Galaxy Digital (GLXY) Q3 2026 Earnings Call Transcript

Financial performance and balance sheet strength

Net Income -- $323 million, representing a recovery from a loss of $85 million in the second quarter. Adjusted EBITDA -- $455 million, compared to a negative $77 million in the prior quarter. Digital Assets Adjusted Gross Profit -- $71 million, increasing from $66 million in the second quarter due to higher client activity.

Trading Volumes -- 12% growth, outperforming the industry-wide spot market which saw declining volumes. Average Loan Book Size -- $1.8 billion, a 27% increase reflecting demand for the Galaxy On-Chain Financing Rate. Assets Under Stake -- $4.6 billion, growing 64% in the quarter behind market appreciation and gross new inflows of $400 million.

Asset Management AUM -- $5.9 billion, a 30% increase driven by ETFs and alternative investment strategies. Data Center Adjusted Gross Profit -- $79 million, reflecting the first full quarter of leasing revenue from Helios Phase I. Data Center Capital Expenditures -- $757 million, up from $448 million in the second quarter as Phase II construction progressed.

Helios Phase II Capacity -- 260 megawatts, which is fully funded and currently under construction with deliveries planned for 2027. Approved Power Capacity -- 830 megawatts at Helios II, which remains available for leasing to prospective investment-grade tenants. ERCOT Batch Zero Classification -- 4.2 gigawatts of capacity across five projects, including 1.6 gigawatts of previously approved baseload capacity.

AI and Technology Investments -- $80 million deployed across 11 portfolio companies, yielding a 3.4 times unrealized mark-to-market. Venture Fund II -- $250 million to $300 million target size, with management expecting a first close by the end of 2026. Cash and Liquidity -- $4.9 billion in cash, stablecoins, and U.S. Treasuries, supported by a $3.5 billion senior secured note financing.

Share Repurchases -- $200 million year to date, covering 9.8 million shares, with a newly authorized $200 million program. Corporate Investment Gains -- $419 million in adjusted gross profit for the Treasury and Corporate segment, driven by digital asset appreciation. Exchangeable Notes Maturity -- $445 million due in Dec. 2026, which management indicated can be covered by existing balance sheet resources.

Ferraro stated, “we decided not to move forward on the terms being considered,” after market dynamics shifted in late summer during Helios II leasing discussions. Ferraro warned that the evolving regulatory and political landscape in Texas has created additional uncertainty around future data center development. Management noted $445 million of exchangeable notes maturing in Dec. 2026, which will require the use of existing balance sheet resources or refinancing.

Galaxy Digital Inc. (GLXY +7.65%) reported a return to profitability in the third quarter, supported by growth in its digital assets franchise and the initiation of leasing revenue from its data center business. Management highlighted a strategic focus on two primary shifts: the modernization of financial markets through digital assets and the expansion of infrastructure to support artificial intelligence. The company transitioned its Helios Phase I data center into full operation, converting previous development investments into realized contracted cash flows. Management reported deepening institutional engagements, including infrastructure partnerships with major financial institutions, while maintaining a liquid balance sheet to support long-term growth and opportunistic share repurchases.

CEO Novogratz stated, “I have a tremendous amount of conviction that the financial architecture developed by the crypto industry will underpin much of how the financial system operates in the future.” The company is broadening the Helios II process to target investment-grade hyperscalers and counterparties for capacity deliveries beginning in 2028. Management reported that five Texas data center projects received conditional Batch Zero classifications, representing 4.2 gigawatts of potential capacity. Galaxy 1 is expanding brokerage capabilities with a focus on bespoke wealth management products for high-net-worth individuals, with rollouts planned for the first quarter of 2027. The digital asset business is focusing on on-chain credit and prime brokerage, leveraging institutional experience to capture the transition of legacy financial volumes.

Conference call opening and strategic vision

Taylor Reinhardt: Good morning, and welcome to Galaxy's Third Quarter 26 Earnings Call. Before we begin, please note that our remarks, including answers to your questions, may contain forward looking statements. Actual results may differ materially from those described in these statements as a result of various factors including those identified in the disclaimers in our earnings release or other filings, which have been filed with the U. S. Securities and Exchange Commission, and on SEDAR plus. Forward looking statements speak only as of today and will not be updated. Additionally, we may discuss references to non GAAP metrics, the reconciliations of which can also be found in our earnings release.

Finally, the information on this call does not constitute a recommendation, solicitation, or offer by Galaxy or its affiliates to buy or sell any security. With that, I will now turn the call over to Michael Edward Novogratz founder and CEO of Galaxy to discuss our results.

Michael Edward Novogratz: Good morning, everyone, and welcome, Taylor, to the Galaxy team. You guys will get to know her well and will like her as much as we do. Listen. We had an awesome quarter. Really proud of what the team delivered. But what excites me more is what performance says about where Galaxy is headed. We have spent years investing ahead of 2 enormous shifts. Finance moving on chain and the build out of AI infrastructure. And we are increasingly seeing those investments translate into results. With the strategy playing out in 3 important ways this quarter. First, we saw a strong rebound in crypto markets. Bitcoin was up more than 40% with a meaningful improvement in sentiment and client activity.

Our global markets business capitalized on that momentum, growing trading volumes and expanding client engagement. We also saw a significant appreciation across our investment portfolio, reflecting the value of capital we have deployed across crypto and the broader technology ecosystem. Second, the opportunity in digital assets is getting bigger. And I think we are just scratching the surface of what is ahead. Crypto remains an important growing asset class, but the opportunity extends well beyond that. With digital assets increasingly becoming the foundation, for the future of finance. And increasingly, those 2 worlds are coming together. You can see it in the growing adoption of stablecoins. The tokenization of traditional financial assets, and the participation of major financial institutions.

I have a tremendous amount of conviction that the financial architecture developed by the crypto industry will underpin much of how the financial system operates in the future. Galaxy has spent years investing in these capabilities, and we are still early. In early stages. I believe that investment will translate into meaningful results over the next several years. Regulatory clarity will be an important part of that. While the CLARITY Act has not become law, unfortunately, the SEC and the CFTC are working towards clearer frameworks. there is still a lot to sort out, but the direction is encouraging. And investing ahead of these shifts has always been part of our strategy.

