StepStone Group Reports Third Quarter Fiscal Year 2024 Results

February 8, 2024 at 4:05 PM EST

NEW YORK, Feb. 08, 2024 (GLOBE NEWSWIRE) -- StepStone Group Inc. (Nasdaq: STEP), a global private markets investment firm focused on providing customized investment solutions and advisory and data services, today reported results for the quarter ended December 31, 2023. This represents results for the third quarter of the fiscal year ending March 31, 2024. The Board of Directors of the Company has declared a quarterly cash dividend of $0.21 per share of Class A common stock, payable on March 15, 2024, to the holders of record as of the close of business on February 29, 2024.

StepStone issued a full detailed presentation of its third quarter fiscal 2024 results, which can be accessed by visiting the Company’s website at https://shareholders.stepstonegroup.com.

Webcast and Earnings Conference Call

Management will host a webcast and conference call on Thursday, February 8, 2024, at 5:00 pm ET to discuss the Company’s results for the third quarter of the fiscal year ending March 31, 2024. The webcast will be made available on the Shareholders section of the Company's website at https://shareholders.stepstonegroup.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time to register. A replay will also be available on the Shareholders section of the Company's website approximately two hours after the conclusion of the event.

To join as a live participant in the question and answer portion of the call, participants must register at https://register.vevent.com/register/BI72745ee211894fc188f4df9e857f9f4a. Upon registering you will receive the dial-in number and a PIN to join the call as well as an email confirmation with the details.

About StepStone

StepStone Group Inc. (Nasdaq: STEP) is a global private markets investment firm focused on providing customized investment solutions and advisory, data and administrative services to its clients. As of December 31, 2023, StepStone was responsible for approximately $659 billion of total capital, including $149 billion of assets under management. StepStone's clients include some of the world's largest public and private defined benefit and defined contribution pension funds, sovereign wealth funds and insurance companies, as well as prominent endowments, foundations, family offices and private wealth clients, which include high-net-worth and mass affluent individuals. StepStone partners with its clients to develop and build private markets portfolios designed to meet their specific objectives across the private equity, infrastructure, private debt and real estate asset classes.

Forward-Looking Statements

Some of the statements in this release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking. Words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “may,” “plan” and “will” and similar expressions identify forward-looking statements. Forward-looking statements reflect management’s current plans, estimates and expectations and are inherently uncertain. The inclusion of any forward-looking information in this release should not be regarded as a representation that the future plans, estimates or expectations contemplated will be achieved. Forward-looking statements are subject to various risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, global and domestic market and business conditions, successful execution of business and growth strategies and regulatory factors relevant to our business, as well as assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity and the risks and uncertainties described in greater detail under the “Risk Factors” section of our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on May 26, 2023, as such factors may be updated from time to time. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use the following non-GAAP financial measures: adjusted management and advisory fees, net, adjusted revenues, adjusted net income (on both a pre-tax and after-tax basis), adjusted net income per share, adjusted weighted-average shares, fee-related earnings, fee-related earnings margin, gross realized performance fees and net realized performance fees. We have provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this earnings release. The presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, the non-GAAP financial measures in this earnings release may not be comparable to similarly titled measures used by other companies in our industry or across different industries. For definitions of these non-GAAP measures and reconciliations to applicable GAAP measures, please see the section titled “Non-GAAP Financial Measures: Definitions and Reconciliations.”

Financial Highlights and Key Business Drivers/Operating Metrics
 
 Three Months Ended Nine Months Ended
December 31,
 Percentage Change
(in thousands, except share and
per share amounts and where
noted)
December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December
31, 2023
  2022  2023  vs. FQ3'23vs. FQ3'23 YTD
Financial Highlights            
GAAP Results            
Management and advisory
fees, net
$128,753 $132,573 $138,115 $142,123 $151,492  $364,606 $431,730  18% 18% 
Total revenues (4,235) 172,374  178,011  191,422  (14,612)  (239,948) 354,821  245% na 
Total performance fees (132,988) 39,801  39,896  49,299  (166,104)  (604,554) (76,909) 25% (87)% 
Net income (loss) (13,555) 56,816  49,446  59,251  (23,419)  (102,091) 85,278  73% na 
Net income (loss) per share of Class A common stock:            
Basic$(0.11)$0.46 $0.34 $0.42 $(0.32) $(0.77)$0.43  183% na 
Diluted$(0.11)$0.46 $0.34 $0.42 $(0.32) $(0.77)$0.43  183% na 
Weighted-average shares of Class A common stock:            
Basic 62,192,899  62,805,788  62,834,818  62,858,468  64,068,952   61,583,215  63,255,604  3% 3% 
Diluted 62,192,899  65,831,409  65,739,470  66,198,129  64,068,952   61,583,215  66,299,982  3% 8% 
Quarterly dividend per share of Class A common stock(1)$0.20 $0.20 $0.20 $0.21 $0.21  $0.60 $0.62  5% 3% 
Supplemental dividend per share of Class A common stock(2)$ $ $0.25 $ $  $ $0.25  nana 
Accrued carried interest allocations 1,126,386  1,227,173  1,277,783  1,331,778  1,203,847     7%   
             
