StepStone (STEP) - 2026 Q1 - Quarterly Report

PART I Item 1. Financial Statements This section presents StepStone Group Inc.'s unaudited condensed consolidated financial statements for the three months ended June 30, 2025 and 2024, detailing financial position, performance, and cash flows with explanatory notes Condensed Consolidated Balance Sheets Total assets increased to $4.78 billion as of June 30, 2025, driven by accrued carried interest and investments, while total liabilities also rose to $3.08 billion due to higher compensation-related accruals Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Total Assets | $4,782,411 | $4,586,693 | | Accrued carried interest allocations | $1,585,209 | $1,495,664 | | Total Liabilities | $3,084,999 | $2,812,321 | | Accrued compensation and benefits | $943,007 | $736,695 | | Accrued carried interest-related compensation | $802,308 | $757,968 | | Total Stockholders' Equity | $1,230,579 | $1,390,148 | Condensed Consolidated Statements of Income (Loss) The company reported a $12.0 million net loss for Q2 2025, a shift from $48.0 million net income in Q2 2024, driven by a significant increase in total expenses, particularly equity-based compensation Consolidated Statement of Income (Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Revenues | $364,287 | $186,401 | | Management and advisory fees, net | $211,173 | $178,015 | | Total carried interest allocations | $113,287 | $16,634 | | Total Expenses | $423,316 | $139,250 | | Equity-based compensation | $188,718 | $19,179 | | Net Income (Loss) | $(12,011) | $48,045 | | Net Income (Loss) Attributable to StepStone Group Inc. | $(38,424) | $13,328 | | Diluted EPS | $(0.49) | $0.20 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $46.3 million, while net cash used in financing activities significantly increased to $72.2 million, resulting in a $45.1 million decrease in total cash during the quarter Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $46,282 | $50,170 | | Net cash used in investing activities | $(11,793) | $(13,212) | | Net cash used in financing activities | $(72,222) | $(22,899) | | Net (decrease) increase in cash | $(45,149) | $13,858 | Notes to Condensed Consolidated Financial Statements This section details the company's significant accounting policies and provides breakdowns of key financial statement items, noting a three-month lag in accounting for StepStone Fund investments - The company accounts for its investments in the StepStone Funds on a three-month lag due to the timing of receiving financial information from the underlying investments[55] - On May 30, 2025, the company completed its second annual exchange to acquire an additional 5% of the equity interests in each of its SRA, SRE, and SPD subsidiaries, increasing its ownership to approximately 60%, 60%, and 59%, respectively[188] - On May 22, 2025, the company declared a quarterly cash dividend of $0.24 per share and a supplemental cash dividend of $0.40 per share, both paid on June 30, 2025[193] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion analyzes quarterly financial results, highlighting a 95% revenue increase but a 204% expense surge leading to a net loss, alongside key operating metrics, non-GAAP measures, and liquidity Business Overview StepStone is a global private markets investment firm managing approximately $723 billion in total capital, including $199 billion in AUM and $524 billion in AUA, operating globally with 1,160 employees Key Business Metrics (as of June 30, 2025) | Metric | Value | | :--- | :--- | | Total Capital Responsibility | ~$723 billion | | Assets Under Management (AUM) | $199 billion | | Assets Under Advisement (AUA) | $524 billion | - The company operates a global model with 29 offices in 17 countries and employs 1,160 people, including over 385 investment professionals[211] Consolidated Results of Operations Total revenues increased 95% to $364.3 million due to higher carried interest, but total expenses surged 204% to $423.3 million, primarily from equity-based compensation, resulting in a pre-tax loss - Management and advisory fees, net, increased 19% YoY to $211.2 million, driven by new client activity and 28% growth in average FEAUM[288] - Equity-based compensation increased 884% YoY to $188.7 million, mainly due to a $170.5 million increase in expenses for liability classified awards related to the profits interest issued in SPW[294] - Realized carried interest allocation revenues decreased 42% to $24.4 million, reflecting lower realization activity[290] Key Operating Metrics As of June 30, 2025, AUM reached $199 billion, AUA stood at $524 billion, and FEAUM grew to $127.2 billion, with $28.7 billion in undeployed fee-earning capital Key Operating Metrics Growth (YoY) | Metric | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | AUM | $199 billion | $169 billion | | AUA | $524 billion | $531 billion | | FEAUM | $127.2 billion | $100.4 billion | - Undeployed fee-earning capital, which will generate future management fees upon investment or activation, was $28.7 billion as of June 30, 2025[322] Non-GAAP Financial Measures Non-GAAP measures show Fee-Related Earnings (FRE) increased 13% to $81.2 million, but Adjusted Net Income (ANI) decreased 15% to $48.5 million, resulting in $0.40 ANI per share Non-GAAP Performance (Q1 FY2026 vs Q1 FY2025) | Metric | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Fee-Related Earnings (FRE) | $81.2 million | $71.7 million | | Adjusted Net Income (ANI) | $48.5 million | $57.2 million | | ANI per share | $0.40 | $0.48 | Liquidity and Capital Resources The company held $192.0 million in cash and $269.6 million in debt as of June 30, 2025, supported by a $300 million revolving credit facility and $175 million in senior notes, with a recent $0.28 per share dividend announced - As of June 30, 2025, the company had $192.0 million of cash, cash equivalents and restricted cash (excluding Consolidated Funds) and total debt obligations of $269.6 million[359] - The company has a $300 million multicurrency revolving credit facility maturing in May 2029 and $175.0 million in 5.52% Series A senior notes due October 2029[365][371] - On August 7, 2025, the company announced a quarterly cash dividend of $0.28 per share of Class A common stock, payable on September 15, 2025[382] Item 3. Qualitative and Quantitative Disclosures about Market Risk This section outlines the company's exposure to price, interest-rate, and foreign exchange-rate risks, noting that a 10% market value decline could decrease annual management fees by $12.9 million and investment income by $20.3 million - A hypothetical 10% decline in the market value of investments in the company's funds as of June 30, 2025, would result in an estimated decrease of $12.9 million in annual management fees and $20.3 million in investment income[397][402] - A 100 basis point increase in interest rates would increase annualized interest expense by an estimated $2.8 million and increase interest income by an estimated $1.9 million as of June 30, 2025[401] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[406] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[407] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, but does not expect any current proceedings to materially affect its financial statements - The company does not expect any potential liability from current legal proceedings to materially affect its condensed consolidated financial statements as of June 30, 2025[196][409] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the Form 10-K for the fiscal year ended March 31, 2025 - No material changes have occurred from the risk factors previously disclosed in the Form 10-K for the fiscal year ended March 31, 2025[411] Other Items (Items 2, 3, 4, 5, 6) This section covers standard disclosures, reporting no unregistered equity sales, no defaults on senior securities, and no Rule 10b5-1 trading arrangement changes by directors or officers during the quarter - The company reported no unregistered sales of equity securities or defaults upon senior securities for the period[412][414] - During the quarter ended June 30, 2025, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement[418]