My name is Mark Herndon, Chief Financial Officer of Horizon Kinetics. We are pleased to have you join us for today's call that will cover the results of our second quarter of 2026.

Today's discussion of our first quarter -- excuse me, second quarter will include comments from Steven Bregman and Peter Doyle, Horizon Kinetics Co-Chief Executive Officers. I will also be available to answer applicable questions and moderate any questions that may arise.

But first, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements 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 or events of the future. Management cannot provide any assurance that future results will be as described in our forward-looking statements.

Furthermore, the statements made on this call apply as of today. The information on this call should not be construed to be a recommendation to purchase or sell any security or investment fund.

The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should be -- it should not be assumed that any of the security transactions referenced today have been or will prove to be profitable or that future investment decisions will be profitable or will equal or exceed the past performance of the investments.

We encourage you to read our filings with the SEC on our Form 10-K as well as our other quarterly filings, which describe the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today.

These filings can also be found at the OTC Markets website and our press releases or other information is at our corporate website at www.hkholdingco.com. If you would like to ask a question today, you will need to be logged on to the GoToMeeting platform.

Those of you who are on the telephone connection will be in listen-only mode. So again, for those of you that are on the GoToMeeting platform, you can submit the question via the chat function.

Please direct those questions to the presenters, where I will summarize and relay as best I can, so that we can address as many questions as possible. With that, I will now turn it over to one of our co-founders, Peter Doyle.

Thank you, Mark. Good afternoon to everyone.

So, if I was listening to this call, and I was checking in on how Horizon Kinetics was doing, I'd be concerned a little bit, I guess, about the stability of the firm. And are we in good company, and do we have a good stewardship as a result of, obviously, Murray's passing.

And I think I have enough credibility and I've spoken over the years that I will tell you in quite honest fashion, I tell my wife on a very regular basis that we have incredibly talented people here. And from my perspective, the people that have stepped up over the last several months have just -- it's just been extraordinary to watch.

And one of the more pleasant surprise is actually my co-CEO, Steve Bregman, and the wisdom that he's imparted to the staff over the many months, I've been just really pleased with. So from that standpoint, I just feel very confident about what's likely to unfold for us in the future.

Murray was great and he had an ability to process data in a way that I don't think people really -- I think if you listen to this call, you probably did understand that. But I don't think anyone is going to be able to replicate that.

But one of the more interesting aspects of what Murray was able to do is he was able to identify and understand systems. And one of the systems that he really understood was the investment system and what we were up against.

And the 3 pillars of the modern portfolio of theory is -- were really portfolio selection by Harry Markowitz, the efficient market hypothesis by Eugene Pharma and the capital asset pricing model by Williams Sharp. And together, they actually dominate how money is allocated in the marketplace.

And none of them alone are actually unsensible. They all have -- there's a certain logic to it.

But collectively, they don't make a lot of sense. And how do you exploit that system.

And that's really what we do here at Horizon Kinetics. So not only did Murray teach us how to fish, he also taught us where to fish.

So in the case of portfolio selection, it has to do with diversification. And it seems common sensical that people should have diversified portfolios in the sense that you want to put all your eggs in one basket and something happens, you want to basically make sure that your money isn't wiped out.

The risk of room from an investment standpoint or down-low standpoint? The problem is that if you take it to an extreme and let's say, you broadly diversify into the S&P 500, which a lot of people have done over the years, you're now making a decision to buy inferior type businesses.

You're going to get some great businesses in there as well, but there's a whole collection of businesses that get a very poor rate of return on capital. So from a logical standpoint, why would you want to do that?

You wouldn't want to do that. So one of the unique things that we do is we are willing to step away from that.

And we want to own companies that have high returns on invested capital, companies that we think have a long product life cycle and will continue to flourish and get great returns and aren't necessarily included in any indices. Second thing, efficient markets.

Markets are efficient, but they're not perfectly efficient. And one of the things that affects the inefficiency or helps inefficiency is the institutional imperatives or the corporate mandates that people have, and there's a grading period for most investors.

And that grading period is really an annual date, 12/31 of any given particular year. And what we have found, you've heard Steve talk about it, you've heard me talk about it.

James and Murray, et cetera, if you can lessen your time horizon, you give yourself a tremendous advantage. And there's such a thing as an equity yield curve.

And I don't know if Murray came up with that or not, but he's been talking about that for -- he was talking about that for 40-some-odd years. And that time horizon allows you to find securities that are inefficiently priced because most people have no interest in that.

They're under scrutinized, they're unloved because they fall outside of the artificial time horizon. And then this last thing is capital asset pricing model is basically telling you that risk is volatility.

And there's a certain logic to that as well, a massive drawdown when you're 75 years old or 80 years old is -- has devastating consequences. And if you're 30, you can live through that, and you can say, I can accept the drawdown, and I'll make it up because these companies are not going anywhere.

So if you measure risk in terms of price volatility, it doesn't really capture the true financial risk. But you should pay attention to it.

So all that being said, that's the underlying intellectual underpinnings of basically how money is managed and we understand that, and we try to navigate around that. And I think we've done a great job, and there's no reason to believe if you're an investor here at Horizon Kinetics or a shareholder that we're not going to continue to flourish.

