Horizon Kinetics Holding

Thank you for joining the Horizon Kinetics second quarter results call. My name is Mark Herndon, Chief Financial Officer, and we're pleased to have you with us to cover our results for the second quarter. First, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements involves certain risks and uncertainties, including but not limited to uncertainty about the future security valuations or our performance. During the course of today's call, words such as expect, anticipate, believe, intend may be used in our discussion of our goals and events in the future. Management cannot provide any assurance that future results will be as described in our forward-looking statements. Furthermore, the statements made on this call apply as of today. The information on this call should not be construed to be a recommendation to purchase or sell any security or investment funds. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should be assumed that any of the security transactions referenced today have been or will prove to be profitable or that future investment decisions will be profitable or equal or exceed past performance of the investments. We encourage you to read our filings with the SEC on the form 10-K, as well as our other filings, which describe the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today. These filings can also be found at the OTC Markets website. Our press releases or other information is at our corporate website at www.hkholdingco.com. Today's discussion will be led by Murray Stahl, Horizon Kinetics Chairman and Chief Executive Officer. I will also be available to answer applicable questions and will moderate the questions. If you would like to ask a question today, you will need to be logged in to the GoToMeeting platform. For those of you that are on the telephone connection, you will be in listen-only mode. And again, for those of you that are on the GoToMeeting platform, you can submit the questions via the chat function, and you should direct those questions to the presenters, where I will summarize and relay the best that I can so that we can address as many questions as possible. Okay, so with that, we wanted to start just as a reminder that our Form 10Q that we recently filed is an update of our annual filing on 10K and continues our required GAAP presentation that includes certain proprietary funds as consolidated entities. And our press release continues to present both that GAAP presentation as well as a supplement that presents our financial statements excluding those funds, which is essentially the advisor-only presentation of our results. Consistent with what we have previously reported, this is a presentational matter that does not impact the company's earnings that are available to HKHC shareholders or the shareholders' equity of HKHC. The consolidated presentation does result in higher total assets, as we have included the investment assets of those funds we consolidate on our balance sheet, as well as a line item called redeemable non-controlling interest. That line item essentially represents our clients' account balances that are supported by those in assets of those funds, which we'll see identified in the financial statements as consolidated investment products. Another notable difference is the treatment of management fees charged to those consolidated investment products. Under GAAP, those revenues are eliminated for consolidation since that fund is presented within the financial statements. It is akin to an intercompany transaction. However, the economic benefit resulting to the HKHC shareholders remains, and that economic benefit is reflected through a smaller allocation of investment returns of the consolidated investment products to the redeemable non-controlling interest than they would have otherwise received. You can also see the impact of those items at a table within the NG&A section of our 10 filing. Our results for the quarter included continue to be favorable for the HKHC shareholders. The company recorded revenues of $19.8 million for the quarter, a meaningful increase from the $11.4 million in the second quarter of 2024. The year-to-date period was similarly higher, with $39.6 million of revenues thus far in 2025. These increases are primarily the result of an overall increase in the AUM across the portfolio of investment products and client accounts as compared to early 2024. At the advisor-only level, as seen in the press release supplement, operating income was $4.5 million for the second quarter, up from $1.5 million in the prior year, and the year-to-date period was similar with $9.1 million of operating income as compared to $3.9 million in the prior year. Overall, our net loss was $0.56 per share for the quarter and net income for the year-to-date period of $0.66 per share. These are comparatively lower than 2024 second quarter, which was a $0.78 per share and $3.05 for the year-to-date period of both net income. Excuse me. During those periods, the company benefited by significantly higher investment returns. And we should note for you that you may see or we may see volatility from quarter to quarter as a result of unrealized gains or losses in various holdings held by the company, including digital assets, which is primarily Bitcoin. From a balance sheet perspective, the company continues to have substantial cash and investments, including amounts outside of our consolidated investment products. And we have no third-party debt. Our long-term liabilities are limited to various long-term office space leases. And then I would also like to note just the company's board declared a 7.1 cents per share dividend in the second quarter, which reflects a 27% increase from Q1's dividend. This dividend will be paid on September 15th for shareholders of record as of August 21st. And so with that, I would like to turn it over to Murray Stahl for some opening comments as well.

