Horizon Kinetics - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue rose to $19.801M, up from $12.131M in Q1 2024, driven by higher management and advisory fees ($18.9M, +58% YoY), while diluted EPS was $1.23 versus $2.27 a year ago. AUM increased to $10.8B (+10% QoQ; +54% YoY), supported by TPL +20% QoQ offset by GBTC −10% QoQ.
• Investment income within consolidated investment products was a major tailwind ($73.2M), with $59.0M attributed to client redeemable NCI; consolidated “other income (expense), net” totaled $90.816M in the quarter.
• Non-GAAP “adviser-only” view (excluding consolidated proprietary funds) shows stronger core revenue ($22.038M) and operating income ($4.601M), clarifying underlying advisory economics.
• The Board declared a $0.056 dividend (payable June 16, 2025), down from $0.107 in Q4 2024, as management balances dividend policy with tax and liquidity planning amid incentive fee collections and private investment monetization scenarios.

What Went Well and What Went Wrong

What Went Well

• Management and advisory fee revenue rose to $18.9M (+58% YoY), reflecting higher AUM and net inflows across SMAs, ETFs, mutual funds, and proprietary funds.
• Strong investment results in consolidated investment products ($73.2M) translated to sizable “other income” for HKHC and clients, supporting net income attributable to HKHC of $22.841M.
• Strategic distribution approach for ETFs: INFL >$1.2B AUM via traditional channels, while BCDF is scaled through direct, platform-fee-minimizing outreach; Japan Owner Operator ETF launched to focus on owner-operator opportunities.

What Went Wrong

• Operating expenses rose with revenue/AUM (sales/distribution/marketing, commissions), plus ~$1.2M from Scott’s Liquid Gold integration in Q1 2025.
• GBTC declined 10% QoQ, partially offsetting TPL’s +20% contribution to AUM/fee dynamics.
• Dividend reduced to $0.056 vs $0.107 in Q4 2024 as management prioritized tax-liquidity planning; platform fees and tax burden remained margin headwinds for advisory operations.

Transcript

Mark Herndon (CFO)

Okay. Yes. All right. We're here. All right. So good afternoon, everyone. Thank you for joining us on this call. My name is Mark Herndon, Chief Financial Officer of Horizon Kinetics. We are pleased that you have joined us for our call, where we will cover our results for the first quarter of 2025. First, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements involves certain risks and uncertainties, including, but not limited to, uncertainty about the future of 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.

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-K, 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 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 into the Go To Meeting platform. Those of you on the telephone connection will be in listen-only mode. Again, for those of you on the Go To Meeting 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 is the end of our opening statements.

I think you wanted to say a couple of words, and then I'll come back.

Murray Stahl (Chairman and CEO)

Yes. Okay. What we are doing—this is the before match for today. What is going to happen is I am going to let Mark tell you the highlights of the quarter. I am going to build on the highlights of the quarter. I am going to talk about what I would call strategic highlights, or better yet, strategic points: what direction we are going in, the meaning of various efforts, the resources we are devoting into it, and so on and so forth. After having covered that, we are going to do questions and answers. We are going to answer every question that is posed. With that, Mark, if you could give the highlights of the quarter, what you regard as highlights of the quarter, we would greatly appreciate it.

Mark Herndon (CFO)

Sure. Sure. This will be a little bit historical. It has been only a relatively short period of time since our year-end update. We were just discussing that it has been about 18 days. That had a variety of complex information on that call. I will again provide a short recap of what we filed recently and why. This Form 10-Q update continues our required GAAP presentation that includes certain proprietary funds as consolidated entities. 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 advisor-only entity. We think that is important for investors to look at and understand. Consistent with what we have previously reported, this is a presentational matter that does not impact the company's earnings that are available to HKHC shareholders or the shareholders' equity of HKHC.

It does result in higher total assets as we have included the assets of those funds that have been consolidated on our balance sheet, as well as a new line item called redeemable non-controlling interest. 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.

