Good day and welcome to DigitalBridge Group, Inc Second Quarter 2024 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Severin White, Head of IR. Please go ahead.

Good afternoon, everyone, and welcome to DigitalBridge’s second quarter 2024 earnings conference call. Speaking on the call today from the company is Marc Ganzi, our CEO, and Tom Mayrhofer, our CFO. I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. And such statements 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 7th, 2024, and Digital Bridge 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 for the year ending December 31, 2021, and our Form 10-Q to be filed with the SEC for the quarter ending June 30, 2024. Great. With that, let's get started and I'll turn the call over to Mark Gansi, our CEO. Mark?

Thanks, Devin, and welcome everyone to our second quarter of 2024 business update. I appreciate the opportunity to outline some of the compelling progress we've made year-to-date, building and scaling DigitalBridge. As you'll see today, we've made tangible progress across many of our key 2024 priorities, particularly around capital formation linked to the AI infrastructure ecosystem. So let's get started. First and foremost, number one, financial performance. Delivering pure leading revenue growth with expanding operating margins is central to the DigitalBridge investment thesis. We've delivered that growth this quarter with management fee revenues up 18% over the prior year along with growing margins. Tom will walk you through the financials later in this call. Second, as you know, the key driver of these management fees and fee-related earnings over time is new capital formation. Here, our AI-powered data center vertical is increasingly a key focus for our global limited partners. It's underpinning strong capital formation across debt and equity markets to support the growth of our portfolio and it's catalyzing new investment solutions. This is where our position as the largest private manager of data centers globally really matters. I'll walk you through why this is important to us today. Number three, we're well positioned to meet our annual fundraising and financial goals for the year with $3.4 billion in new FEEUM raised through today, directly in line with where we were last year on our way to $7 billion in new capital formation. And we're heading into a seasonally strong final four months of the year. I have high conviction we'll meet and exceed our targets here. So let's begin by highlighting the capital formation across our portfolio year-to-date and how that drives value creation at DigitalBridge. Next slide, please. This slide highlights how capital formation in 2024 is…

Thanks, Mark. And good afternoon, everyone. As a reminder, this earnings presentation is available within the shareholders section of our website. Starting with the second quarter highlights, our key operating and financial metrics have seen significant year-over-year growth. Fee revenues, fee-related earnings, and distributed earnings have all increased meaningfully, as compared to the second quarter of 2023. We generated $26 million of fee-related earnings in the second quarter, which puts us at $46 million of FRE for the first-half of the year. As Mark just walked through, the $1.2 billion of capital raised in the second quarter and continued fundraising success early in the third quarter provides us with a path to achieve $150 million of FRE for the full-year, which would be within our guidance range, albeit at the low end of that range. We also generated approximately $20 million of distributable earnings in Q2, which largely was a result of recurring asset management operations with a contribution from principal investments, as well as the reduction in interest expense from the extinguishment of the 2025 senior notes. Turning to the next page, our fee-earning equity under management is $32.7 billion as of June 30, a 12% increase from the same period last year. This growth is driven by capital formation in the DBP series, co-investments and credit strategies. In the first-half of 2024, we raised $2.3 billion of fee paying commitments. And as Mark mentioned, we've already had a strong start to the third quarter and are confident in our near-term fundraising pipeline as we look forward to the rest of the year. Moving to the next page, which summarizes our non-GAAP financial results, the company reported $79 million of fee revenue in the second quarter, marking an 18% increase from the same period last year. As we look…

Thanks, Tom. One of the items that Tom addressed on the Fee and Roll Forward was the DPI we generated by the Vantage transaction, which drove realizations up in the first-half of this year. This is a very important part of our job, and to be direct, it's our fiduciary duty to our limited partners globally, returning capital and creating the right outcomes and great returns. In turn, this allows us to raise new capital around our best high conviction ideas, which are now materializing in our DigitalBridge Partners 3 flagship fund. The Vantage transaction not only created value for our pre-existing LPs in terms of DPI, but it created an opportunity for us to reinvest in Sureel and its best-in-class team side-by-side with our global limited partners and a seasoned investor in Silver Lake for the AI opportunity ahead, retaining the platform and focusing on long-term value creation. Starting with some background, as you can see here, over the past eight years, DigitalBridge has helped Vantage scale from three campuses on the West Coast of the United States with less than 100 megawatts to today with capacity over 1.5 gigawatts of in-place capacity across 30 plus campuses worldwide. This is an incredible growth story for a market leader in hyperscale data centers. To achieve this, we've leveraged our operating DNA, our business building heritage, to scale a global data center platform serving the world's largest technology companies. Next slide, please. As you can see here, the reality is we're just getting started. That was just Stage 1. There's a $30 billion growth opportunity in AI data center infrastructure. To support that, DigitalBridge led a $9.2 billion equity investment in partnership with Silver Lake and our Global LPs to support the company's next leg of AI-led growth. In fact, the…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ric Prentiss with Raymond James. Please go ahead.

