Q3 2024 Galaxy Digital Holdings Ltd Earnings Call
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Speaker Change: Ioffe, Michael Novogratz, Jonathan Goldowsky, Christopher Ferraro Ioffe, Michael Novogratz, Jonathan Goldowsky, Christopher Ferraro
The
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Thank you. Thank you.
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Galaxy Digital 3rd Quarter 2024 Investor Call. All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, press star 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I will now hand today's call over to Jonathan Goldowsky, Head of Investor Relations. Please go ahead, sir.
Jonathan Goldowsky: Good morning and welcome to Galaxy's third quarter 2024 earnings call and apologies for the technical difficulties this morning.
Jonathan Goldowsky: Before we begin, please note that our remarks today may include forward-looking statements.
Speaker Change: Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors, including those identified in our filings,
Speaker Change: with the Canadian Securities Regulatory Authority on CDAR Plus and available on our website or in future filings we make with other securities regulators.
Speaker Change: Forward-looking statements speak only as of today and will not be updated.
Speaker Change: In addition, none of the information on this call constitutes a recommendation, solicitation, or offer by Galaxy or its affiliates to buy, sell, buy or sell any securities, including Galaxy securities.
Speaker Change: With that, I'll turn it over to Mike Novogratz, founder and CEO of Galaxy.
Mike Novogratz: Yeah, guys, good morning. Beautiful day in New York. Again, apologies.
Speaker Change: you know, for the late start and the difficulties with the conferencing, but we're here.
Listen, yesterday, I was thinking about this last night.
Speaker Change: was probably the most important day in the history of Galaxy and certainly an unbelievably important day for the cryptocurrency industry. We started Galaxy with this idea that we were going to be a bridge between the crypto community and institutions.
Speaker Change: and I think with the election of Donald Trump and what he has pledged to be a very liberal crypto policy, we're at the very...
beginning of what I think will be
Speaker Change: You know 52 weeks or 104 weeks of one piece of good news every week
Thank you very much.
Speaker Change: I didn't publicly support Donald Trump as president, I was actually on the other side, but I was always pro-crypto, and I thought, let's do the best we can.
Speaker Change: to have a bipartisan agreement. I do think the Democrats have warmed to crypto, but the Republicans are going all in.
Speaker Change: And, you know, first and foremost, if you look at the people Trump is going to have around him, right, RFK made one of the most aggressive and optimistic crypto speeches at Nashville, JD Vance.
Speaker Change: Peter Thiel, Howard Lutnick, who's running the transition team You know who owns Cantor Fitzgerald who's very engaged in the market both in stable coins and as a as a holder of crypto and So when the people around the table all like our industry You've got to think good things are coming
What's most important?
is people and so
two to 16 weeks, really will define a tone of
Speaker Change: What this industry feels like, right? Repealing SAB 21, right? The accounting rule that
has really stopped most
Speaker Change: traditional custodians for participating in our industry is going to get repealed very quickly. And so when you bring in the Bank of New York's and the State Streets
Speaker Change: as custodians. When you allow trade by competitors to own crypto on their balance sheet, it is going to unleash
Speaker Change: the traditional players start getting involved more and more in our markets.
Speaker Change: But the TLDR is it's going to bring in a ton of money and when ton of money comes in our space prices go up and innovation happens
Speaker Change: And so I couldn't be more excited. Yesterday was our largest trading day of the year, P&L-wise. You would expect that when markets were all up 10% and we own a lot of crypto. But our franchise was operating at full bore.
Speaker Change: trading with counterparties both in the U.S. and abroad, lending the derivative desk. And so it really felt like an affirmation of everything we've been working for.
Um, you know...
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is going to give you a presentation.
Speaker Change: a good recap of our last quarter. The last quarter seems a little less relevant right now.
given that this is kind of a whole new world.
But we've got a lot of exciting things happening.
