Q3 2024 Galaxy Digital Holdings Ltd Earnings Call
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time press star one on your telephone keypad. If you would like to withdraw your question Press Star one again.
Speaker Change: I'll now hand, todays call over to Jonathan Goodell ski head of Investor Relations. Please go ahead Sir.
Jonathan Goodell: Good morning, and welcome to the Galaxy third quarter 2024 earnings call and apologies for the technical difficulties. This morning.
Jonathan Goodell: Before we begin please note that our remarks today may include forward looking statements.
Jonathan Goodell: 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 with the Canadian Securities Regulatory authority on SEDAR, plus and available on our web site or in future filings, we make with other securities regulators.
The
Jonathan Goodell: Forward looking statements speak only as of today and will not be updated.
Jonathan Goodell: In addition, none of the information on this call constitutes a recommendation solicitation or offer by galaxy or its affiliates to buy sell by ourselves 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, Hi, guys good morning.
Jonathan Goodell: Beautiful day in New York again again apologies.
[inaudible]
Jonathan Goodell: For the late start in the difficulties with the conferencing.
Jonathan Goodell: But we're here.
Jonathan Goodell: Listen yesterday I was talking about this last night.
Jonathan Goodell: It was probably the most important day in the history of Galaxy and certainly an unbelievably important day.
Jonathan Goodell: The crypto currency industry, we started galaxy with this idea that we were gonna be a bridge between the crypto community institutions and I think with the election of Donald Trump and what he has pledged to be a very liberal crypto policy.
Jonathan Goodell: We're at the very beginning.
Jonathan Goodell: What I think will be.
52 weeks of 104 weeks of one piece of good news every week.
Why do I think that right again.
Jonathan Goodell: I did it.
Jonathan Goodell: Okay.
Jonathan Goodell: I did it.
Jonathan Goodell: 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.
Jonathan Goodell: To have the bipartisan agreement I do think the Democrats have warmed to crypto both Republicans are going all in and first and foremost if you look at the people Trump is going to have around him.
Speaker Change: RFK made one of the most Ah.
Jonathan Goodell: Aggressive and optimistic Cryptos speeches at Nashville.
Jonathan Goodell: J D Vance, Peter Teal, Howard Lutnick who's running the transition team.
Jonathan Goodell: Who owns Cantor Fitzgerald, who is very engaged in the market posted stable coins.
Jonathan Goodell: As a holder of crypto and so when the people around the table all like our industry.
Jonathan Goodell: You've got to think good things are coming.
Speaker Change: What's most important.
Speaker Change: Is people and so.
One-of-a-kind
Speaker Change: SCC FDIC OCC these appointments, which we'll learn about in the next.
Speaker Change: Two to 12 weeks.
Speaker Change: Two to 16 weeks, a really well defined.
Jonathan Goodell: A tone of.
Jonathan Goodell: What this industry it feels like right repeal SaaS 21 accounting rule that.
Jonathan Goodell: Has really stopped most 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 and the state streets.
Jonathan Goodell: As custodians when you allow.
Jonathan Goodell: Trade by competitors to own crypto on their balance sheet. It is going to unleash.
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Jonathan Goodell: Tsunami of institutional participation.
Jonathan Goodell: We see this as a great opportunity.
Speaker Change: We have been partnering with with trade vie companies. Since we started we also see it as a threat we are going to have to work that much harder to keep them out.
Jonathan Goodell: As the traditional players start getting involved more and more in our markets, but the the tldr, it's going to bring it a ton of money in one ton of money comes into our space prices go up and an innovation happens and so I couldnt be more excited.
Jonathan Goodell: 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.
Jonathan Goodell: <unk> was operating at full bore.
Jonathan Goodell: Trading with Counterparties, both in the U S and abroad lending.
Jonathan Goodell: <unk> desk and so it really felt like a an affirmation of everything we've been working for us.
Jonathan Goodell: No.
Speaker Change: Chris Ferrara is going to give you a good recap of our last quarter. Its the last quarter. It seems a little less relevant right now.
Jonathan Goodell: Given that this is kind of a whole new world.
Shelter Thank you for watching!
Jonathan Goodell: We've got a lot of exciting things happening.
Jonathan Goodell: Certainly around the mining data center business I couldnt be more exciting is our company pivots.
Jonathan Goodell: Pivots, more and more towards AI as well as crypto.