We did it early in crypto, investing in companies and technologies that help build the ecosystem, Now we are taking that same approach to AI, increasingly investing in the next generation of companies through our investment strategies and our balance sheet. Third is data centers. Where we are building a very sizable business. Helios has come a long way in the past year. We are now generating approximately $80 million of leasing revenue per quarter from Phase I. As Phase II comes online next year, we expect to exit 2027 at an annualized leasing revenue run rate of between $80 million to $150 million. Based on our current delivery schedules.

That is a substantial business from the capacity we have already leased, and the momentum is building. We have significant additional approved power available to lease and a deep development pipeline beyond that. I want to address the timing of leasing announcement at Helios II. Earlier this year, I spoke about the possibility of an agreement during the summer. We were in advanced discussions around a potential transaction but as the market dynamics shifted materially in late summer, ultimately decided not to move forward on the terms being considered. The market for large scale power via data centers has become increasingly constrained. While demand for capacity beginning in 2028 and beyond has strengthened.

With more than 800 megawatts of secured power and supporting infrastructure, we believe Helios II is an even more valuable asset today than it was just a few months ago. And with delivery plan for 2028, we have the flexibility to evaluate our opportunities and get the right deal. We built Galaxy by adopting the changing markets and being disciplined about where we commit capital. These are large long term agreements, and we are not going to compromise on terms just to meet an announcement date. We continue to have productive and active discussions with prospective customers with a focus on maximizing long term value for shareholders.

And as the Helios campus scales, we are fundamentally changing the earnings profile of Galaxy. We have established a digital asset franchise with significant earnings power, growing opportunities for recurring fee based revenue, and a data center business that is adding long term contracted cash flows. Together, these businesses give us multiple drivers of growth and more diversified earnings base that we believe will make Galaxy a stronger, more durable franchise over time. We also have the balance sheet to back that ambition. it is a competitive advantage that allows us to commit capital as a principal invest in growth across our businesses, and take advantage of opportunities as they arise.

We are focused on putting that capital to work where we see the most attractive long term returns. That includes investing in our own shares when we believe they are trading at a meaningful discount. We have repurchased $200 million year to date and this morning announced an additional 200 million share repurchase authorization. As significant shareholders ourselves, we see buybacks as another potential way to allocate capital thoughtfully to create long term value. Christopher will now take you through how we are translating these opportunities into results. Across our businesses and what we are focused on next. Christopher, over to you.

Global markets and digital asset infrastructure

Christopher C. Ferraro: Thanks, Mike. Starting with digital assets. 1 of the strengths of our global markets business is the breadth of solutions we can offer clients. We are seeing growing demand for more sophisticated trading and financing solutions, particularly as traditional financial institutions look to participate in decentralized markets through products and structures they are familiar with. We have spent years building capabilities for crypto native clients, and that experience gives us an advantage as traditional finance increasingly moves on chain. We understand these markets can move quickly and have the flexibility to develop solutions for both groups. Lending is a great example.

We have expanded the Galaxy On-Chain Financing Rate, or GOFR which gives clients access to on chain financing alongside our growth financing facility which allows us to support more lending activity through external capital. We are expanding our loan syndication, collar lending, and structured financing capabilities broadening the range of clients and financing needs we can serve. We are seeing this. We are seeing the same innovation across trading. Our derivatives business executes sophisticated options and hedging strategies for clients. And this quarter, we completed our first compute link derivatives transaction. Extending our capabilities into an emerging market that we believe has the potential to grow into a sizable new stand alone asset class.

In asset management, we are expanding our investment strategies and product offerings to meet evolving institutional demand. During the quarter, we launched the Galaxy-Sharplink On-Chain Yield Fund, an actively managed strategy providing access to yield opportunities in decentralized finance through an institutionally managed SMA for a public company. Sticking with on chain asset management theme, SWEEP, the first ever decomposable on-chain money market fund, in partnership with State Street Global Advisors, is now approaching $300 million of AUM. Which we believe is an early signal of strong product market fit among first mover institutions interacting with tokenized real world assets.

With Galaxy Digital Ventures, we are progressing towards a first close of Fund II expected towards the end of Q4. With a fund target size of $250 million to $300 million As an investor, you only win the right to raise a second larger fund once you have proven out a strong process and great returns. And the GEV team has done that with Fund I, currently marked at 2.25 gross MOIC. In digital asset infrastructure, we are seeing growing momentum with some of the world's largest financial institutions, and are expanding our capabilities and offerings across tokenization, custody, and staking to meet their evolving needs. Staking is an area where we are seeing growing engagement with major institutions. Assets under stake grew 64% in the quarter to $4.6 billion.

While this was primarily driven by price appreciation of the underlying assets in the quarter, we have also seen a number of large ETF providers begin delegating their ETH and SOL stake to Galaxy's infrastructure. Driving over $400 million of gross new inflows in Q3 and subsequent to quarter end, and we expect additional sizable partner launches before year end. More broadly, our relationship with BNY announced this summer has been an important validation of our capabilities as we continue to deepen our engagement with leading global financial institutions. These are complex engagements with long sales cycles, but the potential is significant.

Our objective is to become a long term strategic partner as institutions build out their digital asset businesses creating opportunities to expand relationships beyond an initial mandate and generate meaningful recurring revenue over time. Turning to our data center business. We are continuing to deliver against our development plans, while advancing a substantial pipeline of future opportunities. This was our first full quarter of leasing revenue from Helios, marking an important milestone as our development investments and long term contracted revenues begin converting into realized contracted cash flows. Phase II, which will deliver an additional 260 megawatts of critical IT capacity, is fully funded and under construction.