Speaker Change: certainly around the mining data center business I couldn't be more exciting as our company you know pivots more and more towards AI as well as crypto and so with that I'm just going to leave you with a you know a strong strong message that this is the beginning not the end and couldn't be more excited I'll pass it to Chris
and the other.
Thanks, Mike.
Speaker Change: Galaxy's third quarter results showcase how our diversified business model and the synergies across our operating units allow us to effectively
Speaker Change: capitalize on market opportunities and remain at the forefront of trends in digital assets and other emerging technologies.
I'll start with our global markets business.
Speaker Change: Despite the slowdown in trading volumes broadly across the digital assets industry, our counterparty trading business generated $54 million in revenue in Q3, a 117% increase quarter over quarter. The increase was primarily driven by higher revenue from derivatives and increased lending activity.
Speaker Change: Our counterparty trading business has now generated nearly $150 million in revenue year-to-date, 47% higher than what we generated in all of 2023.
Speaker Change: We continue to originate new loans to meet increased borrowing demand from both new and existing counterparties.
Speaker Change: who relied on Galaxy's lending desk to provide them with margin-based financing.
Speaker Change: As a result of this increased activity, our average loan book size grew to $863 million as of September 30th, a 23% increase quarter over quarter.
Speaker Change: As part of this loan book growth, Galaxy entered the debtor-in-possession financing market to Rhodium Enterprises, a digital asset company that utilizes proprietary technologies to mine Bitcoin.
Speaker Change: While this was by no means Galaxy's first foray into more complex restructuring transactions, it does mark our first strategic dip financing.
Speaker Change: and aligns with our ambitions to continue to expand further into higher-yielding structured debt opportunities.
Speaker Change: Given the talent, drive, and experience inside of our company, we see no reason why this area of finance should continue to be dominated by trapped by banks and shadow lenders.
Speaker Change: especially with the opportunity set we see presenting itself to begin to now move these assets on chain.
Speaker Change: What makes this deal particularly compelling is how it combines our strengths as both a lender and a mining site underwriter, showcasing the PowerGalaxy's diversified platform and the flywheel we've built across our businesses.
Speaker Change: We've structured the deal to ensure that within a 90-day term, Galaxy stands to earn at a minimum an annualized return of over 30%, while all the while being underpinned by a group of infrastructure assets that we feel has high-quality strategic potential value.
Turning to our asset management business.
Speaker Change: We ended the third quarter with $4.6 billion of assets under management, a 2% increase quarter over quarter.
Speaker Change: Despite broader crypto markets being down 7% in the quarter, we added nearly 250 million dollars of net inflows into our fund products in Q3, driven by strong demand for our passive and active ETF suites.
Speaker Change: Building on this momentum, on September 10th, Galaxy Asset Management, in partnership with State Street Global Advisors, announced the launch of three new actively managed ETFs focused on digital assets and disruptive technologies, Deco, Heco, and TechX.
Speaker Change: State Street Global Advisors has a track record of partnering with other asset managers who are leaders in their respective asset classes to launch active products.
Speaker Change: Galaxy Asset Management will now be featured in SSGA's lineup as the digital assets experts alongside Blackstone for fixed income, DoubleLine for total return, Nuveen for municipal bonds, and Loomis for opportunistic bonds.
Speaker Change: Of equal importance, these products represent Galaxy Asset Management's first equity investment funds, while also expanding our investment program beyond just crypto and now into artificial intelligence and other emerging technology sets.
Speaker Change: Although it's only been about two months since product launch, the strong performance of these funds to date reinforce our belief that an active approach to digital asset investing is critical to fully capture the potential of this rapidly changing technology.
Speaker Change: Looking ahead, by year-end, we anticipate a second close for Galaxy Ventures Fund 1, our inaugural crypto venture fund focused on investing in early-stage companies across crypto protocols, software infrastructure, and financialized applications.
Speaker Change: Institutional interest has remained strong following the fund's initial close, and we expect to reach, if not exceed, our $150 million target.