Non-GAAP Results(3)            
Adjusted management and advisory fees, net(4)$128,753 $132,720 $138,301 $142,327 $151,943  $364,606 $432,571  18% 19% 
Adjusted revenues 148,053  152,940  152,780  149,800  185,123   489,030  487,703  25% —% 
Fee-related earnings (“FRE”) 42,701  37,796  44,402  43,827  50,664   118,362  138,893  19% 17% 
FRE margin(5) 33%  28%  32%  31%  33%   32%  32%     
Gross realized performance fees 19,300  20,220  14,479  7,473  33,180   124,424  55,132  72% (56)% 
Adjusted net income (“ANI”) 31,153  27,115  29,388  30,173  42,116   115,548  101,677  35% (12)% 
Adjusted weighted-average shares 114,651,163  114,765,635  114,673,696  115,118,060  115,232,927   114,575,210  115,009,445  1% —% 
ANI per share$0.27 $0.24 $0.26 $0.26 $0.37  $1.01 $0.88  37% (12)% 
             
Key Business
Drivers/Operating
Metrics
(in billions)
            
Assets under management
(“AUM”)(6)
$134.0 $138.4 $142.6 $145.8 $149.0     11%   
Assets under advisement
(“AUA”)(6)
 468.0  482.2  497.0  512.9  510.5     9%   
Fee-earning AUM (“FEAUM”) 83.0  85.4  87.4  87.3  89.4     8%   
Undeployed fee-earning capital (“UFEC”) 14.0  15.7  16.9  18.1  21.4     53%   
                        
(1) Dividends paid, as reported in this table, relate to the preceding quarterly period in which they were earned.
(2) The supplemental cash dividend relates to earnings in respect of our full fiscal year 2023.
(3) Adjusted management and advisory fees, net, adjusted revenues, FRE, FRE margin, gross realized performance fees, ANI, adjusted weighted-average shares and ANI per share are non-GAAP measures. See the definitions of these measures and reconciliations to the respective, most comparable GAAP measures under “Non-GAAP Financial Measures: Definitions and Reconciliations.”
(4) Excludes the impact of consolidating the Consolidated Funds. See reconciliation of GAAP measures to adjusted measures that follows.
(5) FRE margin is calculated by dividing FRE by adjusted management and advisory fees, net.
(6) AUM/AUA reflects final data for the prior period, adjusted for net new client account activity through the period presented. Does not include post-period investment valuation or cash activity. Net asset value (“NAV”) data for underlying investments is as of the prior period, as reported by underlying managers up to the business day occurring on or after 100 days, or 115 days at the fiscal year-end, following the prior period end. When NAV data is not available by the business day occurring on or after 100 days, or 115 days at the fiscal year-end, following the prior period end, such NAVs are adjusted for cash activity following the last available reported NAV.
 


StepStone Group Inc.
GAAP Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share amounts)
  
 As of
 December 31,
2023
 March 31, 2023
Assets   
Cash and cash equivalents$139,970 $102,565 
Restricted cash 751  955 
Fees and accounts receivable 58,126  44,450 
Due from affiliates 64,021  54,322 
Investments:   
Investments in funds 126,813  115,187 
Accrued carried interest allocations 1,203,847  1,227,173 
Legacy Greenspring investments in funds and accrued carried interest allocations(1) 632,414  770,652 
Deferred income tax assets 45,330  44,358 
Lease right-of-use assets, net 97,404  101,130 
Other assets and receivables 58,758  44,060 
Intangibles, net 315,296  354,645 
Goodwill 580,542  580,542 
Assets of Consolidated Funds:   
Cash and cash equivalents 33,589  25,997 
Investments, at fair value 109,822  30,595 
Other assets 1,498  772 
Total assets$3,468,181 $3,497,403 
Liabilities and stockholders’ equity   
Accounts payable, accrued expenses and other liabilities$102,786 $89,396 
Accrued compensation and benefits 131,735  66,614 
Accrued carried interest-related compensation 635,200  644,517 
Legacy Greenspring accrued carried interest-related compensation(1) 486,677  617,994 
Due to affiliates 202,225  205,424 
Lease liabilities 118,443  121,224 
Debt obligations 123,704  98,351 
Liabilities of Consolidated Funds:   
Other liabilities 1,563  566 
Total liabilities 1,802,333  1,844,086 
Redeemable non-controlling interests in Consolidated Funds 76,076  24,530 
Stockholders’ equity:   
Class A common stock, $0.001 par value, 650,000,000 authorized; 64,068,952 and 62,834,791 issued and outstanding as of December 31, 2023 and March 31, 2023, respectively 64  63 
Class B common stock, $0.001 par value, 125,000,000 authorized; 46,314,543 and 46,420,141 issued and outstanding as of December 31, 2023 and March 31, 2023, respectively 46  46 
Additional paid-in capital 630,208  610,567 
Retained earnings 131,338  160,430 
Accumulated other comprehensive income 186  461 
Total StepStone Group Inc. stockholders’ equity 761,842  771,567 
Non-controlling interests in subsidiaries 36,827  36,380 
Non-controlling interests in legacy Greenspring entities(1) 145,738  152,658 
Non-controlling interests in the Partnership 645,365  668,182 
Total stockholders’ equity 1,589,772  1,628,787 
Total liabilities and stockholders’ equity$3,468,181 $3,497,403 
 
(1) Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests.
 