Putting us in a strong position as financing for new data center developments become increasingly constrained. Both buildings and the supporting substation are progressing on schedule and within budget. Building on our successful delivery of Phase I. Structural steel installation is well underway on the first building, Construction is advancing on the second, key electrical infrastructure is being installed. We expect construction activity to ramp significantly over the coming months, with data hall deliveries scheduled to begin in the second quarter of 27. On permitting, we have secured the key environmental approvals required for ongoing construction at Helios.

While certain additional approvals remain outstanding following governor Abbott's September directive, we do not currently expect an impact to our construction progress or our anticipated energization timelines. Turning to Helios II. To build on Mike's earlier comments, we saw several important shifts in market dynamics beginning in late summer that we believe have meaningfully strengthened our competitive position. Forward power availability has become increasingly constrained, with new power approvals more difficult to secure and delays in competing developments limiting the amount of large scale compute capacity. That can be. Can realistically be delivered between 2028 and 2030.

Expanding pipeline and strategic opportunities at Helios

At the same time, we are seeing a meaningful increase in demand from hyperscalers, Frontier Labs, and Neo Clouds now looking to secure capacity for 2028 and beyond to support existing backlogs and future growth. Underlying demand for compute remains as strong as we have ever seen it. Financing markets have also become more selective, and we believe access to capital will increasingly favor developers with proven execution capabilities, high quality counterparties, and financing structures that appropriately allocate risk. Having successfully delivered Helios phase 1, with phase 2 fully funded and progressing on schedule, we are building a track record that we believe will differentiate Galaxy in this environment.

Meanwhile, the evolving regulatory and political landscape in Texas has created additional uncertainty around future data center development. Based on our current understanding of the applicable requirements, we do not believe Helios II is subject to the same uncertainties facing certain other projects, further strengthening its relative attractiveness. Taken together, these developments have changed how we evaluate the opportunity at Helios II. We are taking the time to engage with the right counterparties and evaluate structures that we believe can maximize long term shareholder value for Galaxy. The focus of our active conversations is squarely on investment grade hyperscalers or counterparties supported by investment grade credit enhancements.

Considering not only headline economics and counterparty quality, but also critical lease terms probability of execution, and future growth potential outside of the Helios campus. Beyond Helios II, we have made meaningful progress through ERCOT's batch zero process. As announced in September, 5 of our Texas data center projects received conditional batch zero classifications. Representing approximately 4.2 gigawatts of capacity. That includes more than 1.6 gigawatts of previously approved baseload capacity at Helios I and II, which remains largely unaffected by the ongoing ERCOT process. Our 3 expansion projects, Caspian, Selene, and Helios III, received study load classifications. Representing an additional 2.6 gigawatts of potential capacity.

While we submitted Caspian for baseload classification, ERCOT ultimately reclassified it as study load, and our subsequent dispute for reconsideration was denied. Although that was not the outcome we had sought, Caspian remains part of the batch zero study, we expect greater clarity on power allocation and anticipated energization timelines for these projects. In April 2027. Based on the timelines communicated to us by ERCOT. These classifications cover a substantial portion of our broader development pipeline of more than 5.7 gigawatts, providing a foundation for potential growth well beyond the initial phases of Helios. Beyond our data center business, we are also investing in the growth of AI across the firm.

With a focus on opportunities ranging from frontier model developers to emerging technologies at the intersection of AI and financial infrastructure. Through Galaxy Ventures and our broader investment activities, we are building on our experience gained from investing early in the digital asset ecosystem. To date, we have deployed more than $80 million across 11 portfolio companies via 17 investments, including SpaceX, Etched, Carta, Orn, TRM Labs, and Architect. While these companies are all early in their growth journey, our current unrealized mark to market on that pool of investments is already 3.4x. Importantly, our ambition extends beyond just generating returns for our balance sheet.

Strong financial performance and segment results

We are using these investments to build a track record, establish relationships, and create commercial opportunities across the Galaxy platform. Across our businesses, we are focused on translating the investments we have made tangible results and long term earnings growth. I will now turn the call over to Tony to discuss our financial results.

Anthony Philip Paquette: Thanks, Christopher and Mike. For the third quarter, Galaxy reported net income of $323 million adjusted gross profit of $569 million and adjusted EBITDA $455 million marking a sharp improvement from second quarter performance. Our results reflected the continued earnings power of our digital assets franchise, the first full quarter of leasing revenue from Helios, and significant appreciation across our investment portfolio. Firm wide operating expenses, excluding grossed up transaction costs, digital asset impairments, and pass through data center operator costs, were $161 million compared with $147 million in the prior quarter. This increase was primarily driven by higher depreciation and amortization expense related to Helios Phase I entering full operation.

Our operating businesses generated combined adjusted gross profit of approximately $150 million, up more than 75% from $86 million in the prior quarter, and adjusted EBITDA of $60 million compared with approximately $1 million in Q2. On a segment level, starting with digital assets, the business generated $71 million of adjusted gross profit up from $66 million in the prior quarter, reflecting increased client activity and the breadth of our platform. Within global markets, adjusted gross profit increased to $53 million from $49 million in Q2. Our digital asset trading volumes grew 12%, the broader spot market where volumes declined demonstrating the strength of our trading franchise.

In lending, our average loan book grew over 25% to approximately $1.8 billion, reflecting continued demand for our financing solutions. Asset management and infrastructure solutions generated $19 million of adjusted gross profit compared to $17 million in the second quarter. Assets under management increased by over 30% to $5.9 billion, driven by growth of more than 40% in ETFs and 30% in alternatives. As Chris mentioned, assets under stake also increased more than 60% to approximately $4.6 billion reflecting both market appreciation and new capital inflows. Fee growth was more modest during the quarter as reported AUM reflects quarter end balances including capital raised late in the period, while fee revenue reflects activity throughout the course of the quarter.

Turning to data centers. We generated approximately $79 million of adjusted gross profit and $69 million of adjusted EBITDA, representing the first full quarter of contribution from Helios Phase I. Capital expenditures were approximately $757 million during the quarter compared with $448 million in Q2. We expect spending to increase as Phase II construction progresses with a significant portion of the remaining construction expenditures anticipated in the first half of 27. As a reminder, there are a few moving pieces related to interest income and expense in our data centers business that will affect our financials over the coming quarters. As financing proceeds are deployed into construction, our short term investment balances and related interest income will decline.

