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Galaxy Digital Announces Third Quarter 2019 Financial Results and Provides Corporate Updates

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NEW YORK, Nov. 26, 2019 /CNW/ - Galaxy Digital Holdings Ltd. (TSXV:GLXY) ("Galaxy Digital", "GDH Ltd.", or the "Company") today released both Galaxy Digital Holdings LP's ("GDH LP" or the "Partnership") and GDH Ltd.'s financial results for the three and nine months ended September 30, 2019 ("Q3 2019" or "the third quarter"), as well as the Partnership's corporate updates through the date of this press release.

Galaxy Digital Holdings Ltd. (CNW Group/Galaxy Digital Holdings Ltd)

"While the third quarter proved to be another challenging one for the cryptocurrency markets broadly, the teams here at Galaxy Digital continued to make forward progress across each of our three primary operating business lines as well as to conservatively allocate new capital where we saw pockets of clear value in the industry," said Michael Novogratz, Founder and CEO of Galaxy Digital. "Whether one points to Trading's OTC market share gains and entry into the structured and derivative product markets, Asset Management's launch of the new bitcoin funds, Advisory Services' successful work on two IPOs on the NYSE and Nasdaq, or our Venture and Principal Investment teams' continued and acute focus on portfolio management and positioning, the second half of 2019 has seen the Company leverage our relationships and insights to improve our standing in the digital assets, cryptocurrency and blockchain technology industry."

Corporate Updates

  • As previously announced, Ashwin Prithipaul was appointed Chief Financial Officer of the Company and GDH LP at the end of September. Prior to his appointment as CFO, Prithipaul had been the Chief Accounting Officer at Galaxy Digital since August 2018, and has over 15 years of accounting and finance experience in the financial services industry. Before joining Galaxy Digital, Prithipaul was the Director of Financial Reporting at Assured Guaranty (NYSE:AGO). Previously, he was a senior manager in the Banking and Capital Markets practice at PricewaterhouseCoopers in New York and London. Prithipaul assumed the role of CFO from Donna Milia, who remains at the Company as a senior advisor.
  • As part of its previously announced share repurchase program, as of November 21, 2019, the Company repurchased a total of 792,054 shares at an average per share price of C$1.25.

Business Highlights

  • The Partnership's trading business, Galaxy Digital Trading ("GDT"), experienced an increase in both onboarded and actively trading counterparties in Q3 relative to Q2. While GDT trading volumes decreased over that same period, along with declines in the overall market, the business increased market share as its volumes decelerated at a slower pace than the broader market, as indicated by volumes on trusted exchanges. The reduction in broad market activity can be attributed to several factors, including geopolitical and regulatory uncertainty stemming from Libra, regulatory concerns related to international exchanges, and general de-levering during the summer months. Despite this market headwind, GDT expanded its counterparty outreach efforts and consistently onboarded new strategic partners throughout the quarter.
  • GDT's sustained enhancements to its product suite have generated ongoing demand across its lending, derivatives, and trading solutions. These solutions facilitate counterparty retention and should advantageously position the business when spot volumes reaccelerate again industry-wide.
    • Products & Liquidity Solutions: Developments across its product offerings continue to differentiate GDT. GDT has been one of the first active participants in the listed structured product market, and improvements to its technology infrastructure have allowed for GDT to deliver streaming liquidity to counterparties via API functionality.
    • Onboarding & Operations: The Trading business continues to benefit from GDT's first half investment in onboarding resources across Compliance and Operations. GDT delivered a 10% increase in the number of actively trading, onboarded counterparties in the third quarter of 2019 over the prior quarter, and a 47% increase in the number of total onboarded counterparties in this same period.
    • Market Insights: The increase in frequency of GDT's regular trading commentary has yielded positive feedback from counterparties who rely on GDT to help navigate the volatility of the crypto market.
  • Since the start of 2019, Galaxy Digital's Asset Management business, Galaxy Digital Capital Management LP ("GDCM"), has been capitalizing on the improvement in the digital asset market. Most recently, in November 2019 GDCM launched the Galaxy Bitcoin Fund and the Galaxy Institutional Bitcoin Fund (collectively, the "Bitcoin Funds"). Both funds are passively managed vehicles that are designed to mitigate the operational complexities of managing direct bitcoin investments. The funds offer institutional and accredited investors institutionally wrapped bitcoin exposure supported by vetted service providers, including Bakkt, a digital assets platform founded by the Intercontinental Exchange (ICE), and Fidelity Digital Assets as custodians for the funds, Bloomberg L.P. as pricing agent, Deloitte & Touche LLP for audit, and Ernst & Young LLP for tax. The Bitcoin Funds are a complimentary product offered alongside the existing Galaxy Crypto Index Fund.
  • The Galaxy Crypto Index Fund is a passively managed index fund that tracks the Bloomberg Galaxy Crypto Index (the "BGCI" or the "Index Fund"), an index co-branded and administered by Bloomberg which is designed to track the performance of a basket of the largest, most liquid digital assets, currently including Bitcoin, Ethereum, and others. The BGCI has returned 7.96%, 110.15% and -40.39% for the quarters ending March 31, 2019, June 30, 2019, and September 30, 2019, respectively, while returning 15.94% on a year to date basis through November 25, 2019.
  • Additionally, during the third quarter of 2019 the Galaxy EOS VC Fund LP (the "EOS Fund") made venture capital investments in Loopland Group Holding LLC, Verisart, Inc., Immutable, Predictive Pop, Inc., and a follow-on investment in FinCo Services, Inc.
  • As of September 30, 2019, GDCM had assets under management ("AUM") of $336.0 million, which consists of $11.0 million in the Galaxy Benchmark Crypto Index Fund LP (as calculated per the terms of the fund's partnership agreement) and $325.0 million of committed capital in the EOS Fund.
    • In August 2019, as previously announced, GDCM ceased operations of its third party cash management strategy. As the digital asset and cryptocurrency industry has continued to mature, access to traditional cash management and banking services have become more readily accessible. Furthermore, basic cash management services have historically been a relatively low value-add and hence low fee generating business. As a result, GDCM determined it would discontinue efforts in marketing and managing this strategy in favor of focusing its efforts towards other, higher margin fund strategies. As a result, the Galaxy CM I Fund LP, was liquidated with the investor being fully redeemed effective August 31, 2019.
  • The Advisory Services business continued to make meaningful progress during the third quarter of 2019 towards its strategic goal of becoming the leading corporate finance and strategic advisory firm in the blockchain technology and digital assets sectors. The Advisory Services business has a number of active mandates for potential financing transactions in various stages of execution, and its investment banking backlog grew compared to the end of the second quarter of 2019.
    • In July 2019, Galaxy Digital Advisors LLC ("GDA"), a subsidiary of GDH LP, obtained approval from the Financial Industry Regulatory Authority ("FINRA") to act as an underwriter to registered public offerings of equity, debt or other corporate securities in the United States.
    • In November 2019 GDA served in its first named roles on completed public equity offerings as Joint Bookrunner for Canaan's initial public offering on NASDAQ and as Co-Manager for Silvergate Bank's initial public offering on the New York Stock Exchange.
  • During the third quarter of 2019, the Principal Investments team closed three new investments and seven follow-on investments, representing $4.8 million and $16.9 million of invested capital, respectively.
    • Investments (including loans purchased) made during the third quarter bring capital deployed for the nine months ended September 30, 2019 to $41.2 million represented by 9 new investments and 16 follow-on investments.
    • Investments made (including loans purchased) from January 9, 2018 through September 30, 2019 total $174.1 million and are represented by 34 new and 26 follow-on investments.

