Horizon Kinetics Holding Corp: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis should be read in conjunction with the historical consolidated financial statements of HKHC and the related notes included elsewhere in this current report. The historical consolidated financial data discussed below reflect its historical results of operations and financial position. The following discussion and analysis contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the section entitled “Risk Factors” contained elsewhere in this current report describing key risks associated with the business, operations and industry of HKHC. Amounts and percentages presented throughout this section may reflect rounding adjustments and consequently totals may not appear to sum. The items discussed below have had significant effects on many items within HKHC’s consolidated financial statements and affect the comparison of the current period’s activity with those of prior periods.

Overview

HKHC is a research driven, fundamentals-oriented asset manager serving institutions, individuals and financial professionals. It provides investment management services through its wholly-owned subsidiary and registered investment adviser, Horizon Kinetics Asset Management LLC. Through this subsidiary, it manages a number of strategies, most of which are focused on publicly-traded equity securities, but also private investments and digital assets. To accommodate different investing preferences, HKHC’s offerings can be accessed in a variety of ways, including through mutual funds, ETFs, a closed end fund, separately managed accounts that can be customized to the unique investment objectives and risk tolerances of individual clients, and, for qualified investors, via private proprietary partnerships typically known as alternative investments. HKHC raises capital for and manages these strategies, and it earns a management fee that varies among products. In certain instances, the fee it earns is tied to the performance of the account. HKHC also produces a number of research reports and compendia that are sold mainly to institutions, as it believes that the discipline required to produce written research encourages thorough qualitative and quantitative analysis. As of September 30, 2025, the Company had regulatory assets under management ("AUM") of $10.4 billion.

HKHC also manages a portfolio of investment securities for its own benefit, which has historically impacted and is expected to impact future results of operations, often significantly so. As of September 30, 2025, we held investment securities (at fair value) of $83.1 million, which represented 3.8% of total assets. In addition, we have invested alongside our clients and devoted capital to a variety of the proprietary alternative investment funds managed by the Company. As of September 30, 2025, HKHC’s investments in these proprietary funds are approximately $248 million.

In addition to investment management and research activities, HKHC operates two wholly-owned, limited purpose broker-dealers, KBD Securities LLC and Kinetics Funds Distributor LLC, both of which are only used for the marketing and promotion of its investment products. We pay a portion of the fee it earns to these and other third-party firms who assist it in marketing.

Along with investing on behalf of clients, HKHC also uses its own capital to invest along with its clients in many of its proprietary products and makes direct investments in public and private instruments including digital assets. Certain employees do, from time to time, serve as management or as a member of the board of directors of the companies in which we invest.

Primary Sources of Revenue

Management or advisory fees are our primary source of revenue, most of which are based on a specified percentage of clients’ average assets under management. A majority of our expenses, including most of our compensation expense, vary directly with changes in revenue.

The management fees for separately managed accounts are generally calculated on the basis of a percentage of the value of each client’s assets (assets under management) and are charged using either an average daily balance or monthly or quarterly ending balance, and either in arrears or advance.

The Company also earns management fees in its mutual funds, ETFs, closed-end funds and proprietary partnerships as compensation for internal fund management and advisory services. The management fees for the proprietary funds vary by fund and investment strategy and are typically approximately between 0.25% and 2.00% of the net asset value of the funds’ underlying investments.

