10-Q 1 ac20240331_10q.htm FORM 10-Q ac20240331_10q.htm
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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 March 31, 2024

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 May 1, 2024

Class A Common Stock, .001 par value

 

2,450,852

Class B Common Stock, .001 par value

 

18,950,571

 

As of May 1, 2024, 2,450,852 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 233,695 Phantom Restricted Stock Awards outstanding as of March 31, 2024.

 

 

 
 

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 and Redeemable Noncontrolling Interests (Unaudited)

6

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

 

Notes to the Condensed Consolidated Financial Statements (Unaudited):

 
 

1. Organization

9

 

2. Revenue

10

 

3. Investments in Securities

10

 

4. Investment Partnerships and Other Entities

10

 

5. Fair Value

13

 

6. Income Taxes

15

 

7. Earnings per Share

15

 

8. Equity

15

 

9. Goodwill

17

 

10. Guarantees, Contingencies and Commitments

17

 

11. Subsequent Events

17

     

Item 2.

Management’s Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4.

Controls and Procedures

23

 

 

 

PART II.

OTHER INFORMATION *

 

 

 

 

Item 1.

Legal Proceedings

24

 

 

 

Item 1A. Risk Factors 24
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

Item 6.

Exhibits

25

 

 

 

 

Signature

27

 

*         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)

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

ASSETS

        

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

 $308,729  $317,487 

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

  86,657   89,155 

Investments in equity securities (includes GAMCO stock with a fair value of $51.0 million and $45.6 million, respectively)

  216,467   196,583 

Investments in affiliated registered investment companies

  130,806   126,751 

Investments in partnerships

  146,211   142,974 

Receivable from brokers

  19,632   16,005 

Receivable from brokers (cash held for real estate purchase)

  13,334   14,263 

Investment advisory fees receivable

  1,241   4,711 

Receivable from affiliates

  885   876 

Income taxes receivable, including deferred tax assets, net

  6,444   8,474 

Goodwill

  3,519   3,519 

Other assets

  20,257   22,999 

Total assets

 $954,182  $943,797 
         

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

        
         

Payable to brokers

 $6,332  $4,459 

Income taxes payable

  1,723   - 

Compensation payable

  11,545   15,169 

Securities sold, not yet purchased

  9,439   5,918 

Accrued expenses and other liabilities

  2,514   5,173 

Total liabilities

  31,553   30,719 
         

Redeemable noncontrolling interests

  5,779   6,103 
         

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; 6,641,601 shares issued; 2,469,682 and 2,587,036 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 outstanding, respectively

  19   19 

Additional paid-in capital

  999,047   999,047 

Retained earnings

  62,052   48,231 

Treasury stock, at cost (4,171,919 and 4,054,565 shares, respectively)

  (144,274)  (140,328)

Total equity

  916,850   906,975 

Total liabilities, redeemable noncontrolling interests and equity

 $954,182  $943,797 

 

As of March 31, 2024 and December 31, 2023, certain balances include amounts related to a consolidated variable interest entity (“VIE”) and voting interest entity (“VOE”). 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

 
   

March 31,

 
   

2024

   

2023

 

Revenues

               

Investment advisory and incentive fees

  $ 2,907     $ 2,411  

Other revenues

    104       54  

Total revenues

    3,011       2,465  

Expenses

               

Compensation

    3,820       3,570  

Management fee

    1,982       2,543  

Other operating expenses

    2,179       1,485  

Total expenses

    7,981       7,598  

Operating loss

    (4,970 )     (5,133 )

Other income/(expense)

               

Net gain/(loss) from investments

    16,794       20,511  

Interest and dividend income

    5,983       5,193  

Interest expense

    (83 )     (98 )

Shareholder-designated contribution

    (69 )     (871 )

Total other income/(expense), net

    22,625       24,735  

Income/(loss) before income taxes

    17,655       19,602  

Income tax expense/(benefit)

    3,798       1,580  

Income/(loss) before noncontrolling interests

    13,857       18,022  

Income/(loss) attributable to noncontrolling interests

    36       268  

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

  $ 13,821     $ 17,754  
                 

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

               

Basic

  $ 0.64     $ 0.81  

Diluted

  $ 0.64     $ 0.81  
                 

Weighted average shares outstanding (in thousands):

               

Basic

    21,500       21,970  

Diluted

    21,500       21,970  
                 

Actual shares outstanding (in thousands)

    21,420       21,938  

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(Dollars in thousands)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 
                 

Net income/(loss) before noncontrolling interests

  $ 13,857     $ 18,022  

Less: Comprehensive income/(loss) attributable to noncontrolling interests

    36       268  

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

  $ 13,821     $ 17,754  

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

UNAUDITED

(Dollars in thousands)

 

For the three months ended March 31, 2024

 

                   

Additional

                   

Redeemable

 
   

Common

   

Retained

   

Paid-in

   

Treasury

   

Total

   

Noncontrolling

 
   

Stock

   

Earnings

   

Capital

   

Stock

   

Equity

   

Interests

 

Balance at December 31, 2023

  $ 25     $ 48,231     $ 999,047     $ (140,328 )   $ 906,975     $ 6,103  

Redemptions of noncontrolling interests

    -       -       -       -       -       (360 )

Net income/(loss)

    -       13,821       -       -       13,821       36  

Purchases of treasury stock

    -       -       -       (3,946 )     (3,946 )     -  

Balance at March 31, 2024

  $ 25     $ 62,052     $ 999,047     $ (144,274 )   $ 916,850     $ 5,779  

 

 

 

For the three months ended March 31, 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/(loss)

    -       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  

 

See accompanying notes.

