Blue Owl Capital Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021. Blue Owl is an alternative asset manager operating Direct Lending and GP Capital Solutions businesses. The May 19, 2021 business combination brought Dyal Capital into the company; accordingly, 2021 and prior-year results are not fully comparable, and Dyal’s results are included only from the combination date.
Financial performance and position
| Metric | Q3 2021 | Nine months 2021 |
|---|---|---|
| Revenue | $247.9 million | $535.4 million |
| Net loss attributable to Blue Owl | $53.3 million | $376.3 million |
| Fee-Related Earnings (non-GAAP) | $141.9 million | $286.3 million |
| Distributable Earnings (non-GAAP) | $142.8 million | $268.1 million |
| Adjusted EBITDA (non-GAAP) | $142.0 million | $286.8 million |
- Q3 diluted loss per Class A share was $0.16. For May 19 through September 30, diluted loss per share was $1.36.
- Nine-month operating cash flow was $127.4 million; investing cash outflow was $1.274 billion, primarily reflecting the Dyal acquisition; financing cash inflow was $1.274 billion. Cash at September 30 was $138.9 million.
- At quarter-end, debt had a $700 million principal balance, represented by 3.125% senior notes due 2031; net carrying value was $683.6 million. The $150 million revolving facility was undrawn, with $149.8 million available. Separately, $292.6 million of investments were reported at fair value.
- Total assets were $7.450 billion and total liabilities $2.269 billion. Deferred tax assets were $514.1 million; goodwill was $3.563 billion and net intangible assets $2.150 billion.
- AUM was $70.5 billion, including $47.0 billion of fee-paying AUM and $9.0 billion of AUM not yet paying fees. About 97% of Q3 management fees came from permanent capital.
Changes versus prior periods
- Q3 revenue rose from $54.0 million in 2020 to $247.9 million in 2021; nine-month revenue increased from $143.8 million to $535.4 million. The acquisition of Dyal and expiration of fee waivers at Owl Rock Capital Corporation were major drivers, alongside growth in Direct Lending assets.
- Q3 Fee-Related Earnings increased from $9.8 million to $141.9 million; nine-month Fee-Related Earnings increased from $2.1 million to $286.3 million. These non-GAAP measures exclude significant items and should not be read as GAAP earnings.
- Nine-month GAAP loss widened substantially, principally because of $1.174 billion of non-cash equity-based compensation associated with the business combination, $67.5 million of acquired-intangible amortization, and fair-value losses on earnout and warrant liabilities. Nine-month change in earnout liability was a $756.1 million loss.
- Direct Lending AUM increased 28% year to date to $34.6 billion; GP Capital Solutions AUM increased 37% to $35.9 billion, with growth driven largely by portfolio appreciation and fundraising.
Outlook, commentary, and risks
- Management said current liquidity and cash generation from management fees should be sufficient for anticipated working-capital needs for at least 12 months. This assessment depends on continued fee generation and market conditions.
- The company intends to target quarterly dividends of approximately 85% of Distributable Earnings, subject to board discretion and business, tax, liquidity, legal, and debt-related needs. A $0.09-per-share dividend was declared November 9, 2021, payable November 30 to holders of record November 22.
- After quarter-end, Blue Owl issued $350 million of 4.125% notes due 2051, announced a proposed $950 million Oak Street Real Estate Capital acquisition, and paid $297.1 million in cash to repurchase noncontrolling interests in a BDC-advisor holding company.
- The company estimates a $482.5 million TRA liability at September 30, net of fair-value adjustments; estimated timing and actual payments depend on future taxable income and tax benefits. Management’s maximum-payment schedule assumes sufficient taxable income and is not a forecast of actual payment timing.
- Risks include market and valuation changes that can affect Direct Lending fees, fundraising and deployment slowdowns, liquidity and financing conditions, unobservable fair-value assumptions, tax-asset realizability, and LIBOR transition exposure in the revolving facility and certain managed products. Management noted that fair-value changes in earnout and warrant liabilities can materially affect GAAP results but generally do not require cash settlement.
- Disclosure controls were deemed effective at reasonable assurance as of September 30. The company was still designing and implementing internal controls following the business combination; independent auditor attestation was not yet required for this filing.
Investor verification priorities
- Reconcile GAAP losses with non-GAAP Fee-Related Earnings and Distributable Earnings, especially the treatment and recurrence of equity compensation and fair-value changes.
- Review AUM and fee-paying AUM definitions, underlying fundraising/deployment, and the extent to which asset appreciation—not new capital—drove reported growth.
- Assess post-quarter liquidity and leverage after the $350 million notes issuance, $297.1 million repurchase, and proposed Oak Street transaction, including funding terms and closing conditions.
- Evaluate the assumptions behind the $482.5 million TRA liability, $514.1 million deferred tax asset, and Level III contingent liabilities.
- Confirm dividend sustainability against cash generation, the company’s stated payout target, tax and TRA obligations, and board discretion.