In fact, since Murray's passing, we've uncovered a number of different securities and one of them, in particular, actually has already been a plan to acquire it, take it private. And it was just a perfect example that we see things.

And I can tell you from James Davolos to Brendan Colavita, there's real analytical work going on here and the idea generation and the idea flow is going to continue uninterrupted. No question about that.

So one of the things that people miss when they buy stocks is they think of them as pieces of paper. And you can't get away from the fact that investors as a whole can't get out of their business, i.e., their stock holdings any more than what the businesses earn over time.

And you want to find companies that have high returns and you want companies that can get those high returns without the use of excessive leverage. And you want those businesses to be able to defend themselves, have some niche business that they can basically compound over a long period of time.

And then you want to leave it alone and let the companies do the heavy lifting for you. And that has not changed 1 iota.

It will not change in the future. We are seeing things.

We're being brought opportunities from other strategic investors that have known us, our reputation that we're able to see things now that we probably were not able to see 20, 25 years ago because we didn't have the stature that we currently do. So that's the part of what I wanted to talk about.

Second thing is just talking about the overall market. Corporate taxes, after-tax profits right now are running at about 12.4% of GDP and historically, that's 6%.

And a lot of that has been driven in the recent past by the high-tech companies. And you see how well they've done.

And that's, in our opinion, was an anomaly. And you've seen now that as a result of the development of AI, these companies that -- which were tremendous cash flow generators are now cash consuming companies.

And they no longer have free cash flow or very little in the way of free cash flow and the way they once did. It's not at all clear to us that they're going to get an adequate rate of return on that.

Maybe some of them are maybe they won't. But you're making a big bet.

And from where we stand today, just to put things into perspective and how you should look at it from a business standpoint as opposed to a stock certificate standpoint, the S&P 500 trailing earnings over the last 12 months were $2.31 trillion versus a market capitalization of roughly $69 trillion. That gives you an earnings yield of 3.35%.

You tack on a dividend yield of 1.04% and you're talking about a return of 4.39% buying in. When you compare that versus a 10-year treasury, which is currently at 4.70%, there's very little -- there's actually no margin of safety.

Historically, a margin of safety that you would want an earnings yield on equities of 5 percentage points above the S&P -- above the 10-year treasury. Today, you actually get earning below that.

So a long way of saying there's great reason to be cautious, but there are opportunities, there are inefficiencies in the market. When I look for our holdings, I understand why Murray and I understand why Steven and James are very optimistic about what's likely to unfold for us.

We own great businesses at reasonable valuations and if we're patient, we show fortitude, we have discipline. We're going to capture those business returns, and they're going to be, in my opinion, very pleasing to our investors and hence, the shareholders of Horizon Kinetics because of our growing assets over the course of time.

I'm just going to talk just very briefly on the business operations. There's been some operational issues here at Horizon Kinetics that we've been addressing, and one of them is the marketing effort.

And we have some really excellent products, particularly in the ETF space. And we really don't have the distribution that we need or desire.

And starting September -- roughly early September, maybe early September 6 or 7, we are doing a tremendous marketing effort to boost that and to grow those assets. So we have willing and able portfolio managers that are happy to get out there, but we've been, I think, going after the wrong channels.

And our focus is to grow those businesses and our assets under management. So with that, I'll stop and see what Steve has to say.

And then we'll open it up for questions, and we'll try to answer any questions that you might have.

I'm going to start off where Peter did. He just had me thinking about a few things.

And there might be a fair amount of overlap between what I'm talking about and what he's talking about. But that's okay.

Stereo, when you listen to stereo music, you don't have exactly the same sound coming out of each speaker. It's a little different.

And the overlap provides some more information. And maybe something of beauty, I don't know.

So when Peter talked about Murray had an unusual skill at understanding systems and how they work. And I'll just put it in a more common phraseology.

He understood gaming the system, right? He's a kind of guy, he'd walk into a new school or a school yard and he starts to understand what's going on pretty quickly.

What are people doing? And it works for any kind of marketplace.

Most people are doing a single thing, if you can even spot that they're doing that or observe it as opposed to just being part of it. And you also began realize that if most people are doing something in a certain way, they're changing the equation.

And maybe you should see if you have a way and a productive way of taking the other side of that. That will give you -- I don't think I spoke to you about this last time here.

And if I did, someone can text me or something, tell me to stop. But it makes me think of two anecdotes about Murray from the period when Peter and I probably first met him, probably within the first year or 2.

And Peter, if I saying anything incorrectly or I'm misstating something, just step in. So one was the very first time I saw Murray, I wouldn't even remember his name because that's not the way my head works.

But -- and I think Peter might have been there for this, too. When we were not yet officers and the private bank, bank trust company in New York City, there was an annual, what's called a trust investment school, where some, I don't know, some association of banks that had trust companies would choose some of their young folks to look like they might have some potential and then select a couple or a few from each of the banks that were part of this circle.

And they would send them to a weekend off-site trust investment school, where they had various breakout sessions led by various experience old hand portfolio managers or analysts and whatnot. And each one was about a different topic about trust administering trust and about portfolio management techniques and research analysis and so forth and so on.