Jonathan Goodell: And so with that I'm, just going to leave you with.
Jonathan Goodell: Our strong.
Jonathan Goodell: The strong message that this is the beginning not the at and.
Jonathan Goodell: Couldn't be more excited.
Speaker Change: Pass it to Chris.
Jonathan Goodell: Yes.
Jonathan Goodell: Okay.
Jonathan Goodell: Thanks, Mike.
Speaker Change: <unk> third quarter results showcase how our diversified business model and the synergies across our operating units allow us to effectively <unk>.
Jonathan Goodell: 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: A film by Michael Novogratz Directed by Jonathan Goldowsky Written by Michael Novogratz Director of Photography Jonathan Goldowsky Music by Jonathan Goldowsky Sound by Jonathan Goldowsky Edited by Jonathan Goldowsky Thank you for watching!
Jonathan Goodell: Despite the slowdown in trading volumes broadly across the digital assets industry, our counterparty trading business generated $54 million in revenue in Q3 of 117% increase quarter over quarter.
Jonathan Goodell: The increase was primarily driven by higher revenue from derivatives and increased lending activity.
Jonathan Goodell: 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.
Jonathan Goodell: We've continued to originate new loans to meet increased borrowing demand from both new and existing counterparties.
Jonathan Goodell: Who relied on galaxy's lending desk to provide them with margin based financing.
Jonathan Goodell: As a result of this increased activity our average loan book size grew to $863 million as of September 30th% to 23% increase quarter over quarter.
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Jonathan Goodell: 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 mind bitcoin.
Jonathan Goodell: While this was by no means galaxy's first foray into more complex restructuring transactions. It does mark our first strategic dip financing and aligns with our ambition to continue to expand further into higher yielding structured debt opportunities.
Jonathan Goodell: 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, especially with the opportunity set we see presenting itself to begin to now moved these assets unchanged.
Jonathan Goodell: What makes this deal, particularly compelling is how it combines our strengths of both the lender and the mining site underwriter showcasing the power of galaxies diversified platform and the flywheel, we've built across our businesses.
Jonathan Goodell: We structured the deal to ensure that within a 90 day term galaxy Sten 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.
Speaker Change: This is my first time old school in the world. With a marker, I start by drawing a mountain. Then, with a pen, I draw a mountain with water upper cut. For a second, I start by erasing the previous layer. One layer behind the other. When the first layer dries, I start with another layer and finish it off with a new one.
Jonathan Goodell: Turning to our asset management business.
Jonathan Goodell: We ended the third quarter was $4 6 billion of assets under management, a 2% increase quarter over quarter.
Jonathan Goodell: <unk> broader crypto markets being down 7% in the quarter, we added nearly $250 million of net inflows into our fund products in Q3, driven by strong demand for our passive and active Etfs suites.
Jonathan Goodell: 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 Hecco and Tech X.
and Katya Makhno.
Jonathan Goodell: 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 Galaxy asset management will now be featured in SSG as lineup as the digital assets experts alongside Blackstone for fixed income double line 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.
[inaudible]
Jonathan Goodell: Looking ahead by year end, we anticipate a second close for Galaxy Ventures Fund one.
Jonathan Goodell: Inaugural Crypto venture fund focused on investing in early stage companies across crypto protocols software infrastructure and financial EIS applications.
Jonathan Goodell: Institutional interest has remained strong following the funds initial close and we expect to reach if not exceed our $150 million target.
Jonathan Goodell: Furthermore, we've already sourced and are executing on special situation Spv's 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.
Jonathan Goodell: 12 months ago, Crypto asset management with a small industry with significantly less AUM and limited participation of interest from institutional allocators over the past year, the admin of Bitcoin and Ethereum Etfs have helped institutionalize the broader asset class, bringing traditional pensions endowments hedge funds corporates and others to the table.
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Jonathan Goodell: We believe we are in the early stages of a crypto asset management Renaissance and the Galaxy asset management is going to play a central role in this next wave of adoption.
Django Unleashed Thanks for watching!
Jonathan Goodell: Finally, turning to our digital infrastructure solutions business I'll start with blockchain infrastructure.
Jonathan Goodell: Team here had another exceptional quarter with our assets under stake, reaching $3 4 billion rep.
Jonathan Goodell: Representing a 58% increase quarter over quarter and reaffirming our position as one of the largest validators globally on the Salon and network.
