Horizon Kinetics Holding Corp (HKHC) Q2 2026 Earnings Call Transcript

And everyone, 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, 2026. Today's discussion of our first quarter, excuse me, second quarter, will include comments from Stephen 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 involve 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. The information on this call should not be construed to be a recommendation to purchase or sell any security or investment fund. 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 not 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 the past performance of the investments. 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. If you would like to ask a question today, you'll need to be logged on to the GoToMeeting platform. Those of you who are on the telephone connection will be in listen-only mode. So again, for those of you that are on the GoToMeeting platform, you can submit the question via the chat function. Please direct those questions to the presenters, where I will summarize and relay as best I can so that we can address as many questions as possible.

So with that, I will now turn it over to one of our co-founders, Peter door thank you mark good 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 calls, 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 Farmer, 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. They all have, there's all, 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 Kinetic. 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 so 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 helps the 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 etc if you can lessen 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 underscrutinized. 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 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. So 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 3,500 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 five percentage points above the S&P 5, above the 10-year treasury. Today, you actually get earning 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 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 gonna 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 September, roughly early September, maybe as early as september 6th or 7th we are doing a tremendous uh 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 to grow those businesses and our assets under management so uh 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 okay 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 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, it's a little different, and the overlap provides more information and maybe something of beauty, I don't know. So when Peter talked about Murray had an unusual skill understanding systems and how they work and I'll just put it in a more common phraseology he understood gaming the system like the kind of guy he'd walk into a new school in the schoolyard and you start to understand what's going on pretty quickly what are people doing and it works it works for any kind of marketplace if most people are doing a single thing if you if you can even spot that they're doing that or observe it as opposed to just being part of it and you also begin to realize that if most people are doing something certain way they're changing the equation and maybe you should see if you have a way and if a productive way of taking the other side of that that will give you I don't think I spoke to you about this last time here on if I did someone can text me or something, tell me to stop. But it makes me think of two anecdotes about Murray from the period when Peter and I probably first met him, probably within the first year or two. And Peter, if I'm saying anything correctly or misstating something, just step in. So one was the very first time I saw Murray. I wouldn't even remember his name because that's not the way my head works but but um i think peter might have been there for this too when we were not yet officers in the private bank bank's trust company in new york city um uh there was an annual what's called a trust investment school where some i don't know um some association of banks that had trust companies would choose some of their their young folks who look like they might have some potential, and they'd select a couple or a few from each of these banks that were part of this circle. And they'd send them to a weekend off-site trust investment school, where they had various breakout sessions led by various experienced old hand portfolio managers or analysts and whatnot. And each one was about a different topic, about trust, administering trusts, and about portfolio management techniques and research analysis and so forth and so on. And I don't remember any of the presentations except for one. And in this case, they had this guy who was a – I knew he worked at the private bank at Banker's Trust Company. I might have seen him once before. I don't know. But all the young people were sitting in the audience. And he was talking to us, and it was Murray. And he's saying, I know all of you here want to be portfolio managers. And I know all of you, what you want in your heart of hearts is to beat the S&P 500. And I'll tell you how most people do it and how you'll probably do it, which is you're going to try to work very, very hard and do a lot of research about all the different 500 stocks in the S&P 500. And you're going to try to pick the best one or two. And there are lots of different ways of doing it. fastest-growing one at an appropriate valuation multiple or the best cheapest one at a you know so forth and so on yeah and it's a lot of work and a lot of people try to do the same thing everybody's trying to do the same thing and you have to ask yourself maybe like probabilistically how likely am I to be the one to identify the stock that'll do the best and overweight that so I can beat the market by even just a little