DigitalBridge Group, Inc.

Greetings and welcome to the Digital Bridge Group, Inc. second quarter 2022 earnings call. At this time, all participants are in the listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to send the conference over to your host, Severin White, Managing Director, Head of Public Investor Relations for Digital Bridge Group, Thank you. You may begin.

Good morning, everyone, and welcome to DigitalBridge's second quarter 2022 earnings conference call. Speaking on the call today from the company is Mark Gansey, our CEO, and Jackie Wu, our CFO. I'll quickly cover the safe harbor, and then we can get started. Some of the statements that we make today regarding our business operations and the financial performance may be considered forward-looking. and such statements may involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, August 4th, 2022, and DigitalBridge does not intend and undertakes no duty to update it for future events or circumstances. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC and in our Form 10-Q for the quarter ended June 30, 2022. Great. So we're going to start by covering our quarterly agenda. Mark will outline some of the key drivers of our upgraded roadmap in the first section, and then get into our 2Q business update in Section 2. Jackie will cover our financial results in Section 3, and then Mark will wrap up with some interesting case studies on how DBRG is executing the digital playbook, followed by Q&A. We made some great progress towards our 2022 goals, from generating initial commitments to our new strategies, to leading some of the most important digital infrastructure transactions this year. So let's get started. With that, I'll turn the call over to Mark Gansey, our CEO. Mark? Thanks, Severn.

Before we get into the Q2 quarter business update and financials, I wanted to take investors through our upgraded strategic roadmap and explain how it's going to create and drive strong value creation for them over the next few years and beyond. It's a roadmap that, as you can see in the middle of this slide, was unlocked earlier this year with the repurchase of a minority stake in our investment management platform and our related transition to a traditional C-Corp. Those were seminal decisions that allowed us to leverage our comparative advantage, which is centered around our long history of operating and successfully investing institutional capital across the digital infrastructure ecosystem. These are decisions that will enable us to achieve accelerated growth in our highly scalable investment management platform. As you can see on the right, this is our growth engine, doubling our AUM over the next few years by extending new and existing investment offerings. When you complement that with the steady growth that we're seeing in our digital operating assets, it's a unique profile. that's built on giving you, our investors, access to what we think are the most compelling investment platform and opportunities at scale in the digital infrastructure sector today. Let's explore our growth profile in greater detail on the next slide, please. When investors ask me, where are you going to create the most shareholder value over the next few years? With total conviction, I can say, this is it. Doubling Fiam and our IM platform in deploying that capital intelligently and prudently into the kind of high-quality signature investments you've seen us make already this year. That is what generates returns for our investors. We invest, own, and operate in platforms that are growing and that have long-dated revenue and earning streams. Digital Rich participates in the business-building economics as a seasoned investor, operator, in the digital infrastructure sector. The combination of growing secular demand for digital and the full stack capability that we have built to capitalize on positions us to take FIEM from just under $25 billion to over $50 billion in the next three years. As the partner of choice in a resilient, growing asset class, we have high confidence in our ability to execute on this strategy through the good times and the challenging ones. Through the first two quarters of 2022, we have demonstrated our ability to execute on this plan against the backdrop of a challenging macro. That's it. We believe this is not hard to understand. It's not complex. We double our fee in three years. This drives long-term predictable earnings and cash flows that we believe shareholders will increasingly appreciate. Next page, please. Great. So we're going to double-fee them. What does that mean for you, our investors? It's really simple. We've got an easy algorithm that translates into incremental fee-paying AUM into higher revenue. At an average fee rate of 90 basis points across our portfolio with very attractive incremental margins, this drives strong earnings accretion. The earnings margins should remind you of other great digital infrastructure businesses many of you own today. The growth rate at Digital Ridge, on the other hand, is unlike anyone else in our peer set, as we will continue to deliver double-digit organic growth through 2025. This is incredibly unique in our sector. I'll let you apply your own multiples to the incremental FRE to understand the value creation opportunity over the next few years, just on management fee streams alone. Next slide, please. Doubling FIEM over the next three years is the business plan our team is focused on delivering for you today. Many of you ask me, is this possible? And how does that compare to our track record? Well, what I can share with you is it compares very well. In fact, we're on track to more than triple FIEM since 2019 by the end of this year, to greater than $25 billion. The key here is, since Jackie and I took over the firm, we have delivered on our fundraising commitments to you, our shareholders. We believe we have earned your trust in this regard with actual outperformance results. And when you factor in our expanded new full-stack capabilities with the fact that we're likely to be in a position to refresh our flagship strategy sooner than later, given that Fund 2 is now fully deployed, we think this roadmap makes a ton of sense and is very easy for investors to understand. Next slide, please. So as a part of our upgraded roadmap, I want to refresh our sources and uses with respect to the balance sheet capital we've crystallized as part of our digital transformation. Today, following the WAFRA and AMP transactions, which will boost future revenue and cash flows to DigitalRidge, at the same time setting aside $300 million for future GP commitments in our own funds, we're looking at about around $900 million of total digital firepower set to redeploy over the next year or so and look it's really easy we've got three different buckets that we can deploy that capital first strategic digital M&A with our flexibility our corporate transition has afforded us that means we can buy a complementary strategic investment platforms like AMP which increase earnings and extend our investment management capabilities or alternatively We can buy more digital operating assets that meet our quality and return parameters. Both of these are incredibly good uses of the capital. Second, capital structure optimization, which is really a fancy way of saying we intend to buy back our preferred stock over time. We've telegraphed this to all of you. This shouldn't be something new. Expect this to be a use of capital as current liquidity increases with the data bank recap and warehouse investments returning to the balance sheet later this year. Lastly, share purchases and dividends. As you know, our board recently approved a $200 million stock repurchase authorization that allows us to be opportunistic and take advantage of our stock trading below what we believe is the intrinsic value. Additionally, we've committed to reinitiating the dividend in the third quarter, which we'll detail further in the coming months. I remain steadfast to this commitment and unwavering. We've described that as a low but grow dividend since we expect the vast majority of our free cash flow to be reinvested back in our business, given the accretive opportunities we see to compound value for you, our shareholders. Next slide, please. So let's take a step back before we wrap up this section and put the roadmap into proper context. understand how realigning our business to an asset-light model manifests itself in the numbers, and most importantly, our earnings growth. Today, when we look forward to 2023, we see a business that's going from roughly one-third investment management, two-thirds operating, to really flipping that around, with most of our earnings coming from our IM platform. That starts with the incremental cash flow from Wafra and AMP Transactions, and it's boosted by increasing guidance around capital formation that I've referenced, and Jackie will share with you in greater detail later. This roadmap has important structural implications, too. It's the past our balance sheet was perceived as a potential competitor to our IM business. That is no longer the case. Now it's our partner, helping to accelerate the investment management platform's growth with GP commitments, warehousing capabilities, and position to co-invest alongside our LPs in great digital infrastructure opportunities, not competing with them. Importantly, we're still targeting over $300 million in segment-level EBITDA next year. With $900 million in dry powder, we believe we are in a very good position to fill the remaining $60 million in digital earnings. We will get this done, organically and inorganically. Finally, This roadmap positions us not only to reach our near-term financial goals, but our investment management platform fundamentally grows faster. It's less capital intensive, and it's highly scalable against our other publicly traded digital infrastructure peer set. These are incredibly attractive attributes in our view. We could not be more excited about executing on this next stage of our growth strategy.