Market Overview

Associated Capital Group, Inc. Reports Second Quarter Results

  • Assets Under Management increased 16% year-over-year to $1.6 billion
  • Quarterly net income was $11.8 million, or $0.51 per share
  • Shares outstanding were 22,991K
  • Quarter-end GAAP Book Value per share was $39.66

Associated Capital Group, Inc. ("AC" or the "Company") reported
financial results for the quarter ended June 30, 2018.

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Associated Capital Publications

Associated Capital Publications

Financial Highlights

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

  Q2   Year-to-date
  2018       2017     2018       2017  
AUM - end of period (in millions) $ 1,633 $ 1,408 $ 1,633 $ 1,408
Revenues 4,796 5,095 9,499 10,082
Operating loss (3,446 ) (6,453 ) (7,696 ) (10,785 )
Investment and other non-operating income/(expense), net 19,697 10,769 (5,159 ) (6,340 )
Income/(loss) before income taxes 16,251 4,316 (12,855 ) (17,125 )
Net income/(loss) 11,824 4,596 (10,405 ) (8,482 )
Net income/(loss) per share – diluted $ 0.51 $ 0.19 $ (0.45 ) $ (0.36 )
Shares outstanding at June 30 (thousands)     22,991       23,898       22,991       23,898  

Second Quarter Overview

Second quarter revenues were $4.8 million, down $0.3 million from $5.1
million in the prior year period. Operating expenses were $8.2 million,
$3.3 million, or 29%, lower than $11.5 million of expenses in the year
ago quarter. The lower expenses were primarily driven by the absence of
stock-based compensation in 2018 versus the acceleration of RSA vesting
in the year ago quarter. The operating loss for the quarter was $3.4
million, 47% lower than the operating loss of $6.5 million in the 2017
second quarter.

Second quarter investment and other net non-operating income resulted in
a gain of $19.7 million (+83%) compared to a $10.8 million gain in the
second quarter of 2017. This was primarily the result of mark-to-market
gains on our investment portfolio. In addition, the accounting treatment
of available for sale ("AFS") equity securities has changed. Beginning
in 2018, the mark-to-market adjustments for all equities flow through
net income. Previously, the 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 second quarter 2017 investment and other
non-operating income, net would have been a gain of $13.8 million.

The Company recorded income tax expense in the current quarter of $3.4
million compared to a benefit of $0.3 million in the comparable quarter
of 2017. The current period provision reflects the increase in income
and the impact of the reduction in the federal corporate income tax rate
to 21% from 35% in the prior year.

Net income for the second quarter was $11.8 million, or $0.51 per
diluted share, compared to net income of $4.6 million, or $0.19 per
diluted share, in the second quarter of 2017. On a comparable basis of
accounting for AFS securities, the year ago period would have reported
net income of $6.5 million, or $0.27 per diluted share.

Financial Condition

As part of AC's spin-off In November 2015, GAMCO ("GBL") issued a PIK
note to AC with an initial face value of $250 million (the "GAMCO
Note"). AC has received principal repayments totaling $230 million on
the GAMCO Note, of which $20 million was received during the quarter,
leaving an outstanding principal balance of $20 million. Under GAAP, the
balance of the GAMCO Note is treated as a reduction of equity.

At June 30, 2018, AC's book value on a GAAP basis was $912 million, or
$39.66 per share, compared to $918 million, or $38.84 per share, at
December 31, 2017. The increase in GAAP book value per share primarily
reflects the repayment of the GAMCO Note partially offset by our
year-to-date net loss.

Management believes that the analysis of adjusted economic book value
("AEBV"), defined as total GAAP equity plus the outstanding balance of
the GAMCO Note, and AEBV per share are useful in analyzing the Company's
financial condition. Please note that these are non-GAAP financial
measures. AEBV per share was $40.53 at June 30, 2018 compared to $40.96
per share at prior year-end:


($000s except per share data)

  June 30, 2018   December 31, 2017
Total   Per Share Total   Per Share
Total equity as reported $ 911,936 $ 39.66 $ 918,147 $ 38.84
Add: GAMCO Note   20,000   0.87   50,000   2.12
Adjusted economic book value $ 931,936 $ 40.53 $ 968,147 $ 40.96
Second Quarter Results of Operations