You can see that, or that economic benefit is reflected through a smaller allocation of the investment returns of the consolidated investment products to the redeemable non-controlling interest than they would otherwise have received. You can also see the impact of those items in the table within our MVNA of our 10-Q filing. Our results for the quarter continue to be favorable for our HKHC shareholders. The company reported revenues of $19.8 million for the quarter, which is a meaningful increase from the $12.1 million in the first quarter of 2024. This increase is primarily the result of the overall increase in assets under management across the portfolio of investment products and client accounts.

As our supplementary schedule indicated, the annual revenues based on the advisor-only model—this is without the consolidation of the investment products—resulted in quarterly revenues of $22 million, which was a similarly meaningful increase from the $14 million in the first quarter of 2024. The results of the consolidated entity were also favorably impacted by the consolidation of the funds, which had $70 million of investment returns during the quarter, of which approximately $59 million was allocated to our client accounts and the redeemable non-controlling interest line item. From a balance sheet perspective, the company has substantial cash and investments, including amounts outside of those consolidated investment products. We have no third-party debt outside of our office spaces. The company's cash position was significantly bolstered during the quarter as a result of the collection of incentive fees in 2025 that were earned in 2024.

Some of those fees 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 non-consolidated but affiliated other investment item. Those were my highlights for the quarter, Murray. We can get into whatever level of detail you'd like after that.

Murray Stahl (Chairman and CEO)

Okay. Fabulous. Okay. Thanks, Mark. The first takeaway is that we're required by decanning protocol to consolidate. 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. 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 on a standalone basis. That's really the major operating asset. According to that table, there is $4.9 million—excuse me—$4.6 million of operating income. That's pre-tax, of course. That's the operating part of the business. Really, there is a consumer products business that's really small, which is a legacy asset. We inherited trying to build it up.

There's an operating loss for the quarter, but we fully expect we're going to eliminate that in very, very short order, meaning a couple of months. We'll see how much we can add to business from that. That's a better representation, in my opinion. The reason for highlighting that area is so you can see the margin of the business itself. That margin, we'd like to make, of course, as high as possible. What are the problems in making it high? If you're an asset manager, you have several. One of the problems is what are called in the industry the platform fees. As you go through the various tables, you'll see—and I'm going to 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.

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 capital at some big—to you, it might look like a brokerage house—and they decide to invest in one or more of our funds. We are obligated by the rules to pay platform fees to the firm that holds the client asset. All they are really doing is holding the client money market fund, meaning the withdrawal from the money market fund from their money market fund, which, going to our funds, is paying for the allocation to us. We owe a platform fee. Different platforms have different fees. It is a big reduction of our profit margin. It is very, very difficult to get around that in the world of SEC-registered funds. We have spent a lot of time and effort thinking through that problem.

We have some approaches to it, which we'll share with you in a few minutes. The other issue is taxes. We all want to pay our taxes, but we're not a business that has capital assets like plant equipment and machinery. We do not have depreciation expense that's meaningful. There is no tax shelter from that sort of position. We are paying essentially the maximum taxes that we'd be obligated to pay under the law. Here and there, there might be some tiny exceptions, but they're really tiny. That brings me to how we came to get into cryptocurrency. When we're looking at cryptocurrency, apart from the return characteristics of cryptocurrency, which everyone focuses on, it's possible to build a cryptocurrency business and avoid the platforms.

Because cryptocurrency is itself classified by the various authorities as property, not a security, there can be some tax advantages to going that route. That was the origin of our interest in cryptocurrency as a generalization. It was an effort to increase our profitability. It opens up an entirely new channel of distribution. In increasing the profitability through that methodology, there are no textbooks. There are no rules on how to do cryptocurrency. Everybody's inventing it as they go. And so did we. 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 10 days, is going to be quoted and traded on OTC markets. You can see a quote to it.

That is really important because there is only so much we can say right now about that effort. It is important to invest in management effort. Once it is actually publicly quoted, we can say a lot more of that. 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 is a lot of tax advantage for doing it. We still have legacy mining assets. Not that we did not 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 will understand those are good things, not bad things. We have legacy assets. The reason they are good things in brief is when you buy these cryptocurrency mining devices, you want them to last as long as possible, obviously.

