Scott's Liquid Gold-Inc.

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 to have you join us for our call that will cover our results for the third quarter of 2025.

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 in the future. Management cannot provide any assurances that future results will be 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 security -- particularly security or investment fund.

The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable or that future investment decisions will be profitable or 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 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, and will also be available to answer questions -- applicable questions, and we'll moderate the questions.

[Operator Instructions] With that, I'll turn it over to Murray to start us off.

Okay. Thank you, Mark, and thank you all for joining us.

So I will lay out the format for today. So when there's a minute or 2, I'm going to turn it over to Mark Herndon.

He's going to review the financials, then I'll take it back. And I might go into a little detail of a financial high point that I think is merits note.

And then I will talk about strategy and how we're going forward and some interesting things that we are in the process of doing and some other things that we hope to be doing. So with that, Mark, you can describe the financial results, and you can relay it to me after that.

Great. And as a reminder for everyone, our Form 10-Q update continues to be our required GAAP presentation that includes certain proprietary funds as consolidated entities, and our press release continues to present both that GAAP presentation as well as a supplement that provides our financial statements, excluding those funds.

We call that the adviser-only presentation. Consistent with what we have previously reported, this is a presentational matter that does not impact the company's earnings available to HKHC shareholders or the shareholders' equity of HKHC.

The consolidated results present higher total assets as we include the investment assets of those funds that we have consolidated on our balance sheet as well as a line item called redeemable noncontrolling interests. 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.

Another notable difference is the treatment of management fees charged to those consolidated investment products. Under GAAP, those revenues are eliminated for consolidation since the fund is presented within the financial statements.

It is akin to an intercompany transaction. However, the economic benefit resulting to HKHC shareholders remains and that economic benefit is reflected through a smaller allocation of the investment returns of the consolidated investment products to the redeemable noncontrolling interests than what they would otherwise have received.

You can also see the impact of those items in the table within the MD&A of our 10-Q filing. Our results this quarter continue to be favorable for HKHC shareholders.

The company recorded revenues of $17.9 million for the quarter, a $4.8 million or 37% increase from the third quarter of 2024. The year-to-date period was similarly higher with a $55.8 million of revenues thus far in 2025, which was 49% higher than 2024's year-to-date period.

These increases are primarily the result of the overall increase in AUM across the portfolio of investment products and client accounts compared to 2024. At the adviser-only level, as presented in the supplemental table within the press release, operating income was $5.5 million for the third quarter, up from $1.5 million in the prior year and the year-to-date period was $16.1 million as compared to $5.4 million in the prior year.

These results were driven primarily by the revenue growth we just mentioned. Overall, the company's net income was $0.39 per share for the quarter and $1.05 per share for the year-to-date period.

And please note that our net income or loss is often impacted by swings in unrealized gains or losses associated with certain investments, including digital assets. This quarter, that included an aggregate of $10.1 million of unrealized losses related to our investment securities and equity holdings in our proprietary funds.

Those unrealized losses compared to the third quarter of 2024, which had unrealized gains aggregating about $31.6 million. This is an illustration of what we have previously noted for you that may result in seeing volatility from quarter-to-quarter as a result of unrealized gains or losses in various holdings, including those digital assets, which is primarily Bitcoin.

I should also note that the third quarter of 2024 last year also included the cumulative tax adjustment for converting from a pass-through entity to a C-Corp, which resulted in an approximately $60 million deferred tax liability and expense upon the adoption of that status. That deferred tax value on the balance sheet changes quarterly based on movements in the underlying cumulative tax differences, including investment holdings or applicable tax rates.

From a cash perspective, the company has paid approximately $4 million in income taxes in 2025 year-to-date. From a balance sheet perspective, the company continues to have substantial cash and investments, including amounts outside of the consolidated investment products, and we have no third-party debt.

Our long-term liabilities are limited to various long-term office space leases. The company's Board recently declared a $0.106 per share dividend, which reflects a 49% increase from the prior quarter's dividend.

This dividend will be paid on December 17 for shareholders of record as of November 25. That concludes the prepared remarks.

I'll turn it back over to you, Murray, to say a few words before we get into Q&A.

Okay. Thanks, Mark.

And so -- you've heard that we are required to present our financials on a consolidated basis. I personally think it's important to look at the unconsolidated results, and those can be found in the 10-K -- I mean, the 10-Q, I beg your pardon, and starting on Pages 17, 18 and so forth.

So let me just point out a few things there, and then we'll talk about some operating matters. So you will observe that on September 30, we had on our balance sheet this consolidated company.

This is the company equity, not the consolidated equity. We had $37 million in cash.

At the same period of time a year ago, December 31, we had $14 million in cash and caused us a little problem, you might recall, because we had these performance fees. That's very nice to have performance fees.

The problem -- the only problem with performance fees, of course, is that the United States Treasury would like to get its money on an estimated accrued basis, but we don't have access to that money until we've actually finalized the numbers. So it was a little bit of an issue, not a big issue, but a little bit of an issue to actually raise the cash needed to pay the taxes to that would be applicable for our performance fees, which we're delighted in getting.

Now that impacted last year's dividend policy because we didn't want to be caught in that circumstance again. Now in principle, we had no possibility whatsoever in lacking liquidity because we have a large and liquid securities portfolio, we could have sold securities.

The problem with selling the securities is, they are at gains. And anything we sell at a gain would require even more taxes, which we'd very much like to minimize.

So I say these things for two reasons. One, of course, is to call your attention to the cash balance and the effect on last year's dividend policy.

You'll note that the dividend we just announced is higher than what we paid last year, even though we haven't accrued a performance fee yet, although we might in the future. And the second thing is just to make you comfortable with looking at the financial statements the way we look at the financial statements, which is to focus on the operating company.

