StepStone (US:STEP)2023-11-06 16:00PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2023, along with market risk disclosures and controls Financial Statements This section presents StepStone Group Inc.'s unaudited condensed consolidated financial statements for the quarter ended September 30, 2023, including balance sheets, income statements, cash flows, and explanatory notes Condensed Consolidated Balance Sheets Total assets increased to $3.61 billion, driven by accrued carried interest and investments, with liabilities at $1.91 billion and stockholders' equity slightly up | Financial Metric | September 30, 2023 ($ thousands) | March 31, 2023 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 3,608,363 | 3,497,403 | +3.2% | | Cash and cash equivalents | 117,484 | 102,565 | +14.5% | | Accrued carried interest allocations | 1,331,778 | 1,227,173 | +8.5% | | Total Liabilities | 1,910,680 | 1,844,086 | +3.6% | | Accrued compensation and benefits | 110,413 | 66,614 | +65.7% | | Debt obligations | 123,586 | 98,351 | +25.6% | | Total Stockholders' Equity | 1,638,411 | 1,628,787 | +0.6% | Condensed Consolidated Statements of Income (Loss) Net income for the quarter was $59.3 million, a turnaround from prior-year loss, driven by positive carried interest allocations, resulting in diluted EPS of $0.42 | Metric ($ thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 191,422 | (158,495) | 369,433 | (235,713) | | Management and advisory fees, net | 142,123 | 119,121 | 280,238 | 235,853 | | Total carried interest allocations | 56,956 | (154,309) | 120,793 | (194,652) | | Total Expenses | 130,325 | (104,151) | 251,521 | (172,569) | | Net Income (Loss) | 59,251 | (67,065) | 108,697 | (88,536) | | Net Income (Loss) attributable to StepStone Group Inc. | 26,225 | (29,221) | 47,494 | (40,261) | | Diluted EPS | $0.42 | ($0.48) | $0.75 | ($0.66) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities was $128.7 million, investing activities used $27.4 million, and financing activities used $53.4 million, a significant decrease from prior year | Cash Flow Activity ($ thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 128,717 | 145,714 | | Net cash used in investing activities | (27,405) | (17,312) | | Net cash used in financing activities | (53,434) | (102,849) | | Net increase in cash, cash equivalents and restricted cash | 47,285 | 27,034 | Notes to Condensed Consolidated Financial Statements This section details significant accounting policies, covering basis of presentation, VIE consolidation, revenue recognition, fair value measurements, debt, equity, and related party transactions - The company accounts for its investments in StepStone Funds on a three-month lag, using the June 30, 2023 unaudited financial statements for the September 30, 2023 report59 - Carried interest allocations are accounted for under the equity method and are not within the scope of ASC 606, with revenue recognized based on the amount due if the fund were liquidated at current fair value8789 - The company consolidates certain Variable Interest Entities (VIEs) where it is the primary beneficiary, including legacy Greenspring general partner entities, whose assets are restricted to settle their own obligations4950108 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results for the three and six months ended September 30, 2023, including business overview, key trends, operating metrics, non-GAAP measures, and liquidity Business Overview StepStone is a global private markets investment firm managing $659 billion in total capital, with $146 billion AUM and $513 billion AUA, across diverse strategies | Metric | Amount (as of Sep 30, 2023) | | :--- | :--- | | Total Capital Responsibility | ~$659 billion | | Assets Under Management (AUM) | $146 billion | | Assets Under Advisement (AUA) | $513 billion | - The company's primary commercial structures are Separately Managed Accounts (SMAs), focused commingled funds, and advisory services, which together comprised $146 billion of AUM and $513 billion of AUA179183 Consolidated Results of Operations Total revenues for the quarter increased to $191.4 million, driven by positive carried interest and 19% growth in management fees, with total expenses rising to $130.3 million - Total revenues for Q2 FY2024 increased by $349.9 million year-over-year, driven by positive carried interest allocations compared to a reversal in the prior year242 - Net management and advisory fees grew 19% to $142.1 million for the quarter, supported by new client activity and 10% growth in average FEAUM243 - Total expenses for the quarter increased by $234.5 million year-over-year, mainly due to a lower reversal of legacy Greenspring performance fee-related compensation and higher current period performance fee-related compensation252 Key Operating Metrics Analysis AUM reached $146 billion, AUA grew to $513 billion, and FEAUM increased to $87.3 billion, with $18.1 billion in undeployed fee-earning capital | Metric | Sep 30, 2023 | Mar 31, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | AUM | $146 billion | $138 billion | $135 billion | | AUA | $513 billion | $482 billion | $467 billion | | FEAUM | $87.3 billion | $85.4 billion | $80.1 billion | - As of September 30, 2023, the company had $18.1 billion of undeployed fee-earning capital, which will generate management fees once invested or activated294 Non-GAAP Financial Measures Fee-Related Earnings (FRE) increased 12% to $43.8 million, while Adjusted Net Income (ANI) decreased 19% to $30.2 million (or $0.26 per share), due to lower realized performance fees | Non-GAAP Metric ($ thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Fee-Related Earnings (FRE) | 43,827 | 39,044 | +12% | | Adjusted Net Income (ANI) | 30,173 | 37,261 | -19% | | ANI per share | $0.26 | $0.33 | -21% | - The decrease in ANI for the quarter was primarily driven by lower net realized performance fee-related earnings, higher interest expense, and lower realized investment income304 Liquidity and Capital Resources The company held $118.2 million in cash, with $123.6 million outstanding on its revolving credit facility, generated $128.7 million from operations, and declared a $0.21 per share dividend - As of September 30, 2023, the company had $118.2 million in cash, cash equivalents, and restricted cash (excluding Consolidated Funds)329 - The company had $123.6 million outstanding on its $225.0 million revolving credit facility as of September 30, 2023, with a weighted-average interest rate of 7.48%334336 - On November 6, 2023, the company declared a quarterly cash dividend of $0.21 per share of Class A common stock343 Qualitative and Quantitative Disclosures about Market Risk Primary market risk relates to fund investment fair values affecting performance fees and investment income, alongside interest rate exposure on variable-rate debt and cash balances - A hypothetical 10% decline in the market value of fund investments as of September 30, 2023, would decrease annual management fees by approximately $4.2 million and investment income by $13.0 million357358 - A 100 basis point increase in interest rates would increase annualized interest expense by an estimated $1.3 million and increase annualized interest income by an estimated $1.2 million, based on September 30, 2023 balances361 - As of September 30, 2023, the maximum amount of carried interest allocations subject to contingent repayment (clawback) was estimated at $271.9 million, net of tax, assuming a remote scenario where the fair value of all investments dropped to zero358 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures are effective to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner365 - No changes occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting366 PART II - OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on 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 September 30, 2023166368 Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2023 - No material changes from the risk factors disclosed in the Form 10-K for the fiscal year ended March 31, 2023, have been reported370 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None reported for the period371 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the reporting period375 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data - Exhibits filed include CEO and CFO certifications under Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as XBRL data files377