Horizon Kinetics Holding

Thank you for joining us. My name is Mark Herndon, Chief Financial Officer of Horizon Kinetics. We are pleased to have you join us for today's call that will cover the results of our second quarter of 2026. Today's discussion of our first quarter, excuse me, second quarter will include comments from Steven Bregman and Peter Doyle, Horizon Kinetics Co-Chief Executive Officers. I will also be available to answer applicable questions and moderate any questions that may arise. But 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 evaluations or our performance. During the course of today's call, words such as expect, anticipate, believe, and intend may be used in our discussion of our goals or events of 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. Information on this call should not be construed to be a recommendation to purchase or sell any security or investment fund. Thank you for watching. We encourage you to read our filings with the SEC on our Form 10-K as well as our other quarterly 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, and our press releases or other information is at our corporate website at www.hkholdingco.com. Thank you for joining us today.

Thank you, Mark. Good afternoon to everyone. So if I was listening to this call and I was checking in on how Horizon Kinetics was doing, I'd be concerned a little bit, I guess, about the stability of the firm. And, you know, are we in good company and do we have good stewardship as a result of, you know, obviously Murray's passing? And I think I have enough credibility and I've spoken enough Over the years that I will tell you in quite honest fashion I tell my wife on a very regular basis that we have incredibly talented people here and from my perspective the people that have stepped up over the last several months have just it's just been extraordinary to watch and one of the more pleasant surprises actually my coach CEO Steve Bregman and the wisdom that he's imparted to the staff over the many months I've been just really pleased with. So from that standpoint I just feel very confident about what's likely to unfold for us in the future. Murray was great and he had an ability to process data in a way that I don't think people really I think if you listen to these call you probably did understand that but I don't think anyone's going to be able to replicate that. But one of the more interesting aspects of what Murray was able to do is he was able to identify and understand systems. And one of the systems that he really understood was the investment system and what we were up against. And the three pillars of the modern portfolio theory were really portfolio selection by Harry Markowitz, the efficient market hypothesis by Eugene Falma, and the Capital Asset Pricing Model by William Sharpe. And together, they actually dominate how money is allocated in the marketplace. And none of them alone are actually unsensible. There's a certain logic to it, but collectively, they don't make a lot of sense. And how do you exploit that system? And that's really what we do here at Horizon Kinetics. So not only did Murray teach us how to fish, he also taught us where to fish. So in the case of portfolio selection, it has to do with diversification. And it seems commonsensical that people should have diversified portfolios in the sense that you want to put all your eggs in one basket and something happens. You want to basically make sure that your money isn't wiped out, the risk of ruin from an investment standpoint or a gambler standpoint. The problem is that if you take it to an extreme, and let's say you broadly diversify into the S&P 500, which a lot of people have done over the years, you're now making a decision to buy inferior type businesses. You're going to get some great businesses in there as well, but there's a whole collection of businesses that get a very poor rate of return on capital. So from a logical standpoint, why would you want to do that? You wouldn't want to do that. One of the unique things that we do is we are willing to step away from that. And we want to own companies that have high returns on invested capital, companies that we think have a long product lifecycle and will continue to flourish and get great returns and aren't necessarily included in any indices. Second thing, efficient markets. Markets are efficient, but they're not perfectly efficient. And one of the things that affects the Inefficiency or health inefficiency is the institutional imperatives or the corporate mandates that people have. And there's a grading period for most investors. And that grading period is really an annual date, 1231 of any given particular year. And what we have found, you've heard Steve talk about it, you've heard me talk about it, James, Murray, et cetera. If you can lengthen your time horizon, you give yourself a tremendous advantage. and there's such a thing as an equity yield curve. And I don't know if Murray came up with that or not, but he's been talking about that for, you know, he was talking about that for 40 some odd years. And that time horizon allows you to find securities that are inefficiently priced because most people have no interest in that. They're under scrutinized, they're unloved because they fall outside of the artificial time horizon. And then this last thing is capital asset pricing model. is basically telling you that risk is volatility. And there's a certain logic to that as well. A massive