Speaker Change: Furthermore, we've already sourced and are executing on special situation SPVs for our venture LPs and broader Galaxy Asset Management client base which we expect to add incremental highly accretive fee-paying AUM to the ventures platform before year-end.
Speaker Change: Twelve months ago, crypto asset management was a small industry, with significantly less AUM and limited participation from institutional allocators. Over the past year, the advent of Bitcoin and Ethereum ETFs have helped institutionalize the broader asset class, bringing traditional pensions, endowments, hedge funds, corporates, and others to the table.
Speaker Change: We believe we're in the early stages of a crypto asset management renaissance, and that galaxy asset management is going to play a central role in this next wave of adoption.
Speaker Change: Finally, turning to our digital infrastructure solutions business, I'll start with blockchain infrastructure.
Speaker Change: The team here had another exceptional quarter, with our assets under stake reaching $3.4 billion, representing a 58% increase quarter over quarter and reaffirming our position as one of the largest validators globally on the Solana network.
Speaker Change: As announced in July and discussed on our last earnings call, approximately $1 billion of this asset growth is the result of Galaxy's acquisition of Cryptomanufacture, the leading blockchain node operator that provides trusted, secured infrastructure services to decentralized protocols across the digital asset ecosystem.
Speaker Change: Importantly, in the third quarter, our blockchain infrabusiness generated approximately 11 million dollars of blockchain revenues, net of staking costs, up 26% quarter over quarter.
Speaker Change: As we approach the close of 2024, the team is focused on executing technical integrations and partnerships with large custodians, wallet providers, and liquid staking protocols, enabling us to expand access to Galaxy staking services and associated trading products through those platforms.
Speaker Change: We'll keep you updated on progress here as these integrations continue to unfold.
Speaker Change: With respect to GK-8, we're incredibly excited for the global regulatory opening of digital asset custody, as evidenced by the SEC recently outlining criteria for SAB-121 digital asset custody exemptions.
Speaker Change: This is a market that has been largely closed over the past two years, close to the collapse of FTX, but one that we believe GK is uniquely positioned to be a leader in.
Speaker Change: To that end, we have invested in a broadening of the product suite we offer through GKE to now include MPC standalone, cloud-based HSM, as well as our patented impenetrable cold storage.
Speaker Change: And, we've led a rebranding with the team, GK8 by Galaxy, which we rolled out in Europe over the past four weeks.
Speaker Change: We're excited about the early, newly invigorated momentum we're seeing in this business.
Thank you. Thank you.
Finally, turning to galaxy power.
Speaker Change: Our mining business reported revenue of approximately $18.5 million for the third quarter. Our net power purchase costs and external hosting expenses were approximately $10 million, resulting in a 46% direct mining profit margin.
Speaker Change: Our combined hash rate under management for proprietary and hosted mining was 6.2 ExaHash, which exceeded our 6 ExaHash target for the quarter.
Speaker Change: Our average marginal cost to mine increased as anticipated to just under $38,000 per Bitcoin.
Speaker Change: This was the result of Q3 being the first full quarter posthalving, increased mining difficulty, and seasonal curtailment of our machines during the summer months in the ERCOT market.
Speaker Change: This remains highly competitive relative to our peers and is a testament to the team's ability to cohesively manage our data center operations and power strategy while navigating changes in the ecosystem.
Ioffe, Michael Novogratz, Jonathan Goldowsky, Christopher Ferraro
Speaker Change: As I spoke about last quarter, in addition to the 800 megawatts we are already approved for at our Helios campus, we have an additional 1.7 gigawatts currently under various stages of load study by our consultants.
Speaker Change: We anticipate some portion of the incremental megawatts to be approved in the first half of 2025, allowing us to further scale our power capacity at our Helios campus.
Speaker Change: I'm also incredibly excited to announce a transformational advancement for our digital infrastructure solutions business.
Speaker Change: Subsequent to quarter-end, Galaxy executed a non-binding term sheet with a US-based hyperscaler to supply turnkey infrastructure for the operation of direct liquid-cooled GPUs at our Helios campus in Texas.