In a lot of cases, we were able to have them last an excessive depreciable life. That is an important part of our future profitability or increase in future profitability. We are leaving that for now. I am leaving you with the idea that we are going to talk about that and not do this in future. We will be talking about it in the appropriate venue. Stay tuned. There is some disclosure about it. It is not very much, but it is in the financials. I call your attention to it. You should read them very carefully. As I said earlier, about two-thirds of our revenue comes from the SEC-registered funds. These are mutual funds or ETFs. We made an effort recently to create some what I think are interesting ETFs.

One of the other problems that I guess every manager has had since roughly 2007, and we're no different, is the rise of indexation. Indexation 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. The index has the virtue of it can raise a tremendous amount of money. It's all buying liquid stocks. I would argue that the indexes actually distort the prices of stocks in some instances. That's just my personal opinion, so don't pay a lot of attention to it. The more important thing is the indexes don't charge a lot of fees. You have to compete with that. The indexes have created a lot of fee compression for managers in general.

Since 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 they're not eligible for the indexes or they are eligible for the indexes, but they're never going to have a lot of weighting. I want to invite you to the following thing. If you were just to look at an index like the Russell 2000, excuse me, the Russell 1000, the Russell 2000, and the S&P 500. Normally, the protocol is to look at the biggest holdings and work your way down, and about name 20, stop looking because that represents the bulk of the weight.

I invite you to turn the page upside down and start looking at the smallest holdings. You'll be astonished when you see a tremendous number of holdings in the indexes that have a weighting of, believe it or not, 0.0. You may say, "How can a stock have a 0.0% weight in the index?" It really doesn't. The rounding protocol is to one decimal point. If you were to have the weight of, let's say, 0.03, you round to 0. So that's 0.0. If you were to have the weight of 0.06, the rounding convention is to round to 0.1. 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. I don't even think it's waiting to happen. I think it's already started. It's pretty exciting.

I think—and it is just my personal opinion, so feel free to disagree with me—I think it is already reflected in investment results. I invite you to look at them and study them. Our results are what our results are. I personally think they are something to be proud of. Others can have their own ideas. I encourage you to look at our investment results, which are on our websites. Hopefully, you will be impressed with them. Another thing you might want to pay attention to in the various deconstructions, de-consolidations 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 is contained in that is roughly $194 million. You will find that in the notes. That value is already much above the cost.

If those companies were to come public, we'd probably collect a big performance fee at that valuation. It's not inconceivable it'll come public at a far more robust valuation. The inputs that are used in evaluating this set of securities at $194 million, they're included in the financial statements. You might want to look at that. I can't say that all the private placements are subject to performance fees that we haven't recognized yet. A lot of it is. I would pay a lot of attention to that set of charts. Another thing you'll observe is our cash balance, which is now $34 million. That's related to the prior point. At the end of the year, we were carrying a much lower cash balance. It ended up being a problem. It was a problem, a nice problem to have.

We collected last year, 2024, the biggest performance fee we ever collected in the history of Horizon. So that, of course, we'd all agree is very good. But like everything, even that had a problem. The problem was that in our current corporate configuration, we're required to pay the taxes on that performance fee before we actually collect—matter of fact, before we actually even legally recognize it. So what we need to do on December 15th is we needed to estimate what the performance fee would be. And then we had to calculate the tax that would be due on those fees if indeed we were to realize them. Then we have to pay them. And we hadn't kept a cash balance large enough to deal with that contingency. So it was 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 position we would have had the money. We could have sold securities, and we would have paid the bill. The problem was we do not want to sell securities when they are going to appreciate further in our view, being able to scale up. Why sell security at a profit to pay the tax? And by realizing a profit, you can even increase your tax liability. We really did not want to do it. You will see $34 million in cash. It is a higher cash balance than we ordinarily run with. We felt it was appropriate for that reason to build up a more sizable cash balance than we had historically as a private company.

My last point before we go to questions and answers is when you look at these de-consolidations and deconstructions, you'll see that Horizon itself has over $400 million of its own capital, its own investments, commingled with clients. In other words, we eat our own cooking. We have substantial profits in that. There is, on the balance sheet, almost $100 million in deferred tax liability. Now, it's a liability. It reduces their asset value. We're going to do everything we can not to sell the securities and not pay the taxes. We're getting float on the basis of money that, technically speaking, doesn't exist in our assets. In point of fact, it does. The way accounting works is we're recording the net number.

