Business Wire | Nov 10, 2020 04:29PM EST

Associated Capital Group, Inc. Reports Third Quarter Results

Nov. 10, 2020

GREENWICH, Conn.--(BUSINESS WIRE)--Nov. 10, 2020--Associated Capital Group, Inc. ("AC" or the "Company"), a diversified financial services and investment management company, today reported its financial results for the third quarter ended September 30, 2020.

Since March, our business contingency plans have functioned well, allowing teammates to stay close to the companies we invest in and, at the same time, to focus on our clients. In July, we welcomed our team to return to the offices on a voluntary basis. In September, we asked teammates to return to the office on a full time basis with alternating schedules to keep within government mandates and to maintain social distancing and team safety. Our investment in technology has enabled the majority of our teammates to work-from-home to ensure their safety and health while allowing us to meet our clients' needs.

Giving Back to Society

The Board of Directors of Associated Capital announced on August 4th that it approved a nearly $4.5 million - $0.20 per share shareholder designated charitable contribution ("SDCC"), in line with last year's $0.20 per share contribution under the program.

Since our spin off from GAMCO (NYSE: GBL) in 2015, we have offered this program of corporate giving through our shareholder-designated charitable contribution (SDCC) program. Including the recently announced $4.5 million contribution, we have donated nearly $25.0 million to over 160 charities across the United States from the inception of this program in 2015. Only shareholders who register their shares by February 28, 2021 will be eligible to participate.

Second Quarter Results

* The net income for the quarter was $0.26 per share, the same as in the prior year's third quarter. * Book value per share ended the quarter at $38.25, after adjusting for the $0.24 per share spin off of Morgan Group. Stated another way, had we not done the spinoff, the book value at September 30, 2020 would have been $38.49 versus $38.13 at June 30, 2020 and $39.93 at December 31, 2019. * Our investment portfolio generated a gain of $15.6 million in the third quarter versus a $7.6 million gain in the year ago quarter, reflecting the mark-to-market impact of our investment portfolio. * Assets under management ended the quarter at $1.25 billion compared to $1.65 billion at September 30, 2019, largely reflecting the redemption by a client that merged with a company with a different investment philosophy.

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

(Unaudited) Third Quarter First Nine Months

2020 2019 2020 2019



AUM - end of period (in $ 1,251 $ 1,651 $ 1,251 $ 1,651 millions)

Average AUM (in millions 1,280 1,644 1,437 1,599



Revenues 1,945 2,754 6,974 8,211

Operating loss (3,552 ) (2,593 ) (7,853 ) (11,148 )

Investment and othernon-operating income/ 14,007 10,124 (33,248 ) 51,751 (expense), net

Income/(loss) before 10,455 7,531 (41,101 ) 40,603 income taxes

Income/(loss) fromcontinuing operations 5,954 6,252 (31,671 ) 30,307

Income/(loss) from (139 ) (301 ) (632 ) (2,141 )discontinued operations 5,815 5,951 (32,303 ) 28,166 Net income/(loss)

Net income/(loss) per $ 0.26 $ 0.26 $ (1.44 ) $ 1.25 share - diluted

Shares outstanding at 22,333 22,496 22,333 22,496 Sept 30 (thousands)

Third Quarter Overview

Investment advisory fees were $1.9 million for the quarter as compared to $2.8 million in the third quarter 2019, reflecting a drop in AUM.

Income/(loss) from discontinued operations includes the results of G.research, our affiliated institutional research services business, following the distribution of all of AC's shares of Morgan Group on August 5, 2020. All current and prior period results have been restated to reflect G.research operations as discontinued.

Net investment and other non-operating gains were $14.0 million for the quarter versus a gain of $10.1 million a year ago. This reflects the mark-to-market impact of our ownership of 2.9 million shares of GBL as well as the mark-to-market gains on our entire investment portfolio, including the investments in the Gabelli Merger Plus+ Trust (GMP:LSE) which is consolidated by us.

AC's effective tax rate in the third quarter ended September 30, 2020 was 34.1% versus 21.8% for the quarter ended September 30, 2019, reflecting primarily two factors: the tax treatment of charitable contributions and, the rate differential on the carryback of a net operating loss.