Speaker Change: The term sheet includes options to develop up to 100% of Helios's currently approved 800 megawatt power capacity towards AI data center infrastructure.
and many more. Thank you. Thank you.
Speaker Change: A global power shortage coupled with robust demand for data center capacity driven by advancements in AI and other forms of high-performance compute has created a unique opportunity for Galaxy to utilize our Helios campus beyond just Bitcoin mining.
Speaker Change: As I discussed on our last earnings call, we have been evaluating this opportunity since the beginning of the year with a single-minded focus on bringing to market this new business line with the right strategy and the right partners.
Speaker Change: with firm approval to draw 800 megawatts of power from ERCOT.
Speaker Change: 320 acres of contiguous land, access to reliable low-cost power and water, key electrical infrastructure already on site, and a world-class team with experience developing and operating large-scale digital infrastructure, Galaxy is very well positioned to enter the AI data center industry as a developer and operator of hyperscale campuses.
Speaker Change: This deal proposes to add another significant and diversified source of unpredictable revenue for Galaxy, completely uncorrelated to the prices of digital assets, which will reduce the volatility of our annual revenue, earnings, and cash flows.
Speaker Change: In line with this announcement, in the third quarter, we fully funded and began construction on two additional new fiber circuits from our Helios campus to existing long-haul dark fiber networks back to Dallas that meet the path diversity requirements of hyperscalers today.
Speaker Change: We also ordered end-to-end optical networking equipment that will provide high-capacity, long-distance data transmission and network management to satisfy both bandwidth and latency requirements for today's training and inference workloads at our campus.
Speaker Change: In terms of next steps, we're currently in discussions for project-level financing for the build-out, and we hope to have this in place concurrent with a signed lease agreement in the coming months. Alex, over to you. Yeah, thank you.
Thank you. Thank you.
Thank you.
Speaker Change: Thank you, Chris. Good morning. In the third quarter, we reported the net loss of $54 million.
a significant improvement from the second quarter.
Speaker Change: We generated operating revenue growth of over 30% quarter-over-quarter despite industry spot trading volumes declining 15% and the price of Ethereum decreasing 24% in the quarter.
Speaker Change: For context, we started the third quarter with approximately $200 million of Ethereum exposure on our balance sheet.
which was impacted by this downward price movement.
Speaker Change: Year-to-date, we generated $191 million in net income driven by positive digital assets price movements and strong operating business performance described by Chris.
Speaker Change: Galaxy's operating expenses increased by quarter over quarter, driven by higher staking costs and interest expenses.
Speaker Change: Staking costs increased by $9 million from last quarter, reflecting the continued expansion of Galaxy's blockchain infrastructure services.
including the acquisition of Crypto Manufacture in July.
Speaker Change: As Chris mentioned earlier, our staking business generated $11 million of staking revenues net of staking costs in the quarter, which was 26% up from last quarter.
Speaker Change: At this point last year, our net staking profit was essentially zero. This is a relatively new business for us with great recurring profit potential.
Speaker Change: Interest expenses increased by $8 million quarter over quarter, reflecting our ability to source predominantly unsecured financing to help fund our counterparty trading and lending businesses, where our revenue increased by $29 million in this quarter.
Speaker Change: Equity capital was $2.1 billion at the end of the quarter.
Speaker Change: and total liquid assets were 1.5 billion consisting of 475 million of cash and stablecoins and approximately 1 billion of net digital assets including Bitcoin and Ethereum ETFs but excluding stablecoins.
Speaker Change: Our non-current investments decreased from $800 to $705 million in this quarter, driven primarily by $105 million cash and Bitcoin distribution associated with our investment in Mt. Gox Bankruptcy Investment Fund.
and many more. Thank you. Thank you.
Now.
Speaker Change: As I mentioned on our last call, on July 26, 104 days ago, we filed an amendment to our registration statement responding to the seventh round of comments from the SEC.
