10-Q 1 form10q.htm FORM10Q

UNITED STATES
SECURITIES & 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, 2022
 
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 No. 001-14761

 
GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
13-4007862
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
   
 
 
191 Mason Street, Greenwich, CT 06830
One Corporate Center, Rye, NY 10580
 
 
(203) 629-2726
(Address of principle executive offices)(Zip Code)
 
Registrant’s telephone number, including area code
 
 
 

N/A
(Former name, former address and former fiscal year, if changed since last report)

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, $0.001 par value
 
GBL
 
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit 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. (Check one):

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 Rule 12b-2 of the Exchange Act).  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 April 30, 2022
Class A Common Stock, $0.001 par value
  (Including 406,200  restricted stock awards)
7,478,221
Class B Common Stock, $0.001 par value
 
19,024,117
In addition, there are 375,800 phantom restricted stock awards outstanding as of April 30, 2022.




GAMCO INVESTORS, INC. AND SUBSIDIARIES

INDEX
     
PART I.
FINANCIAL INFORMATION
Page
     
Item 1.
Unaudited Condensed Consolidated Financial Statements
 
     
 
Condensed Consolidated Statements of Financial Condition as of March 31, 2022 (unaudited) and December 31, 2021
3
     
 
Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 (unaudited)
4
     
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 (unaudited)
5
     
 
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 (unaudited)
6
     
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)
7
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
8
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
     
Item 4.
Controls and Procedures
27
     
PART II.
OTHER INFORMATION *
 
     
Item 1.
Legal Proceedings
27
     
Item 1A.
Risk Factors
27
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
     
Item 6.
Exhibits
28
     
 
Signature 
28

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


GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(in thousands, except per share data)

   
March 31,
    December 31,  
   
2022
   
2021
 
ASSETS
           
Cash and cash equivalents (a)
 
$
144,369
   
$
142,027
 
Investments in equity securities, at fair value
   
37,982
     
32,344
 
Investment advisory fees receivable
   
21,211
     
30,977
 
Deferred tax asset and income tax receivable
   
7,456
     
6,707
 
Finance lease
   
3,831
     
4,055
 
Receivable from affiliates
   
3,554
     
3,440
 
Goodwill and identifiable intangible assets
   
3,176
     
3,176
 
Receivable from brokers
   
2,873
     
3,930
 
Other assets
   
5,730
     
5,016
 
Total assets
 
$
230,182
   
$
231,672
 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Compensation payable
 
$
20,139
   
$
21,049
 
Lease liability obligations
   
6,561
     
6,799
 
Income taxes payable
   
7,373
     
315
 
Payable to affiliates
   
413
     
5,198
 
Payable for investments purchased
   
-
     
14,990
 
Accrued expenses and other liabilities
   
37,346
     
38,451
 
Sub-total
   
71,832
     
86,802
 
Subordinated Notes (net of issuance costs of $62 and $75, respectively) (due June 15, 2023) (Note 7)
   
50,935
     
50,990
 
Total liabilities
   
122,767
     
137,792
 
                 
Commitments and contingencies (Note 10)
   
     
 
                 
Stockholders' 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; 16,543,976 and 16,547,476 shares issued, respectively; 7,559,627 and 7,704,022 shares outstanding, respectively
   
14
     
14
 
Class B Common Stock, $0.001 par value; 25,000,000 shares authorized; 24,000,000 shares issued; 19,024,117 outstanding
   
19
     
19
 
Additional paid-in capital
   
29,092
     
28,753
 
Retained earnings
   
426,710
     
410,333
 
Accumulated other comprehensive loss
   
(208
)
   
(177
)
Treasury stock, at cost (8,984,349 and 8,843,454 shares, respectively)
   
(348,212
)
   
(345,062
)
Total stockholders' equity
   
107,415
     
93,880
 
Total liabilities and stockholders' equity
 
$
230,182
   
$
231,672
 

(a)
Includes U.S. Treasury Bills with maturities of three months or less when purchased of $138 million and $123 million at March 31, 2022 and December 31, 2021, respectively.

See notes to condensed consolidated financial statements.
3

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(in thousands, except per share data) 

   
Three Months Ended
 
 
 
March 31,
 
 
 
2022
   
2021
 
Revenues
           
Investment advisory and incentive fees
 
$
63,762
   
$
61,470
 
Distribution fees and other income
   
5,861
     
6,458
 
Total revenues
   
69,623
     
67,928
 
Expenses
               
Compensation
   
29,058
     
30,682
 
Management fee
   
1,312
     
2,517
 
Distribution costs
   
7,145
     
6,971
 
Other operating expenses
   
6,147
     
5,304
 
Total expenses
   
43,662
     
45,474
 
 
               
Operating income
   
25,961
     
22,454
 
Non-operating income / (loss)
               
Gain / (loss) from investments, net
   
(2,822
)
   
680
 
Interest and dividend income
   
228
     
185
 
Interest expense
   
(816
)
   
(662
)
Total non-operating income / (loss)
   
(3,410
)
   
203
 
Income before income taxes
   
22,551
     
22,657
 
Provision for income taxes
   
5,097
     
6,707
 
Net income
 
$
17,454
   
$
15,950
 
 
               
Earnings per share:
               
Basic
 
$
0.67
   
$
0.60
 
Diluted
 
$
0.66
   
$
0.59
 
                 
Weighted average shares outstanding:
               
Basic
   
26,237
     
26,393
 
Diluted
   
26,493
     
26,887
 

See notes to condensed consolidated financial statements.

4

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(in thousands)
 
   
Three Months Ended
 
 
 
March 31,
 
 
 
2022
   
2021
 
Net income
 
$
17,454
   
$
15,950
 
Other comprehensive income / (loss):
               
Foreign currency translation gain / (loss)
   
(31
)
   
10
 
Total comprehensive income
 
$
17,423
   
$
15,960
 
 
See notes to condensed consolidated financial statements.

