Earnings call transcript: Horizon Kinetics Q1 2025 sees revenue jump

Horizon Kinetics Holding Corp (HKHC) reported a substantial increase in revenues for the first quarter of 2025, reaching $19.8 million, up from $12.1 million in the same period last year. The company’s innovative approach, including new fund launches and strategic investments, has driven growth. According to InvestingPro analysis, HKHC maintains a "GREAT" financial health score of 3.15, with particularly strong marks in growth and profitability. Despite these positive results, the stock saw a 2.04% decline, closing at $36.75, reflecting broader market conditions and investor sentiment. Based on InvestingPro’s Fair Value analysis, the stock appears slightly overvalued at current levels.

Key Takeaways

• Horizon Kinetics’ Q1 2025 revenue increased by 63.6% year-over-year.
• The company launched the Japan Owner Operator Fund and expanded its ETF offerings.
• Assets under management approached $11 billion, highlighting robust growth.
• The stock price decreased by 2.04% post-earnings announcement.

Company Performance

Horizon Kinetics experienced a strong start to 2025, with significant revenue growth driven by its adviser-only model and investment returns in consolidated funds. The company’s unique investment strategy, focusing on owner-operator businesses, has positioned it well in a competitive market. The launch of new funds, such as the Japan Owner Operator Fund, and the expansion of its Blockchain Development ETF and Inflation ETF, have contributed to its strong performance.

Financial Highlights

• Revenue: $19.8 million, up from $12.1 million in Q1 2024
• Adviser-only model revenue: $22 million, up from $14 million
• Investment returns in consolidated funds: $70 million
• Cash balance: $34 million

Outlook & Guidance

Looking forward, Horizon Kinetics remains focused on long-term, patient investing. The company is exploring uplisting opportunities and potential stock offerings or reverse mergers. With a continued emphasis on innovation and strategic investments, Horizon Kinetics aims to capitalize on emerging opportunities in smaller market cap stocks and the evolving cryptocurrency market. The company’s strong performance is reflected in its impressive 47.68% return over the past year. For comprehensive analysis and detailed insights, investors can access HKHC’s full Pro Research Report, available exclusively on InvestingPro, along with reports on 1,400+ other US stocks.

Executive Commentary

CEO Murray Stahl emphasized the benefits of long-term investing, stating, "Being a patient long-term investor has enormous advantages." He also highlighted the company’s strategic focus, noting, "We’re not a business that has capital assets like plant equipment and machinery." Stahl further commented on the evolving role of cryptocurrency, saying, "Cryptocurrency is itself classified by the various authorities as property, not as security."

Risks and Challenges

• Market Volatility: Fluctuations in the broader market could impact investor sentiment and stock performance.
• Regulatory Environment: Changes in regulations, particularly concerning cryptocurrency, could pose challenges.
• Competition: Increasing competition in the investment management sector may pressure margins.
• Technological Disruption: Rapid advancements in technology could require significant adaptation.

Horizon Kinetics’ strategic initiatives and robust revenue growth underscore its strong market position. However, the decline in stock price suggests that investors remain cautious amidst broader market uncertainties. As the company navigates these challenges, its focus on innovation and long-term growth strategies will be crucial.

Full transcript - Horizon Kinetics Holding Corp (HKHC) Q1 2025:

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Okay. Yes. Alright. We’re here. Alright.

So, good afternoon, everyone. Thank you for joining us on this call. My name is Mark Kernan, Chief Financial Officer of Verizon Kinetics. We are pleased that you have joined us for our call, where we will cover our results for the first quarter of twenty twenty five. 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 valuations 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, events and the future. Management cannot provide any assurance that future results will be described or will be as described in our forward looking statements. Furthermore, the statements made on this call apply only as of today, and the information on this call should not be construed to be a recommendation to purchase or sell any particular 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 be profitable or that future investment decisions will be profitable or will equal or exceed past performance of the investments. We encourage you to read our filings with the SEC on our Form 10 ks as well as our more recent 10 Q and 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 and 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’s 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, you will need to be logged in to the GoToMeeting platform. So those of you on the telephone connection will be in listen only mode. And, again, so for those of you 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 today.

That’s the Okay. End of our opening statements, and I think you wanted to say a couple words, and then I’ll

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: come back. Okay. So what we’re this is the format for today. So what’s gonna happen is I’m gonna let Mark tell you the highlights of the quarter, then I’m gonna build on the highlights of the quarter. I’m gonna talk about what I would call strategic highlights or better yet strategic points.