And the operating company for the year-to-date period, and it's the year-to-date period that I would argue is more important than the quarterly period. This is more important than the quarterly period is because with possibly performance fees and with fluctuations in markets, there are only so many conclusions one can draw from the individual quarterly results.

So I personally like to focus upon the year-to-date results. In this particular case, the operating income line, which you will find on Page 18, the operating income line is $16.1 million approximately.

So that's when my attention is drawn to the financial statement, that's the first number I look at. You'll see below the operating line, there are all sorts of things, entries and sometimes they're positive and sometimes they're negative, has an accounting impact in as much as we don't really bear the full brunt of negativity because we unaccrue certain tax liabilities.

So just like we share our profits with the United States Treasury, we will also share our mark-to-market losses with the United States Treasury as well. So it's never as grievous as the below-the-line numbers appear to suggest.

And I think the numbers should be understood in that context accordingly. Now a lot of interesting things have happened year-to-date.

I'll call your attention to only several. One is, we launched a Japan owner-operated ETF in the month of May.

And that ETF has now achieved $25 million in assets under management. Now obviously, $25 million in assets under management is not going to radically change our profitability.

We also, some years back, you might recall, we launched another ETF called the Blockchain Development ETF. That ETF has more or less about $20 million in ETFs, even the aggregation of those are not going to radically change our profitability.

However, you will observe that our largest expense, again, from the income statement is -- our largest single expense is sales and distribution and marketing. Employee compensation is even a bigger expense, but a lot of employee compensation is marketing related because the biggest unit we have is marketing.

And that brings up the biggest problem in asset management companies, which is raising assets. And dilemma that every asset manager wrestles with is, how much time will be devoted to raising assets under management?

Because that is the amount of time you're going to abstract from investing portfolios and doing the research. What we'd like to do is, we'd like to minimize the amount of time we spend marketing, so we can maximize the amount of time we spend doing research and investing so that we can have as good results as we possibly can.

So the object of the exercise in Japan ETF and the Blockchain ETF was to see if we could raise money reputationally. In other words, the products get a reputation, the products were not marketed in a traditional sense.

They spread with word of mouth. And we're looking to see what we did right in attracting the assets.

Now obviously, if they had a lot more assets or alternatively, if new assets come in, and they're coming in through that modality, it's an incredibly high-margin business. So it's a success as it were, and we hope to make it a bigger success.

If that success does materialize, the conclusion one would draw is, our margins would expand -- hopefully expand considerably. Now it turns out that in the first quarter of 2026, just around the corner, we're going to launch another ETF.

And we haven't really officially publicly announced what it's going to be, but personally, I'm pretty excited about it and with the same approach, word-of-mouth approach. We'll see how far we can come with all that.

And in addition to margins, the biggest challenge you really have in asset management is the challenge of indexation. Active management in and of itself doesn't really have the scalability of indexation.

Indexation, obviously, since the S&P 500 has hundreds of trillions -- has trillions upon trillions of dollars of market value, the hundreds of trillions. I think the market capitalization of S&P 500 is $64 trillion or thereabouts.

So obviously, it's a big number. So to go from $1 billion of assets to $5 billion of assets, it's not a problem.

That's scalable. In the world of active management, you're only going to find so many good unrecognized ideas, and you have to realize there's a limit to how much money you can invest in.

Therefore, it's not scalable. Therefore, you have to continually devise new products.

So that's one of the challenges. We'd like to spend our time finding new investments rather than scaling our existing investments.

And towards that end, we've come to the conclusion that we'd like to separate as much as possible, raising capital from managing capital. That brings me to another thing I think you'll find intriguing.

You will observe that we brought a company public called Consensus Mining, trades under the symbol CMSG over the counter. It has a market capitalization of more or less $80 million.

Horizon is the manager of the cryptocurrency in their portfolio. What do we mean by management?

Well, Horizon manages the mining of cryptocurrencies. In Consensus Mining, we do something called scripts mining, which is basically to mine two cryptocurrencies simultaneously with one electric current.

This is not the place or time to go into the detail unless somebody asks a question, then we will go into detail, but we do that. And as far as I can tell, it's actually pretty successful.

So the amount of crypto is growing, but it's growing organically. It's not growing from marketing.

If the company were to require capital and maybe one day that time will come, that will be the prerogative of that company. So Horizon is the manager and Horizon gets a fee.

At the moment, that fee is de minimis. Why is it de minimis?

Because we're looking to incubate Consensus Mining. But in the fullness of time, contractually, that will pay a substantial fee.

It will be not substantial in relation to investment management fees as they are known to exist, but will be substantial relative to the de minimis quantities we get right now. We do the exact same thing with Winland Holdings which at the moment is 44% plus owned by our colleagues at FRMO Corporation.

So there are two businesses. In total, the assets are crypto assets plus the devices that we use to mine crypto assets.

And I believe, if I'm not mistaken, the aggregation of assets were over $50 million. If we were to charge a fulsome fee, that would be 1% and the number was $50 million of assets under management.

1% of $50 million is $500,000. So at that quantity, $500,000 would come right to the bottom line.

There'll be some taxes on. So you can see we're building the potential for operating leverage, and we're separating to the degree that we can, the raising of capital and the managing of capital, something that -- just that everybody in investment management business has reflected upon.

And to the best of my knowledge, and please correct me if I air in saying this, but I'm not familiar with anyone successfully addressing that question. So I think we're up to some really interesting things.

We will wait for the new year to see what our new ETF does. Of course, at that time, I will report back to you.

And we are mining new crypto coins every day, which, of course, adds to our assets under management in the crypto context. And I think we're up to some interesting things.