5

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
(in thousands, except per share data)

                     
Accumulated
             
         
Additional
         
Other
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
       
   
Stock
   
Capital
   
Earnings
   
Loss
   
Stock
   
Total
 
Balance at December 31, 2021
 
$
33
   
$
28,753
   
$
410,333
   
$
(177
)
 
$
(345,062
)
 
$
93,880
 
Net income
   
-
     
-
     
17,454
     
-
     
-
     
17,454
 
Foreign currency translation
   
-
     
-
     
-
     
(31
)
   
-
     
(31
)
Dividends declared ($0.04 per share)
   
-
     
-
     
(1,077
)
   
-
     
-
     
(1,077
)
Stock based compensation expense
   
-
     
339
     
-
     
-
     
-
     
339
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(3,150
)
   
(3,150
)
Balance at March 31, 2022
 
$
33
   
$
29,092
   
$
426,710
   
$
(208
)
 
$
(348,212
)
 
$
107,415
 

                     
Accumulated
             
         
Additional
         
Other
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
       
   
Stock
   
Capital
   
Earnings
   
Loss
   
Stock
   
Total
 
Balance at December 31, 2020
 
$
33
   
$
21,219
   
$
394,386
   
$
(165
)
 
$
(328,562
)
 
$
86,911
 
Net income
   
-
     
-
     
15,950
     
-
     
-
     
15,950
 
Foreign currency translation
   
-
     
-
     
-
     
10
   
-
     
10
Dividends declared ($0.02 per share)
   
-
     
-
     
(548
)
   
-
     
-
     
(548
)
Stock based compensation expense
   
-
     
1,166
     
-
     
-
     
-
     
1,166
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(1,814
)
   
(1,814
)
Balance at March 31, 2021
 
$
33
   
$
22,385
   
$
409,788
   
$
(155
)
 
$
(330,376
)
 
$
101,675
 

See notes to condensed consolidated financial statements.

6

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)

 
 
Three Months Ended
 
 
 
March 31,
 
 
  2022
   
2021
 
Cash flows from operating activities:
           
Net income
 
$
17,454
   
$
15,950
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
308
     
334
 
Accretion of discounts and amortization of premiums
   
(42
)
   
(19
)
Stock based compensation expense
   
339
     
1,166
 
Deferred income taxes
   
(763
)
   
(138
)
Foreign currency translation income / (loss)
   
(31
)
   
10
 
Unrealized (gains) / losses on securities
   
2,740
     
(2,244
)
Net realized losses on securities
   
50
     
2,163
 
(Increase) decrease in assets:
               
Investments in securities
   
(373
)
   
(1,579
)
Investment advisory fees receivable
   
9,766
     
5,762
 
Income taxes receivable
   
14
     
307
 
Receivable from affiliates
   
(124
)
   
1,059
 
Receivable from brokers
   
1,057
     
1,489
 
Other assets
   
(837
)
   
(2,056
)
Increase (decrease) in liabilities:
               
Compensation payable
   
(908
)
   
7,759
 
Income taxes payable
   
7,060
     
7,472
 
Payable to affiliates
   
(4,784
)
   
(3,456
)
Payable for investments purchased
   
(14,990
)
   
132
 
Accrued expenses and other liabilities
   
(1,244
)
   
2,554
 
Total adjustments
   
(2,762
)
   
20,715
 
Net cash provided by operating activities
   
14,692
     
36,665
 
Cash flows from investing activities:
               
Purchases of securities hled for investment
   
(8,014
)
   
(4,882
)
Proceeds from sales and maturities of securities
   
-
     
56,165
 
Net cash provided by/ (used in) investing activities
   
(8,014
)
   
51,283
 
Cash flows from financing activities:
               
Dividends paid
   
(1,047
)
   
(528
)
Purchase of treasury stock
   
(3,150
)
   
(1,814
)
Repayment of principal portion of lease liability
   
(74
)
   
(61
)
Repurchase of 2-year puttable note due 6/15/23
   
(68
)
   
-
 
Net cash used in financing activities
   
(4,339
)
   
(2,403
)
Effect of exchange rates on cash and cash equivalents
   
3
     
(2
)
Net increase in cash and cash equivalents
   
2,342
     
85,543
 
Cash and cash equivalents, beginning of period
   
142,027
     
33,325
 
Cash and cash equivalents, end of period
 
$
144,369
   
$
118,868
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
298
   
$
300
 
Cash paid for taxes
 
$
458
   
$
30
 
Supplemental disclosure of non-cash activity:
For the three months ended March 31, 2022 and 2021, the Company accrued dividends on restricted stock awards of $30 and $20, respectively.

See notes to condensed consolidated financial statements.

7

GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Organization and Description of Business

Unless indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “the Firm,” and “GBL” or similar terms are to GAMCO Investors, Inc., its predecessors, and its subsidiaries.
 
GAMCO (New York Stock Exchange (“NYSE”): GBL), a company incorporated under the laws of Delaware, is a widely-recognized provider of investment advisory services to 24 open-end funds, 14 closed-end funds, 3 actively managed semi-transparent exchange traded funds (ETFs), one société d’investissement à capital variable (“SICAV”), and approximately 1,400 institutional and private wealth management (“Institutional and PWM”) investors principally in the United States (U.S.). The Company generally manages assets on a fully discretionary basis and invests in a variety of U.S. and international securities through various investment styles including value, growth, non-market correlated, and convertible securities. The Company’s revenues are based primarily on the levels of assets under management (“AUM”) and fees associated with the various investment products. GAMCO serves a broad client base, including institutions, intermediaries, offshore investors, private wealth, and direct retail investors.

GAMCO offers a wide range of solutions for clients across Value and Growth Equity, ESG, Convertibles, actively managed semi-transparent ETFs, sector-focused strategies including Gold and Utilities, Merger Arbitrage, and Fixed Income. In 1977, GAMCO launched its well-known All Cap Value strategy, Gabelli Value, and in 1986 entered the mutual fund business.
The investment advisory business is conducted principally through the following subsidiaries: Gabelli Funds, LLC (open-end funds, closed-end funds, and actively managed semi-transparent ETFs) (“Gabelli Funds”) and GAMCO Asset Management Inc. (Institutional and PWM) (“GAMCO Asset”). The distribution of open-end funds and actively managed semi-transparent ETFs are conducted through G.distributors, LLC (“G.distributors”), the Company’s broker-dealer subsidiary.