At the same time, a greater portion of our borrowing costs will be capitalized on the balance sheet rather than expensed through the income statement. At quarter end, Data Center segment had approximately $6.8 billion in total assets and approximately $5.3 billion in total liabilities, reflecting continued investment in Helios and the financing secured for phase 2. We do expect this segment's total asset base to grow as construction and capital is deployed. The treasury and corporate segment generated $419 million of adjusted gross profit during the quarter, compared with a $42 million loss in Q2, driven primarily by significant appreciation across our digital asset holdings and private investments during the quarter.

Including notable contributions from Etched and Forward Industries among others. As Mike mentioned, these investments reflect our ability to identify compelling opportunities across the digital asset ecosystem and broader technology ecosystem and represent an important source of long term value for Galaxy. We also held approximately $1.7 billion in net digital assets and investments at quarter end, up nearly 50% from Q2 including exposure to Bitcoin and other liquid digital assets. Firm wide, we ended the quarter with approximately $4.9 billion of cash, stablecoins and treasury bills, compared with $2.5 billion at the end of June. This increase was driven largely by proceeds from the $3.5 billion financing completed during the quarter to fund construction of Helios Phase II.

Looking ahead, we anticipate pursuing Phase III financing in the first half of 27 with the structure of that financing being informed by market conditions, comparable transactions, and our assessment of the most attractive terms available. We also have $445 million of exchangeable notes maturing in December 2026. We have the necessary resources on balance sheet to meet that maturity today, but are always evaluating different financing options in the context of our overall liquidity position and broader capital priorities. We exited the quarter with approximately $3 billion of book equity, with more than 80% allocated to our operating businesses providing a strong capital foundation as we continue to scale.

On share repurchases, we deployed approximately $79 million during the third quarter, And as Mike mentioned, we purchased the remaining portion of our previously authorized $200 million during the month of October. These repurchases have more than offset dilution from equity based compensation contributing to a net reduction in shares outstanding year to date. The board's approval of an additional $200 million authorization announced today allows us to continue opportunistically buying back stock when we believe it is trading at a meaningful discount to intrinsic value and it fits within our broader capital plan. With that, operator, let's open the line for questions.

Discussion on Helios lease discussions and capital priorities

Operator: At this time, we will begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To ensure the best sound quality. If at any time your question has been addressed and you would like to withdraw your question, you may press *2. Again, that is *1 to join the question queue. Our first question today comes from Patrick Moley from Piper Sandler. Please go ahead with your question.

Patrick Moley: Hey. Good morning, everyone. This is Will Kops on for Patrick. I want to go back to the comments on the Helios lease discussions from over the summer. Can you help us understand what led you to step away and what terms you need to see the deal you are willing to sign? Was it driven mainly by economics and revenue, or potentially more by a counterparty and credit support or something else. Thank you.

Christopher C. Ferraro: Hey, Will, good morning. Thank you for joining for the question. So as we said in the remarks, we have. We had been pursuing opportunities throughout the year, at early stages given that Helios II, energization timeline, you know, really is not until, the middle of 28 at the earliest expected right now. Those conversations got pretty serious going into the summer. And then a lot of stuff happened. Right? We saw actual projects around us getting delayed We saw regulatory headwinds not just in Texas, but across the country tightening up and therefore an expectation that available power on the forward was going to be tighter than I think we or the market really understood.

At the same time, we saw a number of financing structures start to come into the market. Think, like, investment grade wraps around noninvestment grade potential counterparties, that we thought were interesting, and that we were evaluating. The issue there is the devils are in the details. And so an investment grade wrap that does not actually achieve investment grade protection for both our debt and our equity, is not really investment grade wrap. And you do not really know those things until you get into the details and you get to the. To the finer points and then. And finally, to sort of back that up, the financing markets, obviously, around that time also started backing up.

And the focus on structure counterparty, is really came into light for us and for the whole market. And so with all that as the backdrop, we decided to take a pause, take a breath, reignite conversations more broadly. And that sort of happened at exactly the same time that a number of the big hyperscalers started turning their attention to 2028 available power. And so that is what led us to decide to broaden out the process, and that is why now we are in active conversations with a number of high grade potential tenants who are now very focused on figuring out what their power strategy is for 2028. Got it. Thanks a lot.

Operator: Our next question comes from James Yaro from Goldman Sachs. Please go ahead with your question.

James Yaro: Good morning, and thanks for taking the question. I was hoping you might be able to update us on your current capital deployment priorities. In light of the new buyback program, the maturing notes at the end of the year, as well as the continued need to deploy capital into the data center segment. And could you speak to your appetite I guess, maybe just expand on your appetite to potentially replace the notes maturing in December with additional debt?

Anthony Philip Paquette: Yeah. Sure, James. I will take that 1. So first, when we think about capital planning, we start with what is the business need across our 2 businesses, which obviously have different capital need profiles. But that is the first focus for, capital requirements. We obviously have a, a funding and financing plan for the data centers, the digital asset businesses broadly, tend to be self financing in many ways as financial services oriented. And so we think of our business needs as the first priority. Secondly, I would say we think about a capital, buffer and cushion on the balance sheet, maintaining a healthy, strong, robust balance sheet, I think, is a very important, principle from our standpoint.

As we talked about, we have significant cash stablecoins, liquidity on balance sheet in addition to liquid investments on the balance sheet that we have the, you know, the ability to shift around, as necessary. As you will see, we have got about 80%. Actually, than 80% of our capital now deployed into our operating businesses. We have talked about this over the last couple of quarters. You should expect that number to increase as we see the investment in those businesses grow out. And then you know, we do we extinguish the buyback 200 million initial. We thought it was appropriate to have an additional authorization.

