Galaxy Digital Inc.

Good morning and welcome to the Galaxy's second quarter 2024 earnings call. Today's call is being recorded. If you would like to ask a question, please press star 1 on your telephone keypad. To remove yourself from the queue, please press star 2. At this time, I would like to turn the conference over to Jonathan Goldowski, head of investor relations. Please go ahead, sir.

Good morning and welcome to Galaxy's second quarter 2024 earnings call. Before we begin, please note that our remarks today may include forward-looking statements. 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 CDAR Plus and available on our website or in future filings we make with other securities regulators. Forward-looking statements speak only as of today and will not be updated. In addition, none of the information on this call constitutes a recommendation, solicitation, or offer by Galaxy or its affiliates to buy or sell any securities, including Galaxy securities. With that, I'll turn it over to Chris Ferraro, President and CIO of Galaxy.

Thanks, Jonathan, and good morning, everyone. Before I turn it over to Alex and Mike, I'll first review our operating results for the second quarter of 2024. key trends within our businesses and the momentum we have heading into the back half of the year. Let's start with global markets. Spot and Daruda's trading volumes across the industry decreased in the second quarter as activity fueled by the launch of the Bitcoin ETFs in January returned to more normalized levels. As a result, in Q2, our counterparty trading revenue and volumes decreased compared to the prior quarter, largely in line with the decline seen in the broader crypto market. Despite the quarter-over-quarter decrease in trading volumes and revenues, our counterparty-facing trading business has generated approximately $90 million in revenue year-to-date, an 80% increase relative to the first half of 2023, and nearly the same amount that we earned all of last year. As a reminder, earlier this year we crossed $8 billion in trailing 12-month notional OTC derivatives traded, requiring us to register as a swap dealer in the U.S. and comply with a new set of regulatory requirements. As anticipated, this transition has empowered us to offer larger U.S. institutional clients the chance to participate in a well-established and regulated trading environment. Through the first half of the year, we have traded approximately $13 billion in notional OTC derivatives, which is already $5 billion more than we traded in all of 2023. Further, we have continued to onboard new clients across our trading offerings and ended the quarter with over 1,200 global markets counterparties. Notably, in recent months, we have seen increased engagement with protocols and crypto native clients who are leveraging our full product suite to engage with the broader ecosystem. We've seen an uptick in on-chain opportunities, such as providing liquidity for protocols and facilitating hedging derivatives and lending for clients with locked token positions. We continue to originate new loans to meet increased borrowing demand from both new and existing clients, with our average loan book size growing to just under $700 million. Despite the overall crypto market being down 12% in the second quarter, our ability to increase our lending book by 5% quarter over quarter signals that we are continuing to win market share and organically scaling our business. We are seeing tangible growth in the build and client adoption of Galaxy One, our unified technology platform offering institutions all the tools to trade, finance, store, and manage digital assets efficiently. We ended the second quarter with over 100 clients and over $1.1 billion of fair market value assets being serviced by the platform. And I'm also excited to share that we continue to facilitate client purchases of locked tokens, and subsequent to quarter end, we closed on yet another sizable syndication deal. This deal will add approximately $250 million of additional fair market value assets to Galaxy One. These assets will build on the already strong base of recurring service fee revenues on the platform. And finally, in conjunction with this deal, I'm also pleased to share that our digital infrastructure solutions arm will be providing staking services for these new assets as well, continuing to build on that group's quickly growing base of reoccurring client franchise revenues. This deal, along with a number of deals like it both closed and in the pipeline, further showcases the strength of Galaxy's diversified platform, the differentiated institutional service offerings we're able to provide our clients, And importantly, the flywheel that we set out to build here at Galaxy across the firm's operating units. Moving to the other segment of our global markets business, investment banking. Our team successfully closed two deals in the second quarter, serving as the exclusive financial advisor to Toposware in its sale to Polygon and to another client on its strategic financing. Additionally, in the quarter, we announced that Galaxy served as the exclusive financial advisor to Bitstamp in its pending sale to Robinhood. which is expected to close in Q1 2025. This quarter, the team also tokenized a 1708 Stradivarius violin utilizing GKH technology, a tangible example of our ability to monetize illiquid assets as part of our broader tokenization strategy. Since the announcement, we have received numerous inbounds from both