bit if you beat it by five basis points five one hundreds of one percent you'll get a bonus your your career will be advanced but don't you think would be easier just to find the worst stock in the S&P 500 but the worst company where the sales aren't going anywhere they've got bad management they've got too much debt they might have trouble rolling over some of their lines of credit they're being sued for malfeasance or for some product product liability wouldn't be better just type to not buy that one and because all you need to do is beat the market by a basis point or two and everybody sat there with their mouths open a little bit as I did at least figuratively wow that seems so simple why did I think of that that was that was kind of classic Murray and one other example when you hear Peter I'm not sure whether he actually did this or he was just talking about that he should do it don't actually remember so Murray ran something called the G fund called like the growth for growth fund and it was a it was an internal fund at at the bank for trust accounts and it was supposed to be a growth fund primarily technology based that was the idea but he didn't buy technology stocks even though that's what they hired him for he bought what he liked and he talked about how his bonus was predicated on being the S&P 500 and how when when an organization sets up an incentive system like that it actually creates behavior incentivized around it, which won't necessarily provide or be geared toward the outcomes that the institution wants. And he said, for example, he said, right now, and he was talking to me or Peter, I don't remember, but he said, you know, right now, I don't know if it was September or November, somewhere late in the year. He said, right now, the G fund is X percentage points ahead of the S&P 500. And what I really should do is I should sell everything right now. I just sell everything right now, go to cash, and all I need is for the next three or four weeks to, I don't, you know, if the market's going to go up a lot, maybe I can buy a call option or something. I don't know if you said that. But I don't just stop right now, and I'll start again on January 2nd. Now, if he does that, of course, it'll realize gain. It's not efficient for the clients and ultimately for the bank because maybe withdrawals come to handle the gains taxes and whatnot, but that's how he was incentivized. I just can't remember if he actually did it or not. Anyway, that's when you talk about systems and the S&P 500 Peter was describing, it's a system. and it's a system that serves other functions other than just doing well on an investment basis. Their business is attached to it. Then when Peter talks about indexation, we're going to talk about things going to extremes and people follow a rule system and they're in a rule set and they just stop paying attention. So the S&P 500 originally was supposed to be, and it was, a diversified exposure to the economy at large that's really just systemic individual you want exposure to the growth of the economy over time and the productive capacity and growth prospects in the United States as embodied in its largest public publicly traded corporations and and back when the S&P index was created when you had the first index created by John Bogle it really was fairly well diversified across the relatively representatively across the different industry sectors there are some there are some glaring absences but there's nothing you could do about it real estate really wasn't much real estate in the S&P factory because most real estate is privately held but otherwise it was fairly representative across energy and and pharmaceuticals and mining and auto production and so forth. Anyway, I was struck by if that's the case and that's how it's presented. Well, if you think about the S&P 500 today with respect to its representing the GDP profile the United States, you would think that only 3% of U.S. GDP comes from the energy sector, this oil and gas exploration and refining and storage and transportation like pipelines and all that. That's it. And that consumer staples, I think about it, it's food and staples like retailing like Costco and Walmart, drugstores, food products companies themselves like General mills, beverages, beverage companies, household products like Procter & Gamble and personal products, go on and on and on. Well, according to the S&P 500, only about 5% of U.S. GDP comes from those activities. And only 6% comes from consumer discretionary companies. And do we need to say more than automobiles, household furniture, electronics, apparel, hotels and restaurants meet entertainment retailing and more and more and more but apparently 49 of the total productive capacity as expressed in gdp of the united states is apparently an information technology so i mean does that really come the entire u.s economic output 49 of it really come from the services of meta and google and nvidia and their cohort so um anyway that's kind of an interesting anomaly and um we we like to take the other side of it we're not planning to take the other side of it but the things we find um that we think are interesting um as for investment purposes which is a function not of the not of the semantics of a sector or whatnot but we find something interesting for for investment basics and valuation so we have something called the inflation beneficiaries ETF which we started five odd years ago because we talked about it written about repeatedly that there was an anomalous period for 20 odd years of more disinflationary forces and all sorts of reasons why the forces that created or supported disinflationary environment and run their course and that we're probably going to enter a period that's just a similar correct like a long period not just a few years maybe a generation of rising and high inflation both come commodity-based and probably monetary-based also. So we have inflation beneficiaries ETF, companies that are natural