1.  Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for the fair presentation of financial position, results of operations, and cash flows of GAMCO 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 the Company and its wholly-owned subsidiaries including: Gabelli Funds, GAMCO Asset, G.distributors, and GAMCO Asset Management (UK) Limited. Intercompany accounts and transactions have been eliminated. Subsidiaries are fully consolidated from the date of acquisition, being the date on which GBL obtains control, and continue to be consolidated until the date that such control ceases.
 
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, 2021.

Use of Estimates

The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

8

Recent Accounting Developments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 consolidated statement 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, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), Leases (Topic 842): Effective Dates (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 and requires a modified retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption. Early adoption is permitted. The Company is currently assessing the potential impact of this new guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the process used to test for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill, and instead any goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. 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 will be effective for the Company on January 1, 2023 using a prospective transition method and early adoption is permitted. The Company is currently evaluating the potential effect of this new guidance on the Company’s consolidated financial statements.

2.  Revenue Recognition

In all cases for all revenue streams discussed below, the revenue generated is from a single transaction price and there is no need to allocate the amounts across more than a single revenue stream. The customer for all revenues derived from open-end and closed-end funds described in detail below has been determined to be each fund itself and not the ultimate underlying investor in each fund.

Significant judgments that affect the amounts and timing of revenue recognition:

The Company’s analysis of the timing of revenue recognition for each revenue stream is based upon an analysis of the current terms of each contract. Performance obligations could, however, change from time to time if and when existing contracts are modified or new contracts are entered into. These changes could potentially affect the timing of satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to performance obligations. In the case of the revenue streams discussed below, the performance obligation is satisfied either at a point in time or over time. For incentive fee revenues, the performance obligation (advising a client portfolio) is satisfied over time, while the recognition of revenues effectively occurs at the end of the measurement period as defined within the contract, as such amounts are subject to reduction to zero on the date where the measurement period ends even if the performance benchmarks were exceeded during the intervening period. The judgments outlined below, where the determination as to these factors is discussed in detail, are continually reviewed and monitored by the Company when new contracts or contract modifications occur. Transaction price is in all instances formulaic and not subject to significant (or any) judgment at the current time. The allowance for doubtful accounts is subject to judgment.

Advisory Fee Revenues

Advisory fees for Funds, sub-advisory accounts, and the SICAV are earned based on predetermined percentages of the average net assets of the individual Funds and are recognized as revenues as the related services are performed. Fees for open-end Funds, one non-U.S. closed-end Fund, sub-advisory accounts, and the SICAV are computed on a daily basis based on average daily net AUM. Fees for U.S. closed-end Funds are computed on average weekly net AUM and fees for one non-U.S. closed-end fund are computed on a daily basis based on daily market value. These fees are received in cash after the end of each monthly period within 30 days. The revenue recognition occurs ratably as the performance obligation (advising the Fund) is met continuously over time. There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date. There were no such impairment losses for the periods presented.

Advisory fees for Institutional and PWM accounts are earned based on predetermined percentages of the AUM and are generally computed quarterly based on account values at the end of the preceding quarter. The revenue recognition occurs daily as the performance obligation (advising the client portfolio) is met continuously. These fees are received in cash, typically within 60 days of the client being billed. There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date.  There were no such impairment losses for the periods presented.

9

Performance Correlated and Conditional Revenues

Investment advisory fees are earned on a portion of some closed-end funds’ preferred shares at year-end if the total return to common shareholders of the respective closed-end fund for the year exceeds the dividend rate of the preferred shares. These fees are recognized at the end of the measurement period, which coincides with the calendar year. These fees would also be earned and the contract period ended at any interim point in time that the respective preferred shares are redeemed. These fees are received in cash after the end of each annual measurement period, within 30 days.

The Company earns an incentive fee from two closed-end funds. For The GDL Fund (GDL), there is an incentive fee, which is earned and recognized as of the end of each calendar year and varies to the extent the total return of the fund is in excess of the ICE Bank of America Merrill Lynch 3-month U.S. Treasury Bill Index total return. For the Gabelli Merger Plus+ Trust Plc (GMP), there is an incentive fee, which is earned and recognized as of the end of each measurement period, June 30th, and varies to the extent the total return of the fund is in excess of twice the rate of return of the 13-week Treasury Bills over the performance period.

The Company earns an incentive fee from a SICAV sub-fund, the GAMCO Merger Arbitrage SICAV. This fee is recognized at the end of the measurement period, which coincides with the calendar year. The fee would also be earned and the measurement period ended at any interim point in time that a client redeemed their respective shares. This fee is received in cash after the end of the measurement period, within 30 days.

In all cases of the incentive fees, because of the variable nature of the consideration, revenue recognition is delayed until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, which is generally when the uncertainty associated with the variable consideration is subsequently resolved (for example, the measurement period has concluded and the hurdle rate has been exceeded). There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date. There were no such impairment losses for the periods presented.

Distribution Fees and Other Income

Distribution fees and other income primarily includes distribution fee revenue earned in accordance with Rule 12b-1 of the Company Act along with sales charges and underwriting fees associated with the sale of the class A shares of open-end Funds. Distribution fees are computed based on average daily net assets of certain classes of each fund and are recognized during the period in which they are earned. These fees are received in cash after the end of each monthly period within 30 days. In evaluating the appropriate timing of the recognition of these fees, the Company applied the guidance on up-front fees to determine whether such fees are related to the transfer of a promised service (a distinct performance obligation). The Company’s conclusion is that the service being provided by G.distributors to the customer in exchange for the fee is for the initial distribution of certain classes of the open-end Funds and is completed at the time of each respective sale. Any fixed amounts are recognized on the trade date and variable amounts are recognized to the extent it is probable that a significant revenue reversal will not occur once the uncertainty is resolved. For variable amounts, as the uncertainty is dependent on the value of the shares at future points in time as well as the length of time the investor remains in the fund, both of which are highly susceptible to factors outside the Company’s influence, the Company does not believe that it can overcome this constraint until the market value of the fund and the investor activities are known, which are generally monthly. Sales charges and underwriting fees associated with the sale of certain classes of the open-end Funds are recognized on the trade date of the sale of the respective shares. There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date. There were no such impairment losses for the periods presented.