 

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Operating activities

               

Net income/(loss)

  $ 13,857     $ 18,022  

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

               

Equity in net (gains)/losses from partnerships

    (2,699 )     (1,773 )

Depreciation and amortization

    90       90  

Deferred income taxes

    2,124       (199 )

Donated securities

    1,279       700  

Unrealized (gains)/losses on securities

    (12,626 )     (14,214 )

Realized (gains)/losses on sales of securities

    (2,147 )     (2,246 )

(Increase)/decrease in assets:

               

Investments in trading securities

    (3,762 )     174,385  

Investments in partnerships:

               

Contributions to partnerships

    (4,839 )     (1,790 )

Distributions from partnerships

    4,300       3,700  

Receivable from affiliates

    (9 )     2,384  

Receivable from brokers

    (14 )     526  

Investment advisory fees receivable

    3,470       2,480  

Income taxes receivable

    (94 )     1,694  

Other assets

    2,652       (1,823 )

Increase/(decrease) in liabilities:

               

Payable to brokers

    1,873       7,424  

Income taxes payable

    1,723       -  

Compensation payable

    (3,624 )     (5,042 )

Accrued expenses and other liabilities

    (2,659 )     (726 )

Total adjustments

    (14,962 )     165,570  

Net cash provided by/(used in) operating activities

    (1,105 )     183,592  
                 

Investing activities

               

Purchases of securities

    (3,953 )     (1,027 )

Proceeds from sales of securities

    2,711       -  

Return of capital on securities

    579       455  

Net provided by/(used in) investing activities

  $ (663 )   $ (572 )

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED (continued)

(Dollars in thousands)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Financing activities

               

Purchases of treasury stock

  $ (3,946 )   $ (1,949 )

Redemptions of redeemable noncontrolling interests

    (360 )     (3,228 )

Net cash used in financing activities

    (4,306 )     (5,177 )

Net (decrease)/increase in cash, cash equivalents and restricted cash

    (6,074 )     177,843  

Cash, cash equivalents and restricted cash at beginning of period

    347,057       221,269  

Cash, cash equivalents and restricted cash at end of period

  $ 340,983     $ 399,112  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ 83     $ 98  

Cash paid for taxes

  $ 30     $ 74  
                 

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

               

Cash and cash equivalents

  $ 308,729     $ 396,828  

Cash held for real estate purchase included in receivable from brokers

    13,334       -  

Cash included in receivable from brokers

    7,663       -  

Restricted cash included in receivable from brokers

    11,257       2,284  

Cash, cash equivalents and restricted cash

  $ 340,983     $ 399,112  

 

See accompanying notes.

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(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 investments 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.

 

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 2,382,170 shares as of March 31, 2024 and 2,386,295 shares as of  December 31, 2023.

 

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. 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, 2023.

 

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.

 

For the three months ended March 31, 2024 and 2023, there were no items related to other comprehensive income.

 

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.

 

Recent Accounting Developments

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact that this guidance will have on the disclosures within our consolidated financial statements.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), which improves reportable segment disclosure requirements. The new standard will require enhanced disclosures about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal period, including for companies with a single reportable segment. The standard is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, and early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements and related disclosures.

 

9

 
 

2.    Revenue

 

The Company’s major revenue sources are as follows for the three months ended March 31, 2024 and 2023 (in thousands):

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 

Investment advisory and incentive fees

        

Asset-based advisory fees

 $1,227  $1,315 

Performance-based advisory fees

  -   1 

Sub-advisory fees

  1,680   1,095 

Total investment advisory and incentive fees

  2,907   2,411 
         

Other

  104   54 
         

Total

 $3,011  $2,465 

 

 

3.    Investments in Securities

 

Investments in securities at March 31, 2024 and December 31, 2023, consisted of the following (in thousands):

 

  

March 31, 2024

  

December 31, 2023

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Debt - Trading Securities:

                

U.S. Treasury Bills

 $85,859  $86,657  $88,300  $89,155 

Equity Securities:

                

Common stocks

  208,028   211,282   198,269   191,346 

Mutual funds

  566   1,295   566   1,186 

Other investments

  4,973   3,890   5,166   4,051 

Total investments in equity securities

  213,567   216,467   204,001   196,583 

Total investments in securities

 $299,426  $303,124  $292,301  $285,738 

 

Securities sold, not yet purchased at March 31, 2024 and December 31, 2023, consisted of the following (in thousands):

 

  

March 31, 2024

  

December 31, 2023

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Common stocks

 $7,389  $7,815  $5,227  $5,035 

Other investments

  964   1,624   631   883 

Total securities sold, not yet purchased

 $8,353  $9,439  $5,858  $5,918 

 

Investments in affiliated registered investment companies at March 31, 2024 and December 31, 2023, consisted of the following (in thousands):

 

  

March 31, 2024

  

December 31, 2023

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Closed-end funds

 $40,606  $55,944  $39,680  $53,048 

Mutual funds

  49,938   74,862   50,136   73,703 

Total investments in affiliated registered investment companies

 $90,544  $130,806  $89,816  $126,751 

 

 

4.    Investment Partnerships and Other Entities

 

The Company is a general partner or co-general partner of various affiliated entities whose underlying assets consist primarily of marketable securities (“Affiliated Entities”). The Company had investments in Affiliated Entities totaling $109.1 million and $107.4 million at March 31, 2024 and December 31, 2023, respectively. The Company also had investments in unaffiliated partnerships, offshore funds and other entities of $37.1 million and $35.6 million at March 31, 2024, and December 31, 2023, 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.