Speaker Change: We are waiting to hear back from the Commission and we'll keep you updated on our progress.
Speaker Change: We are hopeful that the U.S. listing will move at a faster pace going forward.
Now back to the operator. Thank you.
Thank you. Thank you.
Speaker Change: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1 again. We'll pause for just a moment to compile the Q&A roster.
Thank you. Have a great day.
Speaker Change: Your first question comes from the line of Martin Toner with ATB.
Speaker Change: Thanks so much for taking my question and congrats on the results and this exciting announcement.
Speaker Change: Can you guys give us some details about the term sheet? Can you talk about length of contract, revenue per megawatt, and capital, if the party is going to contribute any capital to the build-up? Thanks.
Sure, thanks Martin and good morning.
Speaker Change: So, in general, we will provide more granular details of the deal once we get to execution of it finally. I would say directionally, you know, these look like large, long-term off-take contracts that you would see broadly in the data center space and like what you've seen more recently come out.
It's going to require significant capex build-out.
Speaker Change: We are, as said in the remarks, we're currently running a process and are in discussions on project level financing for it.
Speaker Change: The good thing that we have going for us is, unlike in crypto,
the traditional financial
Speaker Change: non-dilutive debt construction finance market that's going to help support the scale of this kind of project. So we're excited to get to the finish line in the coming months and we'll update the market on all the specific ones we get there.
Fantastic, thank you.
Speaker Change: Can you give us anything on, I'm just wondering like what are the chances you're going to disrupt your current ExaHash or is the are you guys going to intend to execute this contract just with additional megawatts added to capacity?
and the
Speaker Change: Yes, so, you know, we've looked at our power assets in Tether through
Speaker Change: a pretty commercial lens generally. And so we've always looked to thinking about the megawatts that we have access to and really maximizing.
Speaker Change: the output per megawatt from an economic perspective for Galaxian shareholders. What we're talking about at the Helios campus right now with our partner is
Speaker Change: Having that partner have options to really uptake 100% of the electrical capacity over time, which would, if we get there, would imply the total amount of capacity there at Helios being dedicated towards next-gen AI and high-performance compute.
We still have our smaller site.
at Dyeball, which is...
16 megawatts.
Speaker Change: that we're running Bitcoin miners at. And so, you know, I can't say in the future how big our mining operation will be or not, but the opportunity set in front of us right now...
Speaker Change: with big partners really excited about this opportunity who value the
Speaker Change: The power is a lot more than what the Bitcoin mining network predicts today, it's pretty real, so that's what we're focused on.
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Speaker Change: That's a great last one for me. Can you talk about what non-binding means in terms of like as many details as you're able to give us?
Ioffe, Michael Novogratz, Christopher Ferraro
Jonathan Goldowsky Sure. So,
Speaker Change: Non-binding means we have an agreement in principle on commercial terms and what we're gonna do together. We spend a lot of time with our partner. Both sides are really excited and we're working together to get documents over the next few months. So a lot's gotta happen between now and then, but no parties in this space wanting to move with the speed to take advantage of the opportunity entering into these kind of agreements lightly, is what I would say.
Speaker Change: That's great. Thanks. Thanks. Thanks for taking my call. No questions.
Thank you.
Thank you. Bye.
and many more. Thank you. Thank you.
Speaker Change: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Your next question is from the line of Owen Bow with Oppenheimer.
Speaker Change: Hi, good morning, and thank you for taking my question. So given the election results and some of the expected actions from the Congress, which area Galaxy would invest more into next year? Is there any new trend you think would emerge? Thanks.
I don't think it's going to happen overnight.
You know there will be a
Speaker Change: I think you'll have legislation passed in Congress sometime in the first six months of the year which will make far
Speaker Change: We'll be far more liberal and we'll make far clearer You know what constitutes a security token and a utility token and so you're going to see token issuance pick up Right a lot of the reasons people haven't launched
Speaker Change: tokens certainly in the U.S. is the uncertainty around if it was legal or not and so
In all likelihood, we will trade eight.