10

Revenue Disaggregated

The following table presents the Company’s revenue disaggregated by investment vehicle (in thousands):

   
Three Months Ended March 31,
 
   
2022
   
2021
 
Investment advisory and incentive fees:
           
Open-end Funds
 
$
23,352
   
$
23,472
 
Closed-end Funds
   
19,075
     
18,082
 
Sub-advisory accounts
    551       616  
Institutional & Private Wealth Management
   
18,622
     
17,599
 
SICAVs
   
2,138
     
1,316
 
Performance-based
   
24
     
385
 
Total investment advisory and incentive fees
   
63,762
     
61,470
 
Distribution fees and other income
   
5,861
     
6,458
 
Total revenues
 
$
69,623
   
$
67,928
 

3.  Investment in Securities

Investments in equity securities at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

 
March 31, 2022
   
December 31, 2021
 
   
Cost
   
Estimated
Fair Value
   
Cost
   
Estimated
Fair Value
 
Investments in equity securities:
                               
Common stocks
 
$
33,912
   
$
15,261
   
$
33,575
   
$
16,210
 
Actively managed semi-transparent ETFs
    17,000       16,539       9,000       9,599  
Open-end funds
   
5,722
     
5,664
     
5,722
     
5,995
 
Closed-end funds
   
530
     
514
     
530
     
534
 
Other
   
6
     
4
     
6
     
6
 
Total investments in equity securities
 
$
57,170
   
$
37,982
   
$
48,833
   
$
32,344
 

Investments in equity securities, including the Company’s investments in common stocks and the Funds, are stated at fair value with any unrealized gains or losses reported in each respective period’s earnings.

4. Fair Value

All of the instruments within cash and cash equivalents and investments in securities are measured at fair value, except for those investments designated as held-to-maturity. The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below:

-  
Level 1 - the valuation methodology utilizes quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 assets include cash equivalents, government obligations, mutual funds, closed-end funds, and listed equities.
-  
Level 2 - the valuation methodology utilizes inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals.
-  
Level 3 - the valuation methodology utilizes unobservable inputs for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

11

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis by the above fair value hierarchy levels as of March 31, 2022 and December 31, 2021 (in thousands):

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2022

Assets
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
   
Significant Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Balance as of
March 31,
2022
 
Cash equivalents
 
$
143,983
   
$
-
   
$
-
   
$
143,983
 
Investments in securities:
                               
Common stocks
   
15,261
     
-
     
-
     
15,261
 
Actively managed semi-transparent ETFs
   
16,539
     
-
     
-
     
16,539
 
Open-end funds
   
5,664
     
-
     
-
     
5,664
 
Closed-end funds
   
514
     
-
     
-
     
514
 
Other
   
4
     
-
     
-
     
4
 
Total investments in securities
   
37,982
     
-
     
-
     
37,982
 
Total assets at fair value
 
$
181,965
   
$
-
   
$
-
   
$
181,965
 

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021

Assets
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
   
Significant Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Balance as of
December 31,
2021
 
Cash equivalents
 
$
141,394
   
$
-
   
$
-
   
$
141,394
 
Investments in securities:
                               
Common stocks
   
16,210
     
-
     
-
     
16,210
 
Actively managed semi-transparent ETFs
    9,599       -       -       9,599  
Open-end funds
   
5,995
     
-
     
-
     
5,995
 
Closed-end funds
   
534
     
-
     
-
     
534
 
Other
    6       -       -       6  
Total investments in securities
   
32,344
     
-
     
-
     
32,344
 
Total assets at fair value
 
$
173,738
   
$
-
   
$
-
   
$
173,738
 

Cash equivalents are comprised primarily of U.S. Treasury Bills and our money market fund which invests in U.S. Treasury Bills.

Financial assets not carried at fair value

At March 31, 2022 and December 31, 2021, the 2-year subordinated notes (“Subordinated Notes”) were recorded at face value, net of amortized issuance costs, as follows (in thousands) on the Condensed Consolidated Statements of Financial Condition:

 
March 31, 2022
   
December 31, 2021
 
   
Carrying
Value
   
Fair Value
Level 2
   
Carrying
Value
   
Fair Value
Level 2
 
Subordinated Notes
  $
50,935
    $
50,935
    $
50,990
    $
50,990
 
Total
 
$
50,935
   
$
50,935
   
$
50,990
   
$
50,990
 

The carrying value of other financial assets and liabilities approximates their fair value based on the short-term nature of these items.

5. Income Taxes
 
The effective tax rate (“ETR”) for the three months ended March 31, 2022 and 2021 was 22.6and 29.6%, respectively. The decrease in the ETR for the first quarter of 2022 was due to less non-deductible compensation as compared to the first quarter of 2021.
12


6. Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted average shares outstanding. Diluted earnings per share is calculated using the treasury stock method by dividing net income by the total weighted average shares of common stock outstanding and restricted stock awards. The computations of basic and diluted net income per share were as follows (in thousands, except per share amounts):

 
 
Three Months Ended March 31,
 
   
2022
   
2021
 
Basic:
           
Net income
 
$
17,454
   
$
15,950
 
Weighted average shares outstanding
   
26,237
     
26,393
 
Basic net income per share
 
$
0.67
   
$
0.60
 
 
               
Diluted:
               
Net income
 
$
17,454
   
$
15,950
 
 
               
Weighted average shares outstanding
   
26,237
     
26,393
 
Restricted stock awards
   
256
     
494
 
Total
   
26,493
     
26,887
 
 
               