Assets Under Management (AUM)

  June 30,   March 31,   December 31,   June 30,
2018 2018 2017 2017
(in millions)
Event Merger Arbitrage $ 1,480 $ 1,407 $ 1,384 $ 1,202
Event-Driven Value 87 88 91 142
Other   66   65   66   64
Total AUM $ 1,633 $ 1,560 $ 1,541 $ 1,408

Assets under management at June 30, 2018 were $1.6 billion, an increase
of $225 million from $1.4 billion at June 30, 2017. This increase
reflects $35 million of net appreciation and $190 million of net capital
inflows. Year over year inflows includes The Gabelli Merger Plus+ Trust
PLC (GMP:LN), the Company's first closed-end fund, launched in July
2017. GAMCO International SICAV – GAMCO Merger Arbitrage, our UCITS
fund, continues to see significant capital flows over the year. We have
made our strategy available to investors in new markets, launching a
Yen-denominated share class for Gabelli Associates, Ltd., our offshore
arbitrage fund, based on interest from Japanese institutional investors.


Total operating revenues for the three months ended June 30, 2018 were
$4.8 million versus $5.1 million in the comparable prior year period:

  • Investment advisory fees increased to $2.6 million, up $0.3 million
    due to higher assets under management.
  • Institutional research services revenue was $2.2 million, down $0.6

Incentive fees are not recognized until the measurement period ends and
the fee is crystalized, typically annually on December 31. If the
measurement period had ended on June 30, we would have recognized $2.3
million and $3.1 million for the six months ended June 30, 2018 and
2017, respectively.

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

During the quarter, investment and other non-operating income/(expense),
net was a gain of $19.7 million compared to $10.8 million in the second
quarter of 2017. Investment gains were $16.6 million and $8.1 million in
the 2018 and 2017 quarters, respectively, primarily a function of
mark-to-market changes in the value of our investments.

Dividends and interest from our GAMCO investment were $0.3 million in
the 2018 quarter, down from $0.9 million in the comparable quarter in
2017, primarily due to the reduction in the outstanding balance of the
GAMCO Note, from $40 million to $20 million during the quarter. As of
June 30, we held approximately 3.7 million GAMCO shares compared to
approximately 4.4 million at year-end.

Business and Investment Highlights

Event-Driven Asset Management

Our merger arbitrage fund launched in February 1985 returned +1.8% net
of fees for the quarter, bringing the year-to-date return to +1.7%. This
compares favorably to the Credit Suisse Merger Arbitrage Liquid index
return over various time horizons. Global M&A activity remained vibrant
with year to date activity up 61% over the 2017 period; cross-border
deals were especially strong. We expect that corporate confidence,
strong balance sheets, accommodative credit markets and repatriation of
overseas profits as a result of tax reform will continue to propel
corporate merger activity. Merger arbitrage returns should also benefit
from a rising interest rate environment and increasing deal spreads as a
result of heightened market volatility.

In 1999, we published one of the few books on merger arbitrage,
Deals…Deals…and More Deals
. Our new publication, Merger Masters:
Tales of Arbitrage
, profiles leading investors who share our
enthusiasm for merger arbitrage and have utilized the investment
discipline in various forms over the last half-century. It also includes
the perspective of iconic CEOs who have used M&A to build value and, in
the process, tangled with the arbitrage community. Scheduled for
publication on November 6, Merger Masters is now available for
pre-order on

See above for cover images.

Institutional Research

During the past quarter, Gabelli & Company, our institutional research
services business, sponsored its tenth annual Entertainment and
Broadcasting investment conference and hosted its twelfth annual Omaha
Research Trip. It is actively preparing for the Aerospace and Defense
conference to be held on September 13. It continues to host non-deal
roadshows to connect institutional investors and senior executives of
companies followed by our research analysts.

Our research team also provides frequent, real-time updates on social
media platforms. We invite you to follow us on the Gabelli TV channel on
YouTube (
or Facebook (

Private Equity Initiative

In August 2017, we launched a private equity business for direct
investing. We have begun initial outreach to business owners, corporate
managements and various financial sponsors.