StepStone Group Inc.
GAAP Condensed Consolidated Statements of Income (Loss) (Unaudited)
(in thousands, except share and per share amounts)
 
 Three Months Ended December 31, Nine Months Ended December 31,
  2023   2022   2023   2022 
Revenues       
Management and advisory fees, net$151,492  $128,753  $431,730  $364,606 
Performance fees:       
Incentive fees 17,891   2,980   22,843   8,345 
Carried interest allocations:       
Realized 15,289   16,320   31,347   112,396 
Unrealized (129,584)  (63,367)  (24,849)  (354,095)
Total carried interest allocations (114,295)  (47,047)  6,498   (241,699)
Legacy Greenspring carried interest allocations(1) (69,700)  (88,921)  (106,250)  (371,200)
Total performance fees (166,104)  (132,988)  (76,909)  (604,554)
Total revenues (14,612)  (4,235)  354,821   (239,948)
Expenses       
Compensation and benefits:       
Cash-based compensation 73,619   62,628   218,551   182,190 
Equity-based compensation 14,032   8,108   28,420   15,605 
Performance fee-related compensation:       
Realized 15,444   11,726   26,266   67,091 
Unrealized (62,243)  (31,875)  (9,320)  (172,554)
Total performance fee-related compensation (46,799)  (20,149)  16,946   (105,463)
Legacy Greenspring performance fee-related compensation(1) (69,700)  (88,921)  (106,250)  (371,200)
Total compensation and benefits (28,848)  (38,334)  157,667   (278,868)
General, administrative and other 48,001   43,582   113,007   111,547 
Total expenses 19,153   5,248   270,674   (167,321)
Other income (expense)       
Investment income (loss) (2,051)  (681)  4,115   (5,473)
Legacy Greenspring investment loss(1) (2,222)  (8,966)  (9,054)  (32,927)
Investment income of Consolidated Funds 11,223   4,895   22,357   4,895 
Interest income 827   701   2,235   1,068 
Interest expense (2,562)  (1,111)  (6,682)  (2,515)
Other income (loss) 4,408   358   3,763   (1,380)
Total other income (expense) 9,623   (4,804)  16,734   (36,332)
Income (loss) before income tax (24,142)  (14,287)  100,881   (108,959)
Income tax expense (benefit) (723)  (732)  15,603   (6,868)
Net income (loss) (23,419)  (13,555)  85,278   (102,091)
Less: Net income attributable to non-controlling interests in subsidiaries 13,552   9,575   32,797   25,836 
Less: Net loss attributable to non-controlling interests in legacy Greenspring entities(1) (2,222)  (8,966)  (9,054)  (32,927)
Less: Net income (loss) attributable to non-controlling interests in the Partnership (20,111)  (7,617)  22,677   (48,192)
Less: Net income attributable to redeemable non-controlling interests in Consolidated Funds 5,588   391   11,590   391 
Net income (loss) attributable to StepStone Group Inc.$(20,226) $(6,938) $27,268  $(47,199)
Net income (loss) per share of Class A common stock:       
Basic$(0.32) $(0.11) $0.43  $(0.77)
Diluted$(0.32) $(0.11) $0.43  $(0.77)
Weighted-average shares of Class A common stock:       
Basic 64,068,952   62,192,899   63,255,604   61,583,215 
Diluted 64,068,952   62,192,899   66,299,982   61,583,215 
                
(1) Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests.
 

Non-GAAP Financial Measures: Definitions and Reconciliations

Adjusted Management and Advisory Fees, Net

The following table presents the components of adjusted management and advisory fees, net. We believe adjusted management and advisory fees, net is useful to investors because it removes the impact of consolidating the Consolidated Funds which we are required to consolidate under GAAP.

 Three Months Ended Nine Months Ended
December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December
31, 2023
  2022 2023 
Focused commingled funds(1)(2)$60,680$62,093$67,119$70,481$78,633 $164,975$216,233 
Separately managed accounts 53,515 54,033 55,744 56,431 55,838  156,154 168,013 
Advisory and other services 13,926 15,546 14,101 13,740 16,069  40,698 43,910 
Fund reimbursement revenues(1) 632 1,048 1,337 1,675 1,403  2,779 4,415 
Adjusted management and advisory
fees, net
$128,753$132,720$138,301$142,327$151,943 $364,606$432,571 
                 
(1) Reflects the add-back of management and advisory fee revenues for the Consolidated Funds, which have been eliminated in consolidation.
(2) Includes income-based incentive fees of $0.6 million for the three and nine months ended December 31, 2023 from certain funds that are regulated as a business development company.
 

Adjusted Revenues

Adjusted revenues represents the components of revenues used in the determination of ANI and comprise adjusted management and advisory fees, net, incentive fees (including the deferred portion) and realized carried interest allocations. We believe adjusted revenues is useful to investors because it presents a measure of realized revenues.

The table below shows a reconciliation of revenues to adjusted revenues.