Diluted net income per share
 
$
0.66
   
$
0.59
 

7. Debt

Subordinated Notes

On June 14, 2021, the Company entered into an indenture with Computershare Trust Company, N.A., as trustee, relating to GAMCO’s issuance of up to approximately $54.0 million of Subordinated Notes. The Subordinated Notes were issued to shareholders as a special dividend of $2.00 per share on GAMCO’s class A common stock (“Class A Stock”) and class B common stock (“Class B Stock”). The Company issued approximately $52.2 million of Subordinated Notes in connection with the special dividend, paid out $0.4 million of cash in lieu of fractional Subordinated Notes, and reserved approximately $1.9 million of Subordinated Notes to be issued upon vesting of restricted stock awards (“RSAs”).  The Subordinated Notes bear interest at a rate of 4% per annum for the one-year period ending June 15, 2022 and 5% per annum for the one-year period ending June 15, 2023 and mature on June 15, 2023. The Subordinated Notes are transferable, callable at the option of GAMCO, in whole or in part, at any time or from time to time at a redemption price equal to 100% of the principal amount of the Subordinated Notes to be redeemed plus interest, and puttable, in whole or in part, at any time after September 15, 2021 at a redemption price equal to 100% of the principal amount of the Subordinated Notes to be redeemed upon notice of redemption of at least 60 days but not more than 90 days before the redemption date.

During the three months ended March 31, 2022, the Company redeemed $68 thousand of Subordinated Notes during the first quarter of 2022 relating to put notices received at least 60 days prior to the end of the quarter. As of March 31, 2022, there are $50.9 million of Subordinated Notes outstanding.

On March 28, 2022, the Company commenced a tender offer (the “Offer”) to purchase for cash up to $10 million aggregate principal amount of the Subordinated Notes at a price equal to $1,014 per $1,000 principal amount of validly tendered and not properly withdrawn Subordinated Notes. The Offer will expire at 12:00 Midnight, Eastern Time, on Monday, April 25, unless extended.

8. Stockholders Equity
 
Shares outstanding were 26.6 million and 26.7 million on March 31, 2022 and December 31, 2021, respectively.

13

Voting Rights

The holders of Class A Stock and Class B Stock have identical rights except that (i) 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, and (ii) holders of Class A Stock are not eligible to vote on matters relating exclusively to Class B Stock and vice versa.

Stock Award and Incentive Plan

The Company maintains a stock award and incentive plan approved by the shareholders (the “Plan”), which is designed to provide incentives which will attract and retain individuals key to the success of GBL through direct or indirect ownership of our common stock. A maximum of 7.5 million shares of Class A Stock have been reserved for issuance under the Plan by a committee of GBL’s board of directors (the “Board of Directors”) responsible for administering the Plan (“Compensation Committee”). Benefits under the Plan may be granted in any one or a combination of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, phantom stock awards, dividend equivalents, and other stock or cash based awards. Under the Plan, the Compensation Committee may grant RSAs, each of which entitles the grantee to one share of Class A Stock subject to restrictions, phantom RSAs, each of which entitles the grantee to the cash value of one share of Class A Stock subject to restrictions, and either incentive or nonqualified stock options, with a term not to exceed ten years from the grant date and at an exercise price that the Compensation Committee may determine, which were recommended by the Company’s Chairman who did not receive any awards.

On June 15, 2021, 396,800 phantom RSAs were issued at a grant price of $25.02 per phantom RSA and have similar vesting terms to the RSAs. The phantom RSAs, which will be settled in cash based on the fair value of the shares on the vesting date, were determined to be liability awards and are adjusted for changes in the Company’s stock price at each reporting date.

As of March 31, 2022 and December 31, 2021, there were 407,700 and 411,200, respectively, RSAs outstanding with weighted average grant prices per RSA of $14.81 and $14.93, respectively, and 10,000 stock options outstanding with an exercise price of $25.55. As of March 31, 2022 and December 31, 2021, there were 377,300 and 380,300, respectively, phantom RSAs outstanding with weighted average grant prices per phantom RSA of $25.02 and $25.02, respectively.

For the three months ended March 31, 2022 and 2021, the Company recognized stock-based non-cash RSA compensation expense of $0.3 million and $1.2 million, respectively. For the three months ended March 31, 2022, the Company recognized stock-based phantom RSA compensation expense of $0.3 million. As of March 31, 2022 and December 31, 2021, the accrued phantom RSA compensation payable was $1.5 million and $1.2 million, respectively,and was included within compensation payable in the Condensed Consolidated Statements of Financial Condition.

The total compensation costs related to non-vested RSA and phantom RSA awards to teammates, excluding the CEO who received none, not yet recognized was approximately $3.2 million and $6.1 million, respectively, as of March 31, 2022.

Stock Repurchase Program

In March 1999, the Board of Directors established a stock repurchase program (the “Stock Repurchase Program”) to grant management the authority to repurchase shares of Class A Stock. 

For the three months ended March 31, 2022 and 2021, the Company repurchased 140,895 and 97,078 shares, respectively, at an average price per share of $22.34 and $18.68, respectively. At March 31, 2022, the total shares available under the Stock Repurchase Program to be repurchased in the future were 2,033,042. The Stock Repurchase Program is not subject to an expiration date.

Dividends

During the three months ended March 31, 2022 and 2021, the Company declared cash dividends of $0.04 and $0.02, respectively, per share to shareholders of Class A Stock and Class B Stock. 

Shelf Registration

In July 2021, the SEC declared effective the Company’s “shelf” registration statement on Form S-3 giving the Company the flexibility to sell any combination of senior and subordinated debt securities, convertible debt securities, and equity securities (including common and preferred stock) and other securities up to a total amount of $500 million. The shelf expires in July 2024.
14


9. Goodwill and Identifiable Intangible Assets

Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the amounts assigned to assets acquired less the liabilities assumed. At March 31, 2022 and December 31, 2021, there was goodwill of $0.2 million maintained on the Condensed Consolidated Statements of Financial Condition related to G.distributors.