Speaker Change: a broader group of tokens domestically, but more importantly on a go-forward basis.
Speaker Change: The whole ecosystem around both launching new projects, trading new projects.
Speaker Change: providing liquidity for new projects is going to grow real quickly and so you know you can call it our markets business probably has that in the short run the the biggest you know uptick.
That's very helpful.
Speaker Change: There are a lot of stable coin projects being launched. If you think about the next two years of digital asset innovation, I think the most exciting
Speaker Change: place to be is going to be around stable coins and payments. And so this network was a brainchild of Paxos.
Speaker Change: and Chad Pascarilla, he decided to get a bunch of players around the table and instead of, in USDT's case, where Tether, the company, really is the sole beneficiary of the gap between U.S. interest rates and where the stablecoin is.
Speaker Change: In this case, those profits are gonna be split by the participants based on how much activity the participant brings to the ecosystem. And so it's a really fair process of.
Speaker Change: You know, 10 guys around a table, if everyone pulls 10%, you're going to split 10%.
Speaker Change: And so, the one thing I would say is we see ourselves as a participant in the whole ecosystem. We are partnered up with
Speaker Change: to help them grow their ecosystem and so we're not trying to be in the business of picking winners.
when it comes to the stablecoin world.
We're trying to be in the business of...
participated in these ecosystems.
providing liquidity, connectivity, and guidance.
Thanks a lot.
Speaker Change: The next question comes from Joe Vaffey from Canaccord Genuity. Wondering if there are any more details yet on contract structure and if signed, when the contract could possibly begin with the hyperscale tenant that you guys referenced.
Speaker Change: Thanks, Joe. I wish we could hear your lovely voice on the call, but I know you're there listening. So, like I said, we're working diligently and fast on all the aspects of what's going to be a pretty meaningful-sized project. In terms of contract details, we're not going to give that right now.
Speaker Change: We know what we have in Helios. We're very excited about that.
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what we bought and what we built there.
Speaker Change: We truly think it's a one-of-one asset on U.S. soil, and therefore, you know, any terms we agree to or any contract structure that's going to be around it, we're pretty excited it's going to be reflective of that there. In terms of timing, you know, these are large-scale buildouts, and so, you know, you should expect a time schedule that fits with what would be a, you know,
Speaker Change: Billion dollars or more or or significantly more plus build out over over many months to get to final completion As you would any sort of big power infrastructure build
Speaker Change: One more follow-up from Joe Vaffey. On the market side of the business, derivatives
Joe Vaffey: clearly has grown a lot. Wondering if you have reached a kind of maturity level there now on volumes since getting your swap dealer license, or if there is more share and demand to get there from current run rate.
Speaker Change: I actually think we're just getting started. Listen, the swap dealer...
Speaker Change: is a big lift. It was a big lift in terms of cost and regularity.
regulatory apparatus that you need to put in place.
just to participate.
Speaker Change: I think all our competitors will be dragged across that line in time, but it's a tough line to go across, and so we have a little bit of a lead in that, you know.
Speaker Change: These guys are all making the decision. Do we become a swap dealer or not and pay that cost? We are onboarding new clients from Asia, Europe, and the U.S. every month, every week.
Speaker Change: and I think the derivative business is literally going to be one of our gems. We've brought in some new talent there. And it's one of these businesses that the more participants you have, the better you do. Right? Because the bid-ask spread in...
Speaker Change: in all new markets, and crypto is still considered a new market, is wide, especially in times of duress. And so if you can buy on the bid and sell on the offer, you can make a whole lot of money.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: The next question is from William Tang at Susquehanna International Group.
William Tang: Given that Galaxy closed an investment banking deal this quarter and that the company is executing against a pipeline of 2.4 billion in deal value, can you help us get a sense of what the typical ramp-up time might look like as well as what the impact to margins is?
Speaker Change: And can you remind us how this segment fits in with the larger galaxy strategy?