Assets Under Management (AUM)

Assets under management at September 30, 2020 were $1.25 billion, down $465 million from year-end 2019, largely reflecting redemption primarily due to the merger of a client. Net redemptions of $456 million plus a $9 million drop in market values accounted for the change.

Sept 30, June 30, December 31, Sept 30,

2020 2020 2019 2019

(in millions)

Event Merger Arbitrage $ 1,091 $ 1,147 $ 1,525 $ 1,466

Event-Driven Value 105 104 132 128

Other 55 54 59 57

Total AUM $ 1,251 $ 1,305 $ 1,716 $ 1,651

Alternative Investment Management

Associated Capital has two businesses, Event-Driven Asset Management and Direct Investing.

* Event-Driven Asset Management

The alternative investment strategies focus on fundamental, active, event-driven special situations and merger arbitrage. Merger activity in the third quarter topped $1 trillion, an increase of 94% compared to the second quarter and the strongest quarter for deal making since the second quarter of 2018. Returns for the quarter were driven by completed deals, as well as continued progress on deals in the pipeline.

For third quarter, our gross return was 3.2%, (2.6% net of fees). The strategy is offered domestically through partnerships and to institutional investors. Internationally, the strategy is offered through a number of vehicles, including EU regulated UCITS structures and the London Stock Exchange listed investment company, Gabelli Merger Plus Trust (GMP-LN).

* Direct Investing

We launched our direct private equity and merchant banking activities in August 2017. They are developing along three core pillars; the first is Gabelli Private Equity Partners, LLC ("GPEP"), with $150 million of authorized capital as a "fund-less" sponsor. Secondly we added Gabelli Special Purpose Acquisition Vehicles ("SPAC") in 2018. Finally, Gabelli Principal Strategies Group, LLC. ("GPS") is in place 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 in the United States. Our investment sourcing is across a variety 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. The SPAC vehicles leverage our capital markets expertise and act to expand deal flow in target industries. The Company is introducing additional SPACs in the near term to extend our direct investing efforts.

In Europe, the Gabelli Value for Italy (VALU) Special Purpose Acquisition, approached its second anniversary in April at the apex of the Corona virus in Italy. The VALU effort successfully canvassed private company opportunities in Italy, and generated deal flow from throughout Europe. We believe the platform is in place to further expand our direct investment efforts across the European continent.

On September 22, 2020, AC completed the $175 million initial public offering of its special purpose acquisition corporation, PMV Consumer Acquisition Corp. (NYSE:PMVC).

PMV Consumer Acquisition Corp. ("PMV") was created to pursue an initial business combination following the consumer globally with companies having an enterprise valuation in the range of $200 million to $3.5 billion.

AC has a controlling financial interest in PMV that has been included in the consolidated statement of financial condition of AC resulting in total assets of $1.1 billion at September 30, 2020, inclusive of $162 million of assets relating to the consolidation of PMV. In addition to PMV, there are several other entities that are consolidated within the financial statements due to AC having a controlling financial interest.

Acquisitions

A major driver behind creating Associated Capital Group and spinning it out, was to use our capital to focus on private equity and late stage venture capital. AC plans remain to focus on pursuing acquisitions in a variety of markets, with a broad range of targets including private companies, subsidiaries of public companies, using an array of structures to accomplish our objectives, including SPAC's.

G.research - Spin-off

On October 31, 2019, we consummated the merger between G.research, LLC ("G.research") and Morgan Group Holding Co. ("Morgan Group") whereby G.research became a wholly owned subsidiary of Morgan Group (MGHL:OTC).

On March 16, 2020, our board of directors approved the distribution of AC's holdings of Morgan Group shares to shareholders.

On June 9, 2020, Morgan Group amended its certificate of incorporation to effect a 1-for-100 reverse split which took place on June 10, 2020.

On August 5, 2020 the distribution of all of AC's Morgan Group shares to shareholders of record as of July 30, 2020 was completed. Associated Capital held 83.3% of the outstanding shares of Morgan Group. G.research (Morgan Group) is accounted for as a discontinued operation from August 5.

Shareholder Dividends and Buybacks

During the third quarter, AC repurchased approximately 30,000 Class A shares at an average investment of $37.03 per share for a total outlay of $1.1 million.