beneficiaries in some what we think are some elegant and effective ways to benefit from that and that have certain characteristics because of the business models that make them not value traps, that they're inherently profitable and growing and have high returns on investment capital, as Peter was referring to anyway. By the way, I hope you'll forgive me for talking a lot about investments, but really, that's what we do. If we don't have independent and productive investment research, ultimately, you know, our firm will, you know, kind of wind down like an old clock. It might take a very, very long time. could take 20 years because of what we already own in our portfolios anyway Peter might as Peter probably said this in our last quarterly meeting is that we just and he's maybe exaggerating touch but not really okay I could definitely argue that it would be true but we just didn't touch any of our portfolios for the next five years you know closing the word that for a while it probably do just fine although now we're finding a lot of interesting things because in part because of what the market is doing it's creating opportunities for us we're taking the other side but anyway anyway the inflation beneficiaries ETF if we took the sum total of all the holdings in that ETF which James Davolo's runs, that are also in the S&P 500, they would amount to a grand total of about 0.6% weight in the S&P 500. So that's just how different we are positioned effectively, not that we tried to be that way, than the S&P 500. And it also says something about just how imbalanced the S&P 500 is. It's totally not prepared for either the benefit from companies that will do well in an eflationary environment and perhaps more to the point for people who are invested that way. Most of the companies in the S&P 500 have not, their operations, their profitability their margins and so forth will actually be subject to to diminishment because of higher input costs or inflation so anyway that's that's that's one thing I can say and as far as the as far as the the the The hyperscalers and the IT companies and the MAG7GO, Peter referred to, their business models, that for which people are paying lots and lots of money and have over time, high valuations, their business models are fundamentally changing. They've never been this way before. They're actually becoming different businesses. So I was taken by some headlines a few weeks ago saying the MAG7 stocks are trading at the cheapest valuation in more than a decade. Why? They're saying that because of some recent declines. They were trading at a P.E. of under 25 as opposed to the P.E. of 30 of a year ago. Well, I don't know what the PE exactly means. You have to analyze it. We decided to look at the free cash flow. It turns out that it was tough to actually get a valuation based on free cash flow because two of those companies actually in the most recent quarter had negative free cash flow. One of those companies trades at 700 times free cash flow. so if I if I gave the two companies that don't even have free cash flow benefit the doubt and just called it's an infinitely high number but just call it an even 100 times so we could have a seven company average and basically that group trades at 150 times run rate free cash flow based on the most recent reporting period but we know that they're gonna spend even more and when we calculate things we don't just have a database do it for us or ask Claude because we have to make our own judgments and decisions about things so one thing I usually peer would do is we would exclude and that's not done but we we exclude from a cash flow calculation instead of adding back to net income of course they're also things you take away like capital expenditures but instead of But adding back non-cash compensation expense, which is a standard way of doing it, we don't add that back. And because if you think it through, that's employee compensation. And it adds up to a lot of money. And if the companies didn't pay that stock to employees, you'd think that the employees would ask for more cash instead. One way or another, it becomes an expense. And you'll find also that even when you think of it as just a non-cash item it isn't really at the moment it is because the issue stock or the stock grants instead of cash at some point later you'll find out that these companies because they don't want too much dilution I think they don't want dilution that's shown in statements they'll say they're buying back a lot of shares they might spend hundreds and hundreds of millions of dollars billions of dollars buying back shares but you'll find that a lot of it is just repurchasing the stock they issued as non-cash compensation so by the way on one rate basis across the mag 7 it amounted to a hundred eight billion dollars for the most recent quarter so we're not invested in those things but if again if we take this idea of taking the other side of it we're very much invested in the benefits the financial benefits we can have from playing if you want to use that term it's not the majority term but playing the whole technology the data center boom because as people who follow us know we're positioned what we think are the limiting factor and necessary resources that the AI companies hyperscalers need in order to build their data centers which is the appropriate package in the appropriate location of land in order to do this that's to remote from a population center and water it's not taking from local populations or from farmers but it's not otherwise utilizable because it's brackish or whatnot for other purposes and access to natural gas and so forth and so on so the companies we own are going to be natural beneficiaries of that irrespective of exactly how profitable or not AI data center management is and for those of you everybody pays attention everything we can't either but just this past week there was a there's a company called, I won't tell you the company, but a data center contract