Associated Capital Group, Inc. Reports Fourth Quarter and Full Year Results

  • Book Value was $40.48 per share at year-end 2022

  • Year-end AUM: $1.84 billion at December 31, 2022 vs. $1.78 billion at December 31, 2021

  • Net Inflows were $100 million for the year

  • Full year Merger Arbitrage performance1: +4.47% gross, +2.75% net

GREENWICH, Conn., February 08, 2023--(BUSINESS WIRE)--Associated Capital Group, Inc. ("AC" or the "Company"), a diversified financial services company, today reported its financial results for the fourth quarter and full year-ended December 31, 2022.

Financial Highlights – GAAP basis

($’s in 000’s except AUM and per share data)

Fourth Quarter

Full Year

(Unaudited)

2022

2021

2022

2021

AUM – end of period (in millions)

$

1,842

$

1,781

$

1,842

$

1,781

AUM – average (in millions)

1,811

1,735

1,817

1,595

Revenues

7,538

13,998

15,228

20,924

Operating Loss

(2,616

)

(2,131

)

(11,262

)

(19,076

)

Investment and other non-operating income, net

19,550

14,961

(49,203

)

100,415

Income/(loss) before income taxes

16,934

12,830

(60,465

)

81,339

Net income/(loss) to shareholders:

Net income/(loss)

13,664

9,429

(48,907

)

59,203

Net income/(loss) per share-diluted

$

0.62

$

0.43

$

(2.22

)

$

2.68

Class A shares outstanding (thousands)

3,027

3,095

3,027

3,095

Class B shares outstanding (thousands)

18,963

18,963

18,963

18,963

Total shares outstanding (thousands)

21,990

22,058

21,990

22,058

Book Value Per Share

$

40.48

$

42.48

$

40.48

$

42.48

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

On November 11, 2022, the Board of Directors of AC approved a $0.15 per share shareholder designated charitable contribution ("SDCC") for registered shareholders as of January 18, 2023. Based on the program created by Warren Buffett at Berkshire Hathaway, our corporate charitable giving is somewhat unique in that the recipients of AC’s charitable contributions are chosen directly by the shareholders, rather than our corporate officers. Since our spin off as a public company, the shareholders of AC have donated approximately $34 million, including $3.0 million for the most recent SDCC, to over 160 different charities that address a broad range of local, national, and international concerns.

Fourth Quarter Financial Data

  • Assets under management ended the quarter at $1.84 billion compared to $1.75 billion at September 30, 2022 and $1.78 billion at December 31, 2021.

  • At December 31, 2022, book value per share was $40.48 per share versus $39.96 per share at September 30, 2022 and $42.48 per share at December 31, 2021.

Fourth Quarter Results

Fourth quarter revenues of $7.5 million were $6.5 million lower than the $14.0 million for the fourth quarter of 2021. This was primarily the result of lower performance-based incentive fees partially offset by higher management fees based on higher average AUM.

Total operating expenses, excluding management fee, were $10.2 million in the fourth quarter 2022 compared to $14.9 million in the comparable 2021 period reflecting lower variable performance-based compensation expense in 2022.

Net investment and other non-operating income was $19.6 million for the fourth quarter, an increase of $4.6 million from the $15.0 million recorded in the year ago quarter. This was primarily the result of the appreciation of our internal portfolios in the last quarter of 2022.

There was no management fee expense in the fourth quarter due to losses in 2022 compared to a management fee expense of $1.2 million in the fourth quarter of 2021. Our provision for income taxes was $2.9 million for the quarter compared to $2.6 million in the comparable period of 2021.

Full Year Results

Revenues for the year-ended 2022 were $15.2 million compared to $20.9 million in 2021, largely the result of lower performance-based incentive fees offset in part by higher management fees based on higher average AUM in 2022.

For 2022, the operating loss before management fee was $11.3 million compared to $10.7 million in 2021, a combination of lower revenues and incrementally higher insurance premiums in 2022.

The net investment and other non-operating loss was $49.2 million versus income of $100.4 million generated in 2021. In 2022, market volatility brought on by rising interest rates, geo-political factors, and accelerating inflation impacted AC’s investments, other than investments in merger arbitrage funds, on a mark-to-market basis.

In 2022, there was no management fee expense due to losses in the period compared to a management fee expense of $8.4 million in 2021.

Our income tax rate for the year was 24.7% compared to 21.8% for the prior year primarily driven by foreign investments and foreign income which reduced the prior year rate.

Assets Under Management (AUM)

Assets under management at December 31, 2022 reached a record of $1.84 billion, up $61 million from year-end 2021 due to annual net inflows of $100 million and market appreciation of $34 million, partially offset by the impact of currency fluctuations of $73 million from non-US dollar classes of investment funds.