 

10

 

 

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 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 material outstanding capital commitments to any Affiliated or Unaffiliated Entity.

 

Consolidated Entities

 

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

 

  

March 31, 2024

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $297,364  $11,365  $308,729 

Investments in U.S. Treasury Bills

  79,224   7,433   86,657 

Investments in equity securities

  163,596   52,871   216,467 

Investments in affiliated registered investment companies

  184,394   (53,588)  130,806 

Investments in partnerships

  166,350   (20,139)  146,211 

Receivable from brokers

  26,130   6,836   32,966 

Investment advisory fees receivable

  1,246   (5)  1,241 

Other assets(1)

  28,408   2,697   31,105 

Total assets

 $946,712  $7,470  $954,182 

Liabilities, redeemable noncontrolling interests and equity

            

Securities sold, not yet purchased

 $8,845  $594  $9,439 

Payable to brokers and other liabilities(1)

  21,017   1,097   22,114 

Redeemable noncontrolling interests

  -   5,779   5,779 

Total equity

  916,850   -   916,850 

Total liabilities, redeemable noncontrolling interests and equity

 $946,712  $7,470  $954,182 

 

  

December 31, 2023

 
  

Prior to

  

Consolidated

     

Assets

 Consolidation  Entities  As Reported 

Cash and cash equivalents

 $299,508  $17,979  $317,487 

Investments in U.S. Treasury Bills

  79,714   9,441   89,155 

Investments in equity securities

  149,154   47,429   196,583 

Investments in affiliated registered investment companies

  181,641   (54,890)  126,751 

Investments in partnerships

  163,226   (20,252)  142,974 

Receivable from brokers(1)

  25,026   5,242   30,268 

Investment advisory fees receivable

  4,714   (3)  4,711 

Other assets(1)

  33,444   2,424   35,868 

Total assets

 $936,427  $7,370  $943,797 

Liabilities, redeemable noncontrolling interests and equity

            

Securities sold, not yet purchased

 $5,639  $279  $5,918 

Payable to brokers and other liabilities(1)

  23,813   988   24,801 

Redeemable noncontrolling interests

  -   6,103   6,103 

Total equity

  906,975   -   906,975 

Total liabilities, redeemable noncontrolling interests and equity

 $936,427  $7,370  $943,797 

 

(1) Represents the summation of multiple assets and liabilities from the condensed consolidated statements of financial condition.

 

 

11

 

 

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

 

  

Three Months Ended March 31, 2024

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $3,120  $(109) $3,011 

Operating loss

  (4,607)  (363)  (4,970)

Total other income/(loss), net

  22,447   178   22,625 

Income/(loss) before noncontrolling interests

  13,821   36   13,857 

Income/(loss) attributable to noncontrolling interests, net of taxes

  -   36   36 

Net income/(loss)

 $13,821  $-  $13,821 

 

  

Three Months Ended March 31, 2023

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $2,578  $(113) $2,465 

Operating loss

  (4,736)  (397)  (5,133)

Total other income/(loss), net

  27,622   (2,887)  24,735 

Income/(loss) before noncontrolling interests

  17,754   268   18,022 

Income/(loss) attributable to noncontrolling interests, net of taxes

  -   268   268 

Net income/(loss)

 $17,754  $-  $17,754 

 

Variable Interest Entity

 

We have one investment partnership that is consolidated as a VIE as of March 31, 2024 and December 31, 2023 because AC is the primary beneficiary of the entity. With respect to the consolidated VIE, its assets may only be used to satisfy its obligations. The investors and creditors of the 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 that VIE (in thousands):

 

  

March 31, 2024

  

December 31, 2023

 

Cash and cash equivalents

 $575  $302 

Investments in equity securities

  9,605   9,695 

Receivable from brokers

  123   166 

Accrued expenses and other liabilities (1)

  (44)  (46)

Redeemable noncontrolling interests

  (459)  (451)

AC Group's net interests in the consolidated VIE

 $9,800  $9,666 

 

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

 

Voting Interest Entity

 

We have one investment partnership that is consolidated as a VOE as of March 31, 2024 and December 31, 2023 because AC has a controlling interest in the entity. This resulted in the consolidation of $70.9 million of assets, $1.8 million of liabilities, and $5.3 million of redeemable noncontrolling interests at March 31, 2024 and $72.4 million of assets, $1.4 million of liabilities, and $5.6 million of redeemable noncontrolling interests at December 31, 2023. AC’s net interest in the consolidated VOE at March 31, 2024 and December 31, 2023 was $63.8 million and $65.4 million, respectively.  