What direction we’re going in, the meaning of various efforts, the resources we’re devoting into it, and so on and so forth. And after having covered that, we’re gonna do questions and answers. We’re gonna answer every question that is posed. So with that, Mark, if you could give the highlights of the quarter, would you regard as highlights of quarter? We’d greatly appreciate.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Sure. Sure. And so this will be a little bit historical, and it’s been only a relatively short period of time since our year end update. We were just discussing that it’s been about eighteen days, and that had a variety of complex information on that call. So I’ll, again, provide a short recap of what we filed recently and why.

This form 10 q updates our continues our required GAAP presentation that includes certain proprietary funds as consolidated entities, and our press release continues the presentation of both our GAAP presentation as well as a supplement that presents our financial statements excluding those funds, essentially the adviser only entity. And we think that is important for investors to look at and understand. Consistent with what we have previously reported, this is a presentational matter. It does not impact the company’s earnings that are available to HKHC shareholders or the shareholders’ equity of HKHC. It it does result in higher total assets as we have included the assets of those funds that that have been consolidated on our balance sheet, as well as a new line item called redeemable noncontrolling interest.

And that line item essentially represents our clients’ account balances that are supported by the assets of those funds, which you’ll see identified in our financial statements as consolidated investment products. The other notable change 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 you can see that or that that economic benefit is reflected through a smaller allocation of the investment returns of the consolidated investment products to the redeemable noncontrolling interest than they would otherwise have received.

You can see you can also see the impact of those items in the table within our MD and A of our 10 k 10 Q filing. Our results for the quarter continue to be favorable for our HKHC shareholders. The company recorded revenues of $19,800,000 for the quarter. This is a meaningful increase from the $12,100,000 in the first quarter of twenty twenty four. And this increase is primarily the result of the overall increase in asset vendor management across the portfolio of investment products and client accounts.

As our supplementary schedule indicated, the annual revenues based on the adviser only model, this is without the consolidation of the investment products, resulted in quarterly revenues of $22,000,000 which was a similarly meaningful increase from the $14,000,000 in the February. The results of the consolidated entity were also favorably impacted by the consolidation of the funds, which had $70,000,000 of investment returns during the quarter, of which approximately $59,000,000 was allocated to our client accounts and the redeemable noncontrolling interest line item. From a balance sheet perspective, the company has substantial cash and investments, including amounts outside of those consolidated investment products, and we have no third party debt outside of our, you know, office spaces. The company’s cash position was significantly bolstered during the quarter as a result of the collection of incentive fees in 02/2025 that were earned in 02/2024. Some of those fees were were also paid to the company in securities, which we used to settle certain pre acquisition legacy debts to affiliates as well as to make an additional investment in a nonconsolidated but affiliated other investment item.

So those were my highlights for the for the quarter, Murray, and we can get into whatever whatever level of detail you like after that.

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: Okay. Fabulous. Okay. Thanks, Mark. And so the first takeaway is that we’re required by the accounting protocol to consolidate.

And the consolidation, however interesting it is, and it is indeed interesting, it’s a lot better, in my view, to look at the various aspects of the company separated. So separated, the table I like the most, I think it’s the most revealing, is the table which appears in the form 10 q on page 23, which shows you the asset management business in a stand alone basis, and that’s really the major operating asset. According to that table, there is 4,900,000.0 excuse me, $4,600,000 of operating income. That’s pretax, of course. That’s the operating part of the business.

Really, there is a consumer products business that’s really small, which is legacy asset we inherited, trying to build it up. So there’s an operating loss, but for the quarter, but we fully expect we’re gonna eliminate that in very, very short order, meaning a couple of months. So we’ll see how much we can add to business from that. But that’s a better representation in my opinion. Now the reason for highlighting that area is so you can see the margin of the business itself.

And that margin, we’d like to make, of course, as high as possible. So what are the problems in making it high? Well, if you’re an asset manager, you have several. And one of the problems is what we’re called in the industry, the platform fees. So you’ll as you go through the various tables, you’ll see and I’m gonna cover it in a minute.

You’ll see how much of our revenue, the asset management business, came from SEC registered funds. They can be mutual funds or ETFs. And generally speaking, and there are some small exceptions, your assets under management from that sphere are coming through platforms. Meaning, a potential client has their their capital at some big to you, it might look like a brokerage house, and they decide to invest in one one or more of our funds. We are obligated by the rules to pay platform fees to the firm that holds a client asset.

And all they’re really doing is holding the client money market fund, meaning the withdrawal from the money market fund from their money market fund, which is our funds is paying for the allocation to us. We owe platform fee. Different platforms have different fees, so it’s a big reduction of our profit margin. It’s very, very difficult to get around that in the world of SEC registered funds. So we’ve spent a lot of time and effort thinking through that problem, and we have some approaches to it, which we’ll share with you in a few minutes.