So rather than continue, I'll stop here, and I'll open up for questions if anyone has any questions. And as per tradition, we will stay around and answer every question until we resolve questions.

So if there are some questions, I'd be delighted to answer.

We have a handful of questions already. [Operator Instructions] Going back to a topic you mentioned a minute ago about the Japanese fund.

The question was simply, can you clarify the percentage of the AUM, which, as you mentioned, we publicly disclosed the assets under management for the fund. It's on our website.

It's about $25 million, which is obviously a small portion of the $10.4 billion of AUM. But I do want our listeners to understand that you can find that information on our website.

Is there anything else you want to talk about in terms of the opportunity of the Japanese market overall, just more broadly?

Well, I suppose I'd be remiss if I didn't do at least a little bit of marketing since I'm already on the call. And let me put it this way.

So virtually everybody in the world of investing is a devotee of diversification. So I will share a statistic with you.

If you bought a European index and just by coincidence, 13% of the European equity index is pharmaceuticals. And if you took the pharmaceutical companies and looked at their revenues and disaggregated them by geographic exposure, you will find that not quite, but almost 2/3 of the revenue comes from the United States.

Now obviously, the sum of the parts made is equal to whole. So if 2/3 or almost 2/3 of revenue comes from the United States, everything else is much less than United States.

Therefore, the United States and the European pharmaceutical companies are the biggest exposure. So I think it's legitimate to ask in a very real sense, yes, of course, they domicile in Europe.

Are they really European companies? You're really getting a different exposure, and that's Europe.

Let's turn our attention to Japan. So big companies in Japan, Toyota, Sony, SoftBank, Mitsubishi UFJ.

if you look at their financial statements, you will find the lion's share of their exposures geographically come from the United States. So how can it be that one buys an index in Japan with a view to diversifying away from American exposure and one buys a stock like Sony because it's part of the index, and Sony happens to have well over half of its revenue originating in the United States of America.

So I think we're entitled to asking, is it a Japanese company or is it an American company? So one of the virtues of Japan ETF, I don't want to make it too much of a selling point of the Japan ETF.

This is a Horizon Kinetics call, not a Japan ETF marketing call. But in any event, what's the point of investing abroad, for simplification, if your revenue is actually going to originate in the United States of America.

This is an ETF where the companies do the lion's share of virtually all of their business in Japan. So for better or worse, this is really a Japan ETF.

And in relation to Japan ETFs, they are largely comprised of the biggest companies in Japan, which are global multinational, it is distinctly different, and I think it is superior. They have other attributes that I think may make it further superior, but I'll leave it there, and you can get a sense of what we're trying to do.

We're trying to develop very, very unique products. And I think Japan owner-operators' ETF is one such product.

So I'll leave it there.

Okay. And then with respect to our own portfolio, we've had a couple of questions come in.

A perennial favorite to talk about the TPL stock. One of the questions is just simply, how much of our AUM does TPL make up?

And the other is a question about if as a firm that we have been selling TPL stock. And of course, I understand that with some regulated products from time to time, there may be sales around the mutual fund or individual clients might provide instructions, but I don't believe anything has changed on that front, but I wanted to see if you would expand on our views about TPL in general?

The only time we really sell it is where we're compelled to. So there may be cases like we have it in a certain portfolio and the regulations about what your exposure can be and you have no choice, you have to reduce it, not reducing it for any fundamental reasons.

If the exposure too high by regulation is appreciated, well, we'll have to reduce the exposure. And of course, we're mindful of regulations, but not selling it for any fundamental reasons.

As far as fundamentals go, in my opinion, of course, and feel free to disregard, I think the fundamentals are fabulous. I really do.

I think they're absolutely fabulous. So you can take that for what it's worth, but I couldn't be more excited about the future prospects.

So you might well, let me leave it there. But if you have more detailed questions to the degree, I can answer them, I'll be glad to answer.

Okay. The next question is also about our portfolio.

The commenter has noted the drop in LandBridge stock following a stock offering to their existing shareholders, and they were asking, is that an expression of doubt about data centers or the volume of data centers coming to that area or just what's the view there?

Well, let's see what I can say about that. Yes, I think I can say about that.

So first of all, you may be interested to observe. So on October 10, just for some reason, I have to -- I just remember that on October 10, LandBridge traded in round numbers at $49 a share.

It's not exactly $49 a share, so forgive me for generalizing, but roughly $49 a share. Some number of days ago, LandBridge traded at $85 a share.

Today, LandBridge trades at roughly $62 a share, okay? So clearly, in a little over a month, that's a pretty big movement, up and down, that's a pretty big range.

So right now, without being too precise about it, we're just in the middle of the range. Interesting enough, today, because it was -- the matter was brought to my attention, LandBridge traded as low as $58, as high as $62 and a fraction, even in 1 day.

That's a pretty big range. So it had something to do with the fundamentals.

What can possibly happen in a 24-hour time period regarding data centers for any company? And if it did happen, it would truly be momentous and it would be disclosed because it would have to be disclosed.

So basically, in my humble opinion, this is just my humble, I underscore the word humble opinion. I think it's a function in the modern age of how people do research.

So basically, a typical person does research, I'm not like this, but a lot of other people seem to be, they have a screen that they look at constantly, and they have the prices of securities and some are up and some are down and some are more or less unchanged. And LandBridge is supposed to be active in data centers.

They're waiting for an announcement and they haven't seen the announcement yet. So I can only imagine the reason thusly, perhaps there never will be data centers.

And if there never will be data centers, then why am I paying X for the shares? They must surely be worth much less.