Jonathan Goodell: As announced in July and discussed on our last earnings call approximately $1 billion. This asset growth is the result of the Galaxy acquisition of crypto manufacturer. The leading blockchain note operator that provides trusted secured infrastructure services to the centralized protocols across the digital asset ecosystem.
Jonathan Goodell: Importantly in the third quarter, our blockchain infra business generated approximately $11 million of blockchain revenues net of taking cost up 26% quarter over quarter.
Thank you for watching!
Jonathan Goodell: 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's, taking services and associated trading products through those platforms.
Jonathan Goodell: We'll keep you updated on progress here as these integrations continue to unfold.
Jonathan Goodell: With respect to GK, we're incredibly excited for the global regulatory opening of digital asset custody as evidenced by the SEC recently outlining criteria for <unk> 121 digital asset custody exemptions.
Jonathan Goodell: This is a market that has been largely closed over the past two years post the classes MTX, but one that we believe GK is uniquely positioned to be a leader.
Jonathan Goodell: To that end, we have invested in broadening and a broadening of the product suite. We offer through <unk> to now include Mtc Standalone cloud based HSM as well as our patented impenetrable cold storage and we've let a rebranding with the team GK by Galaxy, which we rolled out in Europe over the past four weeks, we're excited about the <unk>.
Jonathan Goodell: Early newly invigorated momentum, we're seeing in this business.
Jonathan Goodell: Okay.
Jonathan Goodell: Finally, turning to Galaxy power.
Jonathan Goodell: Our mining business reported revenue of approximately $18 5 million for the third quarter.
Jonathan Goodell: Our net power purchase costs and external hosting expenses were approximately $10 million, resulting in a 46% direct mining profit margin.
Jonathan Goodell: Our combined <unk> under management for proprietary and hosted mining was $6 two exit hash was exceeded our <unk> target for the quarter.
Jonathan Goodell: Our average marginal cost to mine increased as anticipated to just under $38000 per bitcoin. This was the result.
Jonathan Goodell: <unk> of Q3 being the first full quarter post having increased mining difficulty and seasonal curtailment of our machines during the summer months in the ERCOT market.
Speaker Change: Simon Coopen, Ross Nemec and Joe Vesterhaar Simon Coopen, Ross Nemec and Joe Vesterhaar
Jonathan Goodell: 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.
Jonathan Goodell: As I spoke about last quarter. In addition to the 800 megawatts were already approved for at our Helios campus. We have an additional one seven gigawatts currently under various stages of low study by our consultants.
Jonathan Goodell: 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.
Jonathan Goodell: 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 U S based hyperscale or to supply turnkey infrastructure for the operation of direct liquid cooled Gpus at our Helios campus in Texas.
Jonathan Goodell: The term sheet includes options to develop up to 100% of Helios is currently approved 800 megawatt power capacity towards AI data center infrastructure.
Jonathan Goodell: Our 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.
Jonathan Goodell: 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.
Jonathan Goodell: With firm approval to draw 800 megawatts of power from ERCOT 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 experienced developing and operating large scale digital infrastructure Galaxy is very well positioned to enter the AI data center industry as a developer and operator.
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Jonathan Goodell: Hyperscale campuses.
Jonathan Goodell: This deal proposed to add another significant and diversified source of predictable revenue for galaxy completely correlated to the price of the digital assets, which will reduce the volatility of our annual revenue earnings and cash flows.
Jonathan Goodell: 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 Hyperscale there's today.
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Jonathan Goodell: 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.
Jonathan Goodell: 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. Thank you.
Jonathan Goodell: Okay.
Alex: Thank you Chris Good morning in the third quarter, we reported a net loss of $54 million.
Alex: A significant improvement from the second quarter.
Jonathan Goodell: We generated operating revenue growth of over 30% quarter over quarter, despite industry spot trading volumes declining, 15% and the price of the cerium decreasing 24% in the quarter.
Jonathan Goodell: For context, we started the third quarter was approximately $200 million and with serum exposure on our balance sheet, which was impacted by this downward price movement.
Don't forget to check out my interview with Jonathan Goldman
Jonathan Goodell: To date, we generated $191 million in net income driven by positive digital assets price movements and strong operating business performance described by Chris <unk>.
