Galaxy Digital (GLXY) Earnings

Management highlights

Data centers: Lights are on at the Helios campus, first data haul delivered to CoreWeave. On track to deliver substantially all 133 megawatts of critical IT capacity for phase one by end of Q2. Phase two greenfield construction for 260 megawatts of incremental critical IT capacity is advancing. On phase two financing, seeing strong demand and expect to share more soon. Active discussions on leasing 830 megawatts, with demand for large scale HPC capacity strong. Begun procuring critical infrastructure for 830 megawatt development. ERCOT regulatory framework: Draft rule PGRR 145 establishes baseload category for projects with 2028 energization date, and they satisfy requirements for baseload within batch zero as per current draft. Digital assets: Transition year for crypto business, moving from speculative to technology used in industry. Infrastructure business engaged in conversations, with deals in the works. Clarity Act important with ~six weeks left, still believe it gets passed. Bitcoin price analysis with potential trading ranges. AI revolution impact on inflation, productivity, and crypto. Digital asset segment adjusted EBITDA loss narrowed by ~a third from Q4. Global markets business adding new trading clients, mix shifting to traditional asset managers and hedge funds. Lending business saw pullback due to crypto price depreciation, client deleveraging, and loan roll-off but is rebuilding with diverse counterparty base. Galaxy One expanding capabilities. Asset management seeing durable inflows and new $75 million investment mandate, launching new FinTech hedge fund. Digital infrastructure solutions: Institutions preparing to move onto blockchain-based rails, looking for partners with technical capabilities, infrastructure, and expertise. Galaxy productizing digital infrastructure platform into B2B model through white-labeled solutions, etc., with long-term opportunities as institutional adoption increases.

Guidance

Q2 preliminary performance: So far in Q2, improvement in digital asset prices and activity, with second quarter to date adjusted EBITDA estimated at approximately $90 million through last Friday. Data centers: Expect to have more to share on phase two financing in the near term. Digital assets: Expect infrastructure-related business development to reduce cyclicality with crypto, and continue building out opportunities across businesses.

Segment performance

Digital assets: Q1 reflected a more challenging market backdrop with digital asset prices down quarter to quarter and trading volumes and on-chain activity softening. However, the digital asset segment delivered $49 million of adjusted gross profit, roughly flat quarter over quarter. Recurring fee revenue and transaction income continued to scale. Global markets business delivered adjusted gross profit of $31 million, up 3% quarter over quarter. Lending average loan book declined ~20% quarter-to-quarter. Galaxy One launched Solana Staking at 0% commission and will open to business accounts. Asset management delivered adjusted gross profit of $18 million and ended the quarter with ~$8 billion in assets on platform, with $69 million net inflows during the quarter. Data centers: Financial results remained de minimis in Q1 as they work through final stages of construction and commissioning for Phase 1 at Helios. Revenue will begin ramping in Q2 as they deliver data halls under core wave lease agreement, with 15-year contracted cash flows at ~90% average lease-level EBITDA margins, uncorrelated to digital asset prices.

Risks & headwinds

Regulatory uncertainty with Clarity Act having obstacles. Cryptocurrency market price volatility risk. Data center construction and financing uncertainties. Some tokens in digital assets being more association tokens with potential development risks.

Analyst Q&A

• Q: On the financing side as it relates to data centers, how are you thinking about go-forward financing strategy?

  A: Financing for stabilized assets has tightened, but high-yield bond market has stepped in, spreads have tightened, and rating agencies are rating issues at or above credit levels.

• Q: On the additional 830 megawatts at Helios, is it separate tenants?

  A: Engaged in lots of conversations, separate from Helios and part of multi-campus and multi-tenant strategy.

• Q: What is the risk appetite among your crypto trading clients?

  A: Volumes down, transition from old holders selling to retail and some sovereign funds buying, crypto infrastructure used for other trading, and clarity act and rate cuts may give kick.

• Q: Clarification on ERCOT approval process for 830 megawatts?

  A: 830 megawatts is part of baseload category, 1.8 gigawatts in question with ERCOT working on batch process.

• Q: Potential lease economics for uncontracted capacity?

  A: Important to consider credit quality and net after financing cost, with after financing cost economics attractive.

• Q: Trading activity post Clarity Act?

  A: Clarity will bring more institutions, transition starts with Bitcoin and Ethereum, tokens need to be more relevant.

• Q: Timing on ERCOT pipeline clarity?

  A: Around June, ERCOT will narrow in on batch interconnected study framework.

• Q: Most used features of Galaxy One?

  A: Crypto trading has been largest use case, working on expanding coin coverage and staking, and financing solutions.

• Q: Is Galaxy becoming less cyclical?

  A: Promising quarter with trading desk flat, goal is to make digital assets less cyclical, with infrastructure business helping.

• Q: Real world asset tokenization strategy?

  A: Tracking tokenization, purchased GKE and made smaller acquisitions, positioned to partner with financial legacy companies.

• Q: Decline in lending?

  A: Pullback due to crypto price down, client de-risking, and loan roll-off, but rebuilding with diverse client base.

• Q: Financing phase two and splitting data center business?

  A: All options on the table for phase two financing, no update on splitting business.