And perhaps I should sell them. And on the other hand, there are days when people come to the exact opposite conclusion, as you can see from the ranges of the prices in a very brief period of time, I might add, I just quoted you.

So now let me impose upon you the following heuristic. Let's make-believe, just for the sake of argument, I don't believe this, but just for the sake of argument, there will never ever in the course of history, no matter how many millennia, how many eons the world will see until the sun is extinguished and life becomes impossible on planet, let's say there's never going to be a data center on LandBridge.

Never going to happen. So do you actually think that the company wouldn't prosper anyway?

All it would mean is data center is going to be somewhere else. I'm going to explain where it's going to be in a moment.

But you can't run a data center without power and you can't run power plants without water. And the only place you can build things of the appropriate magnitude are a place like West Texas.

And it's happening. So up in Lubbock, Fermi is building its data center and starting with, I think, 1.2 gigawatts.

And eventually, in Lubbock, they're going to have over 11 gigawatts. And then there is -- I think it's a 2.2-gigawatt plant in Sweetwater, Texas.

which is supposed to be energized in April, I believe. I could quote other numbers.

The plant, a data center is being built for Meta Platforms aka Facebook in Richland Parish, Louisiana. And that's going to start, I think, at 2.5 gigawatts -- either 2.2 gigawatts or 2.5 gigawatts and scaled up to 5 gigawatts.

The reason for mentioning those numbers is as follows. The most data center dense area of the United States of America is the Washington, D.C., Northern Virginia metro area.

If you looked up every data center in that area, every single one and added them up, it's 3.9 gigawatts. I know because I did it.

So you just can't build a 2- or 3-gigawatt data center in an area that you can't get the electric power. And you could get electric power, you couldn't get the water.

I'll explain why you need the water in a second. You don't need the water so much to cool the data center.

You need the water to generate power. So you need a site if you're going to build these magnificent structures, and the power plants go with them.

You have to have a site with a lot of water and not a lot of people. So over the course of civilization, as you probably know, the people wherever they are in the world, they had a tendency to move where there's a lot of water.

There aren't too many places in the world where you can get water and you don't have to deal with people. And one of the few areas is West Texas.

So now before I go more into water and why you need the water, I'm going to give you one other physical fact so you understand this question. Let's say, merely for the sake of argument, I decided to build a 2-gigawatt data center, okay?

It's -- I'm going to give you a hypothetical question and I'm going to answer it. So it's rhetorical.

So if I'm going to build a 2-gigawatt data center, how many gigawatts of power plant do I need to service it, okay? If I asked virtually any person they will say, well, if you have a 2-gigawatt data center, you obviously require a 2-gigawatt power plant.

And as reasonable as the answer appears to most people, that is wrong. Why is it wrong?

Well, for 2 primary reasons. First thing is that no power plant can possibly be up and running 24/7.

It has to go down sometimes either for scheduled maintenance or unscheduled maintenance. Someone goes down, you have to have backup power.

So since you have to power a data center, it can never be down, at a minimum, you need another 2 gigawatts. So therefore, a 2-gigawatt data center will require 4 gigawatts of power, okay?

Now -- so now -- okay. So I build a 4-gigawatt power plant, and it might go down on a moment's notice.

So I have to have both things running simultaneously. One is the power plant that's feeding the data center.

The other one is the so-called spinning reserve. There's other backup power needed.

Then you have to deal with another issue, which is called PUE, power usage effectiveness. What does that mean?

That means if I had a 2-gigawatt data center and I had 1 power plant, 2 gigawatts, I couldn't possibly energize that power plant. Let's forget about the issue of the redundancy for backup.

Why? Because the amount of power you're drawing, the wattage you're drawing is so enormous, even though the power is only moving a short distance that much of the power is being lost as heat.

So basically, the electrons in the wire are hitting each other and they're hitting the walls of the cable. And a lot of power is being dissipated because of that, and that's expressed as heat.

It's the same concept as when you charge your cell phone and you touch your phone, you touch the charging device, you'll see it's warm. So you're not using all the power that comes from the outlet.

So it's being lost. The same concept, except it's not a small device, it's 2 gigawatts.

So the general number you'd use is the coefficient of 1.58. That's your power usage effectiveness.

So what does that mean? If you had a 2-gigawatt data center, you have to draw 1.58x2 or 3.16 gigawatts.

You need 3.16 gigawatts to energize a 2-gigawatt data center. That's how much power you need.

So it's just enormous. Okay.

That answers the power question. Now the water.

Why in the world do you need water? People think, well, you need water to cool a data center, but they can get around that.

They have various ways of mitigating the amount of water you need, that's all true. I won't go into details because we're not in real agreement, but we're in general agreement.

You don't need a lot of water to cool a data center, even though you do need some. But the power plant.

So the power plant, whether your power source is coal, which you wouldn't use, or it's nuclear or it's natural gas, all those 3 things are thermal. What does that mean, thermal?

It means whatever your fuel source is, you're generating heat to boil water. So you generate heat to boil water.

What happens when you boil water? Well, it turns into steam?

What happens to the steam? It goes through the turbine and spins the turbine.

And that without explaining how the rotors and the stator actually generate power, let's just leave it at, power is generated. But in order to generate at a constant rate, the steam has to move through turbine at a constant rate.

So how do you ensure that it's at a constant rate? Well, you have to basically condense the steam on the other side of the turbine.

So if the temperature is lower on the other side of turbine, there's going to be a temperature differential known in physics as temperature gradient. And the steam is going to move from the hot area to the cold area at a constant rate, the same way water would flow through a pipe at a constant rate.

That's how it's done. So how in the world are you going to condense the steam?

There's only 2 ways to do it. Way number 1, what some people refer to as an open-loop system.