As a result of becoming the advisor to the Gabelli Enterprise Mergers and Acquisitions Fund (the “Enterprise Fund”) and the associated consideration paid, the Company maintains an identifiable intangible asset of $1.3 million at March 31, 2022 and December 31, 2021. The investment advisory agreement for the Enterprise Fund is next up for renewal in February 2023. As a result of becoming the advisor to the Bancroft Fund Ltd. (the “Bancroft Fund”) and the Ellsworth Growth and Income Fund Ltd. (the “Ellsworth Fund”) and the associated consideration paid, the Company maintains an identifiable intangible asset of $1.6 million at March 31, 2022 and December 31, 2021. The investment advisory agreements for the Bancroft Fund and the Ellsworth Fund are next up for renewal in August 2022. Each of these investment advisory agreements are subject to annual renewal by the respective fund’s board of directors, which the Company expects to be renewed, and the Company does not expect to incur additional expense as a result, which is consistent with other investment advisory agreements entered into by the Company.

The Company assesses the recoverability of goodwill and intangible assets at least annually, or more often should events warrant. There were no indicators of impairment for the three months ended March 31, 2022 and March 31, 2021 and, as such, there was no impairment analysis performed or charge recorded for such period.

10. Commitments and Contingencies

From time to time, the Company may be named in legal actions and proceedings in the normal course of business. These actions may seek substantial or indeterminate compensatory, as well as punitive damages or injunctive relief. The Company is also subject to governmental or regulatory examinations or investigations, which could result in adverse judgments, settlements, fines, injunctions, or other relief. For any such matters, the condensed consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable.  Furthermore, the Company evaluates whether there exist losses which may be reasonably possible and, if material, makes the necessary disclosures. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of loss or range of loss can be reasonably estimated. Except as disclosed in Note 13, Subsequent Events, there are currently no such matters pending that the Company believes could have a material adverse effect on its consolidated financial condition, operations, or cash flows at March 31, 2022.
Leases

On December 5, 1997, the Company entered into a fifteen-year lease, expiring on April 30, 2013, of office space from an entity controlled by members of the Chairman’s family. On June 11, 2013, the Company modified and extended its lease with M4E, LLC, the Company’s landlord at One Corporate Center, Rye, NY. The lease term was extended to December 31, 2028 and the base rental remained at $18 per square foot, or $1.1 million, for 2014. For each subsequent year through December 31, 2028, the base rental is determined by the change in the consumer price index for the New York Metropolitan Area for November of the immediate prior year with the base period as November 2008 for the New York Metropolitan Area.

This lease has been accounted for as a finance lease under FASB ASC Topic 842 (and prior to 2019, as a capital lease under FASB ASC Topic 840, Leases) as it transfers substantially all the benefits and risks of ownership to the Company. The Company has recorded the leased property as an asset and a lease obligation for the present value of the obligation of the leased property. The leased property is amortized on a straight-line basis from the date of the most recent extension to the end of the lease. The lease obligation is amortized over the same term using the interest method of accounting. Finance lease improvements are amortized from the date of expenditure through the end of the lease term or the useful life, whichever is shorter, on a straight-line basis. The lease provides that all operating expenses relating to the property (such as property taxes, utilities, and maintenance) are to be paid by the lessee, GAMCO. These are recognized as expenses in the periods in which they are incurred. Accumulated amortization on the leased property at March 31, 2022 and December 31, 2021 was approximately $5.8 million and $5.7 million, respectively.

The Company also rents office space under operating leases, which expire at various dates through December 31, 2030.

15

The following table summarizes the Company’s leases for the periods presented (in thousands, except lease term and discount rate):


 
Three Months Ended
 
   
March 31,
 
   
2022
   
2021
 
Finance lease cost - interest expense
 
$
267
   
$
263
 
Finance lease cost - amortization of right-of-use asset
   
67
     
67
 
Operating lease cost
   
147
     
183
 
Sublease income
   
(32
)
   
(15
)
Total lease cost
 
$
449
   
$
498
 
                 
Other information:
               
Cash paid for amounts included in the measurement of lease liabilities
               
Operating cash flows from finance lease
 
$
-
   
$
-
 
Operating cash flows from operating leases
   
152
     
113
 
Financing cash flows from finance lease
   
74
     
61
 
Total cash paid for amounts included in the measurement of lease liabilities
 
$
226
   
$
174
 
Right-of-use assets obtained in exchange for new operating lease liabilities
 
$
-
   
$
-
 
Weighted average remaining lease term—finance lease (years)
   
6.8
     
7.8
 
Weighted average remaining lease term—operating leases (years)
   
3.2
     
3.2
 
Weighted average discount rate—finance lease
   
19.1
%
   
19.1
%
Weighted average discount rate—operating leases
   
5.0
%
   
5.0
%

The finance lease right-of-use asset, net of amortization, at March 31, 2022 and December 31, 2021 was $1.4 million and $1.5 million, respectively, and the operating right-of-use assets, net of amortization, were $2.4 million and $2.6 million, respectively, and these right-of-use assets were included within other assets in the Condensed Consolidated Statements of Financial Condition.

The following table summarizes the maturities of lease liabilities at March 31, 2022 (in thousands):

Year ending December 31,
 
Finance Leases
   
Operating Leases
   
Total Leases
 
2022 (excluding the three months ended March 31, 2022)
 
$
1,019
   
$
610
   
$
1,629
 
2023
   
1,080
     
571
     
1,651
 
2024
   
1,080
     
424
     
1,504
 
2025
   
1,080
     
363
     
1,443
 
2026
   
1,080
     
363
     
1,443
 
Thereafter
   
2,160
     
1,278
     
3,438
 
Total lease payments
 
$
7,499
   
$
3,609
   
$
11,108
 
Less imputed interest
   
(3,442
)
   
(952
)
   
(4,394
)
Total lease liabilities
 
$
4,057
   
$
2,657
   
$
6,714
 

The finance lease contains an escalation clause tied to the change in the New York Metropolitan Area Consumer Price Index, which may cause the future minimum payments to exceed the amounts shown above. Future minimum lease payments have not been reduced by related minimum future sublease rentals of approximately $1.1 million due over the next eight years, which are due from affiliated entities.

