partnership that is consolidated as a VOE for both 2023 and 2022 because AC has a controlling interest in the entity. This resulted in the consolidation of $72.4 million of assets, $2.2 million of liabilities, and $6.7 million of redeemable noncontrolling interests at September 30, 2023 and $75.6 million of assets, $4.4 million of liabilities, and $9.8 million of redeemable noncontrolling interests at December 31, 2022. AC’s net interest in the consolidated VOE at September 30, 2023 and December 31, 2022 was $63.5 million and $61.4 million, respectively. Approximately $3.2 million of redeemable noncontrolling interests tendered their shares in the entity in 2023. 

 

Equity Method Investments

 

The Company’s equity method investments include investments in partnerships and offshore funds. These equity method investments are not consolidated but on an aggregate basis exceed 10% of the Company’s consolidated total assets or income.

 

 

5.    Fair Value

 

Accounting Standards Codification Topic 820, Fair Value Measurement (ASC 820) specifies a hierarchy of valuation classifications based on whether the inputs to the valuation techniques used in each valuation classification are observable or unobservable. These classifications are summarized in the three broad levels listed below:

 

 

Level 1 - Unadjusted quoted prices for identical instruments in active markets.

 

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable.

 

Level 3 - Valuations derived from valuation techniques in which significant inputs or significant value drivers are unobservable.

 

Inputs used to measure fair value might fall in different levels of the fair value hierarchy, in which case the Company defaults to the lowest level input that is significant to the fair value measurement in its entirety. These levels are not necessarily an indication of the risk or liquidity associated with the investments.

 

 

 

14

 

 

The following tables present assets and liabilities measured at fair value on a recurring basis, unless otherwise noted, as of the dates specified (in thousands):

 

  

September 30, 2023

 

Assets

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Cash equivalents

 $378,004  $-  $-  $378,004 

Investments in securities (including GAMCO stock):

                

Trading - U.S. Treasury Bills

  2,961   -   -   2,961 

Common stocks

  204,871   1,248   2,035   208,154 

Mutual funds

  1,055   -   -   1,055 

Other

  3,268   649   219   4,136 

Total investments in securities

  212,155   1,897   2,254   216,306 

Investments in affiliated registered investment companies:

                

Closed-end funds

  43,202   -   11,356   54,558 

Mutual funds

  70,734   -   -   70,734 

Total investments in affiliated registered investment companies

  113,936   -   11,356   125,292 

Total investments held at fair value

  326,091   1,897   13,610   341,598 

Total assets at fair value

 $704,095  $1,897  $13,610  $719,602 

Liabilities

                

Common stocks

 $4,796  $-  $-  $4,796 

Other

  58   236   -   294 

Securities sold, not yet purchased

  4,854   236   -   5,090 

Total liabilities at fair value

 $4,854  $236  $-  $5,090