The Company is also entitled to receive incentive fees on proprietary partnerships if certain performance returns have been achieved as stipulated in the governing documents of the applicable fund. Incentive fees are generated when certain returns exceed a previously established high water mark. The incentive fees are calculated as a percentage of the gains experienced, typically 20%, based on the agreement with each partner in the respective fund. Incentive fees are not subject to claw back as a result of performance declines in subsequent periods to the most recent measurement date. Incentive fees, if earned, are recognized upon completion of the contractually determined measurement period, which are generally annually, or when a client redeems their interest. Incentive fees are subject to the uncertainty of market volatility, and as a result, the entire amount of the variable consideration related to incentive fees is constrained until the end of each measurement period when the uncertainty has been resolved. Management and incentive fees earned from consolidated investment products are eliminated from revenue upon consolidation, however the economic benefit to the HKHC shareholders’ is retained through lower amounts attributable to the redeemable noncontrolling interests. Unearned incentive fees resulting from the performance of the Company’s proprietary funds for the nine months ended September 30, 2025 were approximately $26.9 million. These unearned incentive fees are subject to change based on market prices and are generally expected to be resolved once it is probable that a significant reversal of revenue will not occur. Certain funds with aggregate unearned incentive fees of $18.2 million are not expected to be resolved until the first quarter of 2026, or later.

A small number of clients with certain separately managed accounts may pay incentive fees in addition to or in lieu of management fees, if their portfolio achieves positive investment returns, in certain cases, in excess of an agreed benchmark or hurdle rate. Typically, such fees are paid annually upon crystallization or when a client closes their investment and are not accrued prior to being earned. These unearned performance fees are subject to change based on market prices and generally expected to be resolved during the fourth quarter of 2025, once it is probable that a significant reversal of revenue will not occur.

Business Highlights in the third quarter of 2025

Total revenue

• HKHC’s quarterly and year-to-date revenues were favorable comparisons to the prior year as a result of increasing AUM at our mutual funds, ETFs, separately managed accounts and proprietary funds due to their favorable performance.
• The Company completed a disposal transaction of our consumer product group brands. While this disposal will reduce product revenues, the transaction proceeds are expected to provide the Company with royalties through 2035.

Assets under management

• AUM for the three months ended September 30, 2025 decreased by approximately $0.1 billion, or 1%, to $10.4 billion, due primarily to market value changes of certain key holdings across the Company’s mutual funds, ETFs and separately managed accounts (SMAs). The market value of Texas Pacific Land Corporation (“TPL”), which is widely held across HKHC’s proprietary funds and SMAs, decreased 11.6% during the quarter and 15.6% year-to-date. Those decreases were partially offset by increases in Grayscale Bitcoin Trust (“GBTC”), which is also widely held across HKHC’s proprietary funds, of 5.8% during the quarter and 21.3% year-to-date.
• The Company has launched investment products during 2025, including private funds as well as an actively managed ETF focused on companies domiciled in Japan, with locally driven revenues that are specifically operated by individuals who have significant ownership in the company (ticker: JAPN).

Investment performance

• HKHC maintains a portfolio for investment purposes and has also invested substantial capital in its proprietary funds alongside client investors. For the three months ended September 30, 2025 there was a decrease of $7.0 million in the fair value of this portfolio primarily due to the decrease in the TPL securities held directly by HKHC. The change in the fair value of HKHC’s investments is reported in unrealized gain (loss) on investments, net in the accompanying Consolidated Statement of Operations. For the three months ended September 30, 2025, HKHC’s equity in earnings (losses) in proprietary funds was a $2.0 million loss. This equity loss is primarily the result of several proprietary funds holding primarily TPL assets (Polestar, Horizon Kinetics Hard Assets, Kinetics Institutional Partners and Kinetics Partners). This performance was partially offset by proprietary funds holding Bitcoin or related assets (Horizon Kinetics Equity Fund Opportunities and Horizon Kinetics Multi-Strategy funds).
• The Company’s consolidated investment products experienced mixed performance during the third quarter of 2025. Specifically, the Horizon Kinetics Equity Opportunities Fund and South Lasalle Partnership were the largest contributors collectively representing approximately $178 million of net income for the three months ended September 30, 2025, which includes the impact of private funds holding the MIAX security that completed an initial public offering during the

period as well as a variety of GBTC and related investments. However, those gains were partially offset by the Polestar funds, which incurred net loss of approximately $40 million due to their concentration in TPL.