But we will be very, you know, I would say, opportunistic in how we think about deploying additional, capital from a buyback perspective. The second part of your question remind me Just the second part of your question? If you could just maybe just expand a little bit on the comments around the exchangeable notes and, I guess, appetite to replace that. I think you pointed out you have enough resources to not have to do so, but just maybe the moving parts there. Yeah. Yeah. Yeah. Got it. Thanks. Yeah. So the exchangeable. So we have $445 million of notes maturing in December.

Look, the way we think about that is, first and foremost, we have the capital resources to pay that back in full without refinancing it. As you know, we did a, a convertible issuance Q4 of last year. Those, resources were deployed across our operating businesses and to sort of prefund some of this. And so we are not going to pre-commit to anything in terms of what we may or may not do for broader debt or capital planning. But suffice to say, we have the resources to pay that back, in the near term. that is super clear. Thank you so much.

Digital assets segment performance and investments

Yes. Thanks for the question. This is Tony. I will start and Christopher can add as he sees fit. So I would say broadly, the second quarter, as we talked about in our comments, the broader landscape was volumes and activity in the crypto space were down. Obviously, the price of crypto is still something underlying that drives a lot of the, activity in our trading and derivatives businesses. We continue to outperform in that space. Our volumes were up on a quarter over quarter basis. We believe we are continuing to take, share in those businesses.

Our lending book grew about 2025% quarter over quarter, and we are adding, recurring revenue streams, which we think is you know, the most important part of building a more durable business. We do continue to invest. We are making investments in a few different areas, that we have talked about. Digital infrastructure, areas where we see where we see future growth. And so as activity continues to pick up, I think you should see us move closer towards, you know, consistent profitability in that segment.

Other thing I would mention, it is a bit nuanced, but we did have a small accounting adjustment that we in terms of how we accounted for certain things in the business that if not for that change on a quarter basis, we would have been, profitable in that segment this quarter. it is sort of a onetime shift. But other than that, you know, we are, I do not know if you have any other comments.

Yeah. I will just supplement that a little bit. I think there are a few things going on digital assets in the broader financial infrastructure markets that drive our thinking and our planning around profitability and what we are investing in. The key is, like, 1, volumes in the narrow niche crypto market obviously, are suppressed, and are a bit challenged at the moment. Our business generally is a pipe business where the more volume that flows through it, the more opportunity there is for us to generate revenue for the business, historically, at least. We do have a long term view on crypto assets.

Like Bitcoin, for example, and the decentralization theme, particularly in a more complicated digitally driven agentic AI world. But that aside, the other thing that is happening is a transition to real world assets of the legacy financial system moving on chain. And so what we are doing today is prosecuting the business that we can, in the crypto markets. While investing in technology and people and licensure, for example, so that we are going to be in a position to be on the forefront to be able to service the transition of volumes from traditional legacy real world assets on chain into a digital form and so, we actually.

You know, while we never like to lose money ever, being able to sustain the amount of revenue we have in this niche market while being able to. The luxury of being. Having the capital, to be able to invest in growth so that we are positioned to capture that mega opportunity is really where we are at in the business today. Thank you.

Helios partnership and contract structures

Thanks very much. Wanted to ask quickly on Helios I and working with CoreWeave there. Just any insight you can share with us around what you know about their agreements with their partners for not only phase 1, but also if that is going to. If that same partner is likely to also take on phases 2 and 3. Sure. Good morning, James. Thanks for joining for the question. So let me I will just I will set the stage for our relationship with CoreWeave, how it is set up, and how we understand their contract structure and how their business model works.

And I think it is important, and it is a illustrative of how we think about the risk and also, you know, the insight we have or do not have into their ultimate operations. Our relationship with CoreWeave with the 3 leases that exist today for Helios I are with CoreWeave's parent company. We face CoreWeave, Inc. The way we think about that is that means that ultimately, we face CoreWeave's entire portfolio of customers. And we face effectively CoreWeave's residual equity and interest in those contracts after their site level GPU secured financings. that is pretty much the business model. that is our exposure. We like that exposure because what it means is that, we are not subject to.

At our facility, a single counterparty look through exposure in the instance where the. there is a problem with that 1 counterparty. CoreWeave's portfolio of pretty much all of the entire hyperscaler universe and most of the frontier labs is the credit that we look to across their whole portfolio. Now, CoreWeave's contracts, while we do not have insight into all of them or into the specificity, CoreWeave generally contracts with its customers under 4. I believe now the average is closer to 5 years as they reported on a GPU hour basis generically, not on a facility level agreement.

And so what that means is CoreWeave has the ability to balance their loads to their customers across their data center footprint. that is important because it means that the answer to the question of who is the underlying tenant at Helios by definition, can and we expect will change over time both because they commit generic GPU loads to their clients and because we know that tenors of their contracts are shorter than the leases they have to sign by definition. We have been communicated to.

By Tim from CoreWeave that the loads running today that we see every day on the screen in Helios I are coming from a customer contract that is currently allocated to a, large multitrillion dollar investment grade hyperscaler. The. We do not have insight yet into ultimately who is going to be in phase 2, let alone Phase III. That will happen as we get closer to energization and data hall turnover, and they decide at that point in time in 2027 where their load is needed and where they wanna allocate load to a particular facility. And so that. that is that is really the setup.

I know that investors wanna hear a direct look through to an investment grade counterparty on the other side. it is just not the business model and it is not the way the contracts are set up at the CoreWeave side. And it is it is it is the platform and the risk that we underwrote when we originally did the transaction. that is not to say I will add 1 thing. Yeah. that is not to say that there will not be opportunities if it is credit enhancing. To look through to a direct customer and drop it down in SPV for example, which we have seen happen once or twice in the market so far. But that is.

That sort of is downstream from CoreWeave financing their GPUs and getting better execution on their GPU financing through an SPV direct deal and would come with our ability to approve or disapprove of any change in the tenant from the CoreWeave parent company down to a particular SPV. And so we are. We will look at that on a case by case basis and evaluate it and assume it is credit enhancing. it is obviously something that we would engage with. Got it. that is that is really helpful.