Since our spin-off from GBL on November 30, 2015, AC has returned $116.1 million to shareholders through share repurchases and exchange offers, reducing its outstanding shares by 3.3 million shares, in addition to paying dividends of $21 million.

On November 9, 2020, AC's board of directors declared a semi-annual dividend of $0.10 per share, which is payable on December 15, 2020 to class A and class B shareholders of record on December 1, 2020.

At September 30, 2020, there were 3.4 million Class A shares and 19.0 million Class B shares outstanding.

About Associated Capital Group, Inc.

Associated Capital Group, Inc. (NYSE:AC), based in Greenwich Connecticut, is a diversified global financial services company that provides alternative investment management through Gabelli & Company Investment Advisers, Inc. ("GCIA" f/k/a Gabelli Securities, Inc.). The proprietary capital is earmarked for our direct investment business that invests in new and existing businesses. The direct investment business is developing along three core pillars; Gabelli Private Equity Partners, LLC ("GPEP"), formed in August 2017 with $150 million of authorized capital as a "fund-less" sponsor; the SPAC business (Gabelli special purpose acquisition vehicles), launched in April 2018; and, Gabelli Principal Strategies Group, LLC ("GPS") created to pursue strategic operating initiatives.

NOTES ON NON-GAAP FINANCIAL MEASURES

Operating Loss Before Management Fee

Operating loss before management fee expense represents a non-GAAP financial measure used by management to evaluate its business operations. We believe this measure is useful in illustrating the operating results of the Company as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company's proprietary investment portfolio and interest expense. The management fee is calculated based on the year to date income before management fee and income taxes.

The reconciliation of operating loss to operating loss before management fee expense (non-GAAP) is provided below.

Year-to-date

(In thousands) 2020 2019

($7,853 ) Operating loss $(11,148 )

Add: management fee expense - 3,959



Operating loss before management fee ($7,853 ) ($7,189 )

Table IASSOCIATED CAPITAL GROUP, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Dollars in thousands)September 30,December 31,September 30,2020

2019

2019

ASSETSCash and cash equivalents$

47,331

$

342,001

$

345,539

Investments in government securities (less than one year maturity)330,942

29,037

29,335

Investments in equity securities454,021

518,792

511,822

Investment in GAMCO stock (2,931,791, 2,935,401and 3,016,501 shares, respectively)33,921

57,211

58,973

Receivable from brokers21,065

23,141

23,502

Deferred tax assets (including taxes receivable of $2,132 in 2020)10,059

1,820

4,316

Other receivables7,227

17,439

1,901

Other assets21,043

13,328

11,513

Investments in government securities held in Trust Account175,002

-

-

Assets of discontinued operations-

8,137

6,224

Total assets$

1,100,611

$

1,010,906

$

993,125

LIABILITIES AND EQUITYPayable to brokers$

8,443

$

14,889

$

10,277

Income taxes payable897

3,622

3,881

Compensation payable7,445

19,536

10,672

Securities sold short, not yet purchased12,827

16,419

25,474

Accrued expenses and other liabilities12,668

6,520

2,841

Liabilities of discontinued operations-

2,100

1,484

Sub-total42,280

63,086

54,629

Redeemable noncontrolling interests (a)204,164

50,385

49,699

Total equity854,167

897,435

888,797

Total liabilities and equity$

1,100,611

$

1,010,906

$

993,125

(a) Represents third-party capital balances in consolidated investments funds.Table IASSOCIATED CAPITAL GROUP, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Dollars in thousands) September December September 30, 31, 30, 2020 2019 2019

ASSETS Cash and cash equivalents $ 47,331 $ 342,001 $ 345,539

Investments in government securities 330,942 29,037 29,335(less than one year maturity)Investments in equity securities 454,021 518,792 511,822

Investment in GAMCO stock (2,931,791,2,935,401and 3,016,501 shares, respectively) 33,921 57,211 58,973

Receivable from brokers 21,065 23,141 23,502

Deferred tax assets (including taxes 10,059 1,820 4,316receivable of $2,132 in 2020)Other receivables 7,227 17,439 1,901

Other assets 21,043 13,328 11,513

Investments in government securities 175,002 - -held in Trust AccountAssets of discontinued operations - 8,137 6,224

