Overview of Financial Performance

DigitalBridge Group, Inc. (DBRG) is a leading global digital infrastructure investment management firm. The company reported its financial results for the three and nine months ended September 30, 2024. Total revenues were $76.1 million and $540.9 million for the respective periods, with a significant decrease in the quarter-to-date comparison driven by variability in carried interest.

Excluding carried interest, revenues were higher in both periods, driven by an increase in fee income of $11.3 million quarter-to-date and $38.0 million year-to-date. This was consistent with a 14% increase in Fee Earning Equity Under Management (FEEUM) to $34.1 billion over the past 12 months. However, principal investment income and other income were lower, largely offsetting the higher fee revenue.

Revenue and Profit Trends

Fee Revenue: Fee revenue increased 17% quarter-over-quarter and 20% year-over-year, primarily due to the launch of DBRG’s third flagship fund in November 2023, which contributed $16.7 million and $39.6 million in fees, respectively. This was partially offset by lower fees in other funds due to changes in fee basis, syndications, and recapitalizations.

Carried Interest Allocation: Carried interest allocation, which represents DBRG’s share of gross carried interest from its sponsored investment vehicles, saw significant variability. In the quarter-to-date comparison, 2024 included a reversal of unrealized carried interest, while 2023 recognized a large unrealized carried interest. In the year-to-date comparison, unrealized carried interest was higher in 2024, driven by DBRG’s flagship DBP funds, partially offset by a reversal in DataBank funds.

Principal Investment Income: Principal investment income, which represents DBRG’s share of net income from investments in its sponsored funds, decreased due to lower unrealized gains or higher unrealized losses in the underlying fund investments. Realized principal investment income increased, largely from gains related to syndication of investments in the DBP funds and distribution of interest income.

Other Income: Other income decreased in both periods, primarily due to higher interest and dividend income in 2023 from DBRG’s subordinated notes in a collateralized loan obligation (CLO) and a deconsolidated credit fund.

Expenses: Total expenses decreased in the quarter-to-date comparison but increased in the year-to-date comparison, driven by significant variability in unrealized carried interest compensation. Excluding incentive fee and carried interest compensation, expenses were lower in both periods, attributed largely to lower cash compensation and equity-based compensation.

Strengths and Weaknesses

Strengths:

• Continued growth in the investment management business, as evidenced by a 14% increase in FEEUM over the past 12 months
• Successful launch of the third flagship fund, which contributed significant new fee revenue
• Reduction in higher-cost corporate debt, resulting in annual interest savings of $4.5 million
• Monetization of non-core investments for $35 million in proceeds
• Receipt of $10.4 million in excess net proceeds from a CLO refinancing

Weaknesses:

• Significant variability in carried interest allocation, resulting in large quarter-over-quarter and year-over-year changes in revenues and profits
• Decrease in principal investment income due to lower unrealized gains or higher unrealized losses in underlying fund investments
• Decrease in other income due to the loss of interest and dividend income from deconsolidated investments

Outlook and Future Prospects

DBRG’s liquidity position remains strong, with approximately $427 million in available corporate cash and full availability under its $300 million Variable Funding Notes facility as of September 30, 2024. The company believes it has sufficient liquidity to meet its short-term and long-term needs, including funding operations, debt obligations, dividends, and future investments.

The company continues to focus on growing its investment management business, as evidenced by the successful launch of its third flagship fund. DBRG’s ability to generate new management fee streams and raise investor capital will depend on market conditions, availability of attractive investment opportunities, and access to debt capital.

Variability in carried interest and principal investment income remains a risk, as these revenue streams are largely driven by the performance of the underlying fund investments, which can be affected by various market and economic factors. DBRG’s ability to manage this volatility and maintain a stable revenue stream from its investment management business will be crucial for its future success.

Overall, DBRG’s financial performance in the reported periods demonstrates both the strengths and challenges of its business model. The company’s focus on growing its investment management platform, reducing debt, and monetizing non-core investments suggests a positive outlook, but the inherent volatility in certain revenue streams remains a concern that the company will need to navigate effectively.