 Three Months Ended Nine Months Ended
December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December
31, 2023
  2022  2023 
Total revenues$(4,235)$172,374 $178,011 $191,422 $(14,612) $(239,948)$354,821 
Unrealized carried interest allocations 63,367  (100,753) (49,364) (55,371) 129,584   354,095  24,849 
Deferred incentive fees   209    942     3,683  942 
Legacy Greenspring carried interest allocations 88,921  80,963  23,947  12,603  69,700   371,200  106,250 
Management and advisory fee revenues for the Consolidated Funds(1)   147  186  204  451     841 
Adjusted revenues$148,053 $152,940 $152,780 $149,800 $185,123  $489,030 $487,703 
                       
(1) Reflects the add-back of management and advisory fee revenues for the Consolidated Funds, which have been eliminated in consolidation.
 

The table below shows a reconciliation of GAAP measures to additional non-GAAP measures. We use the non-GAAP measures presented below as components when calculating FRE and ANI (as defined below). We believe these additional non-GAAP measures are useful to investors in evaluating both the baseline earnings from recurring management and advisory fees, which provide additional insight into the operating profitability of our business, and the after-tax net realized income attributable to us, allowing investors to evaluate the performance of our business. These additional non-GAAP measures remove the impact of Consolidated Funds that we are required to consolidate under GAAP, and certain other items that we believe are not indicative of our core operating performance.

 Three Months Ended Nine Months Ended
December 31,
(in thousands)December 31, 2022March 31, 2023June 30, 2023September 30, 2023December 31, 2023  2022  2023 
GAAP management and advisory fees, net$128,753 $132,573 $138,115 $142,123 $151,492  $364,606 $431,730 
Management and advisory fee revenues for the Consolidated Funds(1)   147  186  204  451     841 
Adjusted management and advisory fees, net$128,753 $132,720 $138,301 $142,327 $151,943  $364,606 $432,571 
         
GAAP cash-based compensation$62,628 $69,990 $70,081 $74,851 $73,619  $182,190 $218,551 
Adjustments(2) (520) (653) (531) (574) (574)  (1,951) (1,679)
Adjusted cash-based compensation$62,108 $69,337 $69,550 $74,277 $73,045  $180,239 $216,872 
         
GAAP equity-based compensation$8,108 $9,335 $8,472 $5,916 $14,032  $15,605 $28,420 
Adjustments(3) (7,444) (8,274) (7,171) (4,644) (12,610)  (13,640) (24,425)
Adjusted equity-based compensation$664 $1,061 $1,301 $1,272 $1,422  $1,965 $3,995 
         
GAAP general, administrative and other$43,582 $35,612 $33,277 $31,729 $48,001  $111,547 $113,007 
Adjustments(4) (20,302) (11,086) (10,229) (8,778) (21,189)  (47,507) (40,196)
Adjusted general, administrative and other$23,280 $24,526 $23,048 $22,951 $26,812  $64,040 $72,811 
         
GAAP interest income$701 $853 $431 $977 $827  $1,068 $2,235 
Interest income earned by the Consolidated Funds(5)   (195) (244) (249) (540)    (1,033)
Adjusted interest income$701 $658 $187 $728 $287  $1,068 $1,202 
         
GAAP other income (loss)$358 $(40)$227 $(872)$4,408  $(1,380)$3,763 
Adjustments(6)   86  (376) 403  (4,301)    (4,274)
Adjusted other income (loss)$358 $46 $(149)$(469)$107  $(1,380)$(511)
  
(1) Reflects the add-back of management and advisory fee revenues for the Consolidated Funds, which have been eliminated in consolidation.
(2) Reflects the removal of severance and compensation paid to certain employees as part of an acquisition earn-out.
(3) Reflects the removal of equity-based compensation for awards granted prior to and in connection with the IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in the private wealth subsidiary.
(4) Reflects the removal of lease remeasurement adjustments, accelerated depreciation of leasehold improvements for changes in lease terms, amortization of intangibles, transaction-related costs and other non-core operating income and expenses.
(5) Reflects the removal of interest income earned by the Consolidated Funds.
(6) Reflects the removal of amounts for Tax Receivable Agreements adjustments recognized as other income (loss), gain associated with amounts received as part of negotiations with a third party related to certain corporate matters, loss on sale of subsidiary and the impact of consolidation of the Consolidated Funds.
 

Adjusted Net Income

Adjusted net income, or “ANI,” is a non-GAAP performance measure that we present before the consolidation of StepStone Funds on a pre-tax and after-tax basis used to evaluate profitability. ANI represents the after-tax net realized income attributable to us. ANI does not reflect legacy Greenspring carried interest allocation revenues, legacy Greenspring carried interest-related compensation and legacy Greenspring investment income (loss) as none of the economics are attributable to us. The components of revenues used in the determination of ANI (“adjusted revenues”) comprise adjusted management and advisory fees, net, incentive fees (including the deferred portion) and realized carried interest allocations. In addition, ANI excludes: (a) unrealized carried interest allocation revenues and related compensation, (b) unrealized investment income (loss), (c) equity-based compensation for awards granted prior to and in connection with our IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in the private wealth subsidiary, (d) amortization of intangibles, (e) net income (loss) attributable to non-controlling interests in subsidiaries, (f) charges associated with acquisitions and corporate transactions, and (g) certain other items that we believe are not indicative of our core operating performance (as listed in the table below). ANI is fully taxed at our blended statutory rate. We believe ANI and adjusted revenues are useful to investors because they enable investors to evaluate the performance of our business across reporting periods.