And I don't remember any of the presentations except for one. And in this case, they had this guy who was I knew he works at private bank and bankers trust company.

I might have seen it once before, I don't know. But all the other people are sitting in the audience, and he was talking to us, and -- it was Murray.

And he's saying, I know all of you here want to be portfolio managers. And I know all of you what you want in your heart of hearts, is to beat the S&P 500.

And I'll tell you how most people do it and how you'll probably do it, which is you're going to try to work very, very hard and do a lot of research about all the different 500 stocks in the S&P 500, and you're going to try to pick the best 1 or 2. And there are lots of different ways of doing it, the fastest-growing one, at an appropriate valuation multiple with the best cheapest one and so forth and so on.

And it's a lot of work. And a lot of people trying to do the same thing.

Everybody is trying to do the same thing. And you have to ask yourself, maybe like probabilistically, how likely am I to be the one to identify the stock that allude the best and overweight that.

So I can beat the market by even just a little bit. If you beat it by 5 basis points, 5%, 100 to 1%, will get a bonus.

Your career will be advanced. Don't you think it would be easier just to find the worst stock in the S&P 500.

A worst company where the sales aren't going anywhere. They've got bad management, they've got too much debt.

They might have a trouble rolling over some of their lines of credit. They're being sued for malfeasance or for some product liability.

Wouldn't it be better just try to not buy that one. And -- because all you need to do is beat the market by a basis point or 2.

And everybody sat there with their mouths open a little bit, as I did at least figuratively. I said, wow, that seems so simple.

Why didn't I think of that? That was kind of a classic Murray.

And one other example, and here, Peter, I'm not sure whether he actually did this or he was just talking about that he should do it. Don't actually remember.

So Murray ran something called the G-fund, like the growth fund. And it was an internal fund at the bank for trust accounts and it was supposed to be a growth fund, primarily technology-based.

That was the idea. But he didn't buy technology stocks, even though that's what they hired him for.

He bought what he liked. And he talked about how his bonus was predicated on beating the S&P 500 and how -- and when an organization sets up an incentive system like that, it actually creates behavior incentivized around it, which isn't necessarily -- won't necessarily provide or be geared toward the outcomes that the institution was.

And he said, for example, he said right now, and he was talking to me or Peter, I don't remember. He said, right now, I don't know it was September or November, somewhere late in the year.

He said, right now, the G Fund is x percentage points ahead of the S&P 500, and what I really should do is I should sell everything right now. I just sell everything right now, go to cash.

And well, they need it for the next 3 or 4 weeks to -- I don't -- if the market is going to go up a lot, maybe I can buy a call option or something, I don't know if he said that. But I have just stopped right now.

And I'll start again on January 2. Now, it backwards, it will realize gains and it's not efficient for the clients and ultimately for the bank because maybe withdrawals come to have the gains, taxes and whatnot.

But that's how he was incentivized. This I can't remember whether he actually did it or not.

Anyway, that's -- when you talk about systems, and the S&P 500, as Peter was describing, it's a system. And it's a system that serves other functions other than just doing well on an investment basis.

Their business is attached to it. And Murray -- when Peter talks about -- so indexation, we're going to talk about things going to extremes and people follow a rule system and they're in a rule set and they just stop paying attention.

So the S&P 500 originally was closed to be and it was a diversified exposure to the economy at large. That's really systemic -- we want exposure to the growth of the economy over time and the productive capacity and growth prospects in the United States as embodied in its largest publicly traded corporations.

And back when the S&P 500 index was created when we had the first index created by John Bogle, it really was fairly well diversified across the -- relatively representatively across the different industry sectors. There are some glaring absences, but there's nothing you could do about it.

Real estate really wasn't much real estate in the S&P 500, because most real estate is privately held. But otherwise, it was fairly representative across energy and pharmaceuticals and mining and auto production and so forth.

Anyway I was struck by a -- if that's the case, and that's how it's presented. Well, if you think about the S&P 500 today with respect to its representing the GDP profile of the United States, you would think that only 3% of U.S.

GDP comes from the energy sector. This oil and gas exploration and refining and storage and transportation like pipeline and all that.

That's it and that consumer staples and think about it. Food, it's food and staples like retailing like Costco and Walmart, drugstores, food products companies themselves like General Mills, beverage companies, household products like Procter & Gamble and personal products, so on and on and on.

Well, according to S&P 500, only about 5% of U.S. GDP comes from those activities.

And only 6% comes from consumer discretionary companies. And do we need to say more than automobiles household furniture, electronics, apparel, hotels, restaurants, live entertainment, retailing and more and more and more.

But apparently, 49% of the total productive capacity as expressed in GDP of the United States is apparently in information technology. Now, does that really come the entire U.S.

economic output 49% of it really come from the services of Meta and Google and NVIDIA and their [indiscernible]. So anyway, that's kind of an interesting anomaly.

And we like to take the other side of it. We're going to plan to take the outside of it.

The things we find that we think are interesting as for investment purposes, which is a function, not of the semantics of the sector or whatnot. We find something interesting for investment basics and valuation.