was signed somewhere in Texas, and we have a company that does this kind of thing. And this company decided that it was going to hand over the, let me back up a second, it has the package. It has the package of land and water and access to natural gas and all that stuff. And it has all the permitting it needs from the state government. And it decided that it would hand over the substantially most of the capital expenditure and planning and building of a data center on some of its land to another company. And all it would do is charge that company rent kind of like a net like a net lease and that company will also be responsible for paying for water and natural gas which would presumably charge to whatever AI company wants to use the data center is going to build and and it turns out that the just a simple base rental revenue would amount to something like about $2 billion a year if you were to scale it to, just for ease of calculation, one gigawatt of power. That's an extraordinary amount of revenue. And I suppose we can also do different kinds of exercises and reduce that to, well, how many acres was that can take up and so you can reduce the revenue to an acre basis you can do stuff like that in the case of a company like like EPL or Landbridge for instance they would have a different kind of contractual in business business arrangement because they can provide water for instance they can sell that separately and for companies like um like them like tpl water would actually be a um i believe it or not if you haven't studied this a larger source of revenue for them in not that distant uh a future than oil and natural gas it's it's kind of remarkable um you can generate hundreds of millions, if you're going to have enough data centers on a given property, you can generate scores and scores and ultimately hundreds of millions of dollars just from the water. What else can I say? So we take the other side of things, not just to do it reflexively, but because we deliberately when we started we told ourselves we are going follow our analysis irrespective of whether it's what is expected of us or is generally expected or whether it's diversified the way that other people talk about diversification we think we're pretty well diversified we just look at diversification in a functional sense not in a semantic sense so something that caught my eye just recently is that if you look at how the papers or the magazines and whatnot provide the news their reactions from our perspective are the wrong ones we could be wrong but this is our reasoning so there was a just just this week there's an article at Texas governor Greg Abbott and this is how it's described in this article he went from being one of the biggest boosters of data centers in the country to becoming only the second governor after New York, I think, to impose a data center moratorium. And he's directed the Public Utility Commission to weigh like hundreds of gigawatts of prospective power demand from the Texas grid, 90% of which is for data centers. And he's going to conduct, the ask regulators to conduct a comprehensive audit of all those proposed centers that want to connect to the grid because it's a problem and people are angry about noise mitigation and water needs and so forth. And Bloomberg estimated in this article that the Texas data center moratorium puts 20% of planned data centers in the U.S. at risk of delay and theoretically was out to basically suggest that maybe this whole thing is at risk and what they're looking at you see is they they mention companies that might be affected negatively such as Sempro a big utility company it has eight billion dollars worth of potential investment opportunities tied to a certain transmission project that might not be allowed and they take a look at American Electric Power and one of its issues so they're looking at the world through the prism of indexed companies in the S&P 500 but you know what that has very little direct negative to do with companies that will set up their own electric power generating facilities behind the grid so to speak meaning having nothing to do with with the electric grid in Texas they don't need to be reviewed they're not going to be reviewed and in an indirect way that might simply push more hyperscalers to focus on building or renting their own off-the-grid or behind-the-grid facilities which would be a benefit to the kinds of companies you know so that's what we endeavor to do not because we want to do things differently but because by doing things that where other people are flowing they're adding the iron law of supply and demand but most people are doing changes the price and it probably can't be a great price if everybody else is doing and we think we find better ways to do it last couple of I don't want to bore everybody. James DeVolos this week was in Europe being introduced to a bunch of people who were kind of sort of interested in the inflation beneficiaries ETF. They don't really have something like what we have and what he told me in that like a brief 30-second catch-up was that nobody looked askance have been there I think a year or two ago and that wasn't so much interest but he said pretty much every single meeting people had a visible interest in what we were providing for it so Peter's right we there's a lot we can do with a lot of strategies that aren't otherwise available that would include our give of two different Japan strategies which are specifically give you specific functional access to the local market company what companies doing locally companies that are below the mega cap the global multinational companies which aren't really direct exposure to China it's only semantic exposure to China we have an AO strategy that has the same approach so we think we've got some better mousetraps and with proper marketing looking at different channels and taking more a renewed approach toward it I think we can we can do a lot So I'll stop there. I can go on. So that's it.