Our acquisition criteria mirror those set out by Warren Buffet in
Berkshire Hathaway's annual report. That is, we seek simple businesses
with consistent earning power that generate good returns with little or
no debt. We will only engage with sellers with management in place and
which have determined an initial offering price. In order to maximize
the possibility of success, we will pay appropriate finders' fees to
those who introduce successfully executed transactions.

Shareholder Compensation

At June 30, 2018, there were 3.9 million Class A and 19.1 million Class
B shares outstanding. GGCP, Inc., a private company controlled by the
Company's Executive Chairman, indirectly owns approximately 18.4 million
Class B shares.

During the second quarter, the Company repurchased approximately 141,000
shares at an average investment of $38.06 per share, for a total of $5.4
million. Since the spin-off of the Company from GAMCO, we have returned
approximately $86 million to shareholders through the repurchase of
approximately 2.6 million shares. At its May meeting, the Board of
Directors authorized the repurchase of up to an additional 500,000
shares of the Company's stock.

In addition, the Company paid a semi-annual $0.10 dividend per share to
shareholders on July 2.

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 the first two years as a separate
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 our
Shareholder-Designated Contribution Program. Over 90 organizations
received support in 2017 alone.

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 (which does business as Gabelli & Company), 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

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

Table I
(Dollars in thousands)
June 30, December 31,
2018 2017
Cash and cash equivalents $   273,770 $   293,112
Investments 595,689 513,888
Investment in GAMCO stock (3,726,250 and 4,393,055 shares,
99,714 130,254
Receivable from brokers 21,105 34,881
Other receivables 4,352 30,877
Other assets     4,298       3,903  
Total assets $   998,928   $   1,006,915  
Payable to brokers $ 13,034 $ 13,281
Income taxes payable and deferred tax liabilities 1,685 5,484
Compensation payable 4,829 12,785
Securities sold short, not yet purchased 13,332 5,731
Accrued expenses and other liabilities     2,805       5,257  
Sub-total 35,685 42,538
Redeemable noncontrolling interests     51,307       46,230  
Equity 931,936 961,435
4% PIK Note due from GAMCO (20,000 ) (50,000 )
Accumulated comprehensive income     -       6,712  
Total equity     911,936       918,147  
Total liabilities and equity $   998,928   $   1,006,915  
Table II
(Amounts in thousands, except per share data)
Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Investment advisory and incentive fees $ 2,615 $ 2,330 $ 5,144 $ 4,731
Institutional research services 2,172 2,751 4,324 5,333
Other revenues   9     14     31     18  
Total revenues   4,796     5,095     9,499     10,082  
Compensation costs 5,870 6,421 12,194 13,204
Stock-based compensation - 2,920 72 3,364
Other operating expenses   2,372     2,207     4,929     4,299  
Total expenses   8,242     11,548     17,195     20,867  
Operating loss before management fee   (3,446 )   (6,453 )   (7,696 )   (10,785 )
Investment gain/(loss) 16,571 8,149 (10,959 ) (6,252 )
Interest and dividend income from GAMCO 345 921 935 2,008
Interest and dividend income, net 2,781 1,699 4,865 2,799
Shareholder-designated contribution   -     -     -     (4,895 )
Investment and other non-operating income/(expense), net   19,697     10,769     (5,159 )   (6,340 )
Gain/(loss) before management fee and income taxes 16,251 4,316 (12,855 ) (17,125 )
Management fee   -     -     -     -  
Income/(loss) before income taxes 16,251 4,316 (12,855 ) (17,125 )
Income tax expense/(benefit)   3,388     (310 )   (3,346 )   (8,734 )
Net income/(loss) 12,863 4,626 (9,509 ) (8,391 )
Net income attributable to noncontrolling interests   1,039     30     896     91  
Net income/(loss) attributable to Associated Capital Group, Inc. $ 11,824   $ 4,596   $ (10,405 ) $ (8,482 )
Net income/(loss) per share attributable to Associated Capital
Group, Inc.:
Basic $ 0.51 $ 0.19 $ (0.45 ) $ (0.36 )
Diluted 0.51 0.19 (0.45 ) (0.36 )
Weighted average shares outstanding:
Basic 23,080 23,808 23,293 23,818
Diluted 23,080 24,041 23,293 23,818
Actual shares outstanding - end of period 22,991 23,898 22,991 23,898


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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