How does an open-loop system work? Well, it's open, meaning you expose the water to air, you expose the steam rather to air, the ambient temperature of the environment.

And because steam is a 212 degrees Fahrenheit, and you expose to the air, temperature and cool, it's going to condense the water. But 100% condense the water, some of it's going to evaporate.

That's why when you look at a power plant, you see this big smokestack and you see white smoke coming out of it, that's steam. You're losing some of the water.

So you need this water to be replaced. At what rate do you have to replace the water?

The number is so big that I won't even tell you what the number is. I'll give you a homework assignment.

Just go to the website of the American Electric Power Association and look it up. It's a big number.

Even though you're condensing 90% of the steam, maybe more than 90% of steam, it's still a big number. You got to have a lot of water.

That's the way the thing works. So what's the other way of doing it?

Well, the other way of doing it is a closed-loop system. So basically, the steam never leaves the pipe.

And the steam is routed back to the front of the turbine, okay? But it's lost some of its heat energy.

So it's got to be fired up again through the boiler. Well, want to lose some of this energy just because heat is dissipating through the pipe.

But you got to keep boiling the water. So you still have to condense the steam back into water.

Now it's not going to evaporate because it's in the pipe. So how are you going to get the steam in the pipe to be recondensed to water when it's not exposed to air?

Well, what do you do? You pour water on the pipe because the water is what's known in physics as a heat transfer fluid.

And the water on top of the pipe turns into steam and it evaporates, steaming a lot of water. So the operative thing is, no matter how you do it, so everyone is looking for announcement.

I put this 2-gigawatt data center on my property. But the operative thing is the water.

Believe me, there'll be announcements eventually. So -- but the operative thing is to allow for the water.

Now you can't draw the water out at a rate in excess of the natural refresh rate or you destroy the aquifer. So if your neighbor haven't been fortunate enough to have a data center on your neighbor's property, your neighbor is unlikely -- and by the way, it's not the data center, it's the power plant that counts, not the data center because it's the power plant that's using the water.

But whether it's on your property or not, it's on your neighbor's property, it's true your neighbor is getting the ground rent, but the real money is the water. And since your neighbor can't draw the water at natural -- at greater natural refresh rate because your neighbor doesn't want to destroy the aquifer.

Your neighbor is going to have to collaborate with you and take water for you anyway. So you're all going to share in it.

So I just told you this, if people realize that, the stock will probably not be fluctuating the way it does. But unfortunately, we don't live in that universe.

And well, the stock price is what the stock price is. So you see what their expectations are and you see the reality in my humble opinion, I underscore the word humble, of course, they ought not to be as excitable as they are at the moment is my, I suppose, my concluding remark on that subject.

But you can follow up and ask me more questions than that if I haven't been sufficiently concise and clear.

Okay. We're going to stay on the forward-looking investment horizon here a little bit.

The question is then, over the next 3 to 5 years, do you foresee the global AI build-out leading to net inflation due to CapEx spending or net deflation due to productivity gains? Do you have a view on that?

Neither. Neither.

I just wrote about this. I don't think it's out yet, but I'll give you my investment thesis.

The biggest exposure in the S&P 500, it's obviously technology stocks, whether it's Microsoft and Meta Platforms or Google aka Alphabet or whether it's NVIDIA or maybe Broadcom or maybe even AMD, you can add it up, you can see what it amounts to. It's the biggest exposure.

So if you simply take the earnings of the big data center companies, they just reported them 1.5 weeks ago, take the cash flow statements. And what you will see is you will see very large capital expenditures.

They're connected with data centers all right, but they're not building data centers. They're -- just like if you're a big company, you want to rent office space, you don't build a building.

But you're still responsible for buying your furniture, you're still responsible for buying your computers and communications devices and electronics and office furniture and so on and so forth, same with data center. So the big companies, basically, what they're buying is they're buying electronics.

They're buying the service. From whom are they buying the service?

Well, NVIDIA, AMD, Broadcom, et cetera, et cetera, okay? So if the data centers are going to continue to be populated, well, the capital expenditures are going to be high and your free cash flow is not going to be very high.

So because your free cash flow, your earnings might be higher than what they otherwise would have been, but your free cash flow is going to be lower. And that's going to affect the valuation in a negative way.

Even the earnings go up. So you might say, well, but the capital expenditures will go on only for a brief period of time, and then they'll cease because the data centers will be built.

And there, we have a problem. And that problem is only -- I've written about this.

This problem is only dawning on the market right now. That's why the market is so tenuous.

Two possibilities, either that assessment is correct or it's incorrect. Let's say, just for the sake of argument, the assessment is correct.

So Amazon, Microsoft, et al. will significantly reduce their capital expenditures, but they're buying the equipment that goes into the data centers.

So they're going to reduce their capital expenditures. It must logically follow that they're going to reduce their purchases from NVIDIA and Broadcom and AMD, et al.

and that segment of the market will follow that and will probably offset because the market capitalizations and the weighting of the S&P are just about as big as the companies who are buying that stuff. So if indeed, the capital expenditures are going to decline, making a problem for a subset of technology, which is big enough because the valuation is very high to create a real market problem.

Possibility number 2, the capital expenditures keep going up. Why would they keep going up endlessly?

Well, a simple reason because the NVIDIA asserts, and they assert with very good reason, that they are doing what Intel had done a quarter century ago, which is they are obsoleting their equipment every 24 months. So the current iteration, the Grace Blackwell 200 GPU, graphics processing unit, it will soon give way to the Rubin Vera (sic) [ Vera Rubin ] equipment.

So you have to get rid of your Grace Blackwell 200s, you have to buy new stuff, just like Intel was doing a long time ago. So if they intend to do this, which they obviously do intend because they do say that, well, then you always got to stay with the state-of-the-art.