And the other issue is taxes. So we all wanna pay our taxes, but we’re not a business that has capital assets like plant equipment and machinery. We don’t have depreciation expense that’s meaningful. See, there’s no tax shelter from that sort of position. So we’re paying essentially the maximum taxes that we’ll be obligated to pay under the law.

Here and there, there might be some tiny exceptions, but they’re really tiny. And that brings me to how we came to get into cryptocurrency. So when we’re looking at cryptocurrency, apart from the the return characteristics of cryptocurrency, which what everyone focuses on, it’s possible to build a cryptocurrency business and avoid the platforms. And because cryptocurrency is itself classified by the various authorities as property, not as security, there can be some tax advantages to going that route. That was the origin of our interest in cryptocurrency as a generalization.

So it’s got so it was an effort to increase our profitability. Opens up an entirely new channel of distribution. And increasing the profitability through that methodology, there are there are no textbooks. There are no rules ahead of cryptocurrency. So everybody’s inventing it as they go, and so did we.

So some number of years ago, we took some of our cryptocurrency partnerships, and we rolled them into a corporation called Consensus Mining, which incidentally in give or take a day, in about ten days, is going to be quoted and traded on OTC Markets. You can see a quote to it. And that’s really important because there’s only so much we can say right now about that effort, but it’s important to invest in management effort once it’s actually publicly quoted. We can say a lot more of that. And we found ways of making cryptocurrency mining a lot more profitable than other people would have it.

A lot of work went into it. There’s a lot of tax advantage for doing it. Now we still have legacy mining assets, and we have not that we didn’t make money on legacy mining assets. We still have them. When we hear more about crypto, when we hear more about consensus mining, cryptocurrency mining, you’ll understand those are good things, not bad things.

So we have legacy assets. The reason they’re good things in brief is when you buy these cryptocurrency mining devices, you want them to last as long as possible, obviously. And in a lot of cases, we were able to have them last in excess of depreciable life. So that’s an important part of our future profitability or increase in future profitability. So we’re leaving that for now.

I’m leaving you with the idea that we’re gonna talk about that and not do this in future, but we will be talking about it in the appropriate venue. So stay tuned. And there is some disclosure about it. It isn’t very much, but it’s in the financials, and I call your attention to it. You should read them very carefully.

Now as I said earlier, about two thirds of our revenue comes from the SEC registered funds. These are mutual funds or ETFs. And we made an effort recently to create some, what I think, are interesting ETFs. So one of the other problems that, I guess, every manager has had since roughly 02/2007, and we’re no different, is the rise of indexation. So indexation, it poses to the active manager a very serious issue, which is the way you maximize profitability in investment management once indexes came about is to have economy of scale.

So the index has the virtue of it can raise a tremendous amount of money sold buying liquid stocks. I would argue that the indexes actually distort the prices stocks. In some instances, It’s just my personal opinion, so I don’t pay a lot of attention to it. The more important thing is indexes don’t charge a lot of fees. You have to compete with that.

And indexes have created a lot of fee compression for managers in general. So since 02/2007, for every manager that’s on the active side, it led to a decompression issue. We’re no different. Just a question of degree. However, what it’s also done is it’s almost forced the investment world, which is really fighting its battle with the largest capitalization stocks to ignore all sorts of interesting opportunities because either you’re not eligible for indexes or they are eligible for indexes, but they’re never gonna have a lot of waiting.

So I invite you to following a thing. If you were just to look at the the index like the Russell two thousand. It makes me the Russell one thousand, the Russell two thousand, and the S and P five hundred. So, normally, the protocol is to look at the biggest holdings and work your way down and about name 20. Stop looking because that that represents the bulk of the weight.

I invite you to turn the page upside down and start looking at the smallest holdings, And you will be astonished when you see a tremendous number of holdings in the indexes. They have a weighting of, believe it or not, zero point zero. You might say, how can a stock have a 0% weight in the index? And it really doesn’t. The rounding protocol is the one decimal point.

So if you were to have a weight of, let’s say, 0.03, you round to zero. So it’s zero point zero. If you have a weight of 0.06, you round to the rounding convention is to round to 0.1. So you’ll see the bulk of the money is clearly concentrated on a handful of names. There’s a major investment opportunity waiting to happen, and I don’t even think it’s waiting to happen.

I think it’s already started. So it’s pretty exciting, and I think it’s just my personal opinion, so feel free to disagree with me. I think it’s already reflected in investment results, and I invite you to look at them and study them and our results are what our results are. And I personally think there is something to be proud of, but others can have their own ideas. So I encourage you to look at our investment results, which are on our websites, and, hopefully, you’ll be impressed with them.

Another thing you might want to pay attention to in the the various deconstruction, deconsolidations in this statement is the issue of private placements. We own on behalf of our clients and for ourselves a variety of private securities or private placements. The amount of money that contained in that is a hundred roughly a hundred and $94,000,000. You’ll find that in the notes. That value is already much above the cost.