Fee-Related Earnings

Fee-related earnings, or “FRE,” is a non-GAAP performance measure used to monitor our baseline earnings from recurring management and advisory fees. FRE is a component of ANI and comprises adjusted management and advisory fees, net, less adjusted expenses which are operating expenses other than (a) performance fee-related compensation, (b) equity-based compensation for awards granted prior to and in connection with our IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in the private wealth subsidiary, (c) amortization of intangibles, (d) charges associated with acquisitions and corporate transactions, and (e) certain other items that we believe are not indicative of our core operating performance (as listed in the table below). FRE is presented before income taxes. We believe FRE is useful to investors because it provides additional insight into the operating profitability of our business and our ability to cover direct base compensation and operating expenses from total fee revenue.

The table below shows a reconciliation of income (loss) before income tax to ANI and FRE.

 Three Months Ended Nine Months Ended
December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December
31, 2023
  2022  2023 
Income (loss) before income tax$(14,287) 67,505 $58,043 $66,980 $(24,142) $(108,959)$100,881 
Net income attributable to non-controlling interests in subsidiaries(1) (10,802) (10,151) (10,540) (10,321) (15,537)  (28,903) (36,398)
Net loss attributable to non-controlling interests in legacy Greenspring entities 8,966  11,148  2,866  3,966  2,222   32,927  9,054 
Unrealized carried interest allocations 63,367  (100,753) (49,364) (55,371) 129,584   354,095  24,849 
Unrealized performance fee-related compensation (31,875) 53,515  24,211  28,712  (62,243)  (172,554) (9,320)
Unrealized investment (income) loss 1,354  (2,207) (2,529) (1,657) 5,559   10,219  1,373 
Impact of Consolidated Funds (4,895) (4,002) (2,647) (8,223) (11,068)  (4,895) (21,938)
Deferred incentive fees   209    942     3,683  942 
Equity-based compensation(2) 7,444  8,274  7,171  4,644  12,610   13,640  24,425 
Amortization of intangibles 10,870  10,870  10,661  10,661  10,661   32,611  31,983 
Tax Receivable Agreements adjustments through earnings   (244)     222     222 
Non-core items(3) 9,952  733  (50) (1,500) 6,335   16,847  4,785 
Pre-tax ANI 40,094  34,897  37,822  38,833  54,203   148,711  130,858 
Income taxes(4) (8,941) (7,782) (8,434) (8,660) (12,087)  (33,163) (29,181)
ANI 31,153  27,115  29,388  30,173  42,116   115,548  101,677 
Income taxes(4) 8,941  7,782  8,434  8,660  12,087   33,163  29,181 
Realized carried interest allocations (16,320) (18,693) (14,473) (1,585) (15,289)  (112,396) (31,347)
Realized performance fee-related compensation(5) 11,726  12,755  9,102  1,720  15,444   67,091  26,266 
Realized investment income (673) (757) (557) (1,423) (3,508)  (4,746) (5,488)
Incentive fees (2,980) (1,318) (6) (4,946) (17,891)  (8,345) (22,843)
Deferred incentive fees   (209)   (942)    (3,683) (942)
Adjusted interest income(6) (701) (658) (187) (728) (287)  (1,068) (1,202)
Interest expense 1,111  1,674  2,012  2,108  2,562   2,515  6,682 
Adjusted other (income) loss(6)(7) (358) (46) 149  469  (107)  1,380  511 
Net income attributable to non-controlling interests in subsidiaries(1) 10,802  10,151  10,540  10,321  15,537   28,903  36,398 
FRE$42,701 $37,796 $44,402 $43,827 $50,664  $118,362 $138,893 
                       
(1) Reflects the portion of pre-tax ANI of our subsidiaries attributable to non-controlling interests and the profits interest issued in the private wealth subsidiary:


 Three Months Ended Nine Months Ended
December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December 31,
2023
  2022 2023
FRE attributable to non-controlling interests in subsidiaries$        10,167        $        9,843        $        10,534        $        9,463        $        10,518         $        28,830        $        30,515        
Non fee-related earnings attributable to non-controlling interests in subsidiaries and profits interests         635                 308                 6                 858                 5,019                  73                 5,883        
Net income attributable to non-controlling interests in subsidiaries$        10,802        $        10,151        $        10,540        $        10,321        $        15,537         $        28,903        $        36,398        
 
(2) Reflects equity-based compensation for awards granted prior to and in connection with the IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in the private wealth subsidiary.
(3) Includes (income) expense related to the following non-core operating income and expenses:


