Galaxy Digital Inc-A(GLXY) - 2025 Q1 - Quarterly Report

Part I - Financial Information Financial Statements The report details condensed interim financial statements for GDI and GDH LP, highlighting GDH LP's Q1 2025 net loss of $295.4 million driven by investment losses and asset impairments Galaxy Digital Holdings LP - Financial Performance GDH LP reported a Q1 2025 net loss of $295.4 million, a reversal from prior year's income, with total assets decreasing to $6.3 billion and equity to $1.9 billion Financial Performance (in thousands) | Financial Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenues and gains / (losses) from operations | $12,855,875 | $9,828,423 | | Total operating expenses | $13,247,697 | $9,421,469 | | Net income / (loss) | $(295,432) | $388,127 | Balance Sheet Summary (in thousands) | Balance Sheet Item | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $5,093,001 | $5,880,890 | | Total assets | $6,336,192 | $7,119,855 | | Total current liabilities | $3,502,033 | $3,887,925 | | Total liabilities | $4,434,548 | $4,925,503 | | Total equity | $1,901,644 | $2,194,352 | Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by / (used in) operating activities | $159,413 | $75,059 | | Net cash provided by / (used in) investing activities | $64,100 | $(366,742) | | Net cash provided by / (used in) financing activities | $(176,178) | $222,305 | | Net increase / (decrease) in cash | $47,335 | $(69,378) | Notes to Financial Statements (Selected) Key notes detail acquisitions, $2.65 billion in digital assets (Bitcoin largest), a $186 million LUNA settlement provision, and a $713.1 million Helios data center commitment - The company acquired Fierce Technology, Inc. for approximately $12.5 million and the assets of CryptoManufaktur LLC for approximately $12.4 million, contributing to goodwill and intangible assets[77][81] - Total digital assets were $2.65 billion as of March 31, 2025, down from $2.93 billion at year-end 2024; Bitcoin remains the most significant holding at $1.06 billion[97][114] - The company has an outstanding commitment of $713.1 million for the construction of improvements at its Helios facility[179] - A legal provision of $186 million was accrued related to a settlement with the New York State Attorney General concerning the LUNA digital asset; the undiscounted settlement amount is $200 million, payable between 2025 and 2028[186] Management's Discussion and Analysis (MD&A) MD&A discusses the strategic pivot to AI/HPC data centers, analyzes the Q1 2025 net loss of $295.4 million due to investment losses and impairment, and reviews new business segments Overview and Strategic Highlights Galaxy strategically focuses on digital assets and AI/HPC data centers, highlighted by a 15-year CoreWeave agreement for 393 MW at Helios, and completed U.S. domestication - The company is strategically focused on bridging traditional finance with the digital economy and developing High-Performance Computing (HPC) data center infrastructure to meet rising AI demand[293] - Galaxy entered into a 15-year lease agreement with CoreWeave to deliver 133 MW of critical IT load at its Helios data center; CoreWeave has also committed to an additional 260 MW, expected to bring total capacity to 393 MW by 2027[295][296][300] - In May 2025, the company completed a corporate reorganization, resulting in Galaxy Digital Inc. (GDI) becoming the U.S. public successor company to enhance shareholder value and access to U.S. capital markets[296][304] Business Segments Review The company reports three segments: Digital Assets (with $7.0 billion on platform, $2.3 billion AUS), Data Centers (developing Helios for HPC, no current revenue), and Treasury & Corporate (proprietary investments, mining) - Digital Assets: This segment provides trading, lending, advisory, and asset management services; as of March 31, 2025, it had over 1,300 trading counterparties, approximately $7.0 billion in assets on its platform, $4.7 billion in Assets Under Management (AUM) (a 40% decrease YoY), and approximately $2.3 billion in Assets Under Stake (AUS) (down from $4.2 billion at YE 2024)[302][303][306] - Data Centers: This segment is developing the Helios campus for HPC infrastructure; it does not currently earn revenue but expects to become a significant source of long-term, predictable revenue starting in 2026 with the CoreWeave lease[306][312] - Treasury and Corporate: This segment includes the company's proprietary trading, bitcoin mining operations, and its diversified portfolio of digital assets and venture investments held on its balance sheet[308][313] Results of Operations (Q1 2025 vs Q1 2024) The company reported a Q1 2025 