If those companies were to come public, we probably collect a big performance fee at that valuation. And it’s not inconceivable It’ll come public at a far more robust valuation. The inputs that are used in valuing this set of securities at a hundred and $94,000,000, they’re included in the financial statements. So you might wanna look at that. So not I can’t say that all the private placements are subject to performance fees that we haven’t recognized yet, but a lot of it is.

So I would pay a lot of attention to that set of charts. The other thing you’ll observe is our cash balance, which is now $34,000,000. So that’s related to the prior point. At the end of the year, we were carrying a much lower cash balance and end up being a problem. It was a problem, a nice problem to have.

We collected last year, 02/2024, the biggest performance fee we ever collected in the history of Verizon. So that, of course, we’d all agree is very good. But like everything, even I had a problem. Problem was that in our current corporate configuration, we required to pay the taxes on that performance fee before we actually collect matter of fact, before we actually even legally recognize it. So we need to do on December 15 is we needed to estimate what the performance fee would be, and then we had to calculate the tax that would do be due on those fees if indeed we were to realize them, then we have to pay them.

And we didn’t get had we hadn’t kept a cash balance large enough to deal with that contingency. So there’s a lot of scrambling in mid December to figure out how to do it. Of course, we never lacked liquidity. We were always in a business, and we could we would have had the money. We could have sold securities, and and we would have paid the bill.

The problem was we don’t wanna sell securities. One, they’re gonna appreciate further in our view payments, again, Lee. Why sell security at a profit to pay the tax? And by realizing a profit, you can even increase your tax liability. So we really didn’t wanna do it.

So you’ll see $34,000,000 in cash. It’s a higher cash balance than we ordinarily run with, but we felt it’s appropriate for that reason to build up a more sizable cash balance than we had historically as a private company. And then my last point before we go to questions and answers is when you look at the these these these deconsolidations and deconstructions, you’ll see that Horizon itself has over $400,000,000 of its own capital, its own investments commingled with the clients. In other words, we eat our own cooking, and we have substantial profits in that. So there is, on the balance sheet, almost a hundred million dollars in deferred tax liability.

Now it’s a liability. It reduces their asset value. We’re gonna do everything we can not to sell the securities and not pay the taxes. So we’re getting float on the basis of money that, technically speaking, doesn’t exist in our assets, but in point of fact, does. So the way accounting works is we’re recording the net number, but the appreciation is on the gross number until such time as we have occasion to realize recognize a gain and pay the taxes.

And that is part of our return for the quarter. It’s now a number that is much higher than our operating income. And the point I wanna leave you with is being a patient long term investor has enormous advantages. We’re not a small asset management company. We are pushing $11,000,000,000 in assets under management, but our earnings from our investments are very, very substantial.

And there is a real benefit for for looking at things long term basis, which that’s the way we’ve always practiced. So, therefore, the the 10 q is really a document of how we always thought money should be managed, and there you see it in ordered fashion. A lot of wealth has been created over the years through that, and we hope that’ll continue. So that that concludes my prepared remarks. And now I’d like, if I can, to turn it over to whatever questions there are, and we’ll do our best to answer the questions.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Okay. Great. So for those of you that, again, that are on the telephone, you you are in listen only mode. So we would ask you if you if you have a question, you would need to be on the GoToMeeting platform. If you’re on that meet that platform, you can submit the questions via the chat function and just direct those questions to the presenters, and we’ll put them up there.

And then I did get a question about this if there’s a video feed. There is a slide up on the GoToMeeting site, but it’s just a a single slide that that there’s no there’s no other presentational materials. Alright. So, Marie, so the first question I have, you need to talk a little bit about ETF offerings is, can you describe the marketing effort behind our current ETF offerings, and how do you judge the success of our team’s focus on the smaller offerings like BCDF that may not have the the same scale as something like INFL?

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: Okay. Well, INFL is now over $1,200,000,000 in AUM as you can see on our website, and that’s largely marketed through our historical channel distribution by our marketing team. Blockchain development, what you referred to as BCDF, which is ticker symbol, we really didn’t assign the marketers to it in the traditional channels. We took a different approach. The idea was to go direct.

And the reason for going direct was as follows. We wanna see if we can build up a fund and avoid as many of the platform fees as possible. So platform fees and for a lot of firms, it can be very substantial. So without going into because there are too many platforms that we’re on. Like, there are a lot of platforms we’re on.

And in various cases, just to be on a platform, even if you don’t have $1 in assets or imagined, is a set rate you have to pay. So to be in a platform, it it puts you in a lost position until you raise enough assets on a platform just to break even. So the idea was that yours truly would simply approach people that friends, acquaintances, business associates, and just describe the fund. If this was a marketing call, I would describe that fund, but it’s not a marketing call, so I don’t wanna make it in a marketing call. A BCDF other than to say, I really like that fund.