 

Equity Method Investments

 

The Company’s equity method investments include investments in partnerships and offshore funds. The Company evaluates each of its equity method investments to determine if any are significant as defined in the regulations applicable to smaller reporting companies promulgated by the SEC. As of and for the three months ended March 31, 2024, no individual equity method investment held by the Company met the significance criteria. As such, the Company is not required to present summarized income statement information for any of its equity method investments. 

 

 

 

 

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.

 

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):

 

  

March 31, 2024

 

Assets

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Cash equivalents

 $307,234  $-  $-  $307,234 

Investments in securities (including GAMCO stock):

                

Trading - U.S. Treasury Bills

  86,657   -   -   86,657 

Common stocks

  207,916   1,331   2,035   211,282 

Mutual funds

  1,295   -   -   1,295 

Other

  3,154   517   219   3,890 

Total investments in securities

  299,022   1,848   2,254   303,124 

Investments in affiliated registered investment companies:

                

Closed-end funds - equity securities

  46,088   -   -   46,088 

Preferred securities issued by Closed-end funds (a)

  -   -   9,856   9,856 

Mutual funds

  74,862   -   -   74,862 

Total investments in affiliated registered investment companies

  120,950   -   9,856   130,806 

Total investments held at fair value

  419,972   1,848   12,110   433,930 

Total assets at fair value

 $727,206  $1,848  $12,110  $741,164 

Liabilities

                

Common stocks

 $7,815  $-  $-  $7,815 

Other

  1,007   617   -   1,624 

Securities sold, not yet purchased

  8,822   617   -   9,439 

Total liabilities at fair value

 $8,822  $617  $-  $9,439 

 

(a) These securities represent privately issued, puttable and callable preferred securities issued by affiliated closed-end funds.

 

 

13

 

 

  

December 31, 2023

 

Assets

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Cash equivalents

 $315,017  $-  $-  $315,017 

Investments in securities (including GAMCO stock):

                

Trading - U.S. Treasury Bills

  89,155   -   -   89,155 

Common stocks

  187,963   1,348   2,035   191,346 

Mutual funds

  1,186   -   -   1,186 

Other

  3,347   485   219   4,051 

Total investments in securities

  281,651   1,833   2,254   285,738 

Investments in affiliated registered investment companies:

                

Closed-end funds - equity securities

  44,692   -   -   44,692 

Preferred securities issued by Closed-end funds (a)

  -   -   8,356   8,356 

Mutual funds

  73,703   -   -   73,703 

Total investments in affiliated registered investment companies

  118,395   -   8,356   126,751 

Total investments held at fair value

  400,046   1,833   10,610   412,489 

Total assets at fair value

 $715,063  $1,833  $10,610  $727,506 

Liabilities

                

Common stocks

 $5,035  $-  $-  $5,035 

Other

  579   304   -   883 

Securities sold, not yet purchased

  5,614   304   -   5,918 

Total liabilities at fair value

 $5,614  $304  $-  $5,918 

 

(a) These securities represent privately issued, puttable and callable preferred securities issued by affiliated closed-end funds.

 

The following table presents additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

 

  

Three Months Ended

March 31,

 

Assets:

 

2024

  

2023

 

Beginning balance

 $10,610  $13,774 

Total gains/(losses)

  -   (33)

Purchases

  3,900   1,000 

Sales/return of capital

  (2,400)  - 

Ending balance

 $12,110  $14,741 

Changes in net unrealized gain/(loss) included in Net gain/(loss) from investments related to Level 3 assets still held as of the reporting date

 $-  $(33)

 

Total realized and unrealized gains and losses for Level 3 assets are reported in net gain/(loss) from investments in the condensed consolidated statements of income.

 

During the three months ended March 31, 2024 and 2023, there were no transfers into or out of Level 3. 

 

The Company uses a discounted cash flow analysis when determining the fair value of privately issued preferred securities of affiliated closed-end funds that are categorized as Level 3. Projected cash flows in the discounted cash flow analysis represent the relevant security’s dividend rate plus the assumption of full principal repayment at the preferred security’s earliest available redemption date.

 

The significant unobservable input used in the fair value measurement of each of the Company’s investments in privately issued preferred securities of closed-end funds is the discount rate. The discount rate was determined using the interest rates of U.S. Treasury Bills that are held over a similar period as the preferred security. The discount rates used in the valuation of these investments as of March 31, 2024 ranged from 4.42% to 5.37% with a weighted average of 5.14% calculated based on the relative fair value. Significant changes in the discount rate could result in a significantly higher or lower fair value measurement of these Level 3 investments.

 

The Company uses the “market” approach as the valuation technique to value its investment in common stocks classified as Level 3, the investment has been valued using inputs from a transaction.

 

 

 

 

6.    Income Taxes

 

The effective tax rate (“ETR”) for the three months ended March 31, 2024 and  March 31, 2023 was 21.5% and 8.1%, respectively. The ETR in the year to date periods of 2024 and 2023 differ from the U.S. corporate tax rate of 21% primarily due to (a) deferred tax benefits from a foreign investment, (b) state and local taxes (net of federal benefit) and (c) the deductibility of officers' compensation. The increase in the ETR for the three months ended March 31, 2024 was primarily due to deferred tax benefits from a foreign investment which reduced the prior year's rate.