new and existing clients who have shown interest in fractionalizing and lending against high-value, traditionally illiquid assets. Broadly, while capital markets continue to face headwinds, We expect to see more issuers launch capital raises as well as additional M&A opportunities in the second half of the year and into 2025. Turning to our asset management business, we ended the second quarter with $4.6 billion of AUM. While this represents a 42% decrease quarter over quarter, the decrease was anticipated and overwhelmingly driven by our continued successful execution in monetizing the FTX estate's digital assets holdings for creditors. As of quarter end, the value of the assets tied to the various FTX mandates remaining that we are managing was $520 million U.S. While the AUM and fees associated with the mandates will continue to decrease over the coming months, we have successfully returned over $8 billion to creditors, making Galaxy the only player in the space with a proven track record in executing a complex multi-billion dollar bankruptcy mandate. And we're incredibly proud to have been instrumental in rectifying the aftermath of the 2022 crypto cycle aiding creditors in reclaiming their funds and supporting the industry in rebuilding trust and credibility. Building on our existing partnership footprint in Canada, the U.S., Brazil, and Europe, on June 26th, Galaxy Asset Management announced we have joined forces with State Street Global Advisors to develop a suite of manager-directed digital asset ETFs that will offer investors exposure to companies involved in the digital asset space going beyond crypto and Bitcoins. Since its inception, Galaxy has been a leader in active digital asset management. This collaboration with State Street leverages our combined expertise in creating and managing investment-grade products and ETFs globally, positioning us to make the over $2 trillion digital asset ecosystem more accessible to a broader investment community. We're aiming to go to market with three ETFs in our initial product launch, and we'll keep you updated on progress here. The team has also remained focused on the U.S. ETF landscape and subsequent to quarter end announced the launch of the Invesco Galaxy Ethereum ETF, QETH, in partnership with Invesco. This offering builds on Galaxy and Invesco's existing product suite following the launch of the Invesco Galaxy Bitcoin ETF, BTCO, earlier this year. Finally, on the venture side of our business, we conducted $113 million initial close for Galaxy Venture Fund One, our inaugural crypto venture fund focused on investing in early stage companies across crypto protocols, software infrastructure, and financialized applications. Given that this fund has garnered stronger than expected interest and that opportunities to deploy capital have expanded meaningfully in recent months, we expect to continue fundraising into next year to reach, if not exceed, our $150 million target, aiming to build a targeted portfolio of approximately 30 exciting new digital asset companies. The official launch of this fund marks an over-year-long process of moving Galaxy's core venture investing team off the balance sheet and into Galaxy Asset Management, which we believe will provide long-term, sticky management fee revenues. Galaxy Asset Management's strong track record and global product reach has laid the groundwork for us to continue to attract institutional capital throughout the second half of 2024 and beyond. With nearly $2.4 billion in passive AUM, Over 630 million in active AUM and one and a half billion in venture AUM, Galaxy is one of the largest and most trusted digital asset managers globally. Turning to our digital infrastructure solutions business, let's start with blockchain infrastructure. This team had an exceptional quarter, with our assets under stake reaching 2.1 billion, representing an over 340% increase quarter over quarter. This significant growth has not only bolstered our staking operations meaningfully, but also established Galaxy as currently the largest validator globally on the Solana network. We are also excited to share that in July, Galaxy announced the acquisition of CryptoManufacture, a leading blockchain node operator that provides trusted secured services to decentralized protocols across the digital asset ecosystem. In addition to enhancing our position as a leading technical partner to protocols and builders, this strategic acquisition expands our staking capabilities even further increasing our Ethereum assets under stake by approximately $1 billion, which brings our total assets under stake to over $3.3 billion as of today. By integrating CMS engineering expertise and resources, Galaxy is positioned as a more prominent player in the Ethereum ecosystem, providing enterprise-grade support and innovative solutions to every corner of the digital asset space. Now turning to mining. Our mining business continued to be positioned as a leading Bitcoin miner globally, reporting revenue of $24 million for the second quarter. Our net power purchase costs and external hosting expenses were approximately $10.5 million, resulting in a 56% direct mining profit margin. In the second quarter, we operated at 5.6 exahash per second of combined hash rate under management, down 3% quarter over quarter, despite network difficulty declining almost 10% during the quarter. And despite the Bitcoin halving event in April, which reduced block rewards by 50% for all miners, we maintained a low