Jonathan Goodell: Galaxy operating expenses increased by <unk> 10 quarter over quarter.
Jonathan Goodell: Driven by higher staging costs and.
Jonathan Goodell: Interest expenses.
Jonathan Goodell: Taking costs increased by $9 million from last quarter, reflecting the continued expansion of galaxies blockchain infrastructure services, including the acquisition of crypto manufacturer in July.
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Speaker Change: As Chris mentioned earlier, our stinking business generated $11 million of stinking revenues net that's taking costs in the quarter, which was 26% up from last quarter.
Jonathan Goodell: At this point last year, our net staking profit was essentially zero.
Jonathan Goodell: This is a relatively new business for us with great recurring profit potential.
Jonathan Goodell: 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.
Jonathan Goodell: Equity capital was $2 1 billion at the end of the quarter and total liquid assets were $1 5 billion, consisting of $475 million of cash and stable points and approximately $1 billion of net digital assets, including bitcoin and a series of Etfs.
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Jonathan Goodell: But excluding stable coins.
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Jonathan Goodell: Our non current investments decreased from $800 million to $705 million in this quarter, driven primarily by $105 million cash and bitcoin distribution associated with associated with our investment in Mt. <unk> bankruptcy investment fund.
Jonathan Goodell: No.
Jonathan Goodell: 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.
Jonathan Goodell: We are waiting to hear back from the Commission and we'll keep you updated on our progress.
Jonathan Goodell: We are hopeful that the.
Jonathan Goodell: U S listing we will move at a faster pace going forward.
Jonathan Goldowsky
Speaker Change: Now back to the operator, thank you.
Speaker Change: As a reminder, if you'd like to ask a question press star one on your telephone keypad.
Speaker Change: If your question has been answered and you would like to remove yourself from the queue Press Star One again, we'll pause for just a moment to compile the Q&A roster.
Jonathan Goodell: Yeah.
Speaker Change: Your first question comes from the line of Martin <unk> with ATB.
Jonathan Goodell: Okay.
Speaker Change: Thanks, So much for taking my question and congrats on the results.
Jonathan Goodell: Yes.
Speaker Change: Exciting announcement can you guys give us some details about the term sheet can you talk about length of the contract.
[inaudible]
Jonathan Goodell: Revenue per megawatt and.
Jonathan Goodell: Capital if the party is going to contribute any capital to the buildup.
Jonathan Goodell: Okay.
Speaker Change: Sure Thanks, Martin and good morning.
Speaker Change: So in general we will we will provide more granular details of the deal.
Speaker Change: Once we get the execution of the.
Jonathan Goodell: Finally.
Jonathan Goodell: I would say directionally.
Jonathan Goodell: These look like.
Jonathan Goodell: Large long term offtake contracts that you would see broadly in the data center space and and like what you've seen more recently about.
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Jonathan Goodell: The.
Jonathan Goodell: It's going to require.
Jonathan Goodell: Significant capex build out.
Jonathan Goodell: We are as I said in the remarks, we're currently running a process and are in discussions on on project level financing for it.
Jonathan Goodell: The good thing.
Jonathan Goodell: That we have going for us is unlike in crypto.
Jonathan Goodell: Traditional financial.
Jonathan Goodell: Construction finance debt markets are not just wide open, but sort of screamingly wide open to finance infrastructure projects in particular.
In association with... ... ... ... ... ... ... ... ...
Jonathan Goodell: Exciting ones around the space and so on.
Jonathan Goodell: Our intention is that theres going to be a robust.
Jonathan Goodell: Non dilutive debt construction finance market Thats going to help support the scale of this kind of project. So.
Jonathan Goodell: We're excited to get to the finish line in the coming months or update the market on all the specific once we get there.
Jonathan Goodell: Fantastic.
Speaker Change: Thank you.
Jonathan Goodell: Can you give us anything on.
Jonathan Goodell: Just wondering Mike.
Speaker Change: What are the chances are youre going to disrupt our current extra hash or is the are you guys going to intend to execute this contract just with additional megawatts added to capacity.
Benjamin Budish, Michael
Jonathan Goodell: Yeah.
Jonathan Goodell: Yes so.
Jonathan Goodell: We've looked at our power assets and tenants.
Jonathan Goodell: True.
Jonathan Goodell: A pretty pretty commercial lens generally and so we've always looked to thinking about the megawatts that we have access to and really maximizing.