Hey, [Indiscernible] everybody.

Hey, Ric, how are you?

Good, thanks. Hey, two quick ones on a very busy earnings day. On slide 22 it shows obviously the inflows, the outflows, and end-to-period balance. As we think about DPI and appreciate Vantage obviously has been a good opportunity to fulfill your commitment to the LPs on an important job of returning capital to them, but how do we think of where that the inflows, it sounds like we're headed towards $7 billion if we think of 24 column on that slide. Where are DPI's headed and where's the ending balance at year-end ‘24 do we think for that that slide as we think about year-end?

So you had two questions I'll answer that one and I don't know if there's a one behind it Ric, but they're all smart.

They are. Of course.

Good. Good. So we were delighted to get the vantage transaction done. You know, it was a real seminal transaction for us. We're not at liberty to describe exactly which portfolio companies might be involved in a strategic transaction. But what I would say is, you know, we feel reasonably good about our fundraising. In fact, we feel very good about it and we do feel good about perhaps returning a little more capital back to investors this year, but DPI has been exactly where we'd like it to be. But I think if you look at the beginning period balance and, you know, end of period balance, I think where we're sort of guiding you to based on the 150 target is somewhere between, you know, $34 billion to $35 billion in that range in terms of an ending balance on FEEUM rolling forward. So perhaps a little bit more outflows but certainly Ric in the back end a lot more inflows would be my sort of conservative prediction to you.

Okay cool and then of course there was the follow-up on slide 12 where you hit home the kind of where the AI infrastructure is going and it's not just data centers fibers on there as well first data center second fiber, third tower small cells. There's been a lot of discussion this earnings season about convergence. Wireless with fiber. There's been a lot of private equity involvement between mobile carriers and fiber operators. A lot of discussion on fiber to the home. Update us Marc on your insightful wisdom on how's fiber going to play out here? Is fiber to the home important? Is it really enterprise fiber? And what is private equities kind of role in this space?

Well, look, I would just say that, you know, our conviction call as a firm is that we believe, you know, all fiber is an important part of the ecosystem and is the connective tissue that binds it all. And if you believe that a tower or a small cell or an in-house Wi-Fi 6 node is the ultimately delivery mechanism for generative AI to the edge, on the other end of every antenna, Ric, you know is a fiber connection. So whether it's home, whether it's enterprise, whether it's what I would call metro, or what I call long haul sub oceanic cables, transport. What we're seeing is we're seeing strong growth across all of the aspects of fiber. We own all of those kinds of businesses. We own businesses that deliver fiber to the home. We have wholesale businesses that stand up, you know, cable operators and provide transport for them for their fiber to the home services. Certainly, we're quite strong in enterprise. We're really strong in transport and long haul. And data center connectivity is really important. As we highlighted earlier in the call today, we're really busy in terms of building data centers, Ric. I think you understand how many data centers we have in flight today. All of those data centers need multiple redundant paths of fiber and dark fiber. So as you can imagine, we are seeing that convergence, of course, because when you own six data center companies, you own multiple fiber companies, it really provides you with the opportunity to have multiple conversations with your customers. So this is really where Switch and Data Bank and Vantage really have a competitive advantage, because they're building so fast and at such a huge scale. We have enormous control over what fiber goes in and out of our data centers. So I mean, I think -- I can't be a little more surgical than that. I mean, certainly we can continue the conversation as the year goes on, but as much as AI data centers are growing, the connective tissue that binds all of that is also growing. So we're seeing an uptick in fiber demand, and I think that's pretty consistent with what you're hearing in this earnings season.

Great. Appreciate it, guys.

Thanks, Ric. [Operator Instructions] The next question comes from Richard Choe with JP Morgan. Please go ahead.

Hi, thank you. Just wanted to ask, I mean there's a lot of demand for data centers and you're building a lot. I think there's some concerns that maybe the demand won't last as long as some people think. How far or how long do you see the demand cycle kind of going on and are you worried that there might be a level of overbuilding going on in the next few years?