drawdown when you're 75 years old or 80 years old has devastating consequences. And if you're 30, you can live through that and you can say, I can accept the drawdown and I'll make it up because these companies are not going anywhere. So if you measure risk in terms of price volatility, it doesn't really capture the true financial risk. But you should pay attention to it. So all that being said, that's the underlying intellectual underpinnings of basically how money is managed. And we understand that and we try to navigate around that. And I think we've done a great job and there's no reason to believe if you're an investor here at Horizon Kinetics or a shareholder that we're not going to continue to flourish. In fact, since Murray's passing, we've uncovered a number of different securities and one of them in particular actually has already been there's a plan to acquire it take it private and it was just a perfect example that we see things and I can tell you from James Davalos to Brandon Calavita there's real analytical work going on here and the idea generation and the idea flow is going to continue uninterrupted no question about that so one of the things that people miss when they buy stocks is they they think of them as pieces of paper And you can't get away from the fact that investors as a whole can't get out of their businesses, i.e. their stock holdings, any more than what the businesses earn over time. And you want to find companies that have high returns and you want companies that can get those high returns without the use of excessive leverage. And you want those businesses to be able to defend themselves, have some niche business that they can basically compound over a long period of time. And then you want to leave it alone and let the companies do the heavy lifting for you. And that has not changed one iota. It will not change in the future. We are seeing things. We're being brought opportunities from other strategic investors that have known us, our reputation, that we're able to see things now that we probably were not able to see 20, 25 years ago because we didn't have the stature that we currently do. That's part of what I wanted to talk about. Second thing is just talking about the overall market. Corporate taxes after tax profits right now are running at about 12.4% of GDP. And historically, that's 6%. And a lot of that has been driven in the recent past by the high tech companies. And you see how well they've done. And that's, in our opinion, was an anomaly and you're seeing now that as a result of the development of AI these companies that which were tremendous cash flow generators are now cash consuming companies and they no longer have free cash flow or very little in the way of free cash flow in the way they once did. It's not at all clear to us that they're going to get an adequate rate of return on that. Maybe some of them will, maybe they won't but you're making a big bet and From where we stand today, just to put things in perspective and how you should look at it from a business standpoint as opposed to a stock certificate standpoint, the S&P 500 trailing earnings over the last 12 months were $2.31 trillion versus a market capitalization of roughly $69 trillion. That gives you an earnings yield of 3.35%. You tack on a dividend yield of 1.04, and you're talking about a return of 4.39% buying in. When you compare that versus a 10-year treasury, which is currently at 470, there's very little, there's actually no margin of safety. Historically, a margin of safety is that you would want an earnings yield on equities of 5 percentage points above the 10-year treasury. Today, you actually get earnings below that. So, long way of saying, there's great reason to be cautious, but there are opportunities, there are inefficiencies in the market. When I look for our holdings, I understand why Murray and I understand why Steven and James are very optimistic about what's likely to unfold for us. We own great businesses at reasonable valuations, and if we're patient, we show fortitude, we have discipline, We're going to capture those business returns and they're going to be, in my opinion, very pleasing to our investors and hence the shareholders of Horizon Kinetics because of our growing assets over the course of time. I'm just going to talk just very briefly on the business operations. There's been some operational issues here at Horizon Kinetics that we've been addressing and one of them is the marketing effort. And we have some really excellent products, particularly in the ETF space. and we really don't have the distribution that we need or desire. And starting roughly early September, maybe as early as September 6th or 7th, we are doing a tremendous marketing effort to boost that and to grow those assets. So we have willing and able portfolio managers that are happy to get out there, but we've been, I think, going after the wrong channels and our focus is going to grow those businesses and our assets under management. So with that, I will stop and see what Steve has to say, and then we'll open it up for questions, and we'll try to answer any questions that you might have.

Hey, Peter. Steven. I'm going to start off where Peter did. He just had me thinking about a few things. And there might be a fair amount of overlap between what I'm talking about and what he's talking about. But that's okay. Stereo, when you listen to stereo music, you don't have exactly the same sound coming out of each speaker.