Okay. Well, thank you for that, Stephen. Thank you, Peter. We're going to turn back now to talking a little bit about our second quarter, just so you can get a perspective on where we've come as a company. And I can say again that the company continues to perform favorably for our HKHC shareholders and our clients. For the second quarter of 2026, the company recorded GAAP management and advisory revenues of $18.8 million, essentially unchanged or flat as compared to 2025's second quarter. Our operating income was $3 million, which was down 19% from the prior year. These results included a 30% revenue increase from our group of ETFs, led by Inflation Beneficiaries ETF, or INFL, and an 8.6% revenue increase from our separately managed accounts. Unfortunately, these results were offset by a 17% decrease in revenues from our mutual funds. The company's operating expenses were $16.1 million for the second quarter, a 5.5% increase. This increase included the impact of severance and other general compensation increases in 2026, as well as higher rent and occupancy costs as we move to locations during the second quarter. These moves have been planned for a long period of time. That includes certain overlapping expenses that you would have associated with any move of location. You know, we've moved from one New York office to another, so you're just going to get a little bit of an overlap there. We still expect to see a bit more of that impact in the third quarter. At that time, we'll have a full quarter's worth of rent at both of these new locations. The company's investment results at our Consolidated Investment Products, or SIPs, as you'll see termed in our 10Q, resulted in losses in the other income expense section. The company reported a quarterly net loss of approximately $113 million. dollars. However, 95 million of that related to the redeemable non-controlling interest held at those SIPs, which resulted in a net loss attributable to the HKHC shareholder of 18.4 million or a loss of 99 cents per share. The company's AUM was 10.8 billion as of June 30th, which is up from 9.6 billion at December 31st, 2025, but down from the first quarter's 11.4 billion. These swings in AUM were driven significantly by the changes in the fair value of Texas-specific land, TPL, which was down 7.8% for the quarter, and our holdings related to various Bitcoin-related securities, principally Grayscale Bitcoin Trust, which was down 13.7% in the quarter. Both TPL and our Bitcoin-related holdings are significant positions held throughout a variety of the SIPs and SMAs at the company. And I'll note also that TPL remained up 52% for the year-to-date period. So while these changes impacted our AUM for the quarter, periodic changes in the fair value of TPL are not necessarily unusual. That was a deeper dive topic Stephen addressed recently in our second quarter commentary for clients. Always a recommended listen for those interested in our investing approach for our clients in the firm. I would also like to take a minute to remind you of our year-to-date results, which included gap management and advisory fees of $37 million. down 1.8 percent. And importantly, the first quarter's performance incentive fees of 18.1 million. As we discussed in our first quarter, in our primary gap presentation, these incentive fees, which are paid from our consolidated investment products, are part of the determination of the allocation of net income attributable to redeemable non-control and interest. I realize that's a bit of a mouthful, so we try to simplify that presentation for you with a supplemental advisor only presentation in the press release, which presents these fees as part of management advisory fee revenue. In that presentation, management advisory fee revenues for the six months end of June 30th were $59.0 million as compared to $41.7 million in the prior year. These first quarter incentive fees were the result of certain trading restrictions expiring that were associated with our clients' investments in Miami International Holdings or MIACs. We also incurred various incremental commissions during the first quarter, bonuses, and other costs of $6.1 million associated with that incentive fee. And again, as we discussed that in the first quarter calls. However, the overall resolution of those incentive fees is obviously a significant net positive for our year-to-date results. And I'll also note for you, as of June 30th, we have calculated and disclosed in our NDNA approximately $8.3 million of unearned incentive fees related to a variety of our private funds. However, this value is subject to change and may be based on market prices and also includes amounts associated with investments that may have additional liquidity restrictions similar to what we've experienced with MIACs. So as a result, our consistent operating income from the core asset management business and the investment gains in the first quarter, our gap net income for the six-month period into June 30th, 26th, was $54.2 million, or $2.91 per share. From a balance sheet perspective, the company continues to maintain substantial liquidity. There's cash of $34.3 million. The company also has an investment portfolio of $105 million. dollars, digital assets of $8.3 million, and approximately $263 million of interest in various private funds, some of which are consolidated, and various other private investments. Recently, the board of directors declared a $0.13 per share dividend to be paid on September 10, 2026 to shareholders of record as of August 26, 2026. This will bring our trailing 12-month dividend declarations to 48.4 cents per share. I'll note also that the company continues to have no third-party debt. Our long-term liabilities are limited to the various long-term office spaces. You may have noticed an increase in our overall operating lease liability of nearly $18 million from year-end as we commenced the use of the two locations I mentioned earlier where we had recently signed long-term leases. While this is a substantial increase in our balance sheet liability and the related right of use assets. These represent typical office leases that are under long-term arrangements. This year will include some duplicative costs, as I mentioned, related to the office moves, but overall operating expense of the new facility within New York is not substantially different from our prior long-term lease that will terminate in early next year. And I should once again emphasize that our gap in net income or loss will often be impacted by swings in unrealized gains and losses associated with certain investments, including digital assets. And then we would expect from time to time there are results to be impacted by incentives, like we have recently seen during the first quarter of this year or the fourth quarter of 2024. While we can't expect that kind of results that occurred in the end of 24 every year, we will expect to see some volatility from quarter to quarter and year to year due to incentives and or other unrealized gains or losses in our overall results so with that i'm going to we're going to turn it back and we're going to go to some q a with peter and steve to discuss some questions um that have been provided and i'd like to take a minute to also repeat that if you would like to ask a question you should be logged into the go to meeting platform those of you on the telephone connection will be in listen only mode so again if you are on the go to meeting platform you can submit the questions via the chat function and just direct that question to the presenters where I will summarize and relay as best I can.