 Three Months Ended Nine Months Ended December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December
31, 2023
  2022  2023 
Transaction costs$6,812$38 $37 $163 $670  $6,815 $870 
Lease remeasurement adjustments        (106)  (2,709) (106)
Accelerated depreciation of leasehold improvements for changes in lease terms 631 631  631  631  631   841  1,893 
Severance costs 42 73         220   
(Gain) loss on change in fair value for contingent consideration obligation 1,989 (588) (1,249) (2,868) 9,054   9,949  4,937 
Compensation paid to certain employees as part of an acquisition earn-out 478 579  531  574  574   1,731  1,679 
Gain from negotiation of certain corporate matters        (5,300)    (5,300)
Loss on sale of subsidiary        812     812 
Total non-core operating income and expenses$9,952$733 $(50)$(1,500)$6,335  $16,847 $4,785 
                      
(4) Represents corporate income taxes at a blended statutory rate applied to pre-tax ANI:


 Three Months Ended Nine Months Ended
December 31,
 December 31, 2022March 31, 2023June 30, 2023September 30, 2023December 31, 2023 2022 2023 
Federal statutory rate21.0%21.0%21.0%21.0%21.0% 21.0%21.0%
Combined state, local and foreign rate1.3%1.3%1.3%1.3%1.3% 1.3%1.3%
Blended statutory rate22.3%22.3%22.3%22.3%22.3% 22.3%22.3%
                
(5) Includes carried interest-related compensation expense related to the portion of net carried interest allocation revenue attributable to equity holders of the Company’s consolidated subsidiaries that are not 100% owned:


 Three Months Ended Nine Months Ended
December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December 31,
2023
  2022 2023 
Realized carried interest-related compensation$2,208$2,358$2,189$$660 $9,017$2,849 
                 
(6) Excludes the impact of consolidating the Consolidated Funds.
(7) Excludes amounts for Tax Receivable Agreements adjustments recognized as other income (loss) ($(222) thousand for the three and nine months ended December 31, 2023 and $244 thousand for the three months ended March 31, 2023), gain associated with amounts received as part of negotiations with a third party related to certain corporate matters ($5.3 million for the three and nine months ended December 31, 2023), and loss on sale of subsidiary ($0.8 million for the three and nine months ended December 31, 2023).
 

Fee-Related Earnings Margin

FRE margin is a non-GAAP performance measure which is calculated by dividing FRE by adjusted management and advisory fees, net. We believe FRE margin is an important measure of profitability on revenues that are largely recurring by nature. We believe FRE margin is useful to investors because it enables them to better evaluate the operating profitability of our business across periods.

The table below shows a reconciliation of FRE to FRE margin.

 Three Months Ended Nine Months Ended
December 31,
(in thousands)December 31, 2022March 31, 2023June 30, 2023September 30, 2023December 31, 2023  2022  2023 
FRE$42,701 $37,796 $44,402 $43,827 $50,664  $118,362 $138,893 
Adjusted management and advisory fees, net 128,753  132,720  138,301  142,327  151,943   364,606  432,571 
FRE margin 33% 28% 32% 31% 33%  32% 32%
                       

Gross Realized Performance Fees

Gross realized performance fees represents realized carried interest allocations and incentive fees, including the deferred portion. We believe gross realized performance fees is useful to investors because it presents the total performance fees realized by us.

Net Realized Performance Fees

Net realized performance fees represents gross realized performance fees, less realized performance fee-related compensation. We believe net realized performance fees is useful to investors because it presents the performance fees attributable to us, net of amounts paid to employees as performance fee-related compensation.

The table below shows a reconciliation of total performance fees to gross and net realized performance fees.

 Three Months Ended Nine Months Ended
December 31,
(in thousands)December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December 31,
2023
  2022  2023 
Incentive fees$2,980 $1,318 $6 $4,946 $17,891  $8,345 $22,843 
Realized carried interest allocations 16,320  18,693  14,473  1,585  15,289   112,396  31,347 
Unrealized carried interest allocations (63,367) 100,753  49,364  55,371  (129,584)  (354,095) (24,849)
Legacy Greenspring carried interest allocations (88,921) (80,963) (23,947) (12,603) (69,700)  (371,200) (106,250)
Total performance fees (132,988) 39,801  39,896  49,299  (166,104)  (604,554) (76,909)
Unrealized carried interest allocations 63,367  (100,753) (49,364) (55,371) 129,584   354,095  24,849 
Legacy Greenspring carried interest allocations 88,921  80,963  23,947  12,603  69,700   371,200  106,250 
Deferred incentive fees   209    942     3,683  942 
Gross realized performance fees 19,300  20,220  14,479  7,473  33,180   124,424  55,132 
Realized performance fee-related compensation (11,726) (12,755) (9,102) (1,720) (15,444)  (67,091) (26,266)
Net realized performance fees$7,574 $7,465 $5,377 $5,753 $17,736  $57,333 $28,866 
 

Adjusted Weighted-Average Shares and Adjusted Net Income Per Share

ANI per share measures our per-share earnings assuming all Class B units and Class C units in the Partnership were exchanged for Class A common stock in SSG, including the dilutive impact of outstanding equity-based awards. ANI per share is calculated as ANI divided by adjusted weighted-average shares outstanding. We believe adjusted weighted-average shares and ANI per share are useful to investors because they enable investors to better evaluate per-share operating performance across reporting periods.

The following table shows a reconciliation of diluted weighted-average shares of Class A common stock outstanding to adjusted weighted-average shares outstanding used in the computation of ANI per share.