Select GDH LP's Financial Highlights (Q3 2019)

  • As of September 30, 2019, digital assets, including digital assets posted as collateral, stood at $133.5 million, an increase of $63.7 million from December 31, 2018. This increase was primarily due to the increase in the fair value of the digital assets during the period, as the prices of digital assets held by the Partnership increased.
  • Investments stood at $156.5 million as of September 30, 2019, a decrease of $22.9 million from December 31, 2018. The decrease was primarily a result of the partial sale of Block.one shares, partially offset by unrealized gains on certain other investments during the period as well as $24.8 million of new capital deployed by the Principal Investments team over the nine month period.
  • Total equity increased by $77.0 million during the nine month period to $382.7 million as of September 30, 2019 primarily due to $58.4 million of net comprehensive income and further increased by $23.4 million of equity based compensation which did not have a net effect on equity due to the accounting treatment for such compensation.
  • As of September 30, 2019, the Partnership's net book value1 per unit was approximately C$1.76 (US$1.33) representing an increase of approximately 21% in C$ compared to C$1.46 (US$1.07) as of December 31, 2018.
  • For the three months ended September 30, 2019, net comprehensive loss was $68.2 million, as compared to net comprehensive loss of $76.7 million for the three months ended September 30, 2018. The current quarter's loss was largely a result of an unrealized loss on digital assets, i.e. cryptocurrencies which trade continuously in the market, and operating expenses. The unrealized loss was primarily on the Partnership's holdings of Bitcoin and Ethereum, whose prices fell during the three months ended September 30, 2019.The net comprehensive loss for the three months ended September 30, 2018 was primarily a result of realized loss on digital assets and operating expenses. The realized loss was primarily on the Partnership's holdings of Ethereum and Bitcoin. For the nine months ended September 30, 2019, net comprehensive income was $58.4 million, as compared to net comprehensive loss of $175.7 million for the nine months ended September 30, 2018. The current year to date income was largely a result of realized gains on digital assets, partially offset by the year to date operating expenses. The realized gains were primarily on the Partnership's holdings of Bitcoin and Ethereum. The net comprehensive loss for the nine months ended September 30, 2018 was primarily a result of unrealized and realized loss on digital assets. The realized loss was primarily on holdings of Bitcoin and Ethereum, while the unrealized loss was primarily on holdings of Wax and Kin.

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1 Net book value includes non-controlling interests.

 

GDH LP's Q3 2019 Financial Results


September 30,


December 31,


2019


2018

Assets




Current assets




   Cash

$

78,375,006


$

66,488,012

   Digital assets

124,697,695


69,765,339

   Investments

156,540,340


179,365,696

   Receivable for digital asset trades

2,472,350


8,579,058

Digital asset loans receivable

7,359,896


Assets posted as collateral

11,236,848


Receivables

2,056,531


1,238,694

Prepaid expenses and other assets

2,749,186


2,002,880

Loans receivable

14,890,368


2,369,024


400,378,220


329,808,703





Loans receivable

13,810,751


15,892,320

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