If you look at the volume, you’ll see the volume is a lot less than the inflation ETF. All of the volume happens to be growing. The idea was I tell a, a tells b, b tells c and d, and so on and so forth, and it’s working. So that fund is, at least as of yesterday, reached over $16,000,000 of assets just that way. And I think yesterday, it traded over 8,000 shares.

Now trading is no is is for is not really an interesting cystic from our point of view in a stock. It is interesting from the point of view in ETF. The reason it’s interesting from the point of view in ETF is money can only go into fund in the ETF in increments of 25,000 shares. So if I personally wanna buy a hundred shares of BCDF, The only ways I can get it is I can either find somebody who wants me to sell me shares. So if somebody sells me a hundred shares, ETF doesn’t get any new AUM.

The other way to do it is a market maker can sell short hundred shares to me if I want to buy it. Market maker has a short position, which you’re obligated, I think, within four days to cover. So what happens is if a lot of little trades happen and there are no sellers, a series of market makers build up short positions which they have to cover. When they cover them, they create another unit. So if you don’t see any trading, it means we’re not likely to get new AUM in the foreseeable future.

If you see some thousands of shares traded every day, that’s a sign we’re going to get new units created. The new unit created, of course, means new assets under management. So we didn’t do television or print or all the other things. We’re going direct. It takes longer, but in the long run, it’s more profitable.

Now on the way out. So if somebody wants to dispose of shares, if you’re selling shares in unit increments, 25,000 shares, you same thing. Redemption can only be in the increment of 25,000 shares. Somebody wanted, for whatever reason, liquidated a hundred shares. The way it gets liquidated, money doesn’t come out of the fund.

It’s just a hundred shares are sold to whoever wants to buy it. So you have to create an eco trading system that’s big enough so that it’s absorb it it supports a stable degree of assets under management. So if we go the traditional marketing route and raise a great deal of money, the risk is if for whatever reason somebody wants to take their profit from money in their fund, we might be faced with redemptions. And that’s what happens in ETFs all the time. So you’re trying to build it a really different way, and, of course, those big contributions are on the platforms that are gonna charge us the fees.

So I hope that gives you an idea of how comparing contrasting those two funds. Two entirely different efforts. One last thing I’ll point to is we just launched a Japan fund couple days ago. This is called the Japan Owner Operator Fund. So people on this call probably have heard me talk about owner operators.

Owner operator means those on the field to go first with the term. Owner operator means management that has the bulk of their capital invested with the company. Meaning, they own the company, and they run the company. And my investment thesis has always been those kind of investments are really extraordinary investments for the most part. Reason they’re extraordinary is people are well incentivized, and the management is totally and completely aligned with the shareholders.

So I like those kinds of investments. The owner operator phenomenon exists in The United States because United States was built on that. When you go around the world, it doesn’t exist anywhere else except for here and there except and it’s a singular exception in the nation of Japan. Japan has it. Japan also has the characteristic that the Japanese market is heavily indexed, and all the attention is paid to the top market hospitalizations, and very little attention is paid to the smaller ones.

So the in the world of Japanese ETFs, the money is the big capitalization stocks. The big capitalization stocks are Japanese stocks that are multinational, meaning they do their business all over the world. So in a sense, they’re not really Japanese stocks. The Japanese stocks that are owner operator are really Japanese stocks, meaning they can find their business activity largely to the nation of Japan. So you’re gonna invest internationally and you wanna be internationally diversified.

Are you really internationally diversified if you buy multinational companies that do business in a range of nations, not dissimilar from the range of nations that the American competitors do business in? Or if you want diversification, are you better advised by the owner operators that can find largely their business interests in nation Japan, and it’s really different? And plus, they actually have higher rates of return. I think the latter is the right way to go. So I’m very confident that that will, intrigue people.

So I call your attention to that as well, and that’s the marketing approach to tell people to the same way we’re doing blockchain development, present the investment thesis on a one on one basis. So that’s how what we’re doing.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Okay. And and then we’ve got another question on the the the same train of thought here with the blockchain development. Can you share your thoughts on Galaxy Digital, which is a I believe is a or this question says is a holding of blockchain development ETF. It’s now listed on the exchange Nasdaq exchange, and maybe, in particular, touch on the Galaxy’s Helios data center initiatives relative to what you’ve talked about in terms of data centers, energy, and water infrastructure.

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: Okay. Well, I don’t wanna turn this meeting into a stock picking meeting, which is another kind of meeting. I just wanna make it about Horizon Connects. But I will say, there was a time that we didn’t know if cryptocurrency as an asset class was even here to stay. Now I think it’s clearly evolving into a major asset class.