11. Related Party Transactions

On February 15, 2022, the Chief Executive Officer (“CEO”) of the Company elected to irrevocably waive all of his compensation that he would otherwise have been entitled to for the period from March 1, 2022 to May 31, 2022. For the three months ended March 31, 2022, the waiver reduced compensation expense by $3.4 million and management fee expense by $0.7 million.

16

12. Regulatory Requirements

The Company’s broker-dealer subsidiary, G.distributors, is subject to certain net capital requirements. G.distributors computes its net capital under the alternative method permitted, which requires minimum net capital of the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3 promulgated under the Securities Exchange Act of 1934, as amended. The requirement was $250,000 for the broker-dealer at March 31, 2022. At March 31, 2022, G.distributors had net capital, as defined, of approximately $2.1 million, exceeding the regulatory requirement by approximately $1.9 million. Net capital requirements for the Company’s affiliated broker-dealer may increase in accordance with the rules and regulations applicable to broker-dealers to the extent G.distributors engages in other business activities.

13. Subsequent Events

From April 1, 2022 to May 6, 2022, the Company repurchased 136,027 shares at $20.80 per share.

From April 1, 2022 to May 6, 2022, the Company redeemed $0.1 million of Subordinated Notes as a result of put notices received. In addition, as of the April 25, 2022 expiration of the Offer, $4.0 million of Subordinated Notes were validly tendered and not properly withdrawn. Since such aggregate principal amount of tendered Subordinated Notes was less than $10 million, all Subordinated Notes tendered were accepted and funded with cash on hand.

On May 2, 2022, the Company received correspondence from a regulatory agency outlining the agency’s findings and a request for a response to those findings. The Company has not accrued any amount related to this matter given the preliminary nature of the agency’s findings and analysis, and the uncertainty of the outcome. However, it is reasonably possible that upon conclusion of this matter the Company may incur a charge to the Company’s financial results. An estimate of a range of any potential charge cannot be made at this time.

On May 3, 2022, the Board of Directors declared its regular quarterly dividend of $0.04 per share to all of the Company’s shareholders, payable on June 28, 2022 to shareholders of record on June 14, 2022.
17


ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “the Firm,” “GBL,” “we,” “us,” and “our” or similar terms are to GAMCO Investors, Inc., its predecessors, and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this Form 10-Q contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that may cause our actual results to differ from our expectations include risks associated with the duration and scope of the ongoing coronavirus pandemic resulting in volatile market conditions, a decline in the securities markets that adversely affect our assets under management, negative performance of our products, the failure to perform as required under our investment management agreements, a general downturn in the economy that negatively impacts our operations, and the ongoing impacts of the Tax Cuts and Jobs Act with respect to tax rates and the non-deductibility of certain portions of named executive officer compensation. We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We also direct your attention to any more specific discussions of risk contained in our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other public filings. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.
 
OVERVIEW

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Form 10-Q. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A of this Form 10-Q “Risk Factors.” Our actual results could differ materially from those anticipated by such forward-looking statements due to factors discussed under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-Q.

GAMCO (New York Stock Exchange (“NYSE”): GBL), a company incorporated under the laws of Delaware, is a widely-recognized provider of investment advisory services to 24 open-end funds, 14 closed-end funds, 3 actively managed semi-transparent exchange traded funds (“ETFs”), one société d’investissement à capital variable (“SICAV”), and approximately 1,400 institutional and private wealth management (“Institutional and PWM”) investors principally in the United States (U.S.). The Company generally manages assets on a fully discretionary basis and invests in a variety of U.S. and international securities through various investment styles including value, growth, non-market correlated, and convertible securities. The Company’s revenues are based primarily on the levels of assets under management (“AUM”) and fees associated with the various investment products. GAMCO serves a broad client base, including institutions, intermediaries, offshore investors, private wealth, and direct retail investors.

GAMCO offers a wide range of solutions for clients across Value and Growth Equity, ESG, Convertibles, actively managed semi-transparent ETFs, sector-focused strategies including Gold and Utilities, Merger Arbitrage, and Fixed Income. In 1977, GAMCO launched its well-known All Cap Value strategy, Gabelli Value, and in 1986 entered the mutual fund business.
The investment advisory business is conducted principally through the following subsidiaries: Gabelli Funds, LLC (open-end funds, closed-end funds, and actively managed semi-transparent ETFs) (“Gabelli Funds”) and GAMCO Asset Management Inc. (Institutional and PWM) (“GAMCO Asset”). The distribution of open-end funds and actively managed semi-transparent ETFs are conducted through G.distributors, LLC (“G.distributors”), the Company’s broker-dealer subsidiary.

As of March 31, 2022, we had $33.4 billion of assets under management (“AUM”).

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A novel strain of coronavirus and its variants (“COVID-19”) continue to disrupt global supply chains, adding broad inflationary pressures impacting companies worldwide. As a result of this pandemic, the Company allowed most of our employees (“teammates”) to work remotely. This policy continued through the end of June 2021. Effective July 2021, the Company changed its policy and asked teammates to return to our offices. As a result, the majority of our teammates are now back in our offices. There continues to be no material impact of remote work arrangements on our operations, including our financial reporting systems, internal control over financial reporting, and disclosure controls and procedures, and there has been no material challenge in implementing our business continuity plan.

Giving Back to Society – (Y)our “S” in ESG

We are committed to allowing our shareholders to choose the recipients of our charitable contributions.  Each shareholder has the ability to designate the recipients of charitable contributions by our company in proportion to the number of shares of GAMCO that the registered shareholder owns.

The Board of Directors of GAMCO approved an $11.3 million shareholder designated charitable contribution (“SDCC”) for registered shareholders of record on December 21, 2021. Since the inception of GAMCO’s SDCC program in 2013, and counting this current amount, shareholders have designated charitable gifts of $48 million to approximately 350 charitable organizations. Since our initial public offering in February 1999, our firm’s combined charitable donations total approximately $74 million.