marginal average cost to mine of less than $22,500 per Bitcoin in the second quarter. As Q3 will be the first full quarter post-halving, and we expect network hash rate to increase significantly in the second half of the year, we do anticipate our marginal cost to mine will increase next quarter. We have been very discerning in when and towards when end we direct our capital investments. with our focus on securing long lead time electrical infrastructure that is portable across mining and other computing applications. We have also opportunistically upgraded our ASICS fleet when marking conditions have been attractive, which is what we did in the first quarter of 2024 when we purchased 3,000 new Bitmain S21 machines. These machines are online today, and we expect to be able to scale to six exahash of hashrate under management by the beginning of the fourth quarter without any further material capital expenditures. Now, I want to take a step back and talk a little more detail about our flagship Helios campus located in Dickens County in West Texas. Currently, Helios has 200 megawatts of energized mining capacity. We have firm capacity approval from both ERCOT and the Wind Energy Transmission of Texas to scale up to 800 megawatts of power from the existing interconnect. Today, the majority of our site is cooled using liquid cooled infrastructure, with our main data center representing one of the largest liquid cooled data centers in the world. For a smaller portion of our site, we use newly developed and engineered evaporative cooling units, for which we now own the IP. And earlier this year, Galaxy built a freshwater pond with storage capacity of nearly 10 million gallons to expand our cooling capabilities in the most efficient way. We have six main power transformers installed at our existing project substation, two of which are currently energized and powering our Bitcoin mining operations. We plan to energize the next two transformers by this time next year, which will add an additional 300 megawatts to the site's current capacity, bringing our total capacity to 500 megawatts. And the final two power transformers are expected to be energized in early 2027, which will enable us to deliver the full 800 megawatts of high voltage capacity for which we are already fully approved. Helios is also strategically positioned adjacent to the Cottonwood Switching Station, one of the largest electrical switches in Texas. Several gigawatts of electricity generated by wind and solar energy are delivered through ERCOT's transmission system here, providing us with an incredible amount of reliable power right next door. Our positioning in Texas also allows us to benefit from the competitive, deregulated market structure employed by the ERCOT grid and the relatively high degree of renewables in the region given the feasibility of wind and solar gen. Last quarter, we expanded our campus by purchasing an additional 160 acres adjacent to Helios. We now have a total 320 acres of contiguous land, and we've submitted additional load studies and new interconnect requests that are pending approval to service our expanded footprint and expected future growth at Helios. Additionally, the Helios campus has the opportunity to enhance our network presence by connecting to existing long haul dark fiber routes that provide scalable bandwidth, low latency, and redundancy between the Helios campus and the Dallas area. We have done the work to define the engineering requirements, received quotes on the components required, and reviewed proposals to construct scalable fiber for the Helios campus. When we acquired Helios back in December of 2022, our thesis was simple. To be a leader in the Bitcoin mining industry over time, you need, one, to own your own infrastructure, and two, to have access to low-cost power at scale. Our Helios acquisition checked these boxes, and we've seen that in the ongoing success of our mining operations. However, as we've scaled, we've also seen the opportunity set in front of us rapidly evolve. Advancements in both AI and HPC industries are driving what appear to be the early innings of an insatiable demand for data center capacity with access to low cost power and with the ability to scale on an expedited timeline. We have been evaluating this sector and the possibility of utilizing Helios beyond the scope of just Bitcoin mining for the past several months. With land to scale, an improved interconnection of 800 megawatts, long lead time components already acquired and scheduled to be energized, access to water and a low-cost power, Helios is positioned to be one of the most optimal sites to build and operate large-scale data centers for a variety of different computing applications. We recognize the value of the asset that we have, and we do not need to make a quick or reactive commitment, but rather are going to take a long-term measured approach to scaling this facility. Our primary goal is to monetize our electric capacity and existing infrastructure in the most profitable way possible, and I am unbelievably excited for what is to come. The strong performance of each of our three operating businesses in the first half of this year underscores the strength of our diversified business model and our ability to both support and capitalize on the influx of institutional capital into the digital asset ecosystem. I'm more confident than ever in Galaxy's strategic vision and our team's ability to drive continued growth and success. Alex, over to you.