AUM since spin-off:

December 31,

($ in millions)

2022

2021

2020

2019

2018

2017

2016

2015

Merger Arbitrage

$ 1,588

$ 1,542

$ 1,126

$ 1,525

$ 1,342

$ 1,384

$ 1,076

$ 869

Event-Driven Value(a)

222

195

180

132

118

91

133

145

Other

32

44

45

59

60

66

63

66

Total AUM

$ 1,842

$ 1,781

$ 1,351

$ 1,716

$ 1,520

$ 1,541

$ 1,272

$ 1,080

(a)

Assets under management represent the assets invested in this strategy that are attributable to AC.

Alternative Investment Management

The alternative investment strategy offerings center around our merger arbitrage strategy which has an absolute return focus of generating returns independent of the broad equity and fixed income markets. We also offer strategies utilizing fundamental, active, event-driven and special situations investments.

Merger Arbitrage

For the fourth quarter 2022, the longest continuously offered fund in the merger arbitrage strategy generated gross returns of 4.40% (3.45% net of fees). For the full year, gross returns were 4.47% (2.75% net of fees), adding to its historical record of positive net returns in 36 of the last 38 years. A summary of the performance is as follows:

Performance%(a)

4Q ‘22

2022

2021

2020

2019

5 Year(b)

Since
1985

(b)(c)

Merger Arb

Gross

4.40

4.47

10.81

9.45

8.55

7.49

10.22

Net

3.45

2.75

7.78

6.70

5.98

5.15

7.24

(a)

Net performance is net of fees and expenses, unless otherwise noted. Performance shown for an actual fund in this strategy. The performance of other funds in this strategy may vary. Past performance is no guarantee of future results.

(b)

Represents annualized returns through December 31, 2022

(c)

Inception Date: February 1985

Worldwide M&A activity totaled $3.6 trillion for 2022 with Technology accounting for a record 20% of deal making. Although M&A activity was down 37% in 2022 compared to the prior year, M&A activity is still in line with pre-pandemic levels. It is important to note that rising nominal interest rates may help to bolster merger arbitrage returns in the near term, because deal spreads widen to compensate arbitrageurs for the opportunity cost of a "riskless" investment (i.e. U.S. treasury bills) and for the time value of money.

The Merger Arbitrage strategy is offered by mandate and client type through partnerships and offshore corporations serving accredited as well as institutional investors. The strategy is also offered in separately managed accounts, a Luxembourg UCITS and a London Stock Exchange listed investment company, Gabelli Merger Plus + Trust Plc (GMP-LN).

Merger Arbitrage (1)

Percent Return (%)

Year

Gross Return

Net Return

90 Day

T-Bills

2022

4.47

2.75

1.50

2021

10.81

7.78

0.05

2020

9.45

6.70

0.58

2019

8.55

5.98

2.25

2018

4.35

2.65

1.86

2017

4.69

2.92

0.84

2016

9.13

6.44

0.27

2015

5.33

3.43

0.03

2014

3.89

2.29

0.03

2013

5.33

3.43

0.05

2012

4.32

2.63

0.07

2011

4.89

3.07

0.08

2010

9.07

6.35

0.13

2009

12.40

9.15

0.16

2008

0.06

-0.94

1.80

2007

6.39

4.26

4.74

2006

12.39

8.96

4.76

2005

9.40

6.63

3.00

2004

5.49

3.69

1.24

2003

8.90

6.26

1.07

2002

4.56

2.45

1.70

2001

7.11

4.56

4.09

2000

18.10

13.57

5.96

1999

16.61

12.31

4.74

1998

10.10

7.21

5.06

1997

12.69

9.21

5.25

1996

12.14

8.84

5.25

1995

14.06

10.27

5.75

1994

7.90

5.53

4.24

1993

12.29

8.91

3.09

1992

7.05

4.78

3.62

1991

12.00

8.76

5.75

1990

9.43

6.67

7.92

1989

23.00

17.55

8.63

1988

45.84

35.66

6.76

1987

-13.67

-14.54

5.90

1986

33.40

26.14

6.24

1985

30.47

22.64

7.82

Average

10.59

7.50

3.22

(1)

The performance above refers to our longest continuously offered fund in the merger arbitrage strategy (net and gross returns). Net returns are net of management and incentive fees. Individual investment returns may differ due to timing of investment and other factors. Past performance is not indicative of future results.

Acquisitions

Associated Capital Group's plan is to accelerate the use of its capital. We intend to leverage our research and investment capabilities by pursuing acquisitions and alliances that will broaden our product offerings and add new sources of distribution. In addition, we may make direct investments in operating businesses using a variety of techniques and structures to accomplish our objectives.

Shareholder Dividends and Buybacks

At its meeting on November 11, 2022, the Board of Directors declared a semi-annual dividend of $0.10 per share which was paid on December 15, 2022 to shareholders of record on December 1, 2022.

During the fourth quarter, AC repurchased 13,212 Class A shares, for $0.5 million, at an average investment of $39.66 per share.