 

At March 31, 2024 the Company had net deferred tax assets, before valuation allowance of approximately $6.6 million that were recorded within income taxes receivable in the condensed consolidated statements of financial condition. The Company believes that it is more-likely-than-not that the benefit from a portion of the shareholder-designated charitable contribution carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $0.2 million and $0.4 million as of March 31, 2024 and December 31, 2023, respectively, on the deferred tax assets related to these charitable contribution carryforwards.

As of and for the periods ended March 31, 2024 and December 31, 2023, the Company has not identified any uncertain tax positions.

 

The Company remains subject to income tax examination by the IRS for the years 2020 through 2022 and state examinations for years after 2017.

 

 

7.    Earnings per Share

 

Basic earnings per share is computed by dividing net income/(loss) attributable to our shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income/(loss) attributable to our shareholders by the weighted average number of shares, plus any potentially dilutive securities (if any), outstanding during the period.

 

The computations of basic and diluted net income/(loss) per share are as follows:

 

  

Three Months Ended

March 31,

 

(In thousands, except per share amounts)

 

2024

  

2023

 

Income/(loss) before noncontrolling interests

 $13,857  $18,022 

Income/(loss) attributable to noncontrolling interests

  36   268 

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

 $13,821  $17,754 
         

Weighted average number of shares outstanding - basic

  21,500   21,970 

Weighted average number of shares outstanding - diluted

  21,500   21,970 
         

Basic and Diluted EPS

 $0.64  $0.81 

 

 

8.    Equity

 

Voting Rights

 

The holders of Class A Common stock (“Class A Stock”) and Class B Common stock (“Class B Stock”) have identical rights except that holders of Class A Stock are entitled to one vote per share, while holders of Class B Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general. Holders of each share class, however, are not eligible to vote on matters relating exclusively to the other share class.

 

Stock Award and Incentive Plan

 

The Company’s Board of Directors periodically grants shares of Phantom Restricted Stock awards (“Phantom RSAs”). Under the terms of the grants, the Phantom RSAs vest 30% and 70% after three and five years, respectively. The Phantom RSAs will be settled by a cash payment, net of applicable withholding tax, on the vesting dates. In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A Stock during the vesting period will be paid to participants on vesting.

 

The Phantom RSAs are treated as a liability because cash settlement is required and compensation will be recognized over the vesting period. In determining the compensation expense to be recognized each period, the Company will re-measure the fair value of the liability at each reporting date taking into account the remaining vesting period attributable to each award and the current market value of the Company’s Class A Stock. In making these determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior to vesting (e.g., due to an employee termination). The Company has elected to consider forfeitures as they occur.

 

15

 

 

Based on the closing price of the Company’s Class A Stock on March 31, 2024 and December 31, 2023, the total liability recorded by the Company in compensation payable in our condensed consolidated statements of financial condition as of March 31, 2024 and December 31, 2023, with respect to the Phantom RSAs was $3.7 million and $3.5 million, respectively.

 

The following table summarizes our stock-based compensation as well as unrecognized compensation for the three month periods ended  March 31, 2024 and 2023, respectively. Stock-based compensation expense is included in compensation expense in the condensed consolidated statements of income (dollars in thousands, unless otherwise noted):

 

  

Three Months Ended

March 31,

 
  

2024

  

2023

 
         

Stock-based compensation expense

 $162  $(118)
         

Remaining expense to be recognized, if all vesting conditions are met(1)

  4,093   3,197 
         

Weighted average remaining contractual term (in years)

  2.0   1.7 

 

(1) Does not include an estimate for projected future dividends.

 

The following table summarizes Phantom RSA ("PRSA") activity:

 

  

PRSAs

  Weighted Average Grant Date Fair Value 

Balance at December 31, 2023

  233,695  $37.38 

Granted

  -   - 

Forfeited

  -   - 

Vested

  -   - 

Balance at March 31, 2024

  233,695  $37.38 

 

Stock Repurchase Program

 

In December 2015, the Board of Directors established a stock repurchase program authorizing the Company to repurchase up to 500,000 shares of Class A Stock. On February 7, 2017, the Board of Directors reset the available number of shares to be purchased under the stock repurchase program to 500,000 shares. On August 3, 2017 and May 8, 2018, the Board of Directors authorized the repurchase of an additional 1 million and 500,000 shares, respectively. On February 6, 2024, the Board of Directors authorized the repurchase of an additional 350,000 shares. Our stock repurchase program is not subject to an expiration date.

 

The following table presents the Company's stock repurchase activity and remaining authorization:

 

For the period ended March 31, 2024:

  Number of shares purchased   Average price per share 

Remaining repurchase authorization December 31, 2023

  156,664     

Share repurchases under stock repurchase program (1)

  (117,354) $33.63 

Remaining repurchase authorization March 31, 2024 (2)

  389,310     

For the period ended March 31, 2023:

        

Remaining repurchase authorization December 31, 2022

  609,352     

Share repurchases under stock repurchase program (1)

  (52,307) $37.27 

Remaining repurchase authorization March 31, 2023

  557,045     

 

(1) Repurchases totaled $3.9 million and $1.9 million for the three-month periods ended March 31, 2024 and 2023, respectively. 

(2) On February 6, 2024, the Board of Directors authorized the repurchase of an additional 350,000 shares.