And if you always have to stay with the state-of-the art, the state-of-the-art is going to be obsoleted every 24 months and your capital expenditures will never end. You'll never really have free cash flow, and that's horrible.

So you might say, well, but in that case, if that proposition is true, well, then I'll just go buy NVIDIA because NVIDIA has a real intriguing advantage relative to what Intel had because Intel, as you might recall, Intel had the problem of, yes, they obsoleted their microprocessor. Yes, the new generations of PCs, personal computers, will be required to include or embed the new Intel microprocessor, but they had to build a whole new wafer fabrication plant.

So what good was it? They had more earnings, but they had less free cash flow.

So to what end? But NVIDIA, you will undoubtedly argue, doesn't do that because NVIDIA doesn't make chips.

Yes, they make a few chips on an experimental basis, but don't mass produce chips. So they have some nimble wafer fabrication facilities, but the chips are made by Taiwan Semiconductor.

Only their wafer fabrication facilities will be obsolete. So therefore, NVIDIA is in an unbeatable position, but not really because you think Taiwan Semiconductor will live without a payback in its capital.

For the privilege of making the chips, they will charge accordingly. And that will create a problem for NVIDIA.

So you see no matter which way you go, there is a logical contradiction in the entire movement. And logical contradiction dates back, and this will explain our Horizon exposures.

The logical contradiction goes back 10, 12, 15 years because the premise was you can build a gigantic business like the technology business without using resources from other segments of portfolio. And for a while, they were actually doing it.

It's a very ahistorical view. So for example, historically, the automobile was invented, you could have been a big believer in the automobile more than 125 years ago, you never had to buy an automobile stock because you could have bought Exxon or some other oil company, and they needed gasoline.

So you might conclude, I'm going invest in automobiles by buying oil companies. And Exxon actually would have been a big choice, a good choice.

Then it was called Standard Oil of New Jersey, but nevertheless, you get the idea. And there are other things you could have done.

So you didn't necessarily need to buy the automobile companies, other segments of the economy prospered. So for example, if they had to build roads, there were gravel companies, cement companies, construction companies.

And some of those were actually very prosperous. You could have had a whole portfolio investing in the evolution of the automobile and never bought an actual automobile company.

But strangely, that didn't happen in technology. It didn't happen in technology because the iPhone invention, you could run the iPhone, the smartphone, all these brilliant, beautiful devices on the existing fiber optic cable or telephone systems.

So for 10 or 12 years, you can expand the business with minimal capital expenditure because you were building on an existing network. So Netflix, for example, Netflix, their nights and Netflix uses 25% of the Internet bandwidth in the United States of America.

But they don't have a lot of capital expenditures because the fiber optic cable is already in the ground. That's a very ahistorical unusual situation.

Now we're coming into the different world, the world of high-performance computer, note how I do not say artificial intelligence, but high-speed, high-performance computing because that's really what it is. We're going to need other things, and we're going to need water, and we're going to need natural gas.

And there's only a handful of ways to get them. And at Horizon, we got them, and we're staying with them.

So it's just a matter of time, the world is moving in the direction to make these -- all of them, extraordinarily lucrative investments. So you don't even have to do anything.

All you need to do is think it through. And perhaps, just perhaps, I may advance the proposition, maybe that's why LandBridge for whatever reason, was actually up today, not down.

Anyway, I'll leave it there, but I'm willing to elaborate if someone wants to propose a more involved question.

Okay. And I may have lost a question earlier.

There was -- and this is just a factual question of what percentage does TPL make up of our AUM. And I can just let our investors know.

We disclosed that last year in our 10-K that was roughly 41% as of December 31, 2024. That's one of our risk factors.

It's come down a bit since then, but I don't believe we've put out an updated number, but generally speaking, that's about where it is.

Right. So based on the risks, when we get new assets -- because let me just elaborate, if I may.

When you get new assets under management, we obviously can't buy and we wouldn't buy TPL at that allocation. So new assets diluted.

And for example, Japan ETFs, say what you will about it, positive or negative, doesn't have any TPL in it. And similarly speaking, the Blockchain Development Fund has no TPL in it.

So as we raise new assets, there are different investment products, they don't have any TPL. So we get diluted over time even without selling.

So now we have a series of questions now that are turning back to just the Horizon Kinetics Holding Company stock. And this one is very simple.

The -- what is your single highest priority for deploying free cash flow right now?

Single highest priority. Well, we are -- obviously, we have the 70% payout ratio.

So we're taking 70% of our net income and we're paying it out to shareholders. So I think it's fair to say our biggest priority is rewarding the shareholders.

Along that same line, there's a question about governance structures. What governance structures are in place to ensure minority shareholders can fully participate in the long-term compounding of HKHC's capital allocation strategy, which I suspect you're going to talk a little bit more about dividend there.

Well, dividend is one thing. And so obviously, everybody gets to participate.

And we're long-term investors. We encourage people to be a long-term investor.

We're open -- I think we're open. I'd like to believe we're open.

And we -- I don't have the answer to your question to hand. Usually, I do.

But if I don't, be delighted to get the information and engage with you and get you an answer. So we're pretty much an open book.

We have no plans to take the company private and maybe that's what you're thinking about, that we might take company private again. We're not planning on doing anything like that.

There are no plans to do that. You might observe in the last open period, I personally bought some stock.

Right now, I can't buy stock today, obviously, because I'm having this call, and we'll see what I do when next open period is. But I don't know what else to say.

It's available to anyone who is welcome long-term investors.

Yes. It's really the same structures as any other public company really, right?

Okay. So the next question, a little bit more specific back to our financial statements.