And then back on the Helios II and kind of the engagement there, obviously, I think we are all sensitive to the changes in some of the market dynamics, etcetera, that Mike alluded to. And mentioned at the outset. Are there other key market incremental market changes or clarifications that we should expect to come through before you. We would be able to announce a new tenant for Helios II or, you know, I am just trying to get a sense of what the timeline and checklist is we should be paying attention to for that. Thanks.

Regulatory environment and tenant demand

Yeah. So the dynamics there, I tried to lay it out as clearly as possible in the prepared remarks. there is a few things that I would look towards You know, there is nothing there is nothing today holding us back. From, executing on what would be a deal with a. With an end tenant. Like, you know, the speculation around late summer and the timing and the conversation we are in, like, we could have signed a deal. Had we wanted to. That. A lot of that was in our control to make a decision to go forward. We proactively chose not to. Of the change in market dynamics, and that still sort of exists today.

There is obviously Texas. there is a lot going on in Texas from a regulatory perspective. there is some key dates coming up. The. In December, we expect to have clarity on audit results that we have submitted across the assets, including Helios II. All of those things in 2027, we expect to get allocations of batch zero study load power, etcetera. Like, all of those things are on potential tenants' minds. I would say quite clearly is there are absolutely investment grade tenants who, despite questions around the ERCOT process, want to contract and lock up power.

And when they do the work on our portfolio, in particular, on Helios 1 and Helios II, we think they generally come to the same conclusion we have, which is HELIOS 2 is a pretty unique asset in terms of when its studies were approved prior to the batch process and that HELIOS II is going to be unimpacted generally by any of the uncertainty. But, nonetheless, like, those dates are key. And for some of the tenant base looking at it, they are looking for us to pass through those unscathed as we expect to. in order to sort of finally contract. Again, that is not the entire base.

There are absolutely deals we expect we could do, but the entire universe you know, clarity on the regulatory front, in Texas in particular, is 1 that would help the process along. Brett. Thanks, guys.

Thanks. Good morning, everyone. I want to come back to Christopher' comments on kind of broadening the pipes to be able to trade more, a couple of parts here. What else are you watching on regulatory guidance that you guys think is critical from here? And then assuming that progresses, how are you thinking about where Galaxy is best positioned to participate in tokenization? Meaning, you know, how do you see Galaxy being able to compete with obviously, well funded incumbents that will likely be coming here as well? And then are there specific real world assets that are more attractive to Galaxy? And then even beyond just trading and trade finance.

How do you see Galaxy's potential infrastructure partner here as we kind of progress in this world of tokenizing more real world assets and trading them? Appreciate there is lot in there, but just love some thoughts. Thanks.

Yeah. Hey. it is Mike. Listen. So our big bet is that the infrastructure that crypto created is gonna end up being the infrastructure that a lot of traditional world operates on. When that happens, we will see. Right? It is starting to happen. I would tell you that almost every traditional finance shop is building towards that. Partly because they have to. Because what happens they need to be there. 1 of our businesses that is putting a lot of effort into it is growing, is actually being the partner to help build that infrastructure for traditional finance companies.

You know, that is a in some ways, a fee or a SaaS business, but the real upside of that is once you get partnership, the ancillary services, the trading, the potentially offering other products, you know, that. that is where the growth of those things come. And so, you know, we announced the 1 deal with Bank of New York. We are very engaged with a few other large participants. And like, I think that is a good strategy. it is not gonna dominate our, you know, our revenue in the next 12 months. But when I look out 24 and 36 months, it is where I think we will be a key part of that play.

The second real angle is on chain credit. You know, Christopher talked about a few of the deals we have already done. Like, we have credit as part of our DNA. Christopher came from a credit shop. it is been a big driver of our business since we started. And we are you know, 1 of the leaders of on chain credit today. We think that business is gonna continue to grow. And so building on chain prime, building on chain credit, On chain asset management lives really on top of that.

That you know, I would love to say in 2 years, we are really an on chain Our digital asset business is really an on chain digital asset business. And that is what we are driving towards. And that is what. You know, when someone asked Tony about the investment dollars, they are all tech dollars. And they are all tech dollars and regulatory dollars going into that build out. Brett. Thanks, Mike.

Hi. Thanks for taking my question. Back in February, I think you kind of acknowledged maybe aspirations that you would have a deal for Helios II, within the next 12 months. Should we assume this timeline maybe gets extended by a little bit just given that you walked away from the deal this summer? And then just quickly, on Helios, 1 financing, I think you last mentioned that the phases 1 and 2 should have enough free cash flow to kinda self fund Phase III. Has that also changed just given maybe the exchange with notes that are due and maybe some of these recent buybacks? Thanks.

Yeah. Hey. Hey, Edward. Good morning. I will I will take the first part of the question. On HELIOS 2 leasing timeline, I think we have covered a lot of it so far. I think you know, the expectations around timing of signing a deal. Let's start from the fact that Helios 2's energization timeline, is expected to be in mid 28. If you work back from mid 28, that gives us you know, 1.75 roughly years of room for both finding the right partner and negotiating the right deal design planning, and then ultimate construction. While that is not infinite time, that is that is a lot of cushion that we have, which we appropriately think we should take.

Given how dynamic the market is. To find the right partner the right economic transaction. Because these are deals we have to live with for, you know, effectively the rest of our professional lives given their tenure. So we take it very seriously. it is very important. I would not peg a specific time. I would tell you, though, that, you know, it is very difficult to enter into direct conversations with some of the largest companies in the world without an intent to ultimately transact, and we are in direct conversations with some of those companies. Right now.

Data center development timeline and financing

And so I am I am I am pretty positive and pretty bullish on opportunities that are in front of us for that right now. And you know, know that our end date solving backwards is to deliver those potential clients data halls in 2028.