Since our spin-off from GAMCO on November 30, 2015, AC has returned $156.3 million to shareholders through share repurchases and exchange offers, and paid dividends of $32.1 million.

At December 31, 2022, there were 3.027 million Class A shares and 18.963 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"). We have also earmarked proprietary capital for our direct investment business that invests in new and existing businesses. The direct investment business is developing along several core pillars including Gabelli Private Equity Partners, LLC ("GPEP"), formed in August 2017 with $150 million of authorized capital as a "fund-less" sponsor, and Gabelli Principal Strategies Group, LLC ("GPS"), created to pursue strategic operating initiatives.

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.

Year-to-date

($ in 000’s)

2022

2021

Operating loss – GAAP

$

(11,262

)

$

(19,076

)

Add: management fee expense

-

8,426

Operating loss before management fee – Non-GAAP

$

(11,262

)

$

(10,650

)

Table I

ASSOCIATED CAPITAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands)

December 31, 2022

December 31, 2021

ASSETS

Cash, cash equivalents and US Treasury Bills (a)(c)

$

404,463

$

380,044

Investments in securities and partnerships (a)(c)

435,610

501,706

Investment in GAMCO stock (b)

36,683

60,389

Receivable from brokers (a)

12,072

42,478

Income taxes receivable, including deferred tax assets, net

10,320

-

Other receivables (a)

6,324

18,409

Other assets (a)(c)

22,218

25,201

Investments in marketable securities held in trust (a)(c)

-

175,109

Total assets

$

927,690

$

1,203,336

LIABILITIES AND EQUITY

Payable to brokers (a)

$

7,784

$

9,339

Income taxes payable, including deferred tax liabilities, net

-

8,575

Compensation payable

13,936

19,730

Securities sold short, not yet purchased (a)

2,874

12,905

Accrued expenses and other liabilities (a)(c)

2,707

3,580

Deferred underwriting fee payable (a)(c)

-

6,125

PMV warrant liability (a)(c)

-

5,280

Sub-total

$

27,301

$

65,534

Redeemable noncontrolling interests (a)(c)

10,193

202,456

Total Associated Capital Group, Inc. equity

890,196

937,102

Noncontrolling interests (a)(c)

-

(1,756

)

Total equity

890,196

935,346

Total liabilities and equity

$

927,690

$

1,203,336

(a)

Includes amounts related to consolidated variable interest entities ("VIEs") and voting interest entities ("VOEs"), refer to the Consolidated Financial Statements included in the 10-K report to be filed for the year ended December 31, 2022 for more details on the impact of consolidating these entities.

(b)

2,407,000, and 2,417,500 shares, respectively.

(c)

Reflects the deconsolidation of PMV Sponsor and SPAC during 2022.

Table II

ASSOCIATED CAPITAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

Three Months Ended

December 31,

Year Ended

December 31,

2022

2021

2022

2021

Revenues

Investment advisory and incentive fees

$

7,392

$

13,903

$

14,801

$

20,530

Other

146

95

427

394

Total revenues

7,538

13,998

15,228

20,924

Compensation costs

8,352

12,747

18,883

24,457

Other operating expenses

1,802

2,165

7,607

7,117

Total expenses

10,154

14,912

26,490

31,574

Operating income/(loss) before management fee

(2,616

)

(914

)

(11,262

)

(10,650

)

Investment gain/(loss)

16,214

14,102

(56,513

)

93,405

Interest and dividend income from GAMCO

97

154

446

5,442

Interest and dividend income, net

4,952

2,777

9,971

6,357

Shareholder-designated contribution

(1,713

)

(2,072

)

(3,127

)

(4,789

)

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

19,550

14,961

(49,203

)

100,415

Income/(loss) before management fee and income taxes

16,934

14,047

(60,465

)

89,765

Management fee

-

1,217

-

8,426

Income/(loss) before income taxes

16,934

12,830

(60,465

)

81,339

Income tax expense/(benefit)

2,855

2,611

(14,943

)

17,705

Income/(loss) before noncontrolling interests

14,079

10,219

(45,522

)

63,634

Income/(loss) attributable to noncontrolling interests

415

790

3,385

4,431

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

$

13,664

$

9,429

$

(48,907

)

$

59,203

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

Basic

$

0.62

$

0.43

$

(2.22

)

$

2.68

Diluted

$

0.62

$

0.43

$

(2.22

)

$

2.68

Weighted average shares outstanding:

Basic

21,998

22,059

22,024

22,120

Diluted

21,998

22,059

22,024

22,120

Actual shares outstanding – end of period

21,990

22,058

21,990

22,058

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.

____________________________________________
1
Performance is shown in US dollars and does not include the impact of currency hedging programs related to non-US dollar classes of certain investment funds.

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Contacts

Douglas R. Jamieson
Chief Executive Officer
(203) 629-9595
Associated-Capital-Group.com