So we have something called the inflation beneficiaries ETF, which we started 5 years ago because we talked about it, warning about it repeatedly. That -- there was an anomalous period for 20-odd years of more disinflationary forces and also of reasons why the forces that created or supported disinflationary environment had run their course and that we're probably going to enter a period, let's just assume we're correct, like a long period, not just a few years, maybe generation of rising in high inflation, both commodity-based and probably monetary-based also.

Now, we have inflation beneficiaries ETF companies that are natural beneficiaries in some what we think are some elegant and effective ways to benefit from that. And that has certain characteristics because of their business models that make them not value traps that they're inherently profitable and growing and have high returns on invested capital, as Peter was referring to anyway.

By the way, I hope you'll forgive me for talking a lot about investments. But really, that's what we do.

We don't have independent and productive investment research. Ultimately, our firm will kind of wind down like an old clock.

It might take a very, very long time. It could take 20 years because of what we already own in our portfolio.

Anyway, Peter probably said this in our last quarterly meeting is that we just may be exaggerating touch, but not really. I mean I can definitely argue that it would be true if we just didn't touch any of our portfolios for the next 5 years and just close them away for a while, we'll probably be just fine.

Although now we're finding a lot of interesting things because -- in part, because of what the market is doing, it's creating opportunities for us. They're taking the other side.

Anyway, the inflation beneficiary is ETF. If we took the sum total of all the holdings in that ETF, which James Davolos runs that are also in the S&P 500, they would amount to a grand total of about 0.6% weight in the S&P 500.

So that's just how different we are positioned effectively, not then try to be that way than the S&P 500. And it also says something about just how imbalanced the S&P 500 is.

It's totally not prepared for either the benefit from companies that will do well in an inflationary environment and perhaps more to the point for people who tested that way. Most of the companies in the S&P 500 [indiscernible], their operations, their profitability, their margins and so forth, will actually be subject to diminishment because of higher input costs or inflation.

So anyway, that's one thing I can say. And as far as the hyperscalers and the IT companies and the MAG 7 go, Peter referred to, their business models that for which people are paying lots and lots of money and have over time, high valuations.

Their business models are fundamentally changing. They've never been this way before.

They're actually becoming different businesses. So I was taken by some headlines a few weeks ago saying the MAG 7 stocks are trading at the cheapest valuation in more than a decade.

Why? They're saying that because the valuation declines, they were trading at a PE of under 25 as opposed to the PE of 30 of a year ago.

Well, I don't know what the PE exactly means. You have to analyze it.

We decided to look at the free cash flow. And it turns out that it was tough to actually get a valuation based on free cash flow because two of those companies actually in the most recent quarter had negative free cash flow.

One of those companies trades at 700x free cash flow. So if I gave the two companies that don't even have free cash flow benefit of the doubt and just call it, it's an infinitely high number, we just call it an even 100x, so we could have a 7 company average.

And basically, that group trades at 150x run rate free cash flow based on the most recent reporting period, but we know they're going to spend even more. And when we calculate things, we don't just have a database do it for us or ask Claude because we have to make our own judgments and decisions about things.

So one thing usually Peter would do, is we would exclude -- and that's not done. But we exclude from a cash flow calculation instead of adding back to net income.

Of course, there are also things you take away like capital expenditures. But instead of adding back noncash compensation expense, which is a standard way of doing it, we don't have that back.

And -- because if you think through that's employee compensation. They don't amount to a lot of money.

And if the companies didn't pay that stock to employees, we would think that the employees would ask for more cash and that one way or another, it becomes an expense. And you'll find also that even when you think of it as just a noncash item, it isn't really at the moment it is because the issue stock or the stock grants instead of cash.

At some point later, you'll find out that these companies because they don't want too much dilution, they don't want dilution that's shown in statements. They'll say they're buying back a lot of shares.

They might spend hundreds and hundreds of millions of dollars, billions of dollars buying back shares. But you'll find that a lot of it is just repurchasing the stock they issued as noncash compensation.

So by the way, on a run-rate basis across the MAG 7, it amounted to $108 billion for the most recent quarter, just run-rate basis. So we're not invested in those things.

But again, if we take this idea of taking the other side of it, we're very much invested in the benefits, the financial benefits you can have from playing, if you want to use that term, solidarity term at playing the whole technology, the AI data center group because as people who follow us know, we're positioned where we think are the limiting factor and necessary resources after the AI companies, the hyperscalers need in order to build their data centers, which is the appropriate package in the appropriate location of land related to do this, that is remote from a population center and water. It's not taking from local populations or from farmers, water that's not otherwise utilizable because it's brackish or whatnot for other purposes and access to natural gas and so forth and so on.

So the companies we own are going to be natural beneficiaries of that, irrespective of exactly how profitable or not AI data center management is. And for those of you, everybody pays attention to everything, we can't either.

But just this past week, there was a -- there's a company called -- I won't tell you the company, but a data center contract was signed somewhere in Texas, and we are the company that does this kind of thing. And this company decided that it was going to hand over the -- let me back up a second.

