Blue Owl Capital Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Blue Owl is an alternative asset manager operating across Credit, GP Strategic Capital and Real Estate. Its primary revenue source is management fees, and approximately 90% of Q1 management fees were earned on Permanent Capital.
Key financial and operating metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue, net | $513.3 million | $391.0 million | +31.3% |
| Management fees, net | $447.9 million | $358.8 million | +24.8% |
| Consolidated net income | $112.0 million | $42.0 million | +$70.0 million |
| Net income attributable to Blue Owl | $25.1 million | $8.3 million | +$16.8 million |
| Fee-Related Earnings (non-GAAP) | $289.7 million | $225.9 million | +28.2% |
| Distributable Earnings (non-GAAP) | $240.1 million | $209.0 million | +14.9% |
| Net cash from operating activities | $47.2 million | $121.0 million | Down $73.8 million |
Revenue growth reflected higher management fees across all three platforms and increased administrative, transaction and other fees. Management cited fundraising and deployment, including growth in Credit products, GP minority-stakes fundraising and Real Estate products. The GAAP effective tax rate was 11.7%, versus 13.3%.
FRE revenues were $486.5 million and FRE expenses were $191.0 million; the calculated FRE margin was approximately 59.5%, compared with 59.8% in Q1 2023. This non-GAAP margin is based on FRE, not GAAP revenue. Compensation and benefits and general and administrative expenses increased; intangible amortization declined.
AUM: $174.3 billion at quarter-end, including $105.4 billion of fee-paying AUM (FPAUM). AUM increased from $144.4 billion a year earlier; FPAUM increased from $91.6 billion. Blue Owl reported $16.8 billion of AUM not yet paying fees, which it estimates could generate more than $240 million in annualized management fees when deployed or when fee holidays expire. AUM and FPAUM are company-defined measures and may not be comparable with peers.
Liquidity and debt: Cash and cash equivalents were $155.8 million at March 31. Debt obligations had a $2.105 billion principal balance and $2.072 billion net carrying value, including $595 million drawn under the revolving facility. Approximately $948 million remained available under the facility at quarter-end. In April, Blue Owl issued $750 million of 6.250% senior notes due 2034 and used proceeds to repay the revolving borrowings; remaining proceeds were for general corporate purposes. Management said liquidity and management-fee cash generation should cover anticipated working-capital needs for at least 12 months.
Cash flow: Operating cash flow fell primarily because of higher operating costs, including annual bonus payments, partly offset by higher management fees. Financing cash flow was $19.7 million provided, versus $116.8 million used in the prior-year quarter. Cash increased by $51.6 million during Q1.
Material changes, outlook and notable items
- April acquisitions announced: Kuvare Asset Management for $750 million, funded with $325 million cash and $425 million in Class A stock, plus a separate $250 million preferred-equity investment in Kuvare; and Prima Capital Advisors for $170 million, primarily stock and operating-group units. Both were expected to close in Q2 or Q3 2024, subject to customary conditions.
- The company set a 2024 target annual dividend of $0.72 per Class A share, paid as $0.18 quarterly and subject to Board approval. Q1’s $0.18 dividend was payable May 30, 2024. The Board retains discretion to change or eliminate dividends.
- Blue Owl described market activity as moderately constructive and reported positive net deployment and fundraising. It cautioned that slower fundraising or deployment, market volatility and valuation changes could delay or reduce management fees. No specific earnings or revenue guidance was provided.
- Potential TRA payments were estimated at approximately $1.1 billion, assuming sufficient taxable income to realize the relevant tax benefits; timing and actual amounts are uncertain. Q1 TRA payments were $28.2 million.
- Fair values of illiquid investments and certain liabilities rely on estimates and unobservable inputs; changes can affect reported results. The company also noted that most cash is held at one highly rated institution in amounts exceeding FDIC-insured limits.
- No pending legal proceeding was expected by management to have a material impact on the financial statements, and the filing reported no material changes to previously disclosed risk factors. Disclosure controls were deemed effective; no material change in internal control was reported.
Important facts for investors to verify
- Track whether the $16.8 billion of non-fee-paying AUM is deployed and converts into the estimated management-fee growth.
- Review the April 2034 notes, post-issuance debt balance, acquisition funding and closing conditions, including potential dilution from stock consideration.
- Assess the sustainability of FRE and Distributable Earnings growth alongside rising compensation and operating expenses; these are non-GAAP measures and are not equivalent to GAAP earnings or cash flow.
- Monitor the $1.1 billion estimated TRA obligation, future cash requirements and the Board’s quarterly dividend decisions.
- Consider valuation sensitivity, fundraising and deployment risks, and the distinction between consolidated net income and the much smaller amount attributable to Blue Owl, given substantial noncontrolling interests.