ASSOCIATED CAPITAL GROUP, INC. Reports Full Year and Fourth Quarter Results

  • Quarterly net loss was $40.3 million, or $1.77 per share; full year
    loss was $58.1 million, or $2.52 per share
  • Year-end Book Value per share was $38.36

RYE, N.Y.–(BUSINESS WIRE)–Associated Capital Group, Inc. (“AC” or the “Company”) reported
financial results for the quarter and year ended December 31, 2018.

Financial Highlights

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

      Q4   Full Year
2018   2017 2018   2017
AUM – end of period (in millions) $ 1,520 $ 1,541 $ 1,520 $ 1,541
Revenues 8,614 11,585 22,779 26,915
Operating loss (2,285 ) (2,776 ) (13,480 ) (19,673 )
Investment and other non-operating income/(expense), net (a) (46,014 ) 25,478 (55,754 ) 26,650
Income/(loss) before income taxes (48,299 ) 21,989 (69,234 ) 6,264
Net income/(loss) (40,315 ) 15,800 (58,099 ) 8,837
Net income/(loss) per share – diluted $ (1.77 ) $ 0.67 $ (2.52 ) $ 0.37
Shares outstanding at December 31 (thousands)         22,585       23,639       22,585       23,639  
    (a)   2018 results include a loss of $21.8 million and $47.0 million for
the quarter and full year periods, respectively, related to GAMCO
Investors, Inc. (“GAMCO”) common stock held by AC that it received
at the time of its spin-off from GAMCO.

Fourth Quarter Overview

Fourth quarter revenues were $8.6 million, down $3.0 million from $11.6
million in the prior year period. Operating expenses of $10.9 million
were $3.5 million lower (24%) than the $14.4 million incurred in the
year ago quarter. Largely due to lower compensation, the operating loss
for the quarter decreased to $2.3 million compared to a loss of $2.8
million in the 2017 fourth quarter.

Fourth quarter net investment and other non-operating income swung to a
loss of $46 million from a $25.5 million gain in the fourth quarter of
2017. This was primarily the result of the mark-to-market decline in the
value of our investment portfolio. Beginning in 2018, the accounting
treatment of available for sale (“AFS”) equity securities changed.
Mark-to-market adjustments for all equities now flow through net income.
Previously, any change in unrealized gains or losses attributable to AFS
equity securities was reflected in equity and classified as other
comprehensive income rather than net income. On a comparable basis, the
fourth quarter 2017 investment and other non-operating income, net would
have been a gain of $11.6 million if market appreciation for all
securities including AFS securities had been included in net income.

The Company recorded an income tax benefit in the current quarter of
$7.3 million compared to an expense of $6.2 million in the comparable
quarter of 2017. The current period provision reflects the change in
income, the lower federal corporate income tax rate over the prior year,
and the effect of certain capital losses and charitable contributions
for which the Company does not expect to realize a corresponding tax
benefit in future years.

Net loss for the fourth quarter was $40.3 million, or $1.77 per share,
compared to net income of $15.8 million, or $0.67 per share, in the
fourth quarter of 2017. The reported loss is within the range indicated
in our preliminary guidance dated January 24, 2019. On a comparable
basis of accounting for AFS securities, the year ago period would have
reported net income of $7.0 million, or $0.29 per share.

Commitment to Community

Continuing with the tradition in place prior to our spin-off from GAMCO,
(y)our Company seeks to be a good corporate citizen in our community
through the way we conduct our business activities as well as by other
measures such as serving our community, sponsoring local organizations
and developing our teammates.

Over its first two years as a public company, AC donated approximately
$10 million to qualified charities that address a broad range of local,
national and international concerns. The recipients were identified by
our shareholders through AC’s Shareholder-Designated Contribution
Program. Over 90 organizations received support in 2017 alone.

The Company’s 2018 Shareholder Designated Contribution Program, approved
by our Board in November 2018, allows each shareholder of record on
December 31, 2018 to designate a qualified charity to receive a $0.25
per share donation from AC. If all eligible shareholders participate,
the Company’s total contributions under this program will be
approximately $5 million bringing cumulative donations to approximately
$15 million.