It has the package. It has the package of land and water and access to natural gas, and it's all that stuff.

And it has all the permitting it needs from the state government. And it decided that it would hand over the -- substantially most of the capital expenditure and planning and building of a data center on some of its land to another company.

And all it would do is charge that company rent, kind of like a net lease, and that company will also be responsible for paying for water and natural gas, which would presumably charge to whatever AI company wants to use the data center is going to build. And it turns out that the -- just a simple base rental revenue would amount to something like about $2 billion a year if you were to scale it to just for ease of calculation, 1 gigawatt of power.

That's an extraordinary amount of revenue and I suppose we can also do different kinds of exercises and reduce that to how many acres was that going to take up. And so you can reduce the revenue to an acre basis.

You can do stuff like that. In the case of a company like TPL or land bridge, for instance, they would have a different kind of contractual and business arrangement because they can provide water for instance.

They can sell that separately. And for companies like them, like TPL, water would actually be -- believe it or not, if you haven't studied this, a larger source of revenue for them -- in not that distant future than oil and natural gas.

It's kind of remarkable. You can generate hundreds of millions, yes.

If you're going to have enough data centers in a given property, we can generate scores and scores and ultimately, hundreds of millions of dollars of revenues just from the water. What else can I say?

So, we take the other side of things, not just to do it reflectively but because we deliberately -- when we started, we told ourselves, we are going to follow our analysis, irrespective of whether it's what is expected of us or is generally expected or whether it's diversified the way that other people talk about diversification. We think we're pretty well diversified.

We just look at diversification in a functional sense, not in the semantic sense. So the thing that caught my eye just recently is that if you look at how the papers, magazines and what not provide the news, their reactions from our perspective are the wrong ones.

We could be wrong, but this is our reasoning. So there was a -- just this week, there's an article that Texas governor, Greg Abbott.

And this is how it's described in this article. He went from being one of the biggest boosters of data centers in the country to becoming only the second governor after New York, I think, to oppose a data center moratorium.

And he's directed the Public Utility Commission to weigh like hundreds of gigawatts of prospective power demand from the Texas grid, 90% of which is for data centers. And he's going to conduct asset regulation conductor conference of audit of all those proposed centers that want to connect to the grid because it's a problem.

And people are angry about noise mitigation and water needs and so forth. And Bloomberg estimated in this article that the Texas data center moratorium puts 20% of planned data centers in the U.S.

at risk of delay. And theoretically, it was out to basically suggest that maybe this whole thing is at risk.

And what they're looking at, you see is they mentioned companies that might be affected negatively, such as Cempra, a big utility company that has $8 billion worth of potential investment opportunities tied to a certain transmission project that might not be allowed. And they take a look at American Electric Power and one of its -- it's issue.

So they're looking at the world through the prism of indexed companies in the S&P 500. But you know what?

That has very little direct negative to do with companies that will set up their own electric power generating facilities behind the grid, so to speak, meaning having nothing to do with the electric grid in Texas. They don't need to be reviewed.

They're not going to be reviewed. And in an indirect way, that might simply push more hyperscalers to focus on building or renting their own off the grid and behind the grid facilities, which would be a benefit to the kind of companies we have.

So that's what we endeavor to do, not because we want to do things differently. But because by doing things that where other people are flowing, they're adding the iron law of supply and demand.

What most people are doing changes the price. And it probably can't be a great price that anybody else is doing.

And we think we find better ways to do it. Last couple of -- I don't want to bore everybody James Davolos this week was in Europe, being introduced to a bunch of people who were kind of sort of interested in the inflation of the fisheries ETF.

They don't really have something like what we have. And when he told me in like a brief 30-second catch up, was that nobody looked to scan it.

He had been there, I think, a year or 2 ago, and that wasn't so much interest. But he said pretty much every single meeting, people had a visible interest in what we are providing for it.

So Peter is right. We -- there's a lot we can do with a lot of strategies that aren't otherwise available that would include our -- we have 2 different Japan strategies, which are specifically -- specific functional access to the local market, company -- what companies doing locally, companies that are below the mega cap, the global multinational companies, which aren't really direct exposure to China.

It's only semantic exposure to China. We have a native strategy that has the same approach.

So we think we've got some better mousetraps. And with proper marketing, looking at different channels and taking more renewed approach towards it.

I think we can do a lot. So I'll stop there.

I can go on. so that's it.

Okay. Well, thank you for that, Steven.

Thank you, Peter. We're going to turn back now to talking a little bit about our second quarter just so you can get a perspective on kind of where we've come as a company.

And I can say again that the company continues to perform favorably for our hkhc shareholders and our clients. For the second quarter of 2026, the company recorded GAAP management and advisory revenues of $18.8 million, essentially unchanged or flat as compared to 2025 second quarter.

Our operating income was $3 million, which was down 19% from the prior year. These results included a 30% revenue increase from our group of ETFs led by inflation beneficiaries ETF or INFL and an 8.6% revenue increase from our separately managed accounts.

Unfortunately, these results were offset by a 17% decrease in revenues from our mutual funds. Company's operating expenses were $16.1 million for the second quarter, a 5.5% increase.