Can I ask a question first, Stephen?

Of course, yes.

It didn't work. I do not mean to put you on the spot, and I'm perfectly okay if you say, you know what, I don't actually have it prepared this way, but I'll get back to you. But I'm listening to this. There's a lot of data that you just gave, and I'm sure I've seen it somewhere. But even as I look for, like for a cash flow statement or the income statement, as you mentioned, so we earn $54 million even net of the eliminations of the consolidated investment products, which aren't really ours. But I see within there, there are still big movements for the changes in security valuations, just the way gap accounting works is there a schedule or do you know a number and if not well maybe we'll produce one if in-house counsel allows do we have a schedule that would show like a simple a simplified kind of cash flow statement of what we actually earned forget bitcoin going up and down or tpl going up and down and whatnot but just like like like someone to ask a simple question um um like what were our kind of our cash earnings or was it did we have

actual earnings yeah the way i would think about that um and i don't i don't i will tell you i don't have a a simple schedule to put to you right at the moment um because this is a relatively complex set of financial statements um the way i look at it is our is to look actually on the income statement, there's a line item called operating income. And I'll even go one step further. If you look at the press release, the press release will have two presentations. It has our GAAP presentation, which is the same as what you've seen in 10K. And then it has a supplementary schedule that that recasts it effectively for various eliminations of things that are that we remove because of the consolidation process so it makes it more the supplemental presentation makes it easier to see revenues that we would retain from our consolidated investment products. So anyway, the operating income line item there pretty much is the cash that's generated from the operations of the company. It's not purely a cash flow statement. There still are accrual differences and timing differences within the revenues and expenses. But I think for me, that's a good starting point for the cash generated by the asset management business. And then the caveat that I would have to that is, you know, there are other, the other things related to the company that you would think about would be fixed asset acquisitions, purchases, which, you know, with the exception of this year, relative to office space build outs is typically pretty minimal. And then, of course, we pay a dividend out of our, out of that operating income activity. outside of that um you know the operating income line is really the driver of the cash flows of the asset management operating company business does that help with that i'm gonna yeah it'll be nice to be able to provide we have to work on it there's a lot of complexity there's trade-offs for everything every time he wants to do one thing with good intention and has to trade off something else what do you reflect would you not but it'd be nice

one day to come up with some consistent enough framework for an ordinary unsophisticated person would consider earnings with with with all the necessary explanations and you know citations below as to what's what's excluded and whatnot, what's not and why. But that would be, maybe it's a future project.