 Three Months Ended Nine Months Ended
December 31,
 December
31, 2022
March 31,
2023
June 30,
2023
September
30, 2023
December
31, 2023
  2022 2023
ANI$31,153$27,115$29,388$30,173$42,116 $115,548$101,677
         
Weighted-average shares of Class A common stock outstanding – Basic 62,192,899 62,805,788 62,834,818 62,858,468 64,068,952  61,583,215 63,255,604
Assumed vesting of RSUs 457,818 524,576 400,034 801,014 333,402  722,935 511,889
Assumed vesting and exchange of Class B2 units 2,486,197 2,501,045 2,504,618 2,538,647 2,553,899  2,467,141 2,532,489
Exchange of Class B units in the Partnership(1) 46,662,062 46,420,141 46,420,141 46,417,845 46,314,543  46,898,733 46,384,046
Exchange of Class C units in the Partnership(2) 2,852,187 2,514,085 2,514,085 2,502,086 1,962,131  2,903,186 2,325,417
Adjusted weighted-average shares 114,651,163 114,765,635 114,673,696 115,118,060 115,232,927  114,575,210 115,009,445
         
ANI per share$0.27$0.24$0.26$0.26$0.37 $1.01$0.88
                
(1) Assumes the full exchange of Class B units in the Partnership for Class A common stock of SSG pursuant to the Class B Exchange Agreement.
(2) Assumes the full exchange of Class C units in the Partnership for Class A common stock of SSG pursuant to the Class C Exchange Agreement.
 

Key Operating Metrics

We monitor certain operating metrics that are either common to the asset management industry or that we believe provide important data regarding our business. Refer to the Glossary below for a definition of each of these metrics.

Fee-Earning AUM

 Three Months Ended Nine Months Ended December 31, Percentage Change
(in millions)December 31, 2022March 31, 2023June 30, 2023September 30, 2023December 31, 2023  2022  2023  vs. FQ3'23
Separately Managed Accounts          
Beginning balance$52,881 $53,420 $55,345 $56,645 $56,380  $49,586 $55,345  7%
Contributions(1) 2,149  2,378  1,425  1,036  1,109   7,280  3,570  (48)%
Distributions(2) (2,178) (997) (429) (1,459) (1,397)  (3,211) (3,285) (36)%
Market value, FX and other(3) 568  544  304  158  568   (235) 1,030  
Ending balance$53,420 $55,345 $56,645 $56,380 $56,660  $53,420 $56,660  6%
           
Focused Commingled Funds          
Beginning balance$27,236 $29,565 $30,086 $30,762 $30,905  $25,587 $30,086  13%
Contributions(1) 2,497  713  796  992  1,898   4,796  3,686  (24)%
Distributions(2) (168) (308) (252) (988) (274)  (854) (1,514) 63%
Market value, FX and other(3)   116  132  139  243   36  514  na
Ending balance$29,565 $30,086 $30,762 $30,905 $32,772  $29,565 $32,772  11%
           
Total          
Beginning balance$80,117 $82,985 $85,431 $87,407 $87,285  $75,173 $85,431  9%
Contributions(1) 4,646  3,091  2,221  2,028  3,007   12,076  7,256  (35)%
Distributions(2) (2,346) (1,305) (681) (2,447) (1,671)  (4,065) (4,799) (29)%
Market value, FX and other(3) 568  660  436  297  811   (199) 1,544  43%
Ending balance$82,985 $85,431 $87,407 $87,285 $89,432  $82,985 $89,432  8%
                         
(1) Contributions consist of new capital commitments that earn fees on committed capital and capital contributions to funds and accounts that earn fees on net invested capital or NAV.
(2) Distributions consist of returns of capital from funds and accounts that pay fees on net invested capital or NAV and reductions in fee-earning AUM from funds that moved from a committed capital to net invested capital fee basis or from funds and accounts that no longer pay fees.
(3) Market value, FX and other primarily consist of changes in market value appreciation (depreciation) for funds that pay on NAV and the effect of foreign exchange rate changes on non-U.S. dollar denominated commitments.
 

Asset Class Summary

 Three Months Ended Percentage
Change
(in millions)December
31, 2022
March 31,
2023
June 30,
2023
September 30,
2023
December
31, 2023
 vs. FQ3'23
FEAUM       
Private equity$45,048$45,766$46,539$46,464$48,258 7%
Infrastructure 18,314 19,274 19,874 20,122 19,789 8%
Private debt 14,082 14,361 14,865 15,122 15,460 10%
Real estate 5,541 6,030 6,129 5,577 5,925 7%
Total$82,985$85,431$87,407$87,285$89,432 8%
        
Separately managed accounts$53,420$55,345$56,645$56,380$56,660 6%
Focused commingled funds 29,565 30,086 30,762 30,905 32,772 11%
Total$82,985$85,431$87,407$87,285$89,432 8%
        
AUM(1)       
Private equity$70,868$71,611$73,511$76,031$78,221 10%
Infrastructure 27,324 27,285 28,521 28,678 28,307 4%
Private debt 24,437 26,592 27,099 27,520 27,782 14%
Real estate 11,372 12,891 13,469 13,612 14,646 29%
Total$134,001$138,379$142,600$145,841$148,956 11%
        