The appreciation is on the gross number until such time as we have occasion to realize the gain and pay the taxes. That is part of our return for the quarter. It is now a number that is much higher than our operating income. The point I want to leave you with is being a patient and long-term investor has enormous advantages. We are not a small asset management company. We are pushing $11 billion in assets under management. Our earnings from our investments are very, very substantial. There is a real benefit for looking at things on a long-term basis, which is the way we have always practiced. Therefore, the 10-Q is really a document of how we always thought money should be managed. There you see it in ordered fashion. A lot of wealth has been created over the years through that.

We hope that'll continue. That concludes my prepared remarks. I would like, if I can, to turn it over to whatever questions there are. We'll do our best to answer the questions.

Mark Herndon (CFO)

Okay. Great. For those of you that, again, are on the telephone, you are in listen-only mode. We would ask you, if you have a question, you would need to be on the Go To Meeting platform. If you're on that platform, you can submit the questions via the chat function and just direct those questions to the presenters. We'll put them up there. I did get a question about if there's a video feed. There is a slide up on the Go To Meeting site. It's just a single slide and there are no other presentational materials. All right. Murray, the first question I have—and you talked a little bit about ETF offerings—is can you describe the marketing effort behind our current ETF offerings?

How do you judge the success of our team's focus on the smaller offerings like BCDF that may not have the same scale as something like INFL?

Murray Stahl (Chairman and CEO)

Okay. INFL is now over $1.2 billion in the AUM, as you can see on our website. That is largely marketed through our historical channels distribution by our marketing team. Blockchain development, what you referred to as BCDF, which is the ticker symbol, we really did not assign the marketers to it in the traditional channels. We took a different approach. The idea was to go direct. The reason for going direct was as follows. We want to see if we can build up a fund and avoid as many of the platform fees as possible. Platform fees, and for a lot of firms, it can be very substantial. Without going into—because there are too many platforms that we are on. There are a lot of platforms we are on.

In various cases, just to be on a platform, even if you do not have $1 in assets under management, there is a set rate you have to pay. To be on a platform, it puts you in a loss position until you raise enough assets on a platform just to break even. The idea was that yours truly would simply approach people, friends, acquaintances, business associates, and just describe the fund. If this was a marketing call, I would describe that fund. It is not a marketing call. I do not want to make it a marketing call of BCDF other than to say, "I really like that fund." If you look at the volume, you will see the volume is a lot less than the inflation ETF.

Although 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. It is working. That fund is, at least as of yesterday, reached over $16 million of assets just that way. I think yesterday it traded over 8,000 shares. Now, trading is not really an interesting statistic from our point of view in a stock. It is interesting from the point of view of an ETF. The reason it is interesting from the point of view of an ETF is money can only go into a fund, into an ETF, in increments of 25,000 shares. If I personally want to buy 100 shares of BCDF, the only ways I can get it is I can either find somebody who wants me to sell me the shares.

If somebody sells me 100 shares, the ETF does not get any new AUM. The other way to do it is a market maker can sell short 100 shares to me if I wanted to buy it. A market maker has a short position, which you are obligated, I think, within four days to cover. 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. If you do not see any trading, it means we are not likely to get new AUM in the foreseeable future. If you see some thousands of shares traded every day, that is a sign we are going to get new units created. New units created, of course, means new assets under management.

We didn't do television or print or all the other things. We're going direct. It takes longer. In the long run, it's more profitable. On the way out, if somebody wants to dispose of shares, if you're selling shares in unit increments, 25,000 shares, same thing. Redemption can only be in the increment of 25,000 shares. Somebody wanted, for whatever reason, liquidate 100 shares. The way it gets liquidated, money doesn't come out of the fund. It's just 100 shares are sold to whoever wants to buy it. You have to create an eco-trading system that's big enough so that it supports a stable degree of assets under management.

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, put money in another fund, we might be faced with redemptions. That's what happens in ETFs all the time. We're trying to build it a really different way. Of course, those big contributions are on the platforms that are going to charge us the fees. I hope that gives you an idea of how comparing and contrasting those two funds. It's two entirely different efforts. One last thing I'll point to is we just launched a Japan fund a couple of days ago. This is called the Japan Owner-Operator Fund. People on this call probably have heard me talk about owner-operators.

