Digital Assets: Galaxy Announces Q2 2023 Financial Results, Reports $46M Net Loss

Galaxy Digital Holdings Ltd. (TSX: GLXY) released financial results for the three and six months ended June 30, 2023 for both itself and Galaxy Digital Holdings LP.

Michael Novogratz, Founder and CEO of Galaxy, said:

“Galaxy’s operating businesses performed well in the second quarter against a backdrop of continued uncertainty and regulatory pressure, as we continue to manage the Company to meet the evolving needs of our clients. The investments we’ve made in our business, prudent risk management practices, and strong balance sheet are driving long-term growth for Galaxy and our stakeholders. We continue to operate the Company from a position of strength and are confident in our ability to grow our Global Markets, Asset Management and Digital Infrastructure Solutions operating businesses.”

Select Financial Highlights for the Second Quarter 2023

  • Net loss was $46.0 million for the second quarter, compared to net income of $134.2 million for the quarter ended March 31, 2023.
  • Compared to the first quarter, the decrease was primarily attributable to lower net realized gains on digital assets and net unrealized losses on investments, partially offset by higher net realized gains on investments.
  • Operating expenses were $85.2 million in the second quarter, down 6% quarter-over-quarter (“QoQ”)[1] and 34% year-over-year. For the first half of 2023, total operating expenses were $176.4 million, down 27% compared to the first half of 2022.
  • Operating expenses, excluding non-cash items, were $130.9 million in the first half of 2023, down 24% compared to the first half of 2022.
  • Partners’ Capital (“Equity”) was $1.5 billion at the end of the quarter, a 3% decrease from $1.6 billion for the quarter ended March 31, 2023. The Company maintained a strong liquidity position of $696 million as of June 30, 2023.
  • Liquidity included $302 million in cash and $395 million in net digital assets[3], including $167 million of non-algorithmic stablecoins.

Galaxy’s liquidity position was $118 million “lower from March 31, 2023, primarily due to a larger balance of fully secured loans to our clients, partially offset by a moderate increase in our net long digital assets, excluding stablecoins.”

Operating Highlights for the Second Quarter 2023

Galaxy Global Markets (GGM)

  1. Trading revenue was $59.5 million in the quarter, a 54% decrease QoQ, driven primarily by lower net realized gains on digital assets and net derivatives gains.
  2. Cumulative counterparty-facing trading operational net revenue[4] in the quarter was $28.3 million, down more than 25% QoQ, impacted by lighter volumes across derivatives and over-the-counter trading.
  3. Trading reported a net realized gain on investments of $23.7 million in the quarter, which was offset by a $23.7 million net unrealized loss on investments, driven by the sale of our minority stake in block.One.
  4. Trading ended the quarter with more than 290 active counterparties.[5]The business onboarded more than 30 new counterparties in the quarter, bringing the total count of onboarded counterparties to nearly 1,000.
  5. Counterparty trading volumes decreased by approximately 30% QoQ, as our desk was impacted by the industry-wide slowdown in digital asset trading activity.
  6. Counterparty loan book size was over $550 million,[6] a 10% increase QoQ, driven by an increasing number of clients seeking to borrow cash and digital assets.
  7. Cumulative gross counterparty loan originations were approximately $115 million in the quarter.
  8. Investment Banking revenue was $45 thousand in the quarter, driven by a deceleration in M&A and capital-raising activity.

In the quarter, Galaxy advised an undisclosed seller “on a secondary sale of interest in bitcoin custodial services provider and lender, Unchained Capital.”

Subsequent to quarter end, Galaxy “advised Gamercraft, a blockchain and AI-enabled competitive online gaming platform, on its seed financing round.”

Galaxy continues “to execute against an active pipeline of mandates representing over $1 billion in potential transaction value.”

Galaxy Asset Management (GAM)

  • Asset Management revenue was $33.8 million in the quarter, “a 619% increase QoQ, driven primarily by higher net realized gains on investments from our venture platform.”
  • GAM management and performance fees were $4.2 million in the quarter.
  • GAM reported a net realized gain on investments of $24.6 million in the quarter, which was offset by a $45.5 million net unrealized loss on investments,[8] driven by the strategic sale of a portion of our minority stake in Fireblocks.
  • GAM reported preliminary assets under management (AUM) of approximately $2.5 billion, a 2% increase QoQ. The increase was primarily driven by market appreciation and net inflows into our passive strategies. AUM consisted of over $958 million in passive strategies, approximately $103 million in active strategies and approximately $1.4 billion in venture strategies.
  • GAM holds investments in 217 portfolio companies across our venture platform.[10]

Galaxy Digital Infrastructure Solutions (GDIS)

  • Mining revenue was $15.4 million in the quarter, a 51% increase QoQ, driven by higher income from proprietary mining activities.
  • Galaxy ended the quarter with approximately 3.7 exahash per second (“EH/s”) in Hashrate Under Management (“HUM”)[11], representing an over 20% increase QoQ. Approximately 45% of the 3.7 EH/s of HUM came from self-mining operations. Galaxy remains on track to surpass 4.0 EH/s of HUM by the end of 2023.
  • Galaxy maintained an average marginal cost to mine[12] between $9,000 – $10,000 in the quarter.
  • Galaxy’s power purchase costs and external hosting expenses, net of curtailment credits, were $5.5 million in the quarter, representing a 64% direct mining margin.
  • Self-Custody and Validator Solutions are focus areas in our continued commitment to the future of decentralized networks. Since the completion of the Partnership’s acquisition of GK8 on February 21, 2023, GK8 has won 7 net new clients to reach 14 total clients. GK8 continues to see a significant increase in its pipeline of potential enterprise clients since the close of the acquisition.

Corporate Updates

  • US Listing and Reorganization: Galaxy continues to work on completing its proposed reorganization and domestication to become a Delaware-incorporated company and subsequently list on the Nasdaq, upon completion of ongoing SEC review and subject to stock exchange, shareholder and applicable regulatory approvals of such transactions.
  • Share Repurchase Program: As announced on May 26, 2023, the Company commenced a new normal course issuer bid (the “NCIB”) on May 31, 2023, and is eligible to purchase up to 10,056,193 ordinary shares. To date, the Company has not made any share repurchases under the NCIB.

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