And again, this one is a little specific to our lease obligations. The question is around new or extended lease obligations.

Is that for -- that are listed in Note 10? Is that all for New York office space?

And if I may, just to put a couple of clarifications around that for our listeners. Our lease obligations are for office space broadly over multiple locations, not necessarily just in New York City.

What you see in Note 10, the contractual obligations table within Note 10 includes the runout of existing New York City offices through early 2027 as well as 2 other previously existing office space leases and 1 new 10-year lease in Connecticut for additional office space. While we've disclosed additional office space agreements, which are in both New Jersey and New York, those leases have not yet commenced, right?

We haven't taken occupancy for those locations yet. So those are omitted from what you see in that table in Note 10, but rather, the broad terms are disclosed in the narrative sentences below that note.

I will let you know also that, that lease obligation in New York City is for different space than what we are currently in. The new lease is for 15 years, which is why you predominantly see this gross number that you may see in the notes, total payments over that long-term time frame.

And I'll emphasize to you now that the cash payments that we will be making eventually are actually less than what we're currently paying in New York City. So that is a very long setup, but I'll just -- Murray, I'll turn to you to ask, would you like to comment on how we plan to use that New York City office space or in general?

Yes. So basically, we came to conclusion that if you've been to our offices, we're in 3 separate floors, and that creates one problem and then there's a second problem.

First problem is it's very inefficient. We have 3 lobbies.

We have 3 reception areas. You get -- you actually pay for the elevator entrance.

So there's a lot of wasted space. So it's very inefficient.

It'd be a lot more efficient if we could be on one floor. So part of the reason was to save money by going to one floor.

The other thing is the current lease, we're responsible for paying for all sorts of ancillary services that in another location, we wouldn't be responsible for paying, and that's the savings as well. So basically, in terms of the usable floor space, we would have a better arrangement.

In terms of the ambience, it's better. And in terms of the monthly obligation because you pay monthly, it worked out to be 35% cheaper.

So everybody can have a better experience and we save 35%, it seems like everybody should be happy. And speaking as a very large shareholder, it made me happy.

And so that's where we're going. We also have another issue that the new space is going to solve.

So you might be aware, I myself do a lot of meetings, we call roundtables and other things where I invite investors to come in. And the existing accommodations don't normally allow for the attendance that we would otherwise have.

So we have to limit it. And a lot of people like to come in and hear what we have to say, and it's kind of foolhardy to let them do it because it's also a source of new business among other things.

So we needed to find a space where we wouldn't be so limited. And we found such a space, and that's what's happened as far as that goes.

Have we left anything out more?

Yes, we have a couple more. We've had a couple of questions come in around the mechanics of our disposal of the consumer products division.

This person references specifically the Scott's Liquid Gold sale. And I did want to just spend a minute to set this up as well.

Many people get confused about the Scott's Liquid Gold corporate entity that we merged with in 2024, which is actually different than the namesake brand that was -- they had disposed of well prior to our transaction with them. The 2 brands that we had were called KIDS'N'PETS and MESSY PET.

And due to their relatively small size, the revenues associated with that, those brands were reported within our other revenue line in the past. And as a group, again, we called it the consumer products group as opposed to the individual brands.

But the question was about, were there multiple bidders? And can we share more details about the sale and where the $2.5 million fair value, where is it reported on the balance sheet.

If you'd like to comment on it broadly, I can also give a couple of specifics, if you'd like.

Yes. Well, so basically, we did get some cash, and then we're also getting a long-term royalty.

So we like royalties. Long-term royalty gives us some upside.

Obviously, we're never going to have the scale to be in consumer products. So basically disposing of the inventory, getting some cash and disposing the ongoing expenses or limiting the ongoing expenses, which we did and getting a long-term royalty now just cash flow over a very long period of time, and you can maybe elaborate on that, Mark.

Sure. I'd be happy to.

The one thing, just mechanically, the $2.5 million fair value that you referenced is in the other assets sort of down the balance sheet line item a bit. And I would say one of the things we talked about is just that there's some parameters around the royalty arrangement that this percentage, we have a little higher percentage in the early years, a little lower in the outer years and a minimum of $1.5 million and a maximum of $5.25 million over this long-term period.

But I think we came to the conclusion that the additional focus that this buyer can bring to it, that is going to bring more to us from those brands in terms of royalty income than we would have achieved by just continuing to own and operate it ourselves as a stand-alone operation. I think that's the last question specific to HKHC.

There has been just one more that came in while we were talking about that around -- sorry, looking through the question again. AI as currently defined -- I'm sorry, it says, Murray does not believe we have AI as currently defined by the industry.

Do you foresee any super intelligence being created in the near future? Are we on that trajectory?

Okay. I'm going to try and just explain.

Obviously, it's more than just Horizon Kinetics. So in the colloquial, artificial intelligence is taking the means the average person, machines that think like human beings.

And the problem is it's very difficult and many would argue it's impossible to get a machine to think like a human being. So why is that true?

Because a human being, even though human beings do many, many foolish things, human being has the ability, at least in principle, to recognize limitations of human thought, which is not to say to recognize the limitations of that individual's human thought, but the limitations of thought itself. So for example, without giving you a treatise on histo-analogy, there are certain inherent contradictions in thought.

So for example, there's what's called the Cretan liar paradox, also known as the Epimenides paradox. And it goes something like this.

Epimenides, a Cretan, says, all Cretans are liars. Well, he is a Cretan, and therefore, if that statement is true, he must be lying.

So therefore, all Cretans are really telling the truth. But everything he says is a lie.

So I'm hearing contradiction. How do you resolve it?