And, therefore, if it’s a major asset class, there are all sorts of business opportunities that are in the course of being created. We identified that Horizon Galaxy Digital has holding a number of years ago, and we thought it was well positioned to be a business that profits from cryptocurrency. That could be cryptocurrency asset management, and it can be things that are tangential to cryptocurrency asset management like data centers. The data center opportunity, just in general terms, whoever is pursuing it, is it’s staggering how big it is. The reason it’s staggering is that although people call it artificial intelligence, it’s not really artificial intelligence.

It’s high order of computation. It’s going to require enormous amounts of data. And because there are enormous amounts of data required, it’s gonna require a tremendous amount of electric power. Because there and because it required a tremendous amount of electric power, it has to be on twenty four seven. You have intermittent power with a data center.

So that being the case, you have to have power plants. In many cases, we power plants that are dedicated to serving data centers. The only power that’s continuous, it’s what’s what’s called thermal power. So even though people think about these modalities for generation power is different, it’d be coal and natural gas nuclear. They’re similar.

Matter of fact, they’re identical in the sense that they all boil water and that turn into steam that drive a turbine. Much of that water can be recondensed and used again. Inevitably, some of it is evaporated. So if you measure the amount of electric power that’s likely to be needed, you can calculate how much water is likely to be needed and take 10% of that figure that’s likely to be evaporated. New the the the numbers are I won’t even quote them to you.

They’re unbelievable. I will say, however, I just wrote a paper on the subject, which I finished a couple days ago. So when it’s out, hopefully, it’d be out in a couple weeks. I invite you to read that, and you can get a lot of facts and figures from that. It’s just unbelievable what’s about to happen.

And, therefore, there’s investment banking opportunities. There’s money management opportunities, and it’s, in one sense, the outgrowth of cryptocurrency because cryptocurrency mining occurs in data centers, but just so much bigger. And a lot of firms got their first exposure, the operation of a data center. We’re operating a data center, small scale, of course, for cryptocurrency mining. This is just enormous.

So it’s an important holding for us. It’s not as big as our holdings of Bitcoin, but it’s not small either. And I think I might be you know, I’m doing this memory, so forgive me. I think Horizon owns something like 1,300,000.0 shares some way in its various funds of Galaxy Digital, something like that. Should be able look it up in our 13 f.

I’m doing it from memory. I obviously can’t memorize all these numbers, but best I can, I think we own about 1,300,000.0 shares? So it’s important holding.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Okay. If I could turn your attention back to h k h c for a second. We’ve had a question come in. Can you touch on Horizon’s Bitcoin holdings at 131 and the inclusion of the top 55 on a top corporate huddle list? And and just as a I’ll supplement this as a reminder for everyone.

The the the there’s there’s a hundred and 31 Bitcoin that’s held directly by Horizon, and then there’s, additional digital assets that are held within the, consolidated funds. And and this question is specific to the hundred and 31 Bitcoin held by Horizon.

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: Okay. So the hundred and 31 Bitcoin owned by Horizon, we mine those, and that’s very important. So there are two ways you can own Bitcoin, basically. You can buy it. You can buy directly.

You can buy an ETF to hold Bitcoin, obviously, or you can mine it, meaning you’re creating your own Bitcoin. So using the example of million dollars, if I had a million dollars, I can buy a certain amount of Bitcoin. You can divide that million dollars by the current price of Bitcoin. You can see how many coins I can buy. And what’ll happen is unless I put more money into Bitcoin, that’s how many Bitcoin I have.

So I could have bought a hundred and 31, and I got a hundred and 31 for all eternity, and the price is gonna be what it’s gonna be. That’s one way of doing it. The other way of doing it, what I find much more interesting, is mining it. Meaning, you’re creating your Bitcoin. So the idea is once you start mining it, do it in such a way that you mine coins and at the same time, throw off cash.

The reason it’s important to throw off cash, you’ll this is a really important point, so I’m going really slow, is you wanna mine, which is building up coins. Obviously, you’re starting with zero coins. And you wanna throw off cash because whatever mining devices you have, at the end of the day, it’s just device. Sooner or later, it’s gonna wear out and or sooner or later, it’s gonna get obsolete. So you’re get a new one.

But assuming you can navigate those two challenges, what’s happening? Your number of Bitcoin is growing. So coming back to the example, if you had a 31, and it is what it is, or you had a hundred and 31 Bitcoin, and you have a mining business, and you’re able to, a, keep increasing the number of Bitcoin you have, and, b, as a direct consequence of Bitcoin mining operations, throw off more than sufficient cash to replenish your ultimately to be depleted mining assets, well, how can that not be better than just buying Bitcoin and holding it? Because Bitcoin goes whether bit Bitcoin’s either going up or down. If it goes up, not only you get all the appreciation, but you have more coins.