Ioffe, Michael Novogratz, Jonathan Goldowsky, Christopher Ferraro
Sure. Thank you for the question.
Yes, so the banking business...
William Tang: an M&A advice provider and structure of a transaction for some of the biggest acquisitions in the space that are still pending which is really a derivative of
the regulatory environment.
William Tang: surrounding a lot of these transactions. And so we've built a pipeline of opportunities we're pursuing, but we've also built a pipeline of actually completed deals that you won't yet see in the revenue line year to date, but we're now, after two days ago, are...
William Tang: extremely excited about, you know, those sort of coming to to an actual closing and us realizing the fruits of our efforts.
from a margin perspective.
William Tang: Today the advisory business we're in is largely focused on boutique M&A advice.
William Tang: and some private placement capital raising. And so the business we do there is extremely capital light from our perspective, but basically zero capital.
William Tang: and is really people focused and so from a margin perspective you know our only real costs in that business are the time and effort of our people.
William Tang: And so, you know, when you think about flow through to the bottom line, that's really the major consideration.
William Tang: The other thing I'll say about our banking team, which, you know, they've really been part of the unsung heroes of the firm.
William Tang: is, you know, when you are one of the largest companies in crypto...
and you have a banking team.
Mike Novogratz: We, Galaxy, ourself, actually become one of the largest clients of our internal banking team that never really shows up in the P side, maybe just the L side because we pay our employees.
Mike Novogratz: And so the banking team, led by Michael Ash, have actually spent a significant amount of their time this year and in prior years working directly with Mike, myself, the senior leadership team, the folks who run our businesses, advising and working on strategic transactions internally for the firm.
And so when we talk about...
Mike Novogratz: the strategic fit of the business. There's an external factor where the team has done a really good job maintaining the reputation and building a franchise with working with external clients, but there's an unsung part of their business where they have spent
Mike Novogratz: A lot of time doing great work helping Galaxy execute on our strategic priorities. And so from that perspective, it's a part of the business that we think adds a ton of value.
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i
and many more. Thank you for watching. I'm Jonathan Goldowsky.
We do have a question from the audio lines.
Speaker Change: This question comes from the line of Martin Toner with ATB.
Martin Toner: Thank you very much for putting me back on the line.
Speaker Change: You've talked in the past about how if you could borrow at rates that traditional finance financial institutions borrow at, you could grow much more quickly. Can you talk about how the non-dilutive financing and the potential to raise capital more cheaply given this hyperscaler deal will impact your ability to grow in your other businesses?
and many more. Thank you. Thank you.
Thank you very much. Bye.
Yeah, hey Martin, I'll take this one.
Speaker Change: Let me try to pick that apart a little bit. I think that the traditional construction financing market, which is very much open to financing bills like what we're talking are going to be very focused on.
That project and that opportunity.
Right, and so
Martin Toner: So that financing, you know, we think about and I think the market should think about as being very specifically tailored towards what that asset is going to look like and what it's going to do.
And so, you know, it's...
Martin Toner: It's unlikely in the near term for it to be a situation where that's sort of like, you know, blanket financing generally available to Galaxy for GSMC. And we're not expecting that. We're not thinking that that's the case. The only thing I would say, though, is what's important about what's changed literally overnight
Martin Toner: around the expectations for the forward is if we imagine a world where now finally
Martin Toner: the biggest financiers in the world can actually touch digital assets like Bitcoin and Ethereum, then that should be the critical unlock for
Martin Toner: Thank you, New York, the state streets, etc. of the world being able to actually
custody crypto should be the thing that that for us
Martin Toner: unlocks our ability to now take in external capital for the markets business, for example, and really drive down the cost of barring for our clients, which would really increase demand while still allowing us to
Martin Toner: to quickly build a smart financing business. So I really think about them as two separate things, although our bet now is quite clear, which is the worlds are really converging, and I think we're gonna see a much more accepting financing market generally for what we do as a company.