Jonathan Goodell: The output per megawatt from economic perspective for <unk> shareholders.
Jonathan Goodell: The what we're talking about at the Helios campus right now with our partner is.
Jonathan Goodell: Having that partner have options to really up to 100% of the electrical capacity overtime.
Jonathan Goodell: If we get there would imply.
Jonathan Goodell: The total amount of capacity there at Helios being dedicated towards Nexgen, AI and high performance compute.
Jonathan Goodell: We still have our smaller site.
Jonathan Goodell: At <unk>, which is 16 megawatts.
Jonathan Goodell: We're running that quite miners that and so.
Jonathan Goodell: I can't I can't say in the future, how big our mining operation will be or not but but the opportunity set in front of us right now.
Jonathan Goodell: With Big partners really excited about this opportunity who who value the <unk>.
Jonathan Goodell: We're a lot more than what the bitcoin mining network project.
Jonathan Goodell: It's pretty real so that's where we're focused on.
Jonathan Goodell: Okay.
Speaker Change: That's great last one for me can you talk about.
Speaker Change: What non binding means.
Speaker Change: In terms of like as many details as you're able to give them.
Speaker Change: Sure.
Speaker Change: So non-biting non-biting means we have.
Speaker Change: An agreement in principle on commercial terms and what we're going to do together, we spent a lot of time with our partner.
Speaker Change: Both sides are really excited and.
Jonathan Goodell: And we're working together to get documents over the next few months, so Alaska happened between now and then but but not.
Speaker Change: No parties in this space wanting to move.
Jonathan Goodell: With the speed to take advantage of the opportunity to enter into these agreements lately.
Speaker Change: That's great. Thanks, Thanks, and thanks for taking my call my questions.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: As a reminder, if you would like to ask a question press star one on your telephone keypad your.
Speaker Change: Your next question is from the line of Al <unk> with Oppenheimer.
Speaker Change: Hi, Good morning, and thank you for taking my question. So just on the election results and some of the expected actions from the Congress, which and we're galaxy invest more into next year is there any new trend do you think will emerge. Thanks.
Speaker Change: Yes, listen I don't think its going to happen overnight.
Speaker Change: But.
Speaker Change: There will be a.
Speaker Change: I think youll have legislation.
Speaker Change: Passed in Congress sometime in the first six months of the year.
Speaker Change: We'll make.
Speaker Change: Mark will be far more liberal and will make part clear.
Speaker Change: What constitutes a security token Anna and the utility token and so youre going to see token issuance pickup.
Speaker Change: A lot of the reasons people haven't launched.
Speaker Change: <unk> certainly in the U S is the uncertainty around it that was legal or not and.
Speaker Change: So.
Speaker Change: In all likelihood we will trading.
Speaker Change: A broader group of of.
Speaker Change: Of tokens domestically.
Speaker Change: But more importantly on a go forward basis basis, the whole ecosystem around launching new projects trading new projects, providing liquidity for new projects.
Speaker Change: He is going to grow real quickly and so.
Speaker Change: You could call it our markets business, probably has in the short run the the biggest.
Speaker Change: Uptake.
Speaker Change: Got it that's very helpful. And then could you please.
Speaker Change: Talk about the global data network, what is the rollout galaxy and how will galaxy contributed to these network.
Speaker Change: I think details like how much economics with galaxy.
Speaker Change: And I guess more importantly, what's the value proposition northeast network compared to incumbents, such as Usdt in USB C. Thanks, a lot.
Speaker Change: Yes.
Speaker Change: And lot of stable coin projects being launched I think if you think about the next two years of digital asset innovation.
Speaker Change: I think the most exciting.
Speaker Change: Place to be it's going to be around stable coins and payments.
Speaker Change: And so this network was the brainchild of Paxos CAD pass gorilla.
Speaker Change: He decided to get a bunch of players around the table.
Speaker Change: And instead of in Usdt's case, where Heather the company really was the sole beneficiary of the the gap between U.
Speaker Change: U S interest rates and with a stable quite as.
Speaker Change: In this case those properties are going to be split by the participants based on how much activity. The participant brings to the to the ecosystem and so it's a really fair fair process of.
Speaker Change: 10, guys around the table, if everyone pulls 10% youre going to youre going to youre going to split 10%.
Speaker Change: So the.
Speaker Change: One thing I would say is we.