This charitable program is just one aspect of our firm’s commitment to ESG investing at both the firm level as well as within our portfolios – where we have been managing dedicated mandates since 1987.

Actively managed semi-transparent ETFs

To demonstrate our commitment to promoting a healthier environment we have waived the fees and absorbed the costs on the initial $100 million in assets in Love Our Planet & People (“LOPP”). LOPP, the first in a series of semi-transparent exchange traded funds (“ETFs”), invests in companies promoting sustainability in areas including renewable power generation and transmission, water purification and conservation, the reduction and elimination of long-lived wastes, and transportation electrification.

We launched our second ETF on February 16, 2021, the Gabelli Growth Innovators ETF, which trades on the NYSE under the symbol GGRW. This ETF provides an investment opportunity in businesses both enabling and benefitting from digital acceleration.

On January 3, 2022, our third ETF, the Gabelli Asset ETF, began trading on the NYSE under the symbol GAST. This ETF focuses on companies that use automation equipment, related technology, software, or processes, and firms that use those services to automate their productivity.

Assets Under Management

AUM was $33.4 billion as of March 31, 2022 and 2021. Equity AUM was $31.5 billion at March 31, 2022, a decrease of $0.2 billion, or 0.6%, from the March 31, 2021 equity AUM of $31.7 billion. The first quarter 2022 activity consisted of $1.1 billion of market depreciation, net cash outflows of $0.3 billion, and recurring distributions, net of reinvestments, from the mutual and closed-end funds (the “Funds”) of $0.1 billion. Average total AUM was $33.3 billion in the first quarter of 2022 versus $33.4 billion in the first quarter of 2021, a decrease of 0.3%.

We earn incentive fees for assets attributable to certain preferred issues for our closed-end Funds, our GDL Fund (GDL), the Gabelli Merger Plus+ Trust Plc (GMP), and the GAMCO Merger Arbitrage Fund. As of March 31, 2022, assets with incentive-based fees were $1.3 billion, 8.3% above the $1.2 billion on March 31, 2021. The majority of these assets have calendar year-end measurement periods; therefore, our incentive fees are primarily recognized in the fourth quarter when the uncertainty is removed at the end of the annual measurement period.

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Roll-forward of AUM (in millions)


 
Three Months Ended March 31,
 
   
2022
   
2021
 
Equities:
           
Mutual Funds
           
Beginning of period assets
 
$
10,249
   
$
9,541
 
Inflows
   
326
     
285
 
Outflows
   
(396
)
   
(541
)
Net inflows (outflows)
   
(70
)
   
(256
)
Market appreciation (depreciation)
   
(351
)
   
544
 
Fund distributions, net of reinvestment
   
(4
)
   
(4
)
Total increase (decrease)
   
(425
)
   
284
 
End of period assets
 
$
9,824
   
$
9,825
 
Percentage of total assets under management
   
29.4
%
   
29.4
%
Average assets under management
 
$
9,719
   
$
9,750
 
                 
Closed-end Funds
               
Beginning of period assets
 
$
8,656
   
$
7,773
 
Inflows
   
36
     
-
 
Outflows
   
(245
)
   
(17
)
Net inflows (outflows)
   
(209
)
   
(17
)
Market appreciation (depreciation)
   
(211
)
   
464
 
Fund distributions, net of reinvestment
   
(139
)
   
(120
)
Total increase (decrease)
   
(559
)
   
327
 
End of period assets
 
$
8,097
   
$
8,100
 
Percentage of total assets under management
   
24.3
%
   
24.2
%
Average assets under management
 
$
8,173
   
$
8,000
 
                 
Institutional & PWM
               
Beginning of period assets
 
$
13,497
   
$
12,371
 
Inflows
   
127
     
127
 
Outflows
   
(387
)
   
(830
)
Net inflows (outflows)
   
(260
)
   
(703
)
Market appreciation (depreciation)
   
(563
)
   
1,477
 
Total increase (decrease)
   
(823
)
   
774
 
End of period assets (a)
 
$
12,674
   
$
13,145
 
Percentage of total assets under management
   
38.0
%
   
39.3
%
Average assets under management
 
$
12,828
   
$
12,734
 
                 
SICAV
               
Beginning of period assets
 
$
831
   
$
474
 
Inflows
   
196
     
190
 
Outflows
   
(133
)
   
(78
)
Net inflows (outflows)
   
63
     
112
 
Market appreciation (depreciation)
   
(15
)
   
(4
)
Total increase (decrease)
   
48
     
108
 
End of period assets
 
$
879
   
$
582
 
Percentage of total assets under management
   
2.6
%
   
1.7
%
Average assets under management
 
$
852
   
$
525
 

(a)
Includes $185 million and $180 million of 100% U.S. Treasury Fund AUM at March 31, 2022 and 2021, respectively.

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Roll-forward of AUM (in millions) (continued)


 
Three Months Ended March 31,
 
   
2022
   
2021
 
Total Equities
           
Beginning of period assets
 
$
33,233
   
$
30,159
 
Inflows
   
685
     
602
 
Outflows
   
(1,161
)
   
(1,466
)
Net inflows (outflows)
   
(476
)
   
(864
)
Market appreciation (depreciation)
   
(1,140
)
   
2,481
 
Fund distributions, net of reinvestment
   
(143
)
   
(124
)
Total increase (decrease)
   
(1,759
)
   
1,493
 
End of period assets
 
$
31,474
   
$
31,652
 
Percentage of total assets under management
   
94.3
%
   
94.7
%
Average assets under management
 
$
31,572
   
$
31,009
 
                 
Fixed Income:
               
100% U.S. Treasury fund
               
Beginning of period assets
 
$
1,717
   
$
2,370
 
Inflows
   
967
     
664
 
Outflows
   
(812
)
   
(1,309
)
Net inflows (outflows)
   
155
     
(645
)
Market appreciation (depreciation)
   
-
     
-
 
Total increase (decrease)
   
155
     
(645
)
End of period assets
 
$
1,872
   
$
1,725
 
Percentage of total assets under management
   
5.6
%
   
5.2
%
Average assets under management