🥛 Is Galaxy's $85M loss actually good? 🤔

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✍️ GLXY lost $85M and switched on the rent.
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GALAXY LOST $85M AND SWITCHED ON THE RENT ⚡

Galaxy Digital reported an $85M net loss for Q2 this morning.

That sucks.

But the number we care about on the balance sheet is the +$18.9M.

That's the first rent Galaxy has ever billed on a data center.

Ok, but hold up - first things first: where did the $85M go?

Galaxy's Treasury & Corporate segment ran $78M of negative adjusted EBITDA (a rough proxy for operating cash profit, before interest, tax and accounting charges).

Almost all of it came from unrealized losses, meaning paper markdowns on tokens and investments Galaxy still owns and hasn't sold.

Crypto prices fell in Q2, so the value of Galaxy's own crypto stack fell with them.

Our lead analyst M0xt told PRO members to ignore that number hours before the release.

His view: headline losses and firm-wide adjusted EBITDA are crypto-beta noise, and the actual story sits in two segments.

Segment one is the data centers…

Source: Galaxy

Galaxy took an old Bitcoin mining site in West Texas, spent years converting it into an AI data center campus called Helios, and leased it to CoreWeave for 15 years.

In Q2 it started charging rent.

Leasing revenue: $18.9M.
Adjusted gross profit: $20.1M, up from $3.1M in Q1.
Adjusted EBITDA: $11.5M, the segment's first positive quarter ever.

All 133 MW of critical IT load under Phase I is now in service (critical IT load being the power that reaches the servers, rather than the cooling around them).

And Q2 only captured part of that, because capacity was still being handed over while the quarter ran.

Now that everything's live, Galaxy expects Phase I on its own to bill roughly $80M per quarter from Q3, at a project-level adjusted EBITDA margin above 90%.

Going in, M0xt was looking for any comment framing Q3 toward ~$60M.

He got $80M…

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GALAXY LOST $85M AND SWITCHED ON THE RENT (P2) ⚡

Segment two is the crypto business, which held up better than the price of crypto did.

Digital Assets adjusted gross profit came in at $66M, up 34% quarter over quarter.

That happened while Galaxy's own trading volumes fell 7% and industry-wide volumes fell by double digits.

Segment adjusted EBITDA improved from -$19M to -$11M, M0xt's other checkpoint.

Galaxy also signed a multi-year agreement with BNY, a custodian overseeing more than $60T in assets, to support staking on its digital asset platform.

Then comes the part nobody had scheduled. 👇

Source: Galaxy

Galaxy's power pipeline now sits at 5,730 MW across Texas after picking up three more sites.

Only 800 MW of that is contracted under an executed lease.

The other 4,930 MW is identified but uncontracted, and most of it sits behind ERCOT's grid connection queue.

On August 3, Governor Abbott ordered Texas regulators to audit every data center in that queue before any more advance, with no completion deadline announced. ERCOT paused its Batch Zero study the same day.

There are 474 GW of connection requests waiting in there, against a grid whose record peak demand is roughly 91 GW.

Which caps how fast Galaxy's pipeline can grow, and makes the 830 MW already approved at Helios a lot more valuable.

M0xt goes against the crowd here: investors want the next tenant for that 830 MW announced yesterday, and he thinks they should stop asking.

Waiting means better terms on a lease that runs 15 years or more.

The other worry is dilution, because every phase needs an equity check from Galaxy on top of the debt.

M0xt worked backward from the Phase II funding terms and sized that requirement near $1B across all three phases, against roughly $7B of levered free cash flow over the life of the leases.

On his numbers, about a 35% return on the equity Galaxy puts in.

Three things to watch from here:

Whether Q3 leasing revenue actually lands near $80M.
Whether a Phase I refinancing shows up.
Whether that 830 MW finds a tenant.

Stay tuned!

Oh, and btw - M0xt is breaking this report down in depth inside Milk Road PRO this week, position by position, including what he's doing with his own GLXY holding from here.

You can try Milk Road PRO for a buck for 7 days here.