Results of Operations for the three months ended September 30, 2025

Revenues

Management and advisory fees

The Company’s total management and advisory fees increased approximately $4.7 million, or 36%, for the three months ended September 30, 2025 compared to the prior year. This increase is primarily the result of higher management fees resulting from our mutual funds and ETFs due to higher AUM during the quarter as both experienced net cash inflows.

Other income and fees

Other income and fees includes revenues resulting from the Company’s research services and digital asset mining activities.

Operating Expenses

Compensation, employee benefits, and cost of goods sold

The Company’s operating expenses include employee compensation for investment professionals and other management personnel. HKHC’s compensation costs for the three months ended September 30, 2025 increased by approximately $0.5 million, or 6%, compared to the prior year due to higher internal commissions and additional personnel joining the Company during 2025.

Sales, distribution and marketing expenses

For the three months ended September 30, 2025, sales, distribution and marketing expenses increased $0.8 million, or 27%, compared to the prior quarter, as the result of higher amounts of $0.2 million due to FRMO pursuant to its revenue sharing agreement with HKHC, higher platform fees, incentive fee commissions and other management fee commissions earned due to generally increasing AUM and management fees during the quarter, and fulfillment costs associated with sales of consumer products.

Depreciation, amortization and impairment

Depreciation and amortization decreased for the three months ended September 30, 2025 as compared to the prior year due certain intangible assets becoming fully amortized during the year.

General and administrative expenses

For the three months ended September 30, 2025, general and administrative expenses decreased by $0.2 million, or 8%, compared to the prior quarter. The Company experienced certain lower accounting, professional, and legal fees during the three months ended September 30, 2025 as a result of the prior year’s merger transaction.

Equity earnings (losses), net

Equity earnings (losses), net was a $2.0 million loss for the three months ended September 30, 2025, compared to $1.6 million of earnings in the prior year. The change was due primarily to decreases in the fair value of holdings at Horizon Kinetics Hard Assets, LLC as compared to the prior year.

Interest and dividend income

Interest and dividend income decreased by $0.4 million for the three months ended September 30, 2025 as compared to the prior year due to a special dividend received from TPL during the three months ended September 30, 2024.

Unrealized gain on digital assets, net

Unrealized gain on digital assets, net increased by $1.4 million for the three months ended September 30, 2025, compared to the prior year, primarily due to increases in the value of Bitcoin.

Unrealized gain (loss) on investments, net

For the three months ended September 30, 2025, unrealized gains (losses) on investments decreased by $18.4 million compared to the prior year. This decrease was due primarily to the unrealized losses on TPL stock during the three months ended September 30, 2025 resulting from its approximately 12% decrease in its fair value as compared to the 21% increase in the third quarter of 2024.

Income tax benefit (expense)

The Company recognizes deferred income taxes related to the tax basis differences for certain assets, principally unrealized gains in various investments, digital assets and indefinite lived intangible assets from the Company’s 2011 merger transaction. During periods prior to June 30, 2024, the Company was an LLC and was generally not subject to federal or state income taxes as its income and losses are included in the tax returns of its members. On July 1, 2024, the Company filed to convert from an LLC to a C-Corp for federal and state income taxes. As a result, the Company recognized a deferred income tax expense of $59.7 million related to the tax basis differences. Due to additional unrealized gains of investment securities and proprietary funds during the third quarter of 2024, the Company recorded an additional $8.9 million of deferred tax expense. During the third quarter of 2025, the Company adjusted our estimated income tax rate used to value deferred income taxes due to certain state apportionment factors, which resulted in the recording of a non-cash deferred income tax benefit during the period of $8.7 million.

The Company has paid $4.0 million and $11.1 million, respectively, in federal and various state and local income taxes during nine months ended September 30, 2025 and year ended December 31, 2024, respectively, subsequent to the conversion to a C-Corp.

Redeemable Non-Controlling Interests

Net income attributable to redeemable non-controlling interests in Consolidated Investment Products represents the income attributable to ownership interests that third parties hold in entities that are consolidated within our consolidated financial statements. During the third quarter of 2025 the amounts attributable to noncontrolling interests changed correspondingly to the performance of our proprietary funds.