So I think, hey Richard, it's Marc, how are you? I think what we did see inside of this particular quarter, Richard, and what we've seen through six months of activity is, and I think we highlighted this on page 10, CapEx is up, it's not down. So a leading indicator when, whether it's a data center development, tower development, fiber development, is when CapEx starts trending down at our core customers. Instead, we've seen actually the converse of that. We've seen CapEx accelerate. I think what's different about this data center cycle versus the last time the industry was overbuilt is, I know for just, you know, I can only speak for the six platforms that we own and the 93 data centers that I have in construction. I've got leases on the end of every one of those data centers. That was not the case when we had the last data center recession, Richard, if you recall back in 2009 and 2011 when people were speculatively building data centers and they got caught with inventory that wasn't leased. Everything we're building, Richard, has a customer. That's for DigitalBridge. That's the 90 plus data centers that we're building. And that's the $35 billion of AUM that we're adding. And the incremental 3.5 half gigawatts of power we're lighting. I would say one other factor, Richard, you've got to keep your eye on is, do you actually have the power attached to those data centers. That, to me, is actually a more interesting topic of discussion that you and I can explore when we spend some time together next is every one of the 90 plus data centers I'm building has a will serve letter and has power attached to it. Whether it's direct power into the grid, whether it's renewable power through the various partnerships we have, you know, everything that we're lighting has a lease and has power and has a building permit. And if you've got those three things going for you, a will serve letter, a customer lease, and a building permit, you're in pretty good shape. So that's what we're doing. Again, I can't speak to what QTS is doing and Blackstone is doing, I can't speak to what CyrusOne is doing with KKR and GIP. All I can worry about or DLR and Equinix is what we're doing. And you know, we're doing it at a very tremendous amount of scale. I think we've demonstrated that on this call today in terms of our market leading position as the leader in global AI data centers. And I think the important thing is just learning from the lessons of the past. And having been in the sector for over 30 years, I think you see this company has taken a very disciplined approach to capital allocation, and most importantly, who we transact with and who we have counterparties with, and then the power companies that we've partnered with.

That's great, and I'd love to follow-up with you later on the power side, because it seems like that's a real potential strategic advantage that other players might not have. Just a final quick one for me, it seems like the M&A environment might be getting more conducive with rates kind of stabilizing, falling down and maybe asking prices kind of coming down. I know most of your investment has been on the greenfield kind of organic side. Are you seeing I guess a better potential in organic environment?

You know it's interesting, there are air pockets of situations where we've seen multiples retreat a little bit. But if you look at, you know, recent transaction comps, certainly, for example, if you look at the Cable One deal that was done with T-Mobile and KKR, that was done, you know, in a mid to low-20s multiple for fiber. That sort of raised some eyebrows around here. So that was a pretty good marker. Towers are continuing to hang in. We're still seeing domestic private M&A multiples between 28 and 40 times per tower. We've certainly seen some data centers trade recently. And those are still trading at effectively, you know, if it's a development platform, trading in the mid to high-5 cap rates, if it's more stabilized trading in the, you know, sort of 6 to 7 cap rate, or if it's an enterprise data center, trading at an 8 to 9 cap. But really we haven't seen a demonstrative degradation in multiples. In fact, I would offer to you that multiples have kind of hung up and held up, provided if it's a quality asset. Interest rates are still high. We haven't seen the cuts that we're looking for. As we mentioned in the quarter, we did raise a lot of debt, Richard, in the quarter, and we did raise them at pretty attractive prices, but those were securitizations where we built the book to 8 to 12 times oversubscribed. So whether it was, you know, [Extranet] (ph) or, you know, a Vertical Bridge. We had some really successful securitizations at Switch. We had another successful securitization at Databank. And we had a really successful green securitization for Vantage and a ABS transaction in Europe for Vantage EMEA. So we've been able to access the debt markets, I would say those coupons have hung in pretty steady, but certainly, as you know, being a veteran of the sector, it'd be great if we'd have a couple of rate cuts. That certainly does help our ability to buy things and it certainly helps our ability to finance new construction as well.

Great, thank you.

Thanks, Richard.

The next question comes from Jade Rahmani with KBW. Please go ahead.

Thank you very much. The cumulative catch-up fee dynamic, I think we're beginning to understand that. Hopefully the market does as well. But does that become a headwind next year or will this phenomenon persist through DBRG's earnings so long as FEEUM growth picks up?

