Associated Capital Group, Inc. Reports Second Quarter Results

Associated Capital Group, Inc. (“AC” or the “Company”), a diversified financial services company, today reported its financial results for the second quarter ended June 30, 2023.

Financial Highlights - GAAP Basis

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

Second Quarter Financial Data

-Assets under management ended the quarter at $1.55 billion versus $1.80 billion at June 30, 2022.

-Book value was $41.41 per share compared to $40.30 per share at June 30, 2022.

-For the first six months, Investment and other non-operating income was $33.3 million versus a loss of $51.0 million in the year-ago period. The nearly $84 million year to date positive swing reflects market appreciation in the current period versus a decline in the first half of 2022.

Second Quarter Results

Second quarter revenues were $2.4 million compared to $2.5 million in the second quarter of 2022. Total operating expenses, excluding management fee, were $5.3 million compared to $4.8 million in the comparable 2022 period. The difference is primarily due to higher stock based compensation expense in the 2023 quarter.

Net investment and other non-operating income was $8.6 million for the second quarter, a $44.5 million swing from the $35.9 million loss in the second quarter of 2022. The primary drivers of this quarter's results included gains from our mutual fund and GAMCO holdings, various partnership investments and interest income. Interest income reflected higher interest rates in the 2023 quarter as compared to 2022.

Management fee was $0.5 million. There was no management fee in the second quarter of 2022 due to pre-tax losses.

Our income tax expense of $1.8 million for the quarter compares to a benefit of $8.0 million in the comparable period of 2022. The effective tax rate applied to our pre-tax income for the quarter ended June 30, 2023 was 35.8%. The effective rate in calendar 2023 is primarily driven by a deferred tax expense from a foreign investment, increasing the current quarter's effective tax rate.

Assets Under Management (AUM)

Assets under management at June 30, 2023 were $1.55 billion, $293 million lower than 2022 due to net outflows of $287 million and a market decline of $17 million, partially offset by the impact of currency fluctuations of non-US dollar classes of investment funds of $11 million.

(a) Includes $579, $856, and $866 of sub-advisory AUM related to GAMCO International SICAV – GAMCO Merger Arbitrage, and $141, $206 and $66 of 100% U.S. Treasury Fund managed by GAMCO at June 30, 2023, December 31, 2022 and June 30, 2022, respectively.
(b) AUM represents the assets invested in this strategy that are attributable to Associated Capital Group, Inc.

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 second quarter 2023, the longest continuously offered fund in the merger arbitrage strategy generated gross returns of -0.24% (-0.50% net of fees). A summary of the performance is as follows:

(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 June 30, 2023
(c) Inception Date: February 1985

Merger and acquisitions activity was stronger in the second quarter, increasing 33% compared to the first quarter of 2023, and it marked the strongest quarter for new deal activity in the last 12 months. The Healthcare sector has been the most active for dealmaking in 2023, with deals totaling $188 billion, an increase of 43% compared to 2022 levels and the sector accounted for 14% of all M&A. Energy & Power and Technology each accounted for 14% of dealmaking in the first half. Private Equity accounted for 21% of total M&A in the first half, down from 26% in 2022, as total volume reached $279 billion, a decline of 49% compared to the first half of 2022. We believe that despite recent mark-to-market volatility, we remain well positioned to earn absolute returns for our clients.

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).

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.

Charitable Contributions, Shareholder Dividends and Buybacks

AC seeks to be a good corporate citizen by supporting our community through sponsoring local organizations. On August 9, 2023, the Board of Directors approved a $4.3 million, or $0.20 per share, shareholder designated charitable contribution (“SDCC”) for registered shareholders. Including the current contribution, Associated Capital's SDCC program totals approximately $38 million in donations made on behalf of shareholders, to over 190 501(c)(3) organizations across the United States.

On May 10, 2023, the Board of Directors declared a semi-annual dividend of $0.10 per share which was paid on June 29, 2023 to shareholders of record on June 15, 2023.

During the second quarter, AC repurchased 211,870 Class A shares, for $7.6 million, at an average price of $35.95 per share.

Since our spin-off from GAMCO on November 30, 2015, AC has returned $165.7 million to shareholders through share repurchases, exchange offers and dividends of $34.3 million.

At June 30, 2023, there were 2.763 million Class A shares and 18.963 million Class B shares outstanding.

About Associated Capital Group, Inc.

Associated Capital Group, Inc. (NYSE:AC, Financial), 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. We also created Gabelli Principal Strategies Group, LLC (“GPS”) in December 2015 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.

(1) Management fee expense is incentive-based and is equal to 10% of Income before management fee and income taxes and excludes the impact of consolidating entities. For the six months ended June 30, 2023 and 2022, Income before management fee, income taxes and excluding consolidated entities was income of $30,869 and loss of $58,957, respectively. As a result, $3,087 was accrued for the 10% management fee expense in 2023. There was no management fee accrual in 2022 due to the loss in that period.