Okay. Thank you. Yep. No problem. Okay. So, and again, I'll remind our listeners, if you have a question to post it on the GoToMeeting platform, we do have a couple and I'm going to paraphrase them because they both are very similar and are associated with the concept of growth. One of the first questioner kind of has gone through the math and has seen where it's relatively obvious that we've had inflows and outflows related to our mutual funds and SMA channels throughout the year. And of course, since Murray's passing, and I will tell the questioner for starters, they have not changed substantially over that time period. But we have seen redemptions in our mutual funds as well as some of the SMA accounts, but a relatively small amount in the SMA accounts, I would say. And so the changes that you see in the AUM are principally around the market price changes of the assets that are within the portfolio. So that is a background. The person's actual question is, what are we doing or can we talk about how we want to think about the distribution methods for the various fund products, particularly the Japan fund or the BCDF fund, which Murray had previously noted being ones with marketed as a word of mouth, but things that he was very excited about. And then I'll tack on the second question was simply, you mentioned an increased marketing effort. What What can you say further about that? Can you eliminate those marketing efforts and exactly what's coming down the pipe there?

Sure, I'll take that, Mark. So for the mutual funds, there was actually a very large redemption that accounts for the majority of that, and that actually took place, and it was initiated when Murray was still alive. It didn't actually hit until the second quarter. so you know it's something that we dealt with and we paid it out I think in hindsight I would have liked to have paid that out in kind ie transfer out the securities in the future if we ever have something like that again that's the likely path that will follow but mutual funds as anyone knows are not necessarily a growing business and you know we've been able to grow the assets only because of the performance but it's very challenging for a couple of reasons one most individuals and most institutions are gravitating towards ETFs and then the second thing is a lot of our mutual funds have fairly high concentration and most institutional buyers will not will not will not do that unless they know it's really very intimately and they're very comfortable with what we're doing so we tend to in the mutual fund business even though it looked like we had a big loss of assets there. It really was just principally one account, and people that own the funds are relatively pleased because the performance of a lifetime, the flagship paradigm fund, the small cap fund, have been just absolutely fantastic. And that gets back to the things that Steve and I spoke about earlier, the way we approach the world, the way Murray helped shape that, where we're finding companies that are off the beaten path, and then we tend to leave them alone our turnover is like a fraction of what it is for the industry then in the uh with regard to marketing etfs are really kind of a very different business and we had some success initially with the inflation beneficiary because inflation at the exact moment we brought it out was the topic of the day and you could not open up a periodical, a magazine, or listen to the news without hearing about inflation, and we got a fair amount of inflow from that at the start. But the focus that we're going to be shifting to is going to be much more driven towards targeted marketing, where we're getting assisted by databases, and we're going to go after holders of other ETFs that have products similar to ours, and we just think ours are better so we think we'll be able to migrate at least future business away from from the existing ETFs that we compete with to ours because I think they'll be they'll just look at the results and see that ours might actually have a better performance or likely does have better performance and some of it it might be in the future although we haven't started this ETFs tend to be more of a kind of a retail product and we've never done any type of mass marketing or anything like that and we don't have that on the table at the moment but it's something that we're contemplating so we're going to know in short order probably by mid October November how successful we are making inroads with this new marketing effort but it's it's we're not standing still if this doesn't work we'll try something else because I think we you know we're known as an investment shop and we don't really have the distribution that we probably should because we should as a firm be a much larger organization based on our performance and that's our goal and intention. I don't know if you have anything to add to that, Steve.