Financial Condition

At December 31, 2018, AC’s book value was $866 million, or $38.36 per
share, compared to $918 million, or $38.84 per share, at December 31,

Fourth Quarter Results of Operations

Assets Under Management (AUM)

      December 31,   December 31,
2018 2017
(in millions)
Event Merger Arbitrage $ 1,342 $ 1,384
Event-Driven Value 118 91
Other   60   66
Total AUM $ 1,520 $ 1,541

Assets under management at December 31, 2018 were $1.5 billion,
approximately 1.4% lower than December 31, 2017. This decrease reflects
$12 million of net capital outflows and $9 million of market losses.


Total operating revenues for the three months ended December 31, 2018
were $8.6 million versus $11.6 million in the comparable prior year

  • The company earned incentive fees of $4.0 million in the fourth
    quarter, down from $4.6 million in the prior year period, primarily
    due to lower investment returns in our merger arbitrage funds;
  • Investment advisory fees were unchanged at $2.5 million; and
  • Institutional research services revenue was $2.1 million, down 50%
    from the prior period.

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

During the quarter, investment and other non-operating income/(expense),
net resulted in a loss of $46 million compared to a gain of $25.5
million in the fourth quarter of 2017. Portfolio mark-to-market changes
were a loss of $46.6 million and a gain of $21.6 million in the 2018 and
2017 quarters, respectively. This was largely driven by unrealized
losses due to the lower market value of the approximately 3 million
GAMCO shares we held at year-end.

Business and Investment Highlights

Event-Driven Asset Management

Our merger arbitrage fund launched in February 1985 returned +0.4% net
of fees for the quarter, bringing the full year return to +2.7%. Given
the full year results of major equity market indices, we believe that
the fund’s performance highlights the ability of the strategy to
generate absolute returns. Full year global M&A activity surpassed $4
trillion for only the third time on record, a 19% increase over 2017
with a strong showing from cross-border deals. We are excited about the
investment landscape for 2019: we expect that dealmaking is likely to
remain vibrant as the drivers for M&A remain, higher interest rates are
expected to contribute to wider deal spreads, and market volatility
creates opportunities to purchase shares of target companies at more
favorable prices.

Merger Masters: Tales of Arbitrage, our recently-published book,
co-authored by Kate Welling and Mario Gabelli, profiles leading
merger arbitrageurs and corporate CEOs. The publication continues to
receive media coverage and positive reviews.

Institutional Research

In the fourth quarter, G.research, our institutional research services
business, concluded its 42nd annual Automotive Aftermarket
Symposium, one of the longest running institutional research
conferences. For the full year, we sponsored seven research conferences
covering broad sectors our research team follows. During the first
quarter of 2019, we will host three conferences: Pump, Valve, & Water
Systems on February 28, Specialty Chemicals on March 15 and Waste &
Environmental Services on March 26. In addition, G.research continues to
sponsor non-deal roadshows providing corporate management access to our
institutional clients.

For frequent, real-time updates from our research team on social media
platforms, we invite you to visit GabelliTV, our online portal, at
YouTube (
or Facebook (

Shareholder Compensation

At December 31, 2018, there were 3.5 million Class A shares and 19.1
million Class B shares outstanding. GGCP, Inc., a private company
controlled by our Executive Chairman, indirectly owns approximately 18.4
million Class B shares.

During the fourth quarter, AC repurchased approximately 12,000 shares at
an average investment of $35.08 per share, for a total outlay of $0.4
million. In addition, the Company completed an exchange offer for its
Class A shares on October 29. Tendering shareholders received 1.9 shares
of GAMCO for each AC share, and the Company acquired approximately
370,000 Class A shares in exchange for approximately 710,000 GAMCO
shares with a value of approximately $14.6 million.

Since the spin-off of the Company from GAMCO, we have returned
approximately $102 million to shareholders through share repurchases and
exchange offers representing approximately three million shares.

About Associated Capital Group, Inc.

The Company has been publicly traded since November 30, 2015 following
its spin-off from GAMCO Investors, Inc.