And the answer is, it's unresolvable. In mathematics, you find the same thing, you find something called G del's incompleteness theorem that was discovered that you can't complete -- there are certain mathematical propositions that you cannot completely prove.

So proof that there are certain things that can't be proven or you could have in mathematics also the Cantor infinity paradox. No matter how big a number you come up with, it's always going to be bigger because you can add 1 to it.

So if you're going to add 1 to it, why can't you add infinity to infinity? Why can't you make infinity squared or infinity cubed or infinity to hundredth power and so on and so forth.

So you never get to the end of it and how do you ultimately talk about a finite universe if numbers are infinite? And it goes on and on like that.

Well, when you get into really complicated questions, you have to deal with that. But you also have to deal with it, and I gave an example of this at a recent roundtable, so I'll recapitulate it for your amusement.

Let's take a more invisible, abstruse, very refined questions and maybe we shouldn't even be talking about them. Let's do a simple exercise of what some people call artificial intelligence, and I will describe the exercise, and I'll tell you where we got it from.

It's a ChatGPT exercise. The exercise is as follows.

You're asking a computer to make a list of all the books written by Winston S. Churchill, okay?

So we're not talking about the Cantor infinity paradox or G del's incompleteness theorem or the Cretan liar paradox. There's a certain number of books that Winston Churchill wrote and you got to look it up.

The problem came up because at the Roosevelt -- President Franklin Roosevelt's home at Hyde Park that I visited not long ago. They redid it.

And in the study, because President Roosevelt was friends with Winston Churchill, they decided to put in the study all the books of Winston S. Churchill.

That's a cool exhibit. Trouble is that there were books in there that said they were written by Winston Churchill, they were not written by Winston Churchill.

And if you keyed in ChatGPT, give me a list of the works of Winston Churchill, until recently, they may have corrected it, but until -- because it was pointed out to them. But until recently, they gave you works that were not written by Winston Churchill that they said were written by Winston Churchill.

How could they make such a mistake, not talking about complicated things because Winston Churchill was live and Winston Churchill was writing books. It just so happens, there were 2 Winston S.

Churchills writing books. One was the Winston Churchill, the orator, the statesman that you know.

The other was the American novelist known as Winston S. Churchill, lived in the city of Boston.

And in his era, he was a best-selling novelist. Now how is ChatGPT to know there are 2 Winston Churchills, not one.

Interestingly enough, Winston Churchill during his life corresponded with a novelist and he wrote, I'm going to paraphrase a letter that he wrote. And the letter was written before Winston Churchill became Prime Minister.

So he said, I intend one day to be the Prime Minister of the United Kingdom. It wouldn't be great if you ran for President and you won, and we could meet as Winston S.

Churchill each, you as the President of United States of America and I as the President of the United Kingdom. That will be pretty intriguing.

Alas, that's not the way history was written, but ChatGPT doesn't know that. So you see the problem is, every nuance of every bit of data has to be pointed out to a computer.

And all that data has to be catalogued properly and all that data has to be manipulated and somebody is producing a query. That's why the typical ChatGPT query takes 10x the amount of electric power than a simple Google query.

So you will say to me, as a rejoinder as most people inevitably do, well, one day, they'll figure out a way to use less power for more elaborate queries. And you will not be right if you say that.

Why? Because if you look inside a computer, a computer is basically just a big electromagnet.

The data, it's expressed in binary forms. It switches on and off, zeros and ones.

In other words, the data is simply electrons. So you can't process more data by using less electrons because data are electrons.

You got to use more electrons. So the question is for society, if you want to have those privileges, which I personally don't need them, but I'm a minority of one.

Everybody else seems to want them. Well, if you want them, if you want autonomous driving and you want to watch movies at 3:00 a.m.

and you want to write book reports on Shakespeare without having read Hamlet, well, that's fine, but you better be prepared to use a lot of electric power. And this world is running out of it.

So as I said, I'm minority of one. I don't need the stuff personally, but everybody else seems to want it.

So since my vote doesn't count for anything, it is what it is. It's going to be the way it's going to be, and you know the outcome is.

So sometime in the not-too-distant future, the best guess is sometime in the year 2028, we're running out of electric power. And there's nothing anybody can do to stop it.

That's where we are. Now if it went the other way, let's just say, just for the sake of argument, mind you, went the other way, went the Murray Stahl way.

So it went the Murray Stahl way instead of reading a book on a device, you might just buy the book and just put it on a bookshelf and that doesn't use any electric power. Problem with that, to show you that everything has its problems, believe or not, there are 5 million books published in the world every year.

How would you ever build a library to contain them all? Even if you could, how would anybody be able to use, there's just too many books.

So you can't flip through them. You can flip through some, but basically, you have to have some sort of electronic means of surveying them and extracting data from them that's useful.

And therefore, there's no alternative but to go to high-performance computing, which everyone calls artificial intelligence. That's not artificial intelligence.

It's merely data sorting. So I hope -- sorry for the elaborate answer, but it required it, and I hope you found it helpful with respect to your question.

Okay. That's great.

I do not have any further questions coming from the web or sent in advance.

Okay. Excellent.

So I take it that, that is, as they say in a movie business, a wrap. Is it a wrap?

I think it's a wrap.

I think it's a wrap.

Okay. Good.

So in that case, I'm going to thank everybody for listening. I thank you all for your support.

And of course, you know what happens that we hang up this phone and someone is going to think about something they want to ask, they forgot to ask, please do not hesitate to contact us if such an event occurs and you have a question, we will get you an answer. And of course, we'll reprise this in about 90 days.

So until that time, thank you so much for attending. We look forward to seeing you at the next Horizon Kinetics' shareholder update.

Thanks so much. Bye-bye.

Thank you.