This increase included the impact of severance and other general compensation increases in 2026 as well as higher rent and occupancy costs as we move two locations during the second quarter. These moves have been planned for a long period of time, that includes certain overlapping expenses that you would have associated with any move of location.

We've moved from one New York office to another. So I think you're just going to get a little bit of an overlap there.

We still expect to see a bit more of that impact in the third quarter, at that time, we'll have a full quarter's worth of rent at both of these new locations. The company's investment results and our consolidated investment products or SIPS, as you'll see termed in our 10-Q, resulted in losses in the other income expense section.

The company reported a quarterly net loss of approximately $113 million. However, $95 million of that related to the redeemable noncontrolling interest held at those SIPs, which resulted in a net loss attributable to the hkhc shareholder of $18.4 million or a loss of $0.99 per share.

The company's AUM was $10.8 billion as of June 30, which is up from $9.6 billion at December 31, 2025, but down from the first quarter's $11.4 billion. These swings in AUM were driven significantly by the changes in the fair value of Texas Pacific Land TPL, which was down 7.8% for the quarter and our holdings related to various bitcoin-related securities, principally Grayscale Bitcoin Trust, which was down 13.7% in the quarter.

Both TPL and our bitcoin-related holdings are significant positions held throughout a variety of the SIPs and SMAs at the company. And I'll note also that TPL remained up 52% for the year-to-date period.

So while these changes impacted our AUM for the quarter, periodic changes in the fair value of TPL are not necessarily unusual. That was a deeper dive topic Steven addressed recently in our second quarter commentary for clients, always a recommended listen for those interested in our investing approach for our clients in the firm.

I would also like to take a minute to remind you of our year-to-date results which included GAAP management and advisory fees of $37 million, down 1.8%. And importantly, the first quarter's performance incentive fees of $18.1 million.

As we discussed in our first quarter -- in our primary GAAP presentation, these incentive fees, which are paid from our consolidated investment products are part of the determination of the allocation of net income attributable to redeemable noncontrolling interest, realize that's a bit of a mouthful. So we try to simplify that presentation for you with a supplemental adviser-only presentation in the press release, which presents these fees as part of management and advisory fee revenue.

And in that presentation, management advisory fee revenues for the 6 months ended June 30 were $59.0 million as compared to $41.7 million in the prior year. These first quarter incentive fees were the result of certain trading restrictions expiring that were associated with our clients' investments in Miami International Holdings or MIAX.

We also incurred various incremental commissions during the first quarter, bonuses and other costs of $6.1 million associated with that incentive fee. And again, as we discussed that in the first quarter call.

However, the overall resolution of those incentive fees is obviously a significant net positive for our year-to-date results. And I'll also note for you as of June 30, we have calculated and disclosed in our MD&A approximately $8.3 million of unearned incentive fees related to a variety of our private funds.

However, this value is subject to change and may be based on market prices and also includes amounts associated with investments that may have additional liquidity extractions similar to what we've experienced with MIAX. So as a result, our consistent operating income from the core asset management business and the investment gains in the first quarter, our GAAP net income for the 6-month period ended June 30, 2026 was $54.2 million or $2.91 per share.

From a balance sheet perspective, the company continues to maintain substantial liquidity. There is cash of $34.3 million.

The company also has an investment portfolio of $105 million, digital assets of $8.3 million and approximately $263 million of interest in various private funds, some of which are consolidated and various other private investments. Recently, the Board of Directors declared a $0.13 per share dividend to be paid on September 10, 2026, to shareholders of record as of August 26, 2026.

This will bring our trailing 12-month dividend declarations to $0.484 per share. Also the company continues to have no third-party debt -- our long-term liabilities are limited to the various long-term office spaces.

You may have noticed an increase in our overall operating lease liability of nearly $18 million from year-end as we commenced the use of the two locations I mentioned earlier, where we had recently signed long-term leases. While this is a substantial increase in our balance sheet liability and the related right-of-use assets, these represent typical office leases that are under long-term arrangements.

This year, we will include some duplicative costs, as I mentioned, related to the office moves. But overall, operating expense of the new facility within New York is not substantially different from our prior long-term lease that will terminate in early next year.

And I should once again emphasize that our GAAP net income or loss will often be impacted by swings in unrealized gains and losses associated with certain investments, including digital assets. And then we would expect from time to time that our results to be impacted by incentive fees like we have recently seen during the first quarter of this year or the fourth quarter of 2024.

While we can't expect that kind of results that occurred at the end of '24 every year, we will expect to see some volatility from quarter-to-quarter and year-to-year due to the incentives and/or other unrealized gains or losses in our overall results.

So with that, I'm going to -- we're going to turn it back, and we're going to go to some Q&A with Peter and Steve to discuss some questions that have been provided. And I'd like to take a minute to also repeat that if you would like to ask a question, you should be logged into the GoToMeeting platform.

Those on the telephone connection will be in listen-only mode. So again, if you were on the GoToMeeting platform, you can submit the questions via the chat function and just direct that question to the presenters where I will summarize and relay as best I can.

Mark, can I ask a question first?

Of course, yes.

I do not mean to put you on the spot. And I'm okay.