 

16

 

 

Dividends

 

There were no dividends declared during the three-month periods ended March 31, 2024 or 2023. 

 

9.    Goodwill

 

At March 31, 2024 and December 31, 2023, goodwill on the condensed consolidated statements of financial condition includes $3.4 million of goodwill related to GCIA. The Company assesses the recoverability of goodwill at least annually, or more often should events warrant, using a qualitative assessment of whether it is more likely than not that an impairment has occurred to determine if a quantitative analysis is required. There were no indicators of impairment for the three months ended March 31, 2024 or March 31, 2023, and as such there was no impairment analysis performed or charge recorded.

 

 

10.    Guarantees, Contingencies and Commitments

 

From time to time, the Company may be named in legal actions and proceedings. These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief. We are also subject to governmental or regulatory examinations or investigations. The examinations or investigations could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the condensed consolidated financial statements include the necessary provisions for losses, if any, that the Company believes are probable and estimable. Furthermore, the Company evaluates whether losses exist which may be reasonably possible and will, if material, make the necessary disclosures. Management is not aware of any probable or reasonably possible losses.

 

The Company has also entered into arrangements with various other third parties, many of which provide for indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of obligations under the agreements. The Company has had no claims or payments pursuant to these or prior agreements and believes the likelihood of a claim being made is remote, and, therefore, no accrual has been made on the condensed consolidated financial statements.

 

 

11.    Subsequent Events

 

From April 1, 2024 to May 14, 2024, the Company repurchased 22,338 shares at an average price of $32.77 per share.

 

On May 8, 2024, the Board of Directors declared a semi-annual dividend of $0.10 per share, which is payable on June 27, 2024 to Class A and Class B shareholders of record on June 14, 2024.

 

 

17

 
 

ITEM 2:    MANAGEMENTS DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Introduction

 

MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited interim consolidated financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s audited annual financial statements included in our Form 10-K filed with the SEC on March 21, 2024 to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” “AC Group” or the “Company” refer collectively to Associated Capital Group, Inc., a holding company, and its subsidiaries through which our operations are actually conducted.

 

Overview

 

We are a Delaware corporation, incorporated in 2015, that provides alternative investment management services and operates a direct investment business that over time invests in businesses that fit our criteria. Additionally, we derive income from proprietary investments.

 

Alternative Investment Management

 

We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company Investment Advisers, Inc. (“GCIA”) and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”). GCIA is an investment adviser registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). GCIA and Gabelli & Partners together 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 business earns management and incentive fees from its advisory activities. Management fees are largely based on a percentage of assets under management (“AUM”). Incentive fees are based on a percentage of the investment returns of certain client portfolios.

 

We manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities mainly in the developed global markets. We primarily employ absolute return strategies with the objective of generating positive returns. We serve a wide variety of investors globally including private wealth management clients, corporations, corporate pension and profit-sharing plans, foundations and endowments, as well as serving as sub-advisor to certain third-party investment funds.

 

In merger arbitrage, the goal is to earn absolute positive returns. We introduced our first limited partnership, Gabelli Arbitrage (renamed Gabelli Associates Fund), in February 1985. Our typical investment process begins at the time of deal announcement, buying shares of the target at a discount to the stated deal terms, earning the spread until the deal closes, and reinvesting the proceeds in new deals in a similar manner. By owning a diversified portfolio of transactions, we mitigate the adverse impact of single deal-specific risks.

 

As the business and investor base expanded, we launched an offshore version in 1989. Building on our strengths in global event-driven value investing, several investment vehicles have been added to balance investors’ geographic, strategic and sector-specific needs. Today, we manage investments in multiple categories, including merger arbitrage, event-driven value and other strategies.

 

Proprietary Capital

 

Proprietary capital is earmarked for our direct investment business that invests in new and existing businesses, using a variety of techniques and structures. We launched our direct private equity and merchant banking activities in August 2017. The direct investment business is developing along several core pillars:

 

Gabelli Private Equity Partners, LLC (“GPEP”), formed in August 2017 with $150 million of authorized capital as a “fundless” sponsor.

 

Gabelli Principal Strategies Group, LLC (“GPS”) was created in December 2015 to pursue strategic operating initiatives broadly.

 

Our direct investing efforts are organized to invest in various ways, including growth capital, leveraged buyouts and restructurings, with an emphasis on small and mid-sized companies. Our investment sourcing is across a variety of channels including direct owners, private equity funds, classic agents, and corporate carve outs (which are positioned for accelerated growth, as businesses seek to enhance shareholder value through financial engineering). The Company’s direct investing vehicles allow us to acquire companies and create long-term value with no pre-determined exit timetable. 

 

 

 

We have a proprietary portfolio of cash and investments which we expect to use to invest primarily in funds that we will manage, provide seed capital for new products, expand our geographic presence, develop new markets and pursue strategic acquisitions and alliances.