Consolidated Investment Products

Consolidated Investment Products represented a significant portion of our AUM as of September 30, 2025. The activity of the consolidated investment products is reflected within the consolidated financial statement line items indicated by reference thereto. The impact of consolidation will typically decrease management fees and incentive fees, if any, reported under GAAP to the extent these amounts are eliminated upon consolidation. The assets and liabilities of our Consolidated Investment Products are held within separate legal entities and, as a result, the liabilities of our consolidated investment products are typically non-recourse to us. Generally, the consolidation of our consolidated investment products has a significant gross-up effect on our assets, liabilities and cash flows but has no net effect on the net income attributable to us or our stockholders’ equity.

The following table presents the results of operations of the consolidated investment products:

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The results of operations of the consolidated investment products primarily represent activities from certain funds that we are deemed to control. When a fund is consolidated, we reflect the revenues and expenses of the entity on a gross basis, subject to eliminations from consolidation. Substantially all of our results of operations related to the consolidated investment products are attributable to ownership interests that third parties hold in those funds. The consolidated investment products may not necessarily be the same funds in each year presented due to changes in ownership, changes in limited partners’ rights, and the creation or termination of funds and entities. Accordingly, such amounts may not be comparable for the periods presented, and in any event have no material impact on net income attributable to Horizon Kinetics Holding Corporation.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented before giving effect to the results of our consolidated investment products and the results attributable to non-controlling interests that we consolidate. As a result, segment revenues from management fees, incentive fees and investment income are different than those presented on a consolidated basis in accordance with generally accepted accounting principles. Revenues recognized from consolidated investment products are eliminated in consolidation and those attributable to the non-controlling interests of joint ventures have been excluded by us. Furthermore, expenses and the effects of other income (expense) are different than related amounts presented on a consolidated basis in accordance with GAAP due to the exclusion of the results of consolidated investment products and the non-controlling interests.

Results of Operations for the nine months ended September 30, 2025

Revenues

Management and advisory fees

HKHC’s total management and advisory fees increased approximately $18.2 million, or 49%, for the nine months ended September 30, 2025 compared to the prior year. This increase is primarily the result of higher management fees resulting from our mutual funds, ETFs and separately managed accounts due to higher AUM during the quarter as both experienced net cash inflows.

Other income and fees

Other income and fees for the nine months ended September 30, 2025 includes revenues resulting from the Company’s research services and digital asset mining activities.

Operating Expenses

Compensation, employee benefits, and cost of goods sold

The Company’s operating expenses include employee compensation for investment professionals and other management personnel. The Company’s compensation costs for the nine months ended September 30, 2025 increased by approximately $4.8 million, or 24%, compared to the prior year due to higher internal commissions as well as higher costs for certain non-commissioned employees and additional hiring that occurred during 2025.

Sales, distribution and marketing expenses

For the nine months ended September 30, 2025, sales, distribution and marketing expenses increased $4.2 million, or 53%, compared to the prior year, principally the result of higher commissions with respect to separately managed accounts, higher amounts of $0.9 million due to FRMO pursuant to its revenue sharing agreement with HKHC and higher mutual fund platform fees of $2.0 million during the period.

Depreciation, amortization and impairment

Depreciation and amortization decreased for the nine months ended September 30, 2025 as compared to the prior year due certain intangible assets becoming fully amortized during the year.

General and administrative expenses

For the nine months ended September 30, 2025, general and administrative expenses increased by $0.3 million, or 4%, compared to the prior year, as a result of certain legal and professional fees associated with the audit as well as the impact of certain new franchise taxes. The Company also began incurring Director fee costs of $0.3 million for the nine month period that did not exist for a portion of the prior comparable period.

Equity earnings (losses), net

Equity earnings (losses), net decreased by $7.2 million for the nine months ended September 30, 2025 compared to the prior year. The change was due primarily to decreases in the fair value of holdings at Horizon Kinetics Hard Assets, LLC as compared to the prior year which declined in fair value.