Thank you. Thank you.
Speaker Change: That's great, I appreciate all of that. Last one from me, any sense of what the additional capex per megawatt will be for for the HPC allocation?
and many more. Thank you. Thank you.
Speaker Change: yeah sure so we we we do have a pretty decent sense for what that's going to look like the ultimate outcome of that is is going to depend on the ultimate effects of the build-out with our partners and the cases which we're still working towards so we're not we're not I'm not in a position right now to give you the exact guide to what that's going to be
Okay, great. I really appreciate you taking my follow-up.
Thank you.
Speaker Change: Thanks Chris. The next question comes from Bill Papanastasou from Stiefel.
Bill Papanastasou: May you please walk us through your methodology on allocating power capacity at Helios for Bitcoin mining versus AI HPC. How do you see economics trending over the next 12 or so months across both types of compute?
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You can have it Chris. Thanks Mike and Bill.
Yes, so...
and many more. Thank you. Thank you.
supply of power capacity.
Speaker Change: And so what I mean by that is, you know, at this opportunity, what we have witnessed over time is a pretty consistent increase in hash rate.
which
Speaker Change: directionally has kept pace with the with the price of Bitcoin but but creates a lot of volatility between and changes the economics for Bitcoin miners both positively and negatively through cycles in a pretty volatile way.
Now, if you think about
about capacity coming out of the market for Bitcoin.
Speaker Change: for other use cases, it actually gives us some interesting comfort that the curve on hash rate globally may bend and flatten out relative to what we've seen historically. So that's just one thing I would say. We don't know the outcome of that, but the
Speaker Change: The positive impact that that might have on Bitcoin mining economics is potentially very real for us
in terms of allocation like...
Assuming we
Martin Toner: execute on what we're looking at right now on the AHPC side, the demand for that power for us is very, very large and would encompass the vast majority of our asset base. And the economics of that are clearly more interesting than what
Martin Toner: for mining Bitcoin. And so, you know, it's a pretty easy decision economically for us.
Martin Toner: to make. And so it's not something that we're going to dynamically
Martin Toner: jump back and forth between is something that we've explored what it looks like, we've analyzed it pretty closely, and we're very excited about the forward opportunity for AIHPC.
Speaker Change: Your next question is from the line of Nick Gowes with B. Reilly Securities.
Thank you for watching. I'll see you next time.
Speaker Change: Thank you so much, operator. Good morning, everyone. This is Nick Giles on for Lucas Pipes.
Thank you so much.
Sure, so
Speaker Change: all across the entire site. And so to do a project of that size, I would just give you guidance that the minimum size requirement is pretty large because of the disruption to the existing.
Martin Toner: operations is, logistically, is going to be very real. So, you know, order magnitude-wise, like, you should expect a deal of pretty meaningful size, just because logistically, practically speaking, a big portion of the size is going to have to be retrofitted and then expanded.
Speaker Change: I appreciate that. Maybe just operational issue, should we think about this as being tenant managed and maybe one more if I can just on the design process of the data center have you engaged in design firms or how much work is happening now with the hyperscaler on that front?
Thank you. Bye. Bye. Bye.
Speaker Change: a significant amount of work has been put in and is concurrently running with ourselves, our internal team, a number of external contractors all up and down, and advisors and architects all up and down the technology stack, mechanical, cooling, electrical, etc. And so it's truly a joint partner effort with our partner, our potential partner.
Yeah, that's that's that's that's what I could say
Speaker Change: At this time, there are no further questions. I will now hand today's call back over to Mike Novogratz, founder and CEO of Galaxy.
Mike Novogratz: Guys, once again, thanks so much for joining our call. We couldn't be more excited here at Galaxy for the future outlook. We're plus 500 employees coming to work every day, hustling for our shareholders and so
Speaker Change: You know the future looks bright and thanks for supporting us
and many more. Thank you. Thank you.
Thank you for watching. Bye. Bye.
Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect your lines.
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