And he say, "You know what, I don't actually have it prepared this way. but I'll get back to you."

But listen, there's a lot of data that you just gave. And I'm sure I've seen it somewhere.

Even as I look for like the cash flow statement or the income statement, as you mentioned, we do -- so we earned $54 million, even net of the eliminations in the consolidated investment products, which are really ours. But I see within there, there are still big movements for the changes in security valuations, the way GAAP accounting works.

Is there a schedule or do you know a number? And if not, well, maybe we'll produce one if in-house counsel allows.

Do we have a schedule that would show like a simplified kind of cash flow statement of what we actually earned, forget bitcoin going up and down or TPL going up and down and whatnot. But just like just want to ask a simple question, what was our kind of our cash earnings?

Or was -- did we have actual earnings?

Yes. The way I would think about that -- and I don't -- I will tell you, I don't have a simple schedule to put to you right at the moment because this is a relatively complex set of financial statements.

The way I look at it is our -- is to look actually on the income statement, there's a line item called operating income. And I'll even go one step further.

If you look at the press release, the press release, we'll have two presentations. It has our GAAP presentation, which is the same as what you've seen in the 10-K and then it has a supplementary schedule that recast it effectively for various eliminations of things that are -- that we removed because of the consolidation process.

So it makes it more -- the supplemental presentation makes it easier to see revenues that we would retain from our consolidated investment products. So anyway, the operating income line item there pretty much is the cash that's generated from the operations of the company.

It's not purely a cash flow statement. There are still accrual differences and timing differences within the revenues and expenses.

But I think for me, that's a good starting point for the cash generated by the asset management business. And then the caveat that I would have to that is there are the other things related to the company that you would think about would be fixed asset acquisitions, purchases, which with the exception of this year relative to office space build-out is typically pretty minimal.

And then, of course, we pay a dividend out of that operating income activity. Outside of that, the operating income line is really the driver of the cash flows of the asset management operating company business.

Does that help a bit?

Yes. It will be nice to be able to provide -- we have to work on it.

There's a lot of complexity and there's trade-offs for everything. Every time we want to do one thing with good intention and has to trade off something else.

What you reflect what you're not. But maybe nice one day to come up with some consistent enough framework for an ordinary unsophisticated person would consider earnings, with all the necessary explanations in citations below as to what's excluded and what not, what's not and why.

But that will be -- maybe it's a future project.

Okay. So -- and again, I'll remind our listeners, if you have a question to post it on the GoToMeeting platform.

We do have a couple and I'm going to paraphrase them because they both are very similar and are associated with the concept of growth. The first questioner kind of has gone through the math and has seen it's relatively obvious that we've had inflows and outflows related to our mutual funds and SMA channels.

throughout the year and, of course, since Murray's passing. And I'll tell the questioner, for starters, they have not changed substantially over that time period.

But we have seen redemptions in our mutual funds as well as some of the SMA accounts, but a relatively small amount in the SMA accounts, I would say. And so the changes that you see in the AUM are principally around the market price changes of the assets that are within the portfolio.

So that is the background. The person's actual question is, what are we doing?

Or can we talk about how we -- when I think about the distribution methods for the various fund products, particularly the Japan fund or the BCD F fund, which Murray had previously noted being ones with marketed as a word of mouth, but things that he was very excited about. And then I'll tack on -- the second question was simply, you mentioned an increased marketing effort.

What can you say further about that those marketing efforts on exactly what's coming down the pipe there?

Sure. I'll take that, Mark.

So for the mutual funds, there was actually a very large redemption that accounts for the majority of that, and that actually took place and it was initiated when Murray was still alive. It didn't actually hit until the second quarter.

So it's something that we dealt with, and we paid it out. I think in hindsight, I would have liked to have paid that out in kind, i.e., transfer out the securities.

In the future, if we ever have something like that again, that's the likely path that we will follow. But mutual funds, as anyone knows, are not necessarily a growing business.

And we've been able to grow the assets only because of the performance, but it's very challenging for a couple of reasons. One, most individuals and most institutions are gravitating towards ETFs.

And then the second thing is a lot of our mutual funds have fairly high concentration. And most institutional buyers will not do that unless they know it's really very intimately, and they're very comfortable with what we're doing.

So we tend to -- in the mutual fund business, even though it looks like we had a big loss of assets there, it really was just principally 1 account. And people that own the funds are relatively pleased because the performance of the lifetime, the flagship paradigm fund, the small cap fund have been just absolutely fantastic.

And that gets back to the things that Steve and I spoke about earlier, the way we approach the world, the way Murray helped shape that where we're finding companies that are off the beaten path and then we tend to leave them alone. Our turnover is like a fraction of what it is for the industry.

Then in the -- with regard to marketing, ETFs are really kind of a very different business, and we had some success initially with the inflation beneficiary because inflation at the exact moment we brought it out was the topic of the day, and you could not open up a periodical magazine or listen to the news without hearing about inflation. And we got a fair amount of inflow from that at the start.