 

Financial Highlights

 

The following is a summary of the Company’s financial performance for the quarters ended March 31, 2024 and 2023:

 

($000s except per share data or as noted)

 

   

First Quarter

 
   

2024

   

2023

 

AUM - end of period (in millions)

  $ 1,549     $ 1,799  

AUM - average (in millions)

  $ 1,556     $ 1,841  

Net income/(loss) per share-basic and diluted

  $ 0.64     $ 0.81  

Book value per share at March 31

  $ 42.80     $ 41.30  

 

Condensed Consolidated Statements of Income

 

Investment advisory and incentive fees, which are based on the amount and composition of AUM in our funds and accounts, represent our largest source of revenues. Growth in revenues depends on good investment performance, which influences the value of existing AUM as well as contributes to higher investment and lower redemption rates and attracts additional investors while maintaining current fee levels. Growth in AUM is also dependent on being able to access various distribution channels, which is usually based on several factors, including performance and service. In light of the ongoing dynamics created by the conflict in the Middle East and the Russian invasion of Ukraine and their impact on the global economy and markets, we could experience higher volatility in the short-term returns of our funds.

 

Incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio generally equating to 20% of the economic profit, as defined in the agreements governing the investment vehicle or account. We recognize such revenue only when the measurement period has been completed generally in December or at the time of an investor redemption.

 

Compensation includes variable and fixed compensation and related expenses paid to officers, portfolio managers, sales, trading, research and all other professional staff. Variable compensation is paid to sales personnel and portfolio management and may represent up to 55% of revenues.

 

Management fee expense is incentive-based compensation equal to 10% of adjusted aggregate pre-tax profits paid to the Executive Chair or his designees for his services pursuant to an employment agreement.

 

Other operating expenses include general and administrative operating costs.

 

Other income and expense includes net gains and losses from investments (which include both realized and unrealized gains and losses from securities and equity in earnings of investments in partnerships), interest and dividend income, and interest expense. Net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments and from consolidated investment funds.

 

Net income attributable to noncontrolling interests represents the share of net income attributable to third-party limited partners of certain partnerships and offshore funds we consolidate. Please refer to Notes 1 and 4 in our condensed consolidated financial statements included elsewhere in this report.

 

Condensed Consolidated Statements of Financial Condition

 

We ended the first quarter of 2024 with approximately $879.4 million in cash and investments, net of securities sold, not yet purchased of $9.4 million. This includes $308.7 million of cash and cash equivalents; $86.7 million of U.S. Treasury obligations; $207.0 million of securities, net of securities sold, not yet purchased, including shares of GAMCO with a market value of $51.0 million; and $277.0 million invested in affiliated and third-party funds and partnerships, including investments in affiliated closed end funds which have a value of $55.9 million and more limited liquidity. Our financial resources provide flexibility to pursue strategic objectives that may include acquisitions, lift-outs, seeding new investment strategies, and co-investing, as well as shareholder compensation in the form of share repurchases and dividends.

 

Total shareholders’ equity was $916.9 million or $42.80 per share as of March 31, 2024, compared to $907.0 million or $42.11 per share as of December 31, 2023. Shareholders’ equity per share is calculated by dividing the total equity by the number of common shares outstanding. The increase in equity from the end of 2023 was largely attributable to income for the year to date period.

 

 

 

 

RESULTS OF OPERATIONS

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Revenues

               

Investment advisory and incentive fees

  $ 2,907     $ 2,411  

Other revenues

    104       54  

Total revenues

    3,011       2,465  

Expenses

               

Compensation

    3,820       3,570  

Management fee

    1,982       2,543  

Other operating expenses

    2,179       1,485  

Total expenses

    7,981       7,598  

Operating loss

    (4,970 )     (5,133 )

Other income/(expense)

               

Net gain/(loss) from investments

    16,794       20,511  

Interest and dividend income

    5,983       5,193  

Interest expense

    (83 )     (98 )

Shareholder-designated contribution

    (69 )     (871 )

Total other income/(expense), net

    22,625       24,735  

Income/(loss) before income taxes

    17,655       19,602  

Income tax expense/(benefit)

    3,798       1,580  

Income/(loss) before noncontrolling interests

    13,857       18,022  

Income/(loss) attributable to noncontrolling interests

    36       268  

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

  $ 13,821     $ 17,754  
                 

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

               

Basic

  $ 0.64     $ 0.81  

Diluted

  $ 0.64     $ 0.81  
                 

Weighted average shares outstanding (thousands):

               

Basic

    21,500       21,970  

Diluted

    21,500       21,970  

 

 

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

 

Overview

 

Our operating loss for the quarter was $5.0 million compared to $5.1 million for the comparable quarter of 2023. Other income was $22.6 million in the 2024 quarter compared to $24.7 million in the prior year’s quarter. The Company recorded income tax expense in the current quarter of $3.8 million compared to $1.6 million in the prior year’s quarter. Consequently, our current quarter net income was $13.8 million, or $0.64 per diluted share, compared to $17.8 million, or $0.81 per diluted share, in the prior year’s comparable quarter.

 

Revenues

 

Total revenues in the first quarter were $3.0 million compared to $2.5 million in the first quarter of 2023.  Revenues generated by the GAMCO International SICAV – GAMCO Merger Arbitrage (the “SICAV”) were $1.7 million versus $1.1 million in the prior year period. All other revenues were $1.3 million compared to $1.4 million in the year-ago quarter.