net loss of $295.4 million (vs. $388.1 million income in Q1 2024), driven by $133.2 million investment losses and $57.0 million mining equipment impairment, despite 39% revenue growth Financial Performance Comparison (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $12,976,206 | $9,335,372 | 39% | | Net gain / (loss) on investments | $(133,167) | $63,018 | (311)% | | Total operating expenses | $13,247,697 | $9,421,469 | 41% | | Net income / (loss) | $(295,432) | $388,127 | (176)% | - The net loss was primarily driven by a $133.2 million net loss on investments (mainly from bitcoin ETFs and a sponsored fund) and a $57.0 million impairment and loss on disposal of mining equipment[348][361] - Digital assets sales increased by $3.6 billion, but this was almost entirely offset by a corresponding $3.6 billion increase in digital assets sales costs, reflecting high-volume, low-margin trading activity[337][353] - Blockchain rewards revenue surged to $71.1 million from $10.3 million YoY, driven by the growth of validator operation services launched in late 2023[341] Liquidity and Capital Resources As of March 31, 2025, the company held $509.4 million cash and $1.6 billion working capital, but requires additional financing for its $713.1 million Helios data center commitment and AI/HPC conversion - Held $509.4 million in cash and cash equivalents as of March 31, 2025, an increase of 10.2% from December 31, 2024[374] - Working capital was $1.6 billion and Unit holders' capital was $1.9 billion as of March 31, 2025[374] Contractual Obligations (in thousands) | Contractual Obligation | Total (in thousands) | Less than 1 year (in thousands) | | :--- | :--- | :--- | | Loans and collateral payable | $3,055,820 | $3,049,217 | | Notes payable | $854,923 | $7,423 | | Data Center | $713,073 | $711,343 | | Legal settlement | $160,000 | $40,000 | - Additional debt, equity, or equity-linked financing will be needed to meet the capital expenditure requirements for the conversion of the Helios campus to AI/HPC data center infrastructure[382] Market Risk Disclosures Primary market risks include digital asset price risk (affecting +/- $181.6 million), equity price risk (affecting +/- $242.5 million), and significant counterparty exposure ($739.7 million on platforms), alongside DeFi protocol risks - Digital Asset Price Risk: A hypothetical +/- 20% change in the market prices of digital assets would have an estimated effect of +/- $181.6 million on the company's financials as of March 31, 2025[390] - Equity Price Risk: A hypothetical +/- 20% change in the market prices of the company's investments would have an estimated effect of +/- $242.5 million as of March 31, 2025[392] - Counterparty Risk: The company has significant credit risk exposure to digital asset trading platforms; as of March 31, 2025, it held a total of $739.7 million on major platforms, including $402.6 million at Coinbase and $196.3 million at Binance[397] - DeFi Risk: The company's participation in DeFi protocols exposes it to smart contract and counterparty risks; as of March 31, 2025, five protocols (Coinbase wrapped bitcoin, Aave, Pendle, Kamino, and Lombard) represented 70% of the company's digital assets associated with DeFi[278] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[403] - No material changes to the company's internal control over financial reporting were identified during the most recent fiscal quarter[405] Part II - Other Information Legal Proceedings The company settled LUNA claims with the NY AG for $200 million ($186 million provision), faces an ongoing LUNA class action in Ontario, and had SEC investigations concluded without charges - Luna Settlement: The company reached an agreement with the New York State Attorney General to resolve civil claims related to the LUNA digital asset; it has accrued a legal provision of $186 million for an undiscounted settlement of $200 million, which is payable between 2025 and 2028[409] - Luna Class Action: A proposed class action was filed in Ontario in December 2022 regarding public disclosures on LUNA investments; the proceedings are in early stages, and the company cannot estimate the potential impact[410] - SEC Matters Concluded: In February 2025, the company received termination letters from the SEC's Division of Enforcement, concluding investigations into whether certain traded digital assets were securities and whether off-channel communications were properly captured, without any charges being filed[408] Risk Factors The company faces significant risks from digital asset volatility, unproven business lines, regulatory uncertainty (especially security classification), key personnel