The Company operates its investment management business via
Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli
Securities, Inc.), its 100% owned subsidiary. GCIA and its wholly-owned
subsidiary, Gabelli & Partners, collectively serve as general partners
or investment managers to investment funds including limited
partnerships, offshore companies and separate accounts. The Company
primarily manages assets in equity event-driven strategies, across a
range of risk and event arbitrage portfolios and earns management and
incentive fees from its advisory activities. GCIA is registered with the
Securities and Exchange Commission as an investment advisor under the
Investment Advisers Act of 1940, as amended.

The Company operates its institutional research services business
through G.research, LLC, an indirect wholly-owned subsidiary of the
Company. G.research is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, that provides institutional research
services and acts as an underwriter.

The Company also derives investment income/(loss) from proprietary
trading of assets awaiting deployment in its operating businesses.

Table I
(Dollars in thousands)
December 31, December 31,
2018 2017
Cash and cash equivalents $ 409,564 $ 293,112
Investments 439,876 513,888
Investment in GAMCO stock (3,016,501 and 4,393,055 shares,
50,949 130,254
Receivable from brokers 24,629 34,881
Income taxes receivable and deferred tax assets 5,845
Other receivables 15,425 30,877
Other assets   4,568   3,903  
Total assets $ 950,856 $ 1,006,915  
Payable to brokers $ 5,511 $ 13,281
Income taxes payable and deferred tax liabilities 5,484
Compensation payable 11,388 12,785
Securities sold short, not yet purchased 9,574 5,731
Accrued expenses and other liabilities   8,335   5,257  
Sub-total 34,808 42,538
Redeemable noncontrolling interests (a)   49,800   46,230  
Equity 866,248 961,435
4% PIK Note due from GAMCO (50,000 )
Accumulated comprehensive income     6,712  
Total equity   866,248   918,147  
Total liabilities and equity $ 950,856 $ 1,006,915  
(a)   Represents third-party capital balances in consolidated investment
Table II            
(Amounts in thousands, except per share data)
For the quarter ended December 31, For the year ended December 31,
2018 2017 2018 2017
Investment advisory and incentive fees $ 6,460 $ 7,233 $ 14,409 $ 14,551
Institutional research services 2,105 4,282 8,284 12,199
Other revenues   49     70     86     165  
Total revenues   8,614     11,585     22,779     26,915  
Compensation costs 8,125 10,948 25,937 30,644
Stock-based compensation 309 653 670 5,879
Other operating expenses   2,465     2,760     9,652     10,065  
Total expenses   10,899     14,361     36,259     46,588  
Operating loss before management fee   (2,285 )   (2,776 )   (13,480 )   (19,673 )
Investment gain/(loss) (46,640 ) 21,616 (65,576 ) 20,598
Interest and dividend income from GAMCO 60 598 1,171 3,461
Interest and dividend income, net 3,866 2,591 11,951 6,813
Shareholder-designated contribution   (3,300 )   673     (3,300 )   (4,222 )
Investment and other non-operating income/(expense), net   (46,014 )   25,478     (55,754 )   26,650  
Gain/(loss) before management fee and income taxes (48,299 ) 22,702 (69,234 ) 6,977
Management fee       713         713  
Income/(loss) before income taxes (48,299 ) 21,989 (69,234 ) 6,264
Income tax expense/(benefit)   (7,274 )   6,247     (11,478 )   (2,420 )
Net income/(loss) (41,025 ) 15,742 (57,756 ) 8,684
Net income/(loss) attributable to noncontrolling interests   (710 )   (58 )   343     (153 )
Net income/(loss) attributable to Associated Capital Group, Inc. $ (40,315 ) $ 15,800   $ (58,099 ) $ 8,837  
Net income/(loss) per share attributable to Associated Capital
Group, Inc.:
Basic $ (1.77 ) $ 0.67 $ (2.52 ) $ 0.37
Diluted (1.77 ) 0.67 (2.52 ) 0.37
Weighted average shares outstanding:
Basic 22,721 23,691 23,070 23,792
Diluted 22,721 23,691 23,070 23,925
Actual shares outstanding – end of period 22,585 23,639 22,585 23,639


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.


Francis J. Conroy
Interim Chief Financial Officer

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