Speaker Change: We see ourselves as a participant in the whole ecosystem.
Speaker Change: We are partnered up with 567 different stable coin providers to provide liquidity 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 stable coin world.
Speaker Change: We're trying to be in the business of participated in these ecosystems providing.
Speaker Change: Liquidity.
Speaker Change: Connectivity and guidance.
Speaker Change: Got it thanks a lot.
Speaker Change: Yeah.
Speaker Change: The next question comes from Joe <unk> from Canaccord Genuity.
Speaker Change: Wondering if there are any more details yet on contract structure and if.
Speaker Change: Signed when the contract could possibly begin with the Hyperscale tenant that you guys referenced.
Speaker Change: Okay.
Speaker Change: Thanks, Joe I wish we could we can hear you lovely voice on the call, but I know youre they're listening.
Speaker Change: So yes, so like I said look the the where we are.
Speaker Change: We're working diligently and fast on on all the aspects of what's going to be.
Speaker Change: Pretty meaningful.
Speaker Change: Size project.
Speaker Change: <unk>.
Speaker Change: In terms of contract details, we're not going to give that right now the thing I would say is as we said from the beginning where we're.
Speaker Change: We know what we have in Helios, we're very excited about about.
Speaker Change: What we bought and what we built there we truly think it's a one on one asset.
Speaker Change: On U S soil and therefore the.
Speaker Change: Any terms we agreed to are in your contract structure that is gonna be around that we were pretty excited thats going to be reflective of that there.
Speaker Change: In terms of timing.
Speaker Change: Large scale build outs and so you should you should expect.
Speaker Change: A time schedule that fits with what would be a a.
Speaker Change: $1 billion or more or significantly more plus build out over over many months to get to final completion.
Speaker Change: As you would any sort of big power infrastructure build.
Speaker Change: One more follow up from Joe <unk>.
Speaker Change: On the market side of the business derivatives clearly has grown a lot wondering if you have reached a kind of maturity level. They're 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: No.
Speaker Change: I actually think we're just getting started listen the swap dealer.
Speaker Change: Is a big lift.
Speaker Change: It was a big lift.
Speaker Change: In terms of cost and regular.
Speaker Change: Regulatory apparatus that you need to put in place.
Speaker Change: Just to participate.
Speaker Change: And I think all our competitors will be dragged across that line in time, but it's a it's a tough line to go across and so we have a little bit of a lead in that.
Speaker Change: These guys are all making the decision that we become a swap dealer or not and pay that cost.
Speaker Change: We are onboarding new clients.
Speaker Change: From Asia, Europe, and the U S. Every month every week and I think the derivative business is going to.
Speaker Change: What are you going to be one of our gems, we brought in some new talent there.
Speaker Change: And it's one of these businesses at the more participants you have the better you can do.
Speaker Change: Right because the bid ask spread in.
Speaker Change: 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 sell on the offer.
Speaker Change: Can make a whole lot of money.
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 the 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 margin.
Speaker Change: And can you remind us how the segment fit in with the larger Galaxy strategy.
Speaker Change: Sure. Thank you for the question, yes. So.
Speaker Change: The banking business.
Speaker Change: Is is generally pretty lumpy, particularly in crypto.
Speaker Change: And it's been further that dynamic has been further exacerbated by the fact that.
Speaker Change: Generally as advisors you.
Speaker Change: You get paid upon actual closing a successful transaction and there are a number of transactions that we've been involved with where we've been.
Speaker Change: And M&A advice provider and structure of a transaction for some of the biggest acquisitions in this space that are still pending.
Speaker Change: Which is really a derivative of a.
Speaker Change: The regulatory environment.
Speaker Change: 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.
Speaker Change: You won't yet see in the revenue line.
Speaker Change: Year to date, but we're now after two days ago are extremely excited about those sort of coming to to an actual closing and us realizing the fruits of our efforts.
Speaker Change: From a margin perspective.
Speaker Change: Today, the advisory business we're in.
Speaker Change: He is largely focused on boutique M&A advice, and some private placement capital raising and so.
Speaker Change: The business, we do there is it.
Speaker Change: Is extremely capital light from our perspective, well basically zero capital.
Speaker Change: And is really people focused and so from a margin perspective, our only real costs in that business are at the time and effort of our people.
