Blue Owl Capital Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Blue Owl completed its business combination and acquired Dyal Capital on May 19, 2021. Historical results are principally Owl Rock’s; Dyal results are included only from the closing date, so year-over-year comparisons are not fully comparable.
Business context
Blue Owl is an alternative asset manager focused on Direct Lending and GP Capital Solutions. It earns most revenue from management fees, generally based on fee-paying assets under management (FPAUM). At quarter-end, AUM was $62.4 billion, including $42.8 billion of FPAUM; approximately 97% of management fees were earned on permanent capital.
Key financial metrics
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Revenue | $179.3 million | $287.5 million |
| Net loss attributable to Blue Owl Capital Inc. | $362.3 million | $322.9 million |
| Fee-Related Earnings (non-GAAP) | $98.1 million | $144.5 million |
| Distributable Earnings (non-GAAP) | $85.1 million | $125.4 million |
| Operating cash flow | Not stated for the quarter | $18.3 million |
Q2 revenue included $142.1 million of management fees and $37.1 million of administrative, transaction and other fees. Six-month revenue increased from $89.8 million in 2020 to $287.5 million in 2021, but acquisition timing and the business combination materially affect comparability. Management cited expired Owl Rock fee waivers, FPAUM growth and Dyal’s contribution as revenue drivers.
GAAP results included $1.159 billion of non-cash equity-based compensation, primarily from replacement Common Units issued in the business combination, and a $463.0 million loss from remeasuring the Earnout Securities liability. The quarter also included $21.3 million of acquired-intangible amortization, $35.2 million of business-combination expenses and a $16.1 million debt-retirement loss. These items contributed to the GAAP loss despite positive Fee-Related and Distributable Earnings.
At June 30, cash and cash equivalents were $436.0 million. Debt had a net carrying value of $683.3 million, representing $700.0 million principal of 3.125% senior notes due 2031; $149.1 million was available under the revolving credit facility, with no borrowings outstanding. Total assets were $6.872 billion and total liabilities were $2.488 billion. The balance sheet includes acquisition-related goodwill of $3.548 billion and net intangible assets of $2.212 billion.
Six-month investing cash outflow was $977.4 million, primarily reflecting cash consideration for Dyal. Financing cash inflow was $1.384 billion, including business-combination proceeds and debt issuance. Cash increased by $424.4 million in the period.
Material changes, outlook and risks
- Direct Lending AUM rose 15.0% year to date to $31.2 billion; GP Capital Solutions AUM rose 19.0% to $31.2 billion, primarily from portfolio appreciation and fundraising. Management reported continued investor demand for private credit and GP minority investments, supported by low rates and the search for yield.
- Management said available liquidity and cash generated from management fees should meet anticipated working-capital needs for at least 12 months. No specific earnings or revenue guidance was provided. The company intends to target quarterly Class A dividends of approximately 85% of Distributable Earnings, subject to board discretion and other needs.
- On August 10, 2021, Blue Owl declared a $0.04-per-Class-A-share dividend, payable September 8 to holders of record August 24. No Class A or B dividends had been paid by June 30.
- The estimated TRA liability was $462.2 million, net of fair-value adjustments. Actual payments depend on taxable income, tax benefits realized, tax rates and other assumptions; insufficient operating distributions could require borrowing to fund payments.
- Management identified risks to fee revenue from declines in managed-product asset values, slower fundraising or deployment, market disruptions and financing constraints. Product investment valuations and several company liabilities rely on estimates and unobservable inputs; changes can materially affect reported results.
- One-half of the Earnout Securities met its $12.50 price trigger on July 21, 2021, resulting in conversions to Class A shares and operating-group units; $15.0 million of additional non-cash compensation expense was expected in Q3.
- Management reported effective disclosure controls as of June 30. Internal-control design and implementation remained in progress following the business combination; the company had not obtained an independent audit of internal control over financial reporting.
Most important facts for investors to verify
- How recurring Fee-Related Earnings and Distributable Earnings develop after the acquisition-related charges and fee-waiver expirations, and how they reconcile to GAAP results.
- The sustainability and fee-generating share of AUM and FPAUM growth, including the effects of portfolio marks, debt-funded AUM and uncalled commitments.
- The assumptions and potential volatility behind the $954.2 million Earnout Securities liability, warrant liabilities and acquisition-related goodwill and intangible assets.
- Cash needs for debt service, the approximately $462.2 million estimated TRA obligation, the planned dividend and the remaining pre-combination distribution noted by management.
- Post-trigger share and unit conversions, noncontrolling ownership and potential dilution; verify the applicable share counts and subsequent-period disclosures.