Anthony Philip Paquette: Yeah. On the second part of your question, Edward, so as you know, Phase I and phase 2 are fully funded through the completion and end of construction. We will have the opportunity to refinance Phase I if we think the economics make sense, from a from a refi standpoint, which may give us the opportunity to take some additional capital out. But importantly, we do not need to do that. As we have said before, Phase III is fully equity funded, you know, through the project. We intend to pursue debt financing, sometime in the first half of 27, and the equity, financing being fully available already is not changed. Brett. Thank you for that color.

Operator: Our next question comes from Brett Knoblauch from Cantor Fitzgerald. Please go ahead with your question.

Brett Knoblauch: Hi, Thanks for taking my question. On, just like the permitting environment, I think you guys touched on it briefly in your prepared remarks regarding kind of Helios II How critical is it to have all those permits in place before maybe we look to sign a lease there? And how are your customers thinking about maybe a permitting freeze and what if the election goes the other way in Texas that potentially could be extended.

Christopher C. Ferraro: Yeah. So on the permitting front, we could take this in a couple different tranches. 1, for Helios, for Helios, 1 and 2 and 3 under development, we have all the permits in hand needed to begin and continue construction. These are-- there are still a handful of permits that TCEQ. EQ primarily would issue and or approve that are not permits that would prevent us either from continuing construction or ultimately delivering and energizing data halls for the client. They are unrelated to cooling. They primarily relate around, you know, the potential to operate diesel gen backups. And so there is and some other, like, potable water and things on-site. They are not limiters.

All the permits we need for those things are in hand already, and the. For future developments that will require sort of those level of permits they are months to years out from when we would actually need them to begin construction. And so we are we are just very confident that you know, while today there is a permitting freeze, while ERCOT and all the stakeholders are attempting to comply with governor Abbott's announcement. We are not of the belief that those timelines are gonna intersect anywhere close to 1 another that we have concerns that permitting is going to be an issue. Be an issue for us at Helios. Perfect. Thank you, guys. I appreciate it.

Operator: Our next question comes from Jonathan Petersen from Jefferies. Please go ahead with your question.

Jonathan Petersen: Oh, great. Thanks. Sorry to keep going on the data center stuff. But you outlined that some of the hyperscalers might be willing to secure power now even before final approval. Or sorry. Yeah. Secure a lease here in power even before final approvals from ERCOT. But curious what you are hearing in the project financing market and if the debt markets are I guess, willing to be that forgiving or if we have to get past that April deadline for you know, any potential, leases you signed today to be financed. And maybe also just kind of a follow-up.

Just, I guess, as you talk to potential lenders, like, how much stricter are they being on different debt covenants and LTVs and LTCs and all those sort of metrics? Yeah.

Christopher C. Ferraro: So, it. it is it is it is a very good it is a very good question. The. From a counterparty perspective, right, I. The. We are we are not seeing. Like, as you as you pointed out, we are not seeing broadly really any pushback to, hey. Let's just not engage until we see clarity in Texas. People know power exists in Texas. People know power is affordable and getting cheaper in Texas People know that is gonna that is gonna be a tier 1 market, we believe, and they believe for, a lot of time to come for these kinds of assets.

And so the conversation we are having really they want to understand the dynamics at play with our with our assets. But they are certainly willing to move past that pretty quickly. On the on the lender side, first and foremost, the existing facilities we have in place, are not impacted at all by, any potential perceived uncertainty. Around the Texas regulations. And so there is no there is no permanent breaches. there is no risk to capital availability in those facilities. Those are those are fine. On a go forward basis, like, I do believe the risk on investing capital in advance of knowing for sure whether you have the right to energize.

Is a risk that we, in theory, would be taking should we choose to do that, and therefore, what lenders would be choosing to take along with us. And that and lenders generally are a lot more conservative than we would be as a developer in the equity. The good news for us is, as Tony pointed out, like, our potential financing needs outside of our own capital start to get highlighted, as we turn the corner into Q1 into Q2 of 27.

And so from a timing perspective, we, for better or for worse, have the luxury of being able to assess the regulatory environment, see how December goes with respect to the, the RFI audit results, choose to deploy our own capital at risk based on that landscape, and we really do not have to go to the markets to have conversations or we will want to go to the market to have conversations until there is a lot of clarity, in 2027. So not all of our competitors are in that situation, We happen to have the luxury of being able to do that when we are we are we are happy with that. Okay. Brett. Thank you.

Digital asset trading and lending growth

Operator: Our next question comes from Joseph Vafi from Canaccord. Please go ahead with your question.

Joseph Vafi: Hey, guys. Good morning. Nice to see, you know, progress on all fronts here. I was wondering if we could kind of just drill down on the digital asset side of things. Is there anything particular to point to here on trading share gains in the quarter that you would like to call out and then just you know, the appetite to continue to expand the lending book from here from a risk management point of view. Comments there would be appreciated too. Thank you.

Christopher C. Ferraro: Yeah. Joseph, good morning. The. So on the trading side, I think factually, the numbers are that our volumes grew 12% quarter over quarter. Industry volumes were roughly flat. So I think from a pure share gain perspective, we continue to make incremental gains of market share, albeit in a fairly slow and tepid environment for traditional crypto assets. But the team is performing extremely well given that condition. And Galaxy is getting stronger. On the lending side of the business, we did expand our lending footprint over the quarter pretty dramatically. I think we were up 27% quarter over quarter average loan book size. We think there is huge opportunity in that space.

We think that we could probably grow faster if we wanted to. that is not always the right thing to do, as a lender is grow whenever you can, and so we do not. We pick our spots, and we choose them wisely. As I said in my remarks, the other thing we are really focused on the lending side is, you know, we are pretty cognizant that you cannot really just grow a lending business ad infinitum with a finite balance sheet, particularly a finite balance sheet that has a lot of uses across the company.

The good thing is we do have the capabilities internally, and we think there is a very large opportunity to expand our structured credit offerings to originate loans, package them, sell them off, think more traditional financial debt capital market businesses. In a whole new design space on chain that really has not been tapped yet in any size. And so I think you should expect us to both grow our balance sheet exposure to our loan book, but also be able to grow volumes outside of just our own balance sheet exposure.