But the focus that we're going to be shifting to is going to be much more driven towards targeted marketing, where we're getting assisted by databases, and we're going to go out there holders of other ETFs that have products similar to ours, and we just think ours are better. So we think we'll be able to migrate at least future business away from the existing ETFs that we compete with to ours because I think they'll be -- we'll just look at the results and see that ours might actually have a better performance or likely does have better performance.

And some of it might be in the future, although we haven't started this, ETFs tend to be more of a kind of a retail product. And we've never done any type of mass marketing or anything like that.

And we don't have that on the table at the moment, but it's something that we're contemplating. So we're going to know in short order, probably by mid-October, November, how successful we are making inroads with this new marketing effort.

But it's -- we're not standing still. If this doesn't work, we'll try something else because I think we're known as an investment shop and we don't really have the distribution that we probably should because we should, as a firm, be a much larger organization based on our performance, and that's our goal and intention.

I don't know if you have anything to add to that, Steve.

Yes. No, I'm not a marketer.

I certainly talked too much and too inefficiently. But for me, I like the idea that Peter was talking about.

There are people around institutions that have a lot of assets in think of as inflation beneficiary ETFs. And this goes to the heart of what we do get is differentiated because what will those be?

The whole mining companies and hard asset intensive cyclical companies that are supposed to benefit during periods of high prices and inflation and energy companies directly buy some ExxonMobil or whatnot. And we've made a study of this.

We actually have some published academic work on it. And the truth is that holding gold or holding gold miners or holding other such conventional securities or assets or companies, they're really not good long-term inflation beneficiaries.

They might have a pop for a little while, but if you're going to have a period of endemic inflation, it's not going to do well for you. And whereas ours, our asset-light approach is an elegant aspects of that, it does better.

And it seems to me, if I were to sit now with individual who will ask me what we can do for them or what not, I would say, look I'll explain to you what we've got and how it's different. And I dare say, we can do it for you or you can do it yourself.

Take a look at our historical statistical returns. And try a little mix, put hours in as 5% or 10% of your fund and run the numbers.

And I think you'll see that you do better and with less volatility. I'm speaking their language.

And yes, it might be worth it to peel a little bit off of what you're doing and put it with us and see how you do. And those are the people who already oriented that line.

I dare say, if you went to someone who's mostly in the S&P 500, the Russell 1000 are the typical indices and said, "You know what, you have all this money. Why don't you peel off 1% and try this.

I think you'll find that it improves your statistics." I would think it should be an easy sale, but then as Peter is averting to part of our marketing effort is setting up the process by which you can identify and talk to these people.

I think once we're doing that, time will tell, I think we'll probably be successful.

Okay. We have an another question come in, and it deals with new investments.

So from time to time, and we've had a few this year. New investment may would come along, sometimes private, sometimes public.

And the question is about how would you decide where to put said investment between the various funds we have, including RENN fund, FRMO or private funds and so forth?

Yes. So I would say that, that's really a case-by-case basis.

In the case of, let's say, a fund where there's a new capital raise, sometimes, we don't have the ability to offer that to the broad client pie or the individual client base because there's not enough time. So it might go in some of our pooled vehicles.

If we do have enough time and we think it's a good investment as we've done in the past, we'll place it in virtually every account that we actually have and make it available to all the individuals and let them decide whether or not they want to participate in that. So it really is a case-by-case basis.

And certain things are just not appropriate. The strategy may not be appropriate for the particular investment.

And obviously, I'm not going to go in that particular portfolio. But if it's a broad-based well research, something that we think has great opportunity, we try to do it far and wide within all our portfolios.

Steve, anything to add to that?

No. It's -- we like to evaluate things as they happen.

We see that you start on a rigid -- policies are important. But if you have a rigid policy, it's not always not only the best thing to follow originally.

Sometimes -- we've had -- in the recent past, we've had some very interesting opportunities presented to us, and we would have used it more broadly with individual client accounts, but the window was just too short to go through and we tried to evaluate it to go through all the back-and-forth paperwork with clients to get signatures and document signed and information taken down in order to make it work. Next time, if it's a similar opportunity, maybe we'll have the time.

But yes, if we find something that we think is appropriate or works for clients, we don't make judgments based on any considerations other than -- does this work in this client portfolio? And is there enough cash?

Is it appropriate to the client? Does it fit within the portfolio?

Do we have to sell anything to have to take gains too much in the way of capital gains in order to make room? Maybe it doesn't make sense on an after-tax basis.

So that's how we go about it.

Okay. Well, that concludes the questions that have been provided.

So thank you, everyone, for joining us. Peter, Steven, any last thoughts?

So I guess I'll just repeat what I said earlier. We have a collection of really talented employees, and I'm really thankful, and I won't go into all the names, but people have stepped up.

And again, I shared with my wife. I'm like we have a really solid organization, and I expect good things to happen.

I think our investments are really poised to do well. We can't guarantee that obviously.

But we -- as Steven pointed out, we have no shortage in new idea generation. We're being presented with new ideas frequently because people have heard about us, and expect to hear from us in the future about opportunities that we're likely to come to you and see if you want to participate.

That's all I have, Mark.

Okay. Thank you very much.

That concludes our call for today.

Okay. Thank you all very much.

Thank you.