 

Starting in December 2023, the SICAV revenue recognized by the Company for its services increased to 100% of the revenues received by Gabelli Funds, LLC. In turn, AC now pays the marketing expenses of the SICAV that were previously paid by Gabelli Funds and remits an admin fee to GAMCO for administrative services provided to the SICAV. This change better aligns the financial arrangements with the services rendered by each party.

 

 

 

 

Incentive fees are not recognized until the uncertainty surrounding the amount of variable consideration ends and the fee is crystalized, typically on an annual basis on December 31. There were no material unrecognized incentive fees for the quarters ended March 31, 2024 and 2023.

 

Expenses

 

Compensation, which includes variable compensation, salaries, bonuses and benefits, was $3.8 million and $3.6 million for the three month periods ended March 31, 2024 and 2023, respectively, primarily driven by higher stock-based compensation expense in 2024. 

 

Management fee expense represents incentive-based and entirely variable compensation in the amount of 10% of income before management fee and income taxes and excluding the impact of consolidating entities and is payable to Mario J. Gabelli, Executive Chair, or his designee pursuant to his employment agreement. Management fee expense of $2.0 million was recorded for the three-month period ended March 31, 2024 compared to $2.5 million for the three-month period ended March 31, 2023. 

 

Other operating expenses were $2.2 million during the three months ended March 31, 2024 compared to $1.5 million in the prior year's quarter driven primarily by marketing expenses on the newly realigned SICAV.

 

Other

 

Net gain/(loss) from investments is primarily related to the performance of our securities portfolio and investments in partnerships. Investment gains were $16.8 million in the 2024 quarter compared to $20.5 million in the comparable 2023 quarter.

 

Interest and dividend income increased to $6.0 million in the 2024 quarter from $5.2 million in the 2023 quarter primarily driven by increased interest income as a result of higher sustained interest rates in the 2024 quarter.

 

Shareholder-designated contributions in the 2024 quarter decreased to $0.1 million compared to $0.9 million in the prior year’s quarter, driven by timing of contributions.

 

Income taxes

 

The effective rate for the three months ended March 31, 2024 and March 31, 2023 was 21.5% and 8.1%, respectively. The difference in effective rate period over period is primarily driven by deferred tax benefits from a foreign investment which reduced the prior quarter's effective tax rate.

 

 

ASSETS UNDER MANAGEMENT

 

Our revenues are highly correlated to the level of assets under management and fees associated with our various investment products, rather than our own corporate assets. Assets under management, which are directly influenced by the level and changes of the overall equity markets, can also fluctuate through acquisitions, the creation of new products, and the addition of new accounts or the loss of existing accounts. Since various equity products have different fees, changes in our business mix may also affect revenues. At times, the performance of our equity products may differ markedly from popular market indices, and this can also impact our revenues.

 

Assets under management were $1.5 billion as of March 31, 2024 compared to $1.6 billion at December 31, 2023. The decrease from year-end was primarily attributable to investor outflows.

 

Assets Under Management (in millions)

 

                           

% Change From

 
   

March 31,

   

December 31,

   

March 31,

   

December 31,

   

March 31,

 
   

2024

   

2023

   

2023

   

2023

   

2023

 

Merger Arbitrage(a)

  $ 1,262     $ 1,312     $ 1,537       (3.8 )%     (17.9 )%

Long/Short Value

    251       244       229       2.9       9.6  

Other

    36       35       33       2.9       9.1  

Total AUM

  $ 1,549     $ 1,591     $ 1,799       (2.6 )%     (13.9 )%

 

(a) Includes $580, $621, and $812 of sub-advisory AUM related to GAMCO International SICAV - GAMCO Merger Arbitrage, $66, $69, and $68 of sub-advisory AUM related to Gabelli Merger Plus+ Trust Plc and $196, $240 and $187 of 100% U.S. Treasury Fund managed by GAMCO at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

 

 

 

 

Fund flows for the three months ended March 31, 2024 (in millions):

 

   

December 31, 2023

   

Market Appreciation/ (Depreciation)

   

Foreign Currency(1)

   

Net Inflows/ (Outflows)

   

March 31, 2024

 

Merger Arbitrage

  $ 1,312     $ 4     $ (11 )   $ (43 )   $ 1,262  

Long/Short Value

    244       7       -       -       251  

Other

    35       1       -       -       36  

Total AUM

  $ 1,591     $ 12     $ (11 )   $ (43 )   $ 1,549  

 

(1) Reflects the impact of currency fluctuations of non-US dollar denominated classes of investment funds.

 

The majority of our AUM have calendar year-end measurement periods, and our incentive fees are primarily recognized in the fourth quarter. Assets under management decreased on a net basis by $42 million for the quarter ended March 31, 2024 due to net investor outflows of $43 million and the impact of currency fluctuations in non-US dollar denominated classes of investment funds of $11 million, partially offset by market appreciation of $12 million.

 

Liquidity and Capital Resources

 

Our principal assets consist of cash and cash equivalents; treasury securities; marketable securities, primarily equities, including 2.4 million shares of GAMCO; and interests in affiliated and third-party funds and partnerships. Although Investment Partnerships may be subject to restrictions as to the timing of distributions, the underlying investments of such Investment Partnerships are generally liquid, and the valuations of these products reflect that underlying liquidity.

 

Summary cash flow data is as follows (in thousands):

 

   

Three Months Ended

 
   

March 31,

 
   

2024