Yeah, I'm not a marketer. I certainly talk too much and too inefficiently, but for me, I like the idea that what Peter was talking about. There are people around institutions that have a lot of assets in think of as inflation beneficiary ETFs and this goes to the heart of what we do that's differentiated because what will those be you know the old mining companies and hard asset intensive of cyclical companies that are supposed to benefit during periods of high prices and inflation, and energy companies directly, you know, buy some XMobile or whatnot. And we've made a study of this. We actually have some published academic work on it. And the truth is that holding gold or holding gold miners or holding, you know, other such conventional securities or assets or companies, they're really not good long-term inflation beneficiaries. They might have a pop for a little while, but if you're going to have a period of endemic inflation, it's not going to do well for you. And whereas ours, our asset light approach, is an elegant aspect of that. It does better. And it seems to me, if I were to signal an individual or ask me what we can do for them or what not I would say look I'll explain to you what what we've got and how it's different and I dare say we can do it for you we can do it yourself take a look at our historical statistical returns and try a little mix you know put put hours in as five or ten percent of your your fund and run the numbers and I think you'll see that you do better and with less volatility I'm speaking their language and yeah it might be worth it to peel a little bit off of what you're doing and put it with us and see how you do and those are the people who are already oriented that way I dare say if you went to someone who's mostly in the S&P 500 or the Russell 1 000 or any of the typical indices and said you know what you have all this money why don't you peel off one percent and try this i think you'll find that it improves your statistics i would think it should be an easy sale but then as peter's uh referring to um part of marketing effort is setting up the process by which you can identify and talk to these people i think once we're doing that, time will tell, I think we'll probably be successful.

Thank you for that. We have had another question come in. It deals with new investments. So from time to time, and we've had a few this year, a new investment may come along, sometimes private, sometimes public. And the question is about how would you decide where to put said investment between the various funds we have, including RIN fund, FRMO, or private funds, and so forth?

Yeah, so I would say that that's really a case-by-case basis. In the case of, let's say, a fund where there's a new capital raise, sometimes we don't have the ability to offer that to the broad client base or the individual client base because there's not enough time, so it might go in some of our pooled vehicles. if we do have enough time and we you know we think it's a good investment as we've done in the past we'll place it in virtually every account that we actually have and you know make it available to all the individuals and let them decide whether or not they want to participate in that so you know it really is a case-by-case basis and certain things are just not appropriate this the strategy may not be appropriate for the particular investment and

obviously not going to go in that particular portfolio but if it's a broad-based well researched something that we think has great opportunity we try to do it far and wide within all our portfolios Steve anything to add to that no it's we like to evaluate things as they happen as soon as you start on a rigid policies are important but if you have a rigid policy not always you know it's not only the best thing to follow originally sometimes we've had in the recent past we've had some very interesting opportunities presented to us and we would have used it more broadly with with with with with individual client accounts but the window was just too short to go through we tried to to to evaluate it to go through all the the back and forth paperwork with clients to get signatures and document signs and information taken down in order to make it work next time it's a similar opportunity maybe we'll have the time yeah if we find something that we think is appropriate or works for the clients we don't make judgments based on any considerations other than is this good is this work in this client portfolio and is there enough cash is that appropriate to the client does it fit within the portfolio do we have to sell anything do we have to take gains too much in the way of capital gains in order to make room. Maybe it doesn't make sense on an after-tax basis. So that's how we go about it.

Okay. Well, that concludes the questions that have been provided. So thank you, everyone, for joining us. Peter, Stephen, any last thoughts?

So I guess I'll just repeat what I said earlier. We have a collection of really talented employees, and I'm really thankful, and I won't go into all the names but people have stepped up and again I share with my wife I'm like we have a really solid organization and I expect good things to happen I think our investments are really poised to do well you can't guarantee that obviously but you know we as Steven pointed out we have no shortage in new idea generation we're being presented with new ideas frequently because people have heard about us um and you know expect to hear from us in the future about opportunities that we're likely to come to you and and see if you want to participate that's all i have mark okay okay thank you very much that that concludes our call for today okay thank you all very much thank you Thank you.