Owner-operator means, that was on the field for the first time, 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. My investment thesis has always been those kind of investments are really extraordinary investments for the most part. The reason they're extraordinary is people are well incentivized, and the management is totally and completely aligned with the shareholders. I like those kinds of investments. The owner-operator phenomenon exists in the United States because the 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 this is 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 capitalizations, and very little attention is paid to the smaller ones. In the world of Japanese ETFs, the money is in the big capitalization stocks. The big capitalization stocks are Japanese stocks that are multinational, meaning they do their business all over the world. In a sense, they're not really Japanese stocks. The Japanese stocks that are owner-operator are really Japanese stocks, meaning they confine their business activity largely to the nation of Japan. If you're going to invest internationally, and you want to be internationally diversified, are you really internationally diversified if you buy multinational companies that do business in a range of nations, not just from the range of nations that the American competitors do business in?

If you want diversification, are you better advised to buy the owner-operators that confine largely their business interests to the nation of Japan? It is really different. Plus, they actually have higher rates of return. I think the latter is the right way to go. I am very confident that that will intrigue people. I call your attention to that as well. That is the marketing approach. To tell people, in the same way we are doing blockchain development, present the investment thesis on a one-on-one basis. That is what we are doing.

Mark Herndon (CFO)

Okay. And then we have another question on the same train of thought here with the Blockchain Development. Can you share your thoughts on Galaxy Digital, which I believe is a—the question says there's 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 CEO)

Okay. I do not want to turn this meeting into a stock-picking meeting, which is another kind of meeting. I just want to make it about Horizon Kinetics. I will say there was a time that we did not know if cryptocurrencies and asset class was even here to stay. Now I think it is clearly evolving into a major asset class. Therefore, if it is 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 as a holding a number of years ago. We thought it was well-positioned to be a business that profits from cryptocurrency, that can be cryptocurrency asset management. 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 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 computation. It's going to require enormous amounts of data. Because there are enormous amounts of data required, it's going to require a tremendous amount of electric power. Because it requires a tremendous amount of electric power, it has to be on 24/7. You can't have intermittent power with a data center. That being the case, you have to have power plants. In many cases, there'll be power plants that are dedicated to serving data centers. The only power that's continuous is what's called thermal power. Even though people think about these modalities for generation of power as 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 turn into steam that drives a turbine. Much of that water can be recondensed and used again. Inevitably, some of it is evaporated. 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. Take 10% of that figure that's likely to be evaporated. 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 of days ago. When it's out, hopefully it'll be out in a couple of weeks, I invite you to read that. You can get a lot of facts and figures from that. It's just unbelievable what's about to happen. Therefore, there's investment banking opportunities.

There's money management opportunities. And it's, in one sense, now the growth of cryptocurrency because cryptocurrency mining occurs in data centers, but just so much bigger. And a lot of firms got their first exposure to 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. I think I might be—I'm doing this in memory, so forgive me. I think Horizon owns something like 1.3 million shares somewhere in its various funds of Galaxy Digital, something like that. You should be able to look it up on our 13F. I'm doing it from memory. I obviously can't memorize all these numbers, but best I can, I think we own about 1.3 million shares.

It's an important holding.

Mark Herndon (CFO)

Okay. If I could turn your attention back to HKHC 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 HODL list? Just as a—I'll supplement this as a reminder for everyone. There's 131 Bitcoin that's held directly by Horizon. Then there's additional digital assets that are held within the consolidated funds. This question is specific to the 131 Bitcoin held by Horizon.

Murray Stahl (Chairman and CEO)

Okay. So 131 Bitcoin owned by Horizon. We mine those. And that's very important. There are two ways you can own Bitcoin, basically. You can buy it. You can buy it directly. You can buy an ETF to hold Bitcoin, obviously. Or you can mine it, meaning you're creating your own Bitcoin. Using the example of a 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. What will happen is unless I put more money into Bitcoin, that's how many Bitcoin I have. I could have bought 131, and I got 131 for all eternity. The price is going to be what it's going to 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. 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—this is a really important point, so I'm going to go really slow—is you want to mine, which is building up coins. Obviously, you're starting with zero coins. You want to throw off cash because whatever mining devices you have, at the end of the day, it's just a device. Sooner or later, it's going to wear out. And/or sooner or later, it's going to get obsolete. You have to get a new one. Assuming you can navigate those two challenges, what's happening? Your number of Bitcoin is growing.