I mean, catch-up fees are always going to be a part of the fundraising process. They're a little bit larger this year, given we have a large fund in the market. But there will always be typically catch-up fees when you're doing, you know, kind of fundraising. And I would also say to that, Jade, you know, one of the things that we've really been emphasizing is that this firm is not a one-trick pony anymore. We have multiple teams, multiple products, and you know as evidence this year between our data center sidecar vehicle, our expansion of our credit strategy, DigitalBridge Partners 3 and Co-Investments, we actually have multiple products in the market at the same time. And as we look around the corner to next year, give you the spoiler alert, we're going to have more products in the market focused on AI infrastructure, focused on power, and focused on the things that really matter for what we're doing to power the digital economy. We see no slowing down. We see no abatement, Jade, in the opportunities set at DigitalBridge today. In fact, we're just coming out of our strategic summit with our senior leadership team, and we have more ideas to execute, more products to launch. And when you look at the amount of CapEx that's going into AI, AI-related infrastructure, AI-related adjacent power, our swim lane Jade has never been bigger. In fact, I'll be really clear with you, our swim lane is growing and growing really fast. So this is a good quarter because it's kind of a launch point for us. It's the first time we've had more than four products in the market at the same time from a fundraising perspective. And this is really the new cadence that Tom and myself and Liam and Ben and the entire team are on now. So this is a big inflection point for DigitalBridge this quarter.

And just on the catch-up fees, you know…

Go ahead.

You know, the longer a fund stays in the market, the sort of the bigger the catch-up fees accumulate. So we've got a little bit of that going on the second-half of this year? On the July fundraising that looked to accelerate, was that a seasonal factor that you had expected all along, or is there something changing in the market in terms of gaining steam, gaining more traction, LPs being more willing to commit capital?

It's a really insightful question. Thank you, Jade, for asking it. It's actually all three of those things, and let me sort of unpack that for you. One, the second-half of the year is always stronger for us, Q3 and Q4, and the reason for that is people set their investment calendar, usually, as I've told you before, in April and May, and allocations start moving, you know, in June, July, August, and September. So we're really beginning to see, or particularly our LPs are returning and they're allocating. And the back half of the year is always stronger than the front half of the year, and that's what you're beginning to see. And hence, why you hear the very strong conviction of my voice and Tom's voice around our fundraising for the rest of the year. The second thing I would say is that LPs are very excited to be allocating to AI and AI data centers where you've got incredible platforms, long-term leases with investment-grade counterparties, and you're building the data centers of the future. And so when we highlighted our data center sidecar vehicle, that's a product that really has gone incredibly well. It's what investors want, Jade. They want exposure to investment grade digital AI infrastructure and DigitalBridge has that in space. In fact, again, I'll say it again, we are the largest owner and private operator of AI infrastructure in the world and that's really important. When you're the market leader and you have those opportunities, it's really exciting. The third thing I would say, Jade, that's really manifesting itself in the back half of this year is, again, our diverse set of products. We're more than just one platform now. And you're going to keep seeing this. You're going to see it in the numbers. You're going to see it whether it's in our credit strategy, our private wealth channel that we've now launched, our flagship product, our co-investment products, and other investment management products that we've been telegraphing to you that are coming. Everything revolving around the AI infrastructure economy, including power. So this is a really exciting moment for the company and we're starting to really hit our stride. And so hence why I think you hear a lot of enthusiasm in our voices.

Thanks very much.

Thanks, Jade.

This concludes our question and answer session. I would like to turn the conference back over to Marc Ganzi for any closing remarks.

Well, thank you. It's been a terrific quarter. I’d first and foremost want to thank my team. We've been working really hard to deliver these results and we're going to continue to work even harder through the back half of this year. As I told the team recently, we have a huge opportunity in front of us. And no one is better positioned to take advantage of the AI economy and AI infrastructure than DigitalBridge. Got the biggest team, got the best platforms, we've got the most assets under management, over $84 billion today and growing, and that opportunity sits at our feet and it's on us to execute it. What we promise to you, our shareholders, is we will do that. We will go forward through the back half of this year and into next year, executing against what we think is the most exciting secular opportunity that we've seen in our lives, which is the opportunity to build and be a trusted set of hands to the best logos, the best hyperscalers, and delivering AI infrastructure for the future. I want to thank you for your interest. I want to thank everyone for tuning in and we'll look forward to spending more time with you this year and as always we remain open to our investors and engaging with them. So thank you again and wishing everyone a great evening. Take care.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.