Galaxy Digital Third Quarter 2026 Earnings Call - GALAXY DIGITAL INC

Financial Performance:

• Reported net income of $323 million and adjusted EBITDA of $455 million for Q3 2026, marking a significant improvement over Q2.
• Combined adjusted gross profit from operating businesses reached $150 million (up >75% QoQ), while Digital Assets generated $71 million and Data Centers generated $79 million.
• Treasury and corporate segment posted $419 million in adjusted gross profit, driven primarily by appreciation in digital asset holdings and private investments (e.g., Etched, Forward Industries).
• Total cash, stablecoins, and T-bills increased to $4.9 billion at quarter-end, up from $2.5 billion in Q2.
• Firm-wide operating expenses were $161 million, an increase attributed to depreciation and amortization from Helios Phase 1 reaching full operation.
• Capital expenditures were $757 million in Q3, with expectations of higher spend in H1 2027 as Phase 2 construction ramps up.
• Share repurchases totaled $79 million in Q3, completing the initial $200 million authorization, with a newly announced additional $200 million buyback authorization.

Guidance and Future Outlook:

• Helios Phase 1 is generating ~$80 million in quarterly leasing revenue; Phase 2 is under construction.
• Guidance projects an annualized leasing revenue run rate of $800–$850 million by exit 2027 upon full delivery of Phase 2.
• Anticipates Phase 3 financing to be pursued in H1 2027, with current plans to fully equity-fund Phase 3 through project completion.
• Expects construction deliveries for Phase 2 data halls to begin in Q2 2027, with energization targeted for mid-2028.
• Long-term vision centers on digital assets becoming the foundation for future finance and AI infrastructure underpinning the global financial system.
• Management expects regulatory clarity on AI and crypto to improve over the next 12–18 months, though short-term market volatility regarding credit rates and oil prices is anticipated.

Business Segments and Product Lines:

• Digital Assets: Trading volumes grew 12% QoQ outperforming the spot market; average loan book expanded 25% to ~$1.8 billion; Staking assets under stake grew 64% to $4.6 billion (driven by $400M+ new inflows from ETF providers).
• Asset Management: AUM increased 30% to $5.9 billion, with ETFs growing >40% and Alternatives growing 30%; launched Galaxy SharpLink On-Chain Yield Fund and SWEEP money market fund (approaching $300M AUM).
• Ventures: Progressing toward Fund 2 close (end of Q4) with a target of $250–$300 million; Fund 1 marked at $2.25x gross MOIC; over $80M deployed across 11 portfolio companies with unrealized mark-to-market at 3.4x.
• Data Centers (Helios): Phase 1 is operational; Phase 2 is fully funded with 260MW capacity under construction; secured 5 Texas projects under ERCOT Batch Zero (4.2GW total capacity, including 1.6GW baseload at Helios 1 & 2).
• Infrastructure Partnerships: Expanded staking capabilities with major ETF providers; deepening engagement with BNY Mellon and other traditional financial institutions for tokenization and custody services.

Market and Competitive Landscape:

• Market dynamics shifted in late summer with constrained power availability and tightening financing, increasing the value of secured assets like Helios 2.
• Demand for capacity in 2028+ from hyperscalers, frontier labs, and neoclouds has strengthened significantly.
• Galaxy positions itself as a strategic infrastructure partner for traditional finance institutions moving on-chain, aiming to replace legacy financial infrastructure with on-chain solutions.
• Competitors face similar delays in power approvals and construction, but Galaxy's early delivery track record and funded pipeline provide a competitive differentiation.
• Management notes that the market is absorbing higher interest rate environments, with short-term rates likely stabilizing between 4–6% and long-term yields adjusting as oil prices potentially decline.

Risks and Challenges:

• Regulatory Uncertainty: Ongoing scrutiny in Texas (Governor Abbott's directive) and federal bodies (SEC/CFTC) regarding power permits and crypto frameworks.
• Market Timing: Decision to pause Helios 2 leasing discussions to avoid suboptimal terms; waiting for clearer regulatory signals (audit results in Dec 2026, ERCOT allocations in April 2027).
• Supply Chain: Potential bottlenecks in long-lead equipment procurement; mitigated by early deposits and global supplier diversification.
• Credit Markets: Stress in credit markets due to geopolitical tensions (war in Iran) and high rates; management has liquidity to weather this but notes it as a short-term headwind.
• Technology Adoption: The transition of real-world assets on-chain is progressing slowly, creating a risk of delayed revenue recognition for future fee-based streams.

Management Commentary and Tone:

• Tone was highly confident and strategic, emphasizing a "wait for the right deal" approach over rushing to meet arbitrary timelines.
• Mike Novogratz expressed strong conviction in the convergence of crypto and AI infrastructure, viewing the current volatility as a temporary market dislocation.
• Management highlighted the balance sheet as a key competitive advantage, allowing them to pre-fund construction and avoid distressed financing.
• Emphasis on becoming a "long-term strategic partner" to TradFi institutions rather than just a crypto-native service provider.
• Acknowledged short-term stock performance but focused on long-term intrinsic value creation through diversified earnings and buybacks.

Analyst Questions and Answers:

• Helios 2 Leasing: Management clarified they exited summer talks due to tightened power supply constraints, better counterparty terms needed, and the need to align with 2028 energy demand; new deal expected after Dec 2026 audit results and April 2027 ERCOT allocations.
• Capital Deployment: Priorities are business funding, maintaining a robust balance sheet, and opportunistic buybacks; $445M in exchangeable notes maturing Dec 2026 can be paid in full without refinancing.
• Digital Asset Profitability: Current losses in the segment are due to lower crypto volumes and strategic investments in future infrastructure (licensing, tech); a one-time accounting adjustment also impacted Q2/Q3 comparability.
• CoreWeave Relationship: Clarified that Galaxy faces CoreWeave's portfolio risk (residual equity), not individual tenant risk; loads and tenants are expected to rotate as CoreWeave manages its broader GPU footprint.
• Galaxy One (Retail): Assets on platform grew to >$125M; Q1 2027 roadmap includes expanding brokerage capabilities and bespoke wealth management products.
• Revenue Mix: While transactional revenue (trading/lending) will grow with market size, the strategic goal is to shift toward recurring fee-based revenue from infrastructure and custody services as TradFi migration accelerates.

Other Key Points:

• Announced $200 million additional share repurchase authorization, bringing total new authorization to $400 million alongside the recently completed $200 million buyback.
• Helios 2 is considered more valuable today due to constrained supply of large-scale power, despite the delay in leasing.
• Management highlighted the "luxury" of having funded capacity and time to wait for regulatory clarity, unlike competitors facing immediate capital pressures.
• Discussion on AI policy indicated plans to engage with the White House to help shape frameworks that balance safety with innovation.
• Mentioned that the "indigestion" in credit markets is likely near peak nervousness and will resolve as oil prices stabilize and equity raises (e.g., Meta, Anthropic) absorb risk.