Interest and dividend income

Interest and dividend income increased by $0.2 million for the nine months ended September 30, 2025 as a result of higher average cash and money market balances during the period. This increase was partially offset by a special dividend received from TPL during the nine months ended September 30, 2024.

Unrealized gain on digital assets, net

Unrealized gain on digital assets, net increased by $0.1 million for the nine months ended September 30, 2025, compared to the prior year, primarily due to the relatively smaller increase in the fair value of Bitcoin.

Unrealized gain (loss) on investments, net

For the nine months ended September 30, 2025, unrealized gains (losses) on investments decreased by $33.7 million compared to the prior year. This increase was due primarily to the 15.6% unrealized loss on TPL stock during the nine months ended September 30, 2025 as compared to its unrealized gain of 69% during the nine months ended September 30, 2024.

Income tax benefit (expense)

The Company recognizes deferred income taxes related to the tax basis differences for certain assets, principally unrealized gains in various investments, digital assets and indefinite lived intangible assets from the Company’s 2011 merger transaction. During periods prior to June 30, 2024, the Company was an LLC and was generally not subject to federal or state income taxes as its income and losses are included in the tax returns of its members. On July 1, 2024, the Company filed to convert from an LLC to a C-Corp for federal and state income taxes. As a result, the Company recognized a deferred income tax expense of $59.7 million related to the tax basis differences. Due to additional unrealized gains of investment securities and proprietary funds during the third quarter of 2024, the Company recorded an additional $8.9 million of deferred tax expense. During the third quarter of 2025, the Company adjusted our estimated income tax rate used to value deferred income taxes due to certain state apportionment factors, which resulted in the recording of a non-cash deferred income tax benefit during the period of $8.7 million.

The Company has paid $4.0 million and $11.1 million, respectively, in federal and various state and local income taxes during nine months ended September 30, 2025 and year ended December 31, 2024, respectively, subsequent to the conversion to a C-Corp.

Redeemable Non-Controlling Interests

Net income attributable to redeemable non-controlling interests in Consolidated Investment Products represents the income attributable to ownership interests that third parties hold in entities that are consolidated within our consolidated financial statements. During the nine months ended September 30, 2025 the amounts attributable to noncontrolling interests changed correspondingly to the performance of our proprietary funds.

Consolidated Investment Products

Consolidated Investment Products represented a significant portion of our AUM as of September 30, 2025. The activity of the consolidated investment products is reflected within the consolidated financial statement line items indicated by reference thereto. The impact of consolidation also typically will decrease management fees and incentive fees reported under GAAP to the extent these amounts are eliminated upon consolidation. The assets and liabilities of our Consolidated Investment Products are held within separate legal entities and, as a result, the liabilities of our consolidated investment products are typically non-recourse to us. Generally, the consolidation of our consolidated investment products has a significant gross-up effect on our assets, liabilities and cash flows but has no net effect on the net income attributable to us or our stockholders’ equity.

The following table presents the results of operations of the consolidated investment products:

Regulated Subsidiaries

Many of our principal subsidiaries are subject to extensive regulation in the United States and elsewhere. Horizon Kinetics Asset Management LLC, a registered U.S. investment advisor, is regulated by the SEC. Kinetics Funds Distributors LLC and KBD Securities LLC, registered U.S. limited purpose broker dealers, are regulated by the Financial Industry Regulatory Authority. The Company may also be subject to regulation in other jurisdictions where it operates.

Liquidity and Capital Resources

At September 30, 2025, the Company had $37.7 million of cash and cash equivalents. We believe that our cash and cash equivalents at September 30, 2025 will be sufficient to fund operations for at least one year from the date of this report.

The Company also had $83.1 million of investments, at fair value. These investments include $54 million held in a single security, approximately 57,696 shares of TPL. During the nine months ended September 30, 2025 the fair value of HKHC’s TPL holdings increased due to the capital contribution on July 1 that included shares of TPL and due to the approximately year-to-date changes in the fair value of TPL common shares. The Company may be limited in its ability to sell this security due to our status as an affiliate of TPL.