And it goes down where you can get all the depreciation, of course, but that depreciation is gonna be mitigated by the fact that you have more coins. So in other words, if I had a hundred Bitcoin and it went up a %, well, I got the appreciation. If I have a so Bitcoin doubles and my Bitcoin doubles. If I had a hundred Bitcoin and I was able to mine another hundred Bitcoin, well, I not only have the appreciation, original hundred Bitcoin, I now have another hundred Bitcoin, which also appreciate. Clearly, I have more money, or Bitcoin’s gonna go down.

So I a hundred Bitcoin and whatever quantity, whatever percent declines, you’re gonna take those losses. Or you have a hundred Bitcoin, it goes down, whatever goes down, and then you create another hundred Bitcoin. Of course, you’re going to suffer some depreciation at Bitcoin. But now at the end, you have 200 Bitcoin. Either way, that’s a much better set of circumstances.

That’s the problem that we’re solving for, and we think we have a great solution. And that’s why, incidentally, we created consensus mining to solve for that problem, which I must tell you is not an easy problem to solve for. There are other publicly traded mining companies, and see by studying them, it’s not an easy problem to deal with. And you don’t solve a problem like that in a day or two. We believe we’ve done something really unique and also call your attention back to our sister company, FRMO, has done the same thing with another company called The Windland.

So the time will be coming pretty soon. We can talk a lot more in a lot more fulsome manner about what we’re doing in that regard, and confident that you’re gonna like what you hear. But until that time, just kinda leave it there. So I’m sorry for not going into every detail, but it is what it is.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Okay. Staying with the the internal workings of Horizon Kinetics, we have a question about the asset classes that earn performance fees. The questioner is indicating that ETFs and mutual funds do not earn performance fees, and I’ll I’ll confirm that. The the incentive fees come directly or from the proprietary fund group. And I understand you were is there anything else that you’d like to add around the performance fees or or their sources?

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: Yeah. So, see, this is the the problem when you’re rolling there. Nothing is without a problem. So I think we’ve done very well. But when you’re a long term investor, and and a consequence of being a long term investor is that your securities that you own, even if they’re all great, they’re going to be normally distributed.

Even if every security is a positive rate of return, even if it’s normally positive, they’re gonna be normally distributed. And, therefore, something is gonna be your best security. When you leave it alone, whatever your highest rate of return, I. E, your best security, that’s gonna be your biggest position. So when you do that and you have really great returns, it creates a marking dilemma for you.

And the reason is it’s one thing for a potential client to invest at fund inception when you have what looks like a well diversified portfolio. And but, eventually, underbuy diversifies itself. So some people matter of fact, not just some people. A lot of people be very reluctant to invest in that kind of fund because it’s concentrated, and they regard it as a risk. So now, of course, you can alleviate that risk in a day because all you have to do is sell the concentrations and put it in something else.

But now it’s not just for us. You can see what taxes we would pay. Every client in that fund would pay proportionately the same tax rate that we would when there’s no reason to This is a perfectly good security. That’s a problem. Some people solve the problem with leveraging, and we’re not gonna do that.

So that’s out. But it hurts the marketing effort. So what’s the solution? Solution is that we have a number of securities in these funds that pay periodically and usually high dividends. And unlike a mutual fund, which has to pay its dividends out to the customer base because that’s required by law, the partnerships can hang on to dividends.

We use the dividends to rediversify the funds as we find new securities. So the partnerships have a certain flexibility that the mutual funds don’t have. Now when the mutual fund, when you sell securities, you have to distribute not only the income, but also all the capital gains. So you made a hundred million dollars in profits. You have to distribute a hundred million dollars to your clientele.

So when you trade aggressively, and I should tell you parenthetically that virtually every SEC registered fund trades aggressively. The normal turnover in the SEC registered fund that are active is rarely less than a %, and 200% turnover a year or more is not uncommon. We don’t do that sort of thing. So I think that our SEC registered funds from that point of view are far, far more tax efficient. And so we we diversify.

We take our time at that, thereby taking the the care and the time to manage the potential tax liability. So that’s how that’s kind of how it works. We just don’t respond instantaneously. So it’s got a disadvantage in that it makes it harder to market. But on the other hand, it makes it easier to market.

You have, I think, a more robust return in the long run. And the results are all on our website, and I invite you to look at them, and only you can be the judge of that. So I hope that answers that question.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Okay. Great. You mentioned a few minutes ago, FRMO is a sister company, so I thought maybe you could touch on that relationship a little bit. The the question is specific to, is FRMO entitled to a portion of the carry revenue? And just for other listeners, we have disclosed in one of the footnotes, and this has been out there a while, that FRMO does have a right to a 4.2% share of the company’s gross revenue prior to any commission sharing arrangements.