Okay. Well, thank you, and thank you all for attending. So let's begin with a look at the financial statements. I think it's easy to see the difference between the company and the required consolidated if you look at page 18. So page 18 shows you what the eliminations are. and shows you what the consolidated investment products are. So if you work backwards, you get to something called consolidated company entities. You might recall throughout our history, we never consolidated. We're just required to consolidate. There's really three aspects of Horizon that you may want to think about, and you can see them all on page 18. So the first thing is there is the more customary, investment management business there is returns or sometimes negative returns from our proprietary capital and then there's performance fees so you want to see in the clearest way possible the the disaggregation of them i would turn my attention to page 18. so on page 18 you'll say for six months you'll see six months we had or $43 million of total revenue. And when you subtract out the expenses, our operating income was slightly over $9 million. I myself would call attention to goodwill. So when we years ago consolidated all our products into one company, We needed to put some goodwill in the books, and there are various goodwill tests. Sometimes we actually need to lower the goodwill because the goodwill doesn't last forever. So you'll see a $900 million goodwill impairment. So the heart and soul of the business in that sense is $900 million of impairment goodwill added to the $9 million. $900,000 of goodwill impairment added to the $9 million impairment. Operating income for a total of $9.9, almost $10 million, which is historically high for us as a company. We'll do everything we can to improve it. The second thing is the returns on our proprietary capital. In this particular quarter, it hasn't been negative. In most quarters, it's positive. You're not going to have a positive quarter in every interval. We should work that way. We should actually work that way. Unfortunately, it doesn't work that way. And then the last thing which you can see is there are performance fees. The performance fees happen episodically. And generally speaking, we assess those performance fees or some exceptions. We assess those performance fees at year end. So you really can't tell what's happening with regard to performance fees unless it's year end or if there are some realizations which happen from time to time. Now, substance to quarter, we have a number of really interesting events that's worthwhile mentioning, and I'll go through those, and then I'll go to your questions and answers. So, we have a longstanding investment in and some funds related to Miami International Holdings, it's a private company, and you might be aware that about a week ago, the company launched initial public offering. That's a transformative transaction, and it's a, I would say, a seminal event. The company itself, MyEx, is what we refer to it, and that's incidentally its figure symbol. It's doing splendidly, and it's worth paying attention to, and if things go as they continue to go, no guarantee of that, of course, it'll have some very positive implications for our income. Another interesting development is Consensus Mining, which was a private company until I think about two weeks ago. And it began trading on OTC markets under the symbol CMSG. And that's an important event because that's a vehicle by which we are growing our cryptocurrency business. So you can see what the value is there. You can't see it in the financial statements right now, but in the future, you'll probably be able to see some things. Another thing, which we didn't mention in the first quarter, but we're going to mention now is we have a new private fund called Global Exchange Holdings, which we created in partnership with a Canadian company known as Urbana. Urbana is actually, we don't talk about it much. It's very worthwhile paying attention to. If you look at their track record for almost, not quite, almost a quarter century, you'll be hard-pressed to find a fund with a better record. So it's a really great company. We're delighted to be working with them on this project. Global Exchange Holdings is a money-managing product. It's going to buy private exchanges as well as publicly traded exchanges. Exchanges are really interesting investments themselves. I don't have time to go into why exchanges are such great investments because we're here to talk about a horizon and not about exchanges. But I'll say this. As most of you probably know, I spent decades trying to convince people to be long-term investors. I haven't convinced one person yet. They all want to trade. So if you buy an exchange, you're getting the benefit of that. Sorry to be a little facetious about it, but there's a lot of truth. in the facetious nature of that comment. Exchanges are just guide list businesses, high returns and equity, very stable returns and equity, and a lot of free cash flow. So I have high hopes for global exchange holdings. There's also an ETF that we launched a couple years ago called Blockchain Development. That's probably something around 80% exchanges. And that fund is doing well. Its ticker symbol is BCDF, if you care to look at it. Another thing we did during the quarter is we launched in May another ETF. And this ETF is known as Japan Owner Operator ETF. So I'll describe it a little bit. This fund, incidentally, since May, this is August, we now have well over $11 million in assets in our management, which is not bad for ETF that just started. I have very high hopes for this fund. It turns out that Japanese market is very unique among markets in the world, not merely because of valuations. There are a lot of low valuations in Japan as a residue of what's deflation that overtook Japan over the course of almost three decades. But another thing that's really interesting about Japanese market, there is a category of entrepreneurs that manage companies that I refer to as owner-operator. What that means is the people who manage the company, who govern the company, are also the biggest shareholders. And that bit of sociology, if you put the bulk of your net worth into something and you're in control of it, within a free enterprise society, that generally has fabulous results. And the alternative, which is what happens to most companies in most nations in the world, is called agent operators. The agent operators are compensated very well, but they don't own a lot of the company. They might be granted stock, but the object is to ultimately sell the stock. They don't pass it on to the generations. They don't live with it over decades. In any event, Japan Open Operator is a very, very different kind of fund. I enjoy talking about it, so I commend that fund to your attention. Its symbol is JAPN. And one last thing, I decided, I can't tell you what it is, but I decided we're going to launch yet another ETF. It's in development at the moment. I can't tell you what it's going to be, but when we launch it, it'll be the seventh ETF that we created in Horizon Connect. So, as you can see, we've been very busy. with a lot of different things, and we hope to continue that process in the future. So that's a thumbnail sketch of what's happening, and maybe the best thing to do right now is to address the areas that you're interested in, so we'll take whatever questions are on your minds. If you could facilitate that, Mark, and just read the questions as they're submitted, I'll be delighted to answer them.

All right, that'd be great. And let me reiterate to our attendees on the GoToMeeting platform, if you just go to the – I think there might be a chat button or a questions button. If you just direct those to the organizers and presenters, I'll get them addressed. We don't have any questions there yet, but I have had a handful that have been submitted via email previously. So I'll start with a standard one that you heard before and asking if we could reiterate our dividend policy.