Coming back to the example, if you had 131 Bitcoin and it is what it is, or you had another 131 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, how can that not be better than just buying Bitcoin and holding it? Because Bitcoin's either going up or down. If it goes up, not only do you get all the appreciation, but you can have more coins. If it goes down, you can get all the depreciation, of course, but that depreciation is going to be mitigated by the fact that you have more coins.

In other words, if I had 100 Bitcoin and it went up 100%, I got depreciation. Bitcoin doubles and my Bitcoin doubles. If I had 100 Bitcoin and I was able to mine another 100 Bitcoin, I not only have the appreciation of the original 100 Bitcoin, I now have another 100 Bitcoin, which also appreciates. Clearly, I have more money. Bitcoin is going to go down. I have 100 Bitcoin and whatever quantity, whatever percentage it declines, you are going to take those losses. You have 100 Bitcoin, it goes down, whatever it goes down, and then you create another 100 Bitcoin. Of course, you are going to suffer some depreciation at Bitcoin. Now at the end, you have 200 Bitcoin. Either way, that is a much better set of circumstances. That is the problem that we are solving for.

We think we have a great solution. That is 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. You see, by studying them, it is not an easy problem to deal with. You do not solve a problem like that in a day or two. We believe we have done something really unique. I will call your attention to the fact that our sister company, FRMO, has done the same thing with another company called Winland. The time will be coming pretty soon. We can talk a lot more in a lot more fulsome manner about what we are doing in that regard. I am confident that you are going to like what you hear. Until that time, just kind of leave it there.

I'm sorry for not going into every detail, but it is what it is.

Mark Herndon (CFO)

Okay. Staying with 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. I'll confirm that. The incentive fees come directly from the proprietary fund group. I'll just ask you, is there anything else that you'd like to add around the performance fees or their sources?

Murray Stahl (Chairman and CEO)

Yeah. See, this is the problem when you're—nothing is without a problem. I think we've done very well. When you're a long-term investor, 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 going to be normally distributed. They're going to be normally distributed. Therefore, something is going to be your best security. When you leave it alone, whatever your highest rate of return, i.e., your best security, that's going to be your biggest position. When you do that and you have really great returns, it creates a marketing dilemma for you.

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, but eventually it undiversifies itself. 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. They regard it as a risk. Of course, you can alleviate that risk in a day because all you have to do is sell the concentrations and put in something else. 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, because it's a perfectly good security. That's a problem. Some people solve the problem with leveraging. We're not going to do that. That's out.

It hurts the marketing effort. What is the solution? The solution is that we have a number of securities in these funds that pay periodically and usually high dividends. Unlike a mutual fund, which has to pay its dividends out to the customer base because that is required by law, the partnerships can hang on to the dividends. We use the dividends to rediversify the funds as we find new securities. The partnerships have a certain flexibility that the mutual funds do not have. In the mutual fund, when you sell securities, you have to distribute not only the income but also all the capital gains. If you made $100 million in profits, you have to distribute $100 million to your clientele.

When you trade aggressively, and I should tell you parenthetically that virtually every SEC-registered fund trades aggressively, the normal turnover in SEC-registered fund that are active is rarely less than 100%. And 200% turnover a year or more is not uncommon. We do not do that sort of thing. I think that our SEC-registered funds, from that point of view, are far, far more tax efficient. To the degree we diversify, we take our time at that, thereby taking the care and the time to manage the potential tax liability. That is kind of how it works. We just do not respond instantaneously. It has its disadvantage in that it makes it harder to market. On the other hand, it makes it easier to market. You have, I think, a more robust return in the long run. The results are all on our website.

I invite you to look at them. Only you can be the judge of that. I hope that answers that question.