Speaker Change: So when you think about flow through to the bottom to the bottom line. That's really the major consideration. The other thing I'll say about about our banking team, which.
Speaker Change: They've really been been part of the unsung heroes of the firm is when you are one of the largest companies in crypto and you have a banking team.
Speaker Change: We galaxy ourself actually become one of the largest clients of our internal banking team that never really shows up in the in the P side, maybe just the outside because because we pair in place and so the banking team.
Speaker Change: 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.
Speaker Change: The folks who run our businesses advising and working on strategic transactions internally for the firm and so when we talk about the strategic fit of the business. There is an external factor where the team has done a really good job maintaining their reputation and building a franchise with working with external clients, but there is an unknown.
Speaker Change: Part of their business, where they have spent.
Speaker Change: A lot of time doing great work, helping galaxy execute on our strategic priorities and so from that perspective, it's a it's a part of the business that that we think adds a ton of value.
Speaker Change: We do have a question from the audio lines.
Speaker Change: This question comes from the line of Martin County, where ATB.
Speaker Change: Thank you very much for putting me back on the line.
Speaker Change: Sure.
Speaker Change: You've talked in the past about how if you could borrow at rates that traditional finance.
Speaker Change: Financial institutions borrower you could grow much more quickly can you talk about how the non dilutive financing and the potential too.
Speaker Change: The potential to raise capital more cheaply given this hyperscale deal will impact your ability to grow in your other businesses.
Speaker Change: Yeah, Hey, Martin.
Speaker Change: I'll take this one so.
Speaker Change: Well, let me try and pick that apart a little bit I think that.
Speaker Change: The.
Speaker Change: The traditional construction financing market, who who which which is very much open to.
Speaker Change: Financing builds like what we're talking about Helios are going to be very focused on.
Speaker Change: That project and that opportunity set.
Speaker Change: Alright, and so.
Speaker Change: So that financing, we think about and I think the market should think about as being very specifically tailored towards what that asset.
Speaker Change: Is going to look like and what it is going to do.
Speaker Change: And so.
Speaker Change: <unk> is unlikely in the near term for it to be a situation, where that's sort of like blanket generally available to galaxy.
Speaker Change: And we're not we're not expecting that we're not thinking that.
Speaker Change: The thing I would say, though is whats important about what's changed.
Speaker Change: Literally overnight around the expectations for the forward.
Speaker Change: If we imagine a world where now finally.
Speaker Change: The biggest finance years.
Speaker Change: The world can actually touch digital assets like the claim this area then that that should be the critical unlock.
Speaker Change: Sure.
Speaker Change: What we think about it is more traditional wholesale financing available to financial services providers like Alex in the space and so.
Speaker Change:
Speaker Change: In New York.
Speaker Change: The state streets et cetera, the world being able to accurately custody crypto.
Speaker Change: Should be the thing that that for us unlocks our ability to now taking an external capital for the markets business for example, and really drive down the cost of borrowing for our clients, which should really increased demand, while still allowing us to.
Speaker Change: To quickly build a smart financing business so.
Speaker Change: I really think about them as two separate things, although although our debt now is quite clear, which is the world's are really converging and I think we're going to see a much more accepting.
Speaker Change: Financing market generally for what we do as a company.
Speaker Change: Yeah.
Speaker Change: That's great I appreciate all of that last one for me any sense of what the additional capex per megawatt will be for.
Speaker Change: For the HBC.
Speaker Change: Allocation.
Speaker Change: Yes, sure. So we do have a pretty decent sense for what that's going to look like.
Speaker Change: The ultimate outcome of that is going to depend on the ultimate.
Speaker Change: Texas to build out our partners.
Speaker Change: Cases, which we're still working towards so we're not we're not.
Speaker Change: Not in a position right now to give you the exact guidance on what that's going to be.
Speaker Change: Okay great.
Speaker Change: We appreciate you taking my follow up.
Speaker Change: Okay.
Speaker Change: Thanks, Chris.
Speaker Change: The next question comes from Bill <unk> from Stifel.
Speaker Change: Can you please walk us through your methodology on allocating power capacity at Helios for Bitcoin mining versus AI H P. C. How do you see economics trending over the next 12 or so months.
Speaker Change: Across both types of compute.
Chris Ferrara: You can have it Chris.
Speaker Change: Thanks, Mike.
Speaker Change: No.
Speaker Change: Yes so.