dependence, capital-intensive AI/HPC expansion, cybersecurity threats, and complex data privacy laws Risks Related to Operations Operational risks include limited operating history, cryptocurrency volatility, high dependence on its Founder, intense competition, and the capital-intensive, uncertain expansion into the AI/HPC data center business - The company has a limited operating history, and its business lines are nascent, unproven, and not guaranteed to be profitable[414] - The business is highly dependent on key personnel, particularly its Founder, Michael Novogratz, exposing it to material 'key man' risk[454][455] - The strategic expansion into the AI/HPC data center business is a capital-intensive project with no guarantee of success and may divert resources from existing businesses[531][532] - The company faces intense competition from unregulated or less-regulated companies and those with greater financial and other resources, which may adversely affect business and operating results[467] Risks Related to Cryptocurrencies and Digital Assets Risks include extreme digital asset price volatility, uncertain mainstream adoption, technical issues like blockchain forks and 51% attacks, smart contract vulnerabilities, and evolving DeFi risks including impermanent loss and regulatory scrutiny - The prices of digital assets are extraordinarily volatile, and this volatility can significantly and adversely affect the company's operating results and financial condition[574] - A temporary or permanent 'fork' in a blockchain network could disrupt operations, create new security concerns, and adversely affect the value of the related digital asset[619][620] - DeFi activities subject the company to evolving risks, including insecure smart contracts, default risk in lending pools, and heightened, uncertain regulatory concerns[627][628][630] - The loss, theft, or destruction of private keys required to access cryptocurrency holdings could result in the complete and irretrievable loss of those assets[660] Risks Related to Regulation, Information Systems, and Privacy Regulatory risks include digital asset security classification, extensive compliance requirements, new AI regulations, constant cybersecurity threats, and complex global data privacy laws like GDPR and CCPA - A determination by regulators that a digital asset is a 'security' could adversely affect its value and subject the company to severe regulatory consequences, including liability for acting as an unregistered broker-dealer or exchange[428][438] - The company is subject to extensive and changing regulation by the SEC, CFTC, FINRA, and various state agencies; failure to comply could result in fines, sanctions, or the revocation of licenses[662][667][671] - Cybersecurity incidents and cyberattacks are a major threat; a breach of the company's or its third-party providers' systems could lead to significant financial loss, reputational harm, and regulatory action[713][714] - The company is subject to complex and evolving data privacy laws, such as the GDPR in Europe and the CCPA in California; non-compliance carries the risk of substantial penalties and reputational damage[726][733] Risks Related to Organizational Structure and Ownership Organizational risks include GDI's dependence on GDH LP distributions, Founder's controlling interest (~59.9%) creating 'controlled company' status, substantial Tax Receivable Agreement payments, and potential stock price dilution from future sales or exchanges - GDI is a holding company whose principal asset is its ownership in GDH LP, making it dependent on distributions from GDH LP to pay taxes, dividends, and other expenses[774] - The Founder controls approximately 59.9% of the total voting power, making Galaxy a 'controlled company'; this concentration of ownership may lead to conflicts of interest and prevent new investors from influencing significant corporate decisions[776] - The company is party to a Tax Receivable Agreement that requires potentially material payments to certain pre-reorganization partners for realized tax benefits[806] - The market price of Class A common stock may be subject to downward pressure due to future sales by insiders or the potential dilution from the redemption or exchange of LP Units and Exchangeable Notes[788][791] Other Information The company reported no unregistered equity sales or defaults on senior securities, confirmed mine safety disclosures are not applicable, and listed filed exhibits - There were no unregistered sales of equity securities or use of proceeds to report[854] - There were no defaults upon senior securities[855] - Mine safety disclosures are not applicable to the company[856]