And the team is hard at work on creating structures, creating risk boxes so that we can do that responsibly for ourselves and potential clients and off takers. And so more to come on that, but I think that is the future to see of our lending business. Brett. Thanks very much, Christopher.

Infrastructure and financial modernization

Operator: Our next question comes from Christopher Brendler from Rosenblatt Securities. Please go ahead with your question.

Christopher Brendler: Thanks for taking my question. I wanted to follow-up on the idea of the sort of modernization of financial infrastructure and the this whole space moving on chain and Galaxy's sort of position within that opportunity. You know, the BNY this last quarter, any other sort of color you could provide on your progress with partnering with traditional financial institutions and helping with this process? Then zooming out a little bit, what is the revenue mix look like in digital assets. if you if you are successful, in capitalizing this opportunity, how much will the business move away from transactional and lending and trading activity and more towards either asset management, custody or staking.

Activities as you progress on that opportunity? Thanks.

Michael Edward Novogratz: Well, certainly, the goal is to move it away in large. In a large you know, fashion. Right? I think part of that is how fast this stuff moves on chain. You know, it is 1 of these things that my intuition is, it will go slow and then it will go fast. Kinda like when people go bankrupt. Right? Like, it happens. It happens. And all of a sudden, like, well, how did that happen? And so we have not seen it yet. Seeing lots of positive signs, like stable point use is a big part of it. But we have not seen a wholesale shift to tokenization. You know, people still trade normal equities, not tokenized.

Partly that is because most of the traditional players have not built out their infrastructure. And so there is a scramble going on, you know, that we are we are part of, for these institutions to build out their digital wallets, their custody, their staking abilities, or to hire people to do their staking abilities for them. And I think once that infrastructure shows up, you very well might see that part of the business really start to grow. And so we are walking that tightrope between making sure our core business that we have operates as best it can and makes as much money it can, while investing for this future that we are very confident will come.

We just do not have the forward calendar you know, with the. With where the checkered flag is. I know it is not a perfect answer for you, but that is exactly the mindset that we have. And, you know, again, we would not be making this investment if we did not have strong conviction that is where the world is going and seeing lots of green shoots.

Anthony Philip Paquette: I will just add, you know, if you think about the revenue mix, I think that was your second question. You know, To Mike's point, this build out in infrastructure and adoption will take time. But 1 way to think about it is our more traditional businesses around trading, derivatives, lending, etcetera, will grow opportunity set will grow with the overall growth of the pie. So the mix may shift for us, but we think that the opportunity set for the more recurring fee based revenue as well as the more transactional based can grow together. Right, as the industry grows and adoption continues.

Christopher C. Ferraro: Yeah. And then the last piece I will add on that is just from an infrastructure business model perspective, which I think was part of the question, we see the traditional. We see the financial players institutions around the world in 2 categories. Or at least they pick and choose these 2 categories depending on the service needed. Right? There. there is a we need to own it. Own the underlying technology, own the underlying operating risk. Or we are okay white labeling and contracting out.

And so what we are doing today is we are selectively partnering with some of the largest institutions who need to own certain components think base layer custody, think maybe, like, a custody allocation engine. Etcetera. To help build that, and we and we get paid to help build that. That increases not only their capabilities, but our portfolio of capabilities to then offer as a platform service to those companies and everyone else for the components that. Of those services that they are okay not owning and would and would rather contract out to create recurring revenue for us. And so the mod. The model is getting paid both up front to help build, but also over time stacking a recurring revenue business for platform service for both those customers and the long, long, long tail of middle market and lower market financial institutions who would never need to build and own their own capabilities. that is fantastic color. Thanks so much.

Galaxy 1 wealth management and HELIOS phase II

Operator: Our next question comes from Benjamin Sommers from BTIG Please go ahead with your question.

Benjamin Sommers: Hey, good morning, thank you for taking my question. So kind of to build off the last 1 a little. I wanted to ask around the institution or the individual investor adoption of digital asset product offerings through Galaxy 1. It seems like the TradFis' interest is significant, but I am kind of curious how Galaxy 1 you know, could potentially contribute to the revenue mix over time.

Christopher C. Ferraro: Yeah. We have not talked about Galaxy 1 in our prepared remarks or in questions a lot recently. We are actually under the hood really excited about not only what is going on there, but also the product road map. And so, you know, our assets on platform, while still relatively small there, have grown quite substantially. We are well north of a $125 million I believe. The last number I saw there, and growing fast. And on the forward this year was really a build baseline capabilities and ensure that our retail facing offering had a digital asset crypto related capabilities that were on par with what is available in the.

We still have a little bit work to do on there, but that was the big lift so far this year. What we look forward to next year in 2027 actually is rolling out expanded brokerage capabilities across a number of different asset classes. And our real focus there is not only just baseline capabilities to you know, compete with existing big platforms, but actually offer much more higher end bespoke wealth management style access products and capabilities for, high earners, individuals with net worth that they wanna preserve and grow. And we have a really cool lineup of product road map on that front that we are really excited to start rolling out Q1 27.

So more to come on that, but the we are. We think the opportunity set is much broader than just offering crypto access. is going to be, quite differentiated in 2027. Super helpful. Thank you for taking my question.

Operator: Our next question comes from Michael Kim from Bloomberg. Please go ahead with your question.

Analyst: Hey. Good morning. Thanks for taking my question. So I noticed that the average annual revenue assumption for Phase II of HELIOS 1 just ticked down a bit from last quarter's forecast. So just wondering if you could maybe flush that out in terms of or maybe with respect to your earlier comments around supply remaining constrained and demand strengthening as well as your competitive positioning? Thanks.

Anthony Philip Paquette: Yeah, Michael, it is Tony. I will address the first of the question and then if Christopher wants to hit the other. So, nothing has changed with regard to phase 2 and the revenue. it is simply a clarification of the recognition under lease accounting for GAAP purposes that we just wanted to help, analysts clarify for their model building. Nothing, nothing fundamentally has changed. Phase II is, is exactly the same. So Got it. that is helpful. Thanks.

Operator: And our