Speaker Change: Let's talk big picture, what's going to be an interesting dynamic.
Speaker Change: For the Bitcoin network is.
Speaker Change: B, which now appeared to be a pretty fast growing competing demand for.
Speaker Change: What's what's than ever.
Speaker Change: Shrinking available.
Speaker Change: Supply of power capacity.
Speaker Change: And so what I mean by that is as you know.
Speaker Change: Ex this opportunity what we have witnessed over time is a pretty consistent increase in hash rate.
Speaker Change: Which which directionally has kept pace 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.
Speaker Change: Now if you think about it.
Speaker Change: That capacity coming out of the market for for Bitcoin.
Speaker Change: For other use cases.
Speaker Change: Actually gives us some interesting comfort that the curve on cash rate globally.
Speaker Change: May bend and flatten out relative to what we've seen historically so that's just one thing I would say there is that we don't know the outcome of that but the.
Speaker Change: <unk>.
Speaker Change: The positive impact that that might have on bitcoin mining economics is potentially very real for us.
Speaker Change: The in terms of allocation like.
Speaker Change: Assuming we we.
Speaker Change: <unk>.
Speaker Change: Execute on what we're looking at right now on the APC side the demand for that for that power for US is very very large and would encompass the vast majority of our asset base.
Speaker Change: And the economics of that are clearly more interesting than what today and what we think the forward would suggest four.
Speaker Change: <unk> decline and so it's a pretty easy decision economically for us.
Speaker Change: To make and so it's not something that we're going to dynamically jump back and forth between is something that that we've we've explored what it looks like we've analyzed it pretty closely and we're very excited about the forward opportunity for H B C.
Speaker Change: Your next question is from the line of Nick <unk> with B Riley Securities.
Speaker Change: Thank you so much operator and good morning, everyone. This is Nick <unk> on for Lucas pipes.
Speaker Change: Just wanted to ask about the infrastructure side.
Speaker Change: Is there a minimum level of capacity that needs to be taken down in order for a transaction will be executed or maybe said differently should we think about.
Speaker Change: Any potential deal kind of occurring in 100 200 megawatt.
Speaker Change: Tranches.
Speaker Change: So much.
Speaker Change: Sure.
Speaker Change: So.
Speaker Change: I would say on that on that front is that there's there's there's physical site constraints right. So today, we have we have a.
Speaker Change: We had a single large datacenter facility, where we where we host all of our bitcoin mining.
Speaker Change:
Speaker Change: Bond side of Helios and <unk>.
Speaker Change: Doing a project of this size is going to require a pretty big retrofit.
Speaker Change: That facility in addition of backup.
Speaker Change: Power Gen and redundant systems, all cross all across the entire site and so to do a project of that size I would just give you a guidance that the minimum size requirement is pretty large because of this.
Speaker Change: The disruption to the existing operations is logistically is is going to be very real so.
Speaker Change: Order magnitude wise like you would you should expect a deal a pretty a pretty meaningful size, just because legit logistically practically speaking that a big portion of the study is going to be retrofitted and expanded.
Speaker Change: Yes.
Speaker Change: I appreciate that.
Speaker Change: Just operational issue should we think about this is dean tenant managed and then maybe one more if I can just on the design process of the data center have you engaged in design firms or how much how much work is happening now with the hyper scaler on that front.
Speaker Change: A significant amount of work.
Speaker Change: <unk> has been as.
Speaker Change: <unk> has been put in and as and as concurrently running.
Speaker Change: With ourselves our internal team.
Speaker Change: Number of external contractors, all up and down and advisors and architects often down the technology stack mechanical cooling electrical et cetera.
Speaker Change: And so it's truly a joint partner effort.
Speaker Change: With that.
Speaker Change: With our partner our potential partner.
Speaker Change: Yes.
Speaker Change: That's what I can say.
Speaker Change: Got it great to hear congrats on the progress so far and continued best of luck.
Speaker Change: At this time there are no further questions I will now hand, todays call back over to Mike Novogratz, founder and CEO of Galaxy Guy.
Mike Novogratz: Once again, thanks, so much for joining our call we couldnt be more excited here at galaxy for the future outlook.
Mike Novogratz: We're plus 500 employees coming to work every day hustle and for our shareholders and so.
Mike Novogratz: The future looks bright and thanks for supporting Us.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.