Total assets $ 1,100,611 $ 1,010,906 $ 993,125

LIABILITIES AND EQUITY Payable to brokers $ 8,443 $ 14,889 $ 10,277

Income taxes payable 897 3,622 3,881

Compensation payable 7,445 19,536 10,672

Securities sold short, not yet purchased 12,827 16,419 25,474

Accrued expenses and other liabilities 12,668 6,520 2,841

Liabilities of discontinued operations - 2,100 1,484

Sub-total 42,280 63,086 54,629

Redeemable noncontrolling interests (a) 204,164 50,385 49,699

Total equity 854,167 897,435 888,797

Total liabilities and equity $ 1,100,611 $ 1,010,906 $ 993,125

(a) Represents third-party capital balances in consolidated investments funds.Table IIASSOCIATED CAPITAL GROUP, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Amounts in thousands, except per share data)Three months ended Sept 30,Nine months ended Sept 30,2020

2019

2020

2019

Investment advisory and incentive fees$

1,865

$

2,753

$

6,424

$

8,199

Other revenues80

1

550

12

Total revenues1,945

2,754

6,974

8,211

Compensation costs3,026

3,071

8,405

10,287

Other operating expenses2,471

1,443

6,422

5,113

Total expenses5,497

4,514

14,827

15,400

Operating loss before management fee(3,552

)

(1,760

)

(7,853

)

(7,189

)

Investment gain/(loss)15,603

7,613

(34,770

)

42,358

Interest and dividend income from GAMCO59

60

177

180

Interest and dividend income, net1,127

2,451

4,352

9,213

Shareholder-designed contribution(2,782

)

-

(3,007

)

-

Investment and other non-operating income/(expense), net14,007

10,124

(33,248

)

51,751

Income/(loss) before management fee and income taxes10,455

8,364

(41,101

)

44,562

Management fee-

833

-

3,959

Income/(loss) before income taxes10,455

7,531

(41,101

)

40,603

Income tax expense/(benefit)3,564

1,638

(8,858

)

8,064

Income/(loss) before noncontrolling interests6,891

5,893

(32,243

)

32,539

Net income attributable to noncontrolling interests937

(359

)

(572

)

2,232

Income/(loss) from continuing operations5,954

6,252

(31,671

)

30,307

Loss from discontinued operations, net of taxes(139

)

(301

)

(632

)

(2,141

)

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

5,815

$

5,951

$

(32,303

)

$

28,166

Net income/(loss) per share attributable to Associated Capital Group, Inc.:Basic- Continuing operations$

0.27

$

0.27

$

(1.41

)

$

1.34

Basic- Discontinued operations(0.01

)

(0.01

)

(0.03

)

(0.09

)

Basic - Total$

0.26

$

0.26

$

(1.44

)

$

1.25

Diluted- Continuing operations$

0.27

$

0.27

$

(1.41

)

$

1.34

Diluted - Discontinued operations(0.01

)

(0.01

)

(0.03

)

(0.09

)

Diluted - Total$

0.26

$

0.26

$

(1.44

)

$

1.25

Weighted average shares outstanding:Basic22,354

22,514

22,391

22,550

Diluted22,354

22,514

22,391

22,550

Actual shares outstanding - end of period22,333

22,496

22,333

22,496

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

The financial results set forth in this press release are preliminary. Our disclosure and analysis in this press release, which do not present historical information, contain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements convey our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, the economy and other conditions, there can be no assurance that our actual results will not differ materially from what we expect or believe. Therefore, you should proceed with caution in relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.

Forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors, some of which are listed below, that are difficult to predict and could cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements. Some of the factors that could cause our actual results to differ from our expectations or beliefs include a decline in the securities markets that adversely affect our assets under management, negative performance of our products, the failure to perform as required under our investment management agreements, and a general downturn in the economy that negatively impacts our operations. We also direct your attention to the more specific discussions of these and other risks, uncertainties and other important factors contained in our Form 10 and other public filings. Other factors that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations whether as a result of new information, future developments or otherwise, except as may be required by law.

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CONTACT: Kenneth D. Masiello Chief Accounting Officer (203) 629-2726 Associated-Capital-Group.com