In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications, and potential contingent repayment obligations. We do not have any off-financial position arrangements that would require us to fund losses or guarantee target returns to clients.

The Company’s Board of Directors has determined an expected quarterly dividend policy that is based on the Company’s quarterly performance. The Board of Director’s may consider other relevant factors that are relevant to the final determination of a quarterly dividend, if any. On November 11, 2025, the Company's Board of Directors declared a cash dividend of $0.106 per share, payable on December 17, 2025 to shareholders of record as of the close of business on November 25, 2025.

The following table and discussion summarize our Condensed Consolidated Statement of Cash Flows:

Operating cash flows

Net cash used in operating activities increased by $29.1 million for the nine months ended September 30, 2025 compared to the prior year. The increase was primarily the result of earnings, net of and working capital changes during the period. Operating activities of the consolidated investment products include purchases and sales of investment securities.

Investing cash flows

Net cash provided by investment activities increased by $19.6 million for the nine months ended September 30, 2025 as compared to the prior year. The Company sold certain securities that were received as incentive fee payments related to the 2024 performance. The Company also contributed certain investment securities of $11.5 million to obtain additional equity interests in Horizon Kinetics Hard Assets, LLC (a non-cash investment activity). The Company also deconsolidated a consolidated investment product that resulted in a $5.0 million decrease in cash and cash equivalents.

Financing cash flows

The Company’s cash flows from financing activities included $3.0 million of dividend payments as compared to $4.1 million of distributions paid to members of Horizon Kinetics in the prior year period. The Company ceased payment of distributions subsequent to the closing of the merger in August 2024. During the nine months ended September 30, 2025 the Company had net inflows from contributions to the consolidated investment products, primarily from the launch of new products, as compared to net redemptions in the comparable prior period.

Contractual Cash Obligations and Other Commercial Commitments

The Company’s contractual cash obligations and other commercial commitments is limited to certain operating leases for office space as summarized below:

(dollars in thousands)

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Disclosure Controls and Procedures

As of September 30, 2025, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2025 due to a material weakness in our internal control over financial reporting described below.

Notwithstanding the material weakness, which still existed as of September 30, 2025, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the condensed consolidated financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with accounting principles generally accepted in the United States.

Material Weaknesses

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s financial statements will not be prevented or detected on a timely basis. During 2024, management identified a material weakness with respect to a lack of IT general controls over certain third-party systems. This material weakness still existed as of September 30, 2025.

During 2025, the Company hired additional trained professionals to our finance department, who have technical accounting expertise perform additional account control procedures. The process of remediating these material weaknesses will continue until these staff and other internal control procedures operate for a period of time, our controls are tested, and the Company is able to conclude that such internal controls are operating effectively. The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future.

During the third quarter of 2025, management completed the implementation of additional supervisory review procedures of account reconciliations and valuations of certain significant accounts, including certain intercompany and related party accounts and related elimination entries, and have addressed design elements related to the segregation of duties in certain areas of the financial reporting process, including the review of technical accounting implementations and conclusions over critical accounting estimates, the review of the consolidated financial statements, and the review and approval over disbursements and accounts payable. These procedures implemented also included the review of the consolidation in the financial statements of certain proprietary funds related to variable interest entity funds.

We have performed testing to evaluate the operating effectiveness of these remediation measures. Based on the results of our testing, we have concluded that the aforementioned material weaknesses related to the ineffective design or implementation of certain account reconciliations over significant accounts have been remediated as of September 30, 2025.

Changes in Internal Control over Financial Reporting

Other than the changes in connection with our implementation of the material weakness remediation plan discussed above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the third quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Report, including the “Cautionary Note on Forward-Looking Information,” you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 and subsequent quarterly reports on Form 10-Q.

All of the factors referenced above could materially affect our, or the combined company’s, business, financial condition, or future results.