Mark Herndon (CFO)

Okay. Great. You mentioned a few minutes ago FRMO as a sister company. I thought maybe you could touch on that relationship a little bit. The question is specific to, is FRMO entitled to a portion of the carry revenue? 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 CEO)

Right. So what you'll see is if you look at FRMO financials, you'll see a line item, what's called a revenue share. We're obligated to value it. And we create a value. We never change it because it's a very debatable subject. What is a revenue share worth? I guess it depends on how much revenue you're sharing. We don't really want to change it every quarter. In any event, yes, the number is 4.2%. FRMO gets 4.2% of the revenue of Horizon off the top. How did it come to get that, you might well ask? Years ago, when Horizon was a smaller company and FRMO was a smaller company, Horizon and Kinetics were separate firms. FRMO was—we should finance some business activities. We didn't want to have to register FRMO as an investment advisor, which it really wasn't.

It's bad enough we had two investment advisors. To make three investment advisors all run by the same people was really confusing. What we basically did is we surrendered to Horizon all of the asset management products, everything, in exchange for a revenue share. We gave up all the income. The quid pro quo was we did not want to sell it for cash because it would win a tax. We got the revenue share. That is the origin of it. It stays that way to this day. That is how that happened. I think that covers it.

Mark Herndon (CFO)

Yeah, I think so. Maybe this would be a good question to round it out. Do you have the question just overall about the Horizon Kinetics stock itself? Do we have any near-term plans to uplift the stock?

Murray Stahl (Chairman and CEO)

We're looking at all kinds of issues. We've been pretty busy these last couple of months with a number of things, like paying the taxes on the performance fee, like doing the consolidated financials of Horizon, like getting the quotation on OTC markets for Consensus Mining. We haven't pursued—we've just been too busy to pursue it. In order to get an uplifting, right now, Horizon wouldn't qualify. We don't have enough volume. One of two things—to get an uplifting, we have to do one of two things. Number one, possibility: some shareholders are going to have to sell some stock. Depending on how much stock they sell, we didn't qualify. We would be delighted if you could do an uplifting. Possibility number one. Possibility number two, we could do an offering of stock. That would trade. We don't really need any money.

That would solve the listing problem. We have no problem listing. If we did that, uplifting, that would be no problem. Then again, with an offering like that, it'd be dilutive given a lot of the things I talked about today. Is it fair to shareholders just to get an uplifting, to do an equity offering to get cash that we really do not need, which has the possibility of diluting everybody to get some trading? I suppose people can debate it. We debate it. No decision has been made yet. If you have a feeling on it, one way or another, do not hesitate to contact us. You are shareholders. We have a right to hear your point of view. You have a right to express your point of view. We look forward to hearing your point of view.

As I said, no decision's been made. It's possible that some shares will come on the market. Maybe that'll solve the problem. Nobody seems to be too eager to sell. The volume is what you see. It's pretty low volume. The necessary prior step to an uplifting is we got to get more volume. I described the two methods we might do that. We have that. There's one more possibility. If we found some company that had a publicly traded stock that had a lot of or an adequate amount of volume or had listing, we could merge into that in a reverse merger, the same way we merged into Scott's Liquid Gold. That's a third possibility. It's possible we found something that's really undervalued. We might be able to do that without diluting anybody. Those are the possibilities.

Do not be shy about expressing your point of view. We are thinking about that subject. I just have to leave it there. Any other questions, Mark?

Mark Herndon (CFO)

Yep. No, there are no other questions. On that point, I will remind everyone that the annual meeting is June 17th, if I have my calendar correct. That is coming up. I'll just ask if there's anything else kind of looking forward you want to direct people's attention to or have any closing remarks, this would be the time to do it.

Murray Stahl (Chairman and CEO)

No, I think I covered all the highlights in your introduction. It just remains for me to thank everybody for their attention. I thought questions were pretty good. Of course, apart from the annual meeting, which is coming up, we're going to reprise this meeting format in about 90 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. If you want to have a question asked, don't hesitate to contact us. We will get you an answer. We want to be as open as we possibly can given the laws. There really aren't a lot of secrets at Horizon Kinetics. With that, I thank you very much for your attendance today.

Hopefully, we can see you all on the 17th of June in our annual meeting.

Mark Herndon (CFO)

All right. Great. That concludes the call. Thank you very much, everyone.

Murray Stahl (Chairman and CEO)

Okay. Thank you, everybody. Good afternoon.