Blue Owl Capital Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Blue Owl is an alternative asset manager focused on Direct Lending, GP Capital Solutions and Real Estate. Results include acquisitions at different dates; prior-year comparisons are therefore not fully comparable.
Financial and operating highlights
| Metric | Q3 / September 30, 2022 | Prior comparable period |
|---|---|---|
| Revenue | $371.0 million | $247.9 million in Q3 2021 |
| Management fees, net | $338.4 million | $203.8 million in Q3 2021 |
| Net income (loss) attributable to Blue Owl | $2.1 million | $(53.3) million in Q3 2021 |
| Consolidated net income (loss) | $(10.0) million | $(240.8) million in Q3 2021 |
| Fee-Related Earnings (non-GAAP) | $209.8 million | $141.9 million in Q3 2021 |
| Distributable Earnings (non-GAAP) | $191.7 million | $142.8 million in Q3 2021 |
| Adjusted EBITDA (non-GAAP) | $210.0 million | $142.0 million in Q3 2021 |
| AUM / Fee-Paying AUM | $132.1 billion / $84.1 billion | $70.5 billion / $47.0 billion at September 30, 2021 |
Unless noted otherwise, financial amounts are in U.S. dollars. For the nine months, revenue was $974.2 million versus $535.4 million; Fee-Related Earnings were $578.3 million versus $286.3 million, and Distributable Earnings were $527.8 million versus $268.1 million. Blue Owl reported an attributable net loss of $10.9 million for the nine months, compared with $376.3 million in 2021.
Quarterly GAAP expenses were $368.6 million against $371.0 million of revenue. The filing does not present a headline GAAP operating-margin measure. Fee-Related Earnings were about 58% of FRE revenue in Q3, compared with about 60% a year earlier; this is a derived non-GAAP ratio, not a GAAP margin.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $452.4 million, compared with $127.4 million in 2021. Investing cash use was $345.9 million and financing cash use was $109.6 million. Cash declined $3.0 million to $39.5 million.
- At quarter-end, debt comprised $1.45 billion of senior notes and $112 million drawn on a revolving facility. The revolver had approximately $997.9 million available; the $112 million borrowing was repaid after quarter-end.
- Management stated that cash and expected management-fee receipts should cover anticipated working-capital needs for at least 12 months. The company reported $1.0 billion available under its revolver at quarter-end.
- The company estimated potential Tax Receivable Agreement payments of $908.2 million, assuming sufficient taxable income to realize the related tax benefits; the recorded TRA liability was $792.0 million.
Changes, outlook and risks
- Growth reflected acquisitions and fundraising: Dyal Capital joined in May 2021, Oak Street in December 2021 and Wellfleet in April 2022. Management cited higher fees from Direct Lending, Dyal Fund V fundraising and the Oak Street business. It cautioned that acquisition timing makes comparisons less representative of organic growth.
- Q3 AUM increased by $8.8 billion of new capital raised; approximately 93% of management fees were earned on Permanent Capital. A further $10.7 billion of AUM was not yet paying fees, which management estimated could generate about $139 million of annualized fees once deployed or fee holidays expire.
- Management said fundraising remained strong and diversified, Direct Lending benefited from rising rates, and Real Estate tenants continued to pay 100% of rent. It anticipated a net positive earnings impact from further rate increases, particularly in Direct Lending. These are management expectations, not guidance with quantified targets.
- Risks highlighted include persistent inflation, higher interest rates, slower global growth, geopolitical instability and COVID-19 effects. A slowdown in fundraising or deployment, or lower investment valuations, could reduce fees and earnings. Valuations of illiquid investments rely partly on judgment and may differ from realized values.
- Compensation and acquisition accounting were significant: Q3 compensation expense rose to $234.7 million, including acquisition-related and other equity compensation; nine-month 2021 compensation included a substantial Business Combination-related equity charge. Fair-value changes in warrants and earnout liabilities also caused period-to-period GAAP volatility. Public warrants were redeemed in August 2022; private-placement warrants remained outstanding.
- The board’s dividend policy targets approximately 85% of Distributable Earnings, but dividends remain discretionary. After quarter-end, the company declared a $0.12-per-share dividend, payable November 30, 2022. It repurchased $9.8 million of Class A shares in Q3 under a $150 million authorization.
Important facts for investors to verify
- Reconcile GAAP results with Fee-Related Earnings and Distributable Earnings, including the exclusions and acquisition-related compensation that affect those non-GAAP measures.
- Assess how much AUM and FPAUM growth came from acquisitions, fundraising, leverage deployment, valuation changes and changes in fee basis—and whether the $139 million estimated future fee opportunity is realized.
- Review debt maturities, revolver terms and covenant headroom, as well as the assumptions and timing behind the estimated $908.2 million of potential TRA payments.
- Consider the sensitivity of fee revenue and fund valuations to market conditions, and note that certain product performance data is lagged and does not represent Blue Owl’s own investment returns.
- The filing reported effective disclosure controls and no pending legal proceeding expected to materially affect the financial statements; verify subsequent filings for changes.