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: Right. So what you’ll see is if you look at the FRMO financials, you’ll see a line item, what’s called the revenue share. We’re obligated to value it, and we create a value, and we never change it because it’s a very debatable subject. What is the revenue share worth? I guess it depends on how much revenue you’re sharing.

We don’t wanna do any one change it every quarter. But in any event, yes, it’s the number is 4.2%. So FMO gets 4.2% of the revenue of Horizon off the top. So how did this come to get that? You might well ask.

Years ago, when Horizon was a smaller company and FMO was a smaller company, Horizon and Kinetics were separate firms. So FMO was which had financed some business activities. We didn’t want to have to register FMO as a investment adviser, which it really wasn’t. It’s bad enough. We had two investment advisers.

To make three investment advisers all run by the same people was really confusing. So what we basically did is we surrendered to Horizon all of the asset management products, everything, in exchange for revenue share. So we gave up all the income, and the quid pro quo was we didn’t wanna sell it for cash because we’re doing a tax. So we got the revenue share, and that’s the origin of it. It stays that way to this day.

So that’s how that happens. Think that covers it.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Yeah. I think so. And then maybe this would be a good question to to round it out. Do you have maybe a question just overall about the Horizon Kinetic stock itself, and do we have any plans near term plans to uplift the stock?

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: We’re looking at all kinds of issues. We’ve been pretty busy these last couple of months with number of things, like paying your taxes on performance fee, like doing the consolidated financials of Horizon, like getting the quotation OTC markets for consensus mining. So we haven’t pursued. We’ve just been too busy to pursue it. In order to get an uplisting, right now, Horizon wouldn’t qualify.

We don’t have enough volume. So one of two things. We’re gonna to get an uplisting, we have to do one of two things. Number one, possibility. Some shareholders are gonna have to sell some stock.

And depending on how much stock they sell, we didn’t qualify, and we would be delighted if you could do an uplisting. It’s possibly number one. Possibility number two, we could do an offering of stock, and that would trade. And we don’t really need any money, so that would solve the listing problem. We have no problem listing.

If we did that, uplisting, that’d be no problem. But then again, when offering like that be dilutive given a lot of the things I talked about today, is it fair to shareholders just get an uplifting, do to do an equity offering to get cash that we really don’t need, which have has a possibility of diluting everybody to get some trading. And I suppose people can debate it. So and we debate it. So no decision’s been made yet.

And if you have have a feeling on it one way or another, don’t hesitate to contact us, your shareholders, and you have we have a right to hear your point of view, and you have a right to express your point of view. So we look forward to hearing your point of view. But as I said, no decisions have been made. It’s possible that some shares will come on the market, and maybe that’ll solve the problem. But nobody seems to be too eager to sell.

The volume is what you see. It’s pretty low volume. So the the necessary prior step to an uplisting is we gotta get more volume. And I described the two methods. I wish we might do that.

So we have that. There’s one more possibility. If we found some company that had a public trade stock that had a lot of or adequate amount of volume or had listing, we could merge into that in reverse merger the same way we merge into Scott’s liquid gold. That’s a third possibility. And it’s possible you found something that’s really undervalued.

We might be able to do that without diluting anybody. Those are the possibilities. So don’t be shy about expressing your point of view, and we’re thinking about that subject. So I just have to leave it there. So any other questions, Mark?

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Yep. No. There are no other questions, but, you know, on that point, I will remind everyone that the annual meeting is June 17, if I have my calendar correct. So that is coming up, and then I’ll I’ll just ask where if there’s anything else kinda looking forward you wanna direct people’s attention to or have any closing remarks. This would be the time to do it.

No.

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: I think I covered all the highlights in your deductions. So it just just remains me to thank everybody for their attention. I thought questions were pretty good. And, of course, apart from the annual meeting, which is coming up, we’re gonna reprise this meeting format in about ninety days. In the interim, I know it always happens.

The minute you hang up the phone, you think of a question you should have asked, but you didn’t ask. Don’t if we if you wanna have a question asked, don’t hesitate to contact us. We will get you an answer. So we wanna be as open as we possibly can given the laws, and they really aren’t a lot of secrets at Horizon. So with that, I thank you very much for your attendance today, and, hopefully, we can see you all on the June 17 in our annual meeting.

Mark Kernan, Chief Financial Officer, Horizon Kinetics: Alright. Great. That concludes the call. Thank you very much, Emily.

Murray Stahl, Chairman and Chief Executive Officer, Horizon Kinetics: K. Thank you, everybody. Good afternoon.

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