Separately managed accounts$77,797$82,243$85,058$85,387$88,890 14%
Focused commingled funds 43,289 43,062 44,389 46,266 45,508 5%
Advisory AUM 12,915 13,074 13,153 14,188 14,558 13%
Total$134,001$138,379$142,600$145,841$148,956 11%
        
AUA       
Private equity$239,270$242,461$251,880$264,327$266,246 11%
Infrastructure 47,833 50,700 53,593 55,146 57,528 20%
Private debt 16,823 17,362 17,525 18,026 17,916 6%
Real estate 164,072 171,668 173,992 175,369 168,802 3%
Total$467,998$482,191$496,990$512,868$510,492 9%
        
Total capital responsibility(2)$601,999$620,570$639,590$658,709$659,448 10%
             
Note: Amounts may not sum to total due to rounding. AUM/AUA reflects final data for the prior period, adjusted for net new client account activity through the period presented, and does not include post-period investment valuation or cash activity. Net asset value (“NAV”) data for underlying investments is as of the prior period, as reported by underlying managers up to the business day occurring on or after 100 days, or 115 days at the fiscal year-end, following the prior period end. When NAV data is not available by the business day occurring on or after 100 days, or 115 days at the fiscal year-end, following the prior period end, such NAVs are adjusted for cash activity following the last available reported NAV.
(1) Allocation of AUM by asset class is presented by underlying investment asset classification.
(2) Total capital responsibility equals assets under management (AUM) plus assets under advisement (AUA).
 

Contacts

Shareholder Relations:
Seth Weiss
shareholders@stepstonegroup.com
1-212-351-6106

Media:
Brian Ruby / Chris Gillick / Matt Lettiero, ICR
StepStonePR@icrinc.com
1-203-682-8268

Glossary

Assets under advisement, or “AUA,” consists of client assets for which we do not have full discretion to make investment decisions but play a role in advising the client or monitoring their investments. We generally earn revenue for advisory-related services on a contractual fixed fee basis. Advisory-related services include asset allocation, strategic planning, development of investment policies and guidelines, screening and recommending investments, legal negotiations, monitoring and reporting on investments, and investment manager review and due diligence. Advisory fees vary by client based on the scope of services, investment activity and other factors. Most of our advisory fees are fixed, and therefore, increases or decreases in AUA do not necessarily lead to proportionate changes in revenue. We believe AUA is a useful metric for assessing the relative size of our advisory business.

Our AUA is calculated as the sum of (i) the NAV of client portfolio assets for which we do not have full discretion and (ii) the unfunded commitments of clients to the underlying investments. Our AUA reflects the investment valuations in respect of the underlying investments of our client accounts on a three-month lag, adjusted for new client account activity through the period end. Our AUA does not include post-period investment valuation or cash activity. AUA as of December 31, 2023 reflects final data for the prior period (September 30, 2023), adjusted for net new client account activity through December 31, 2023. NAV data for underlying investments is as of September 30, 2023, as reported by underlying managers up to the business day occurring on or after 100 days following September 30, 2023. When NAV data is not available by the business day occurring on or after 100 days following September 30, 2023, such NAVs are adjusted for cash activity following the last available reported NAV.

Assets under management, or “AUM,” primarily reflects the assets associated with our separately managed accounts (“SMAs”) and focused commingled funds. We classify assets as AUM if we have full discretion over the investment decisions in an account or have responsibility or custody of assets. Although management fees are based on a variety of factors and are not linearly correlated with AUM, we believe AUM is a useful metric for assessing the relative size and scope of our asset management business.

Our AUM is calculated as the sum of (i) the net asset value (“NAV”) of client portfolio assets, including the StepStone Funds and (ii) the unfunded commitments of clients to the underlying investments and the StepStone Funds. Our AUM reflects the investment valuations in respect of the underlying investments of our funds and accounts on a three-month lag, adjusted for new client account activity through the period end. Our AUM does not include post-period investment valuation or cash activity. AUM as of December 31, 2023 reflects final data for the prior period (September 30, 2023), adjusted for net new client account activity through December 31, 2023. NAV data for underlying investments is as of September 30, 2023, as reported by underlying managers up to the business day occurring on or after 100 days following September 30, 2023. When NAV data is not available by the business day occurring on or after 100 days following September 30, 2023, such NAVs are adjusted for cash activity following the last available reported NAV.

Consolidated Funds refer to the StepStone Funds that we are required to consolidate as of the applicable reporting period. We consolidate funds and other entities in which we hold a controlling financial interest.

Fee-earning AUM, or “FEAUM,” reflects the assets from which we earn management fee revenue (i.e., fee basis) and includes assets in our SMAs, focused commingled funds and assets held directly by our clients for which we have fiduciary oversight and are paid fees as the manager of the assets. Our SMAs and focused commingled funds typically pay management fees based on capital commitments, net invested capital and, in certain cases, NAV, depending on the fee terms. Management fees are only marginally affected by market appreciation or depreciation because substantially all of the StepStone Funds pay management fees based on capital commitments or net invested capital. As a result, management fees and FEAUM are not materially affected by changes in market value. We believe FEAUM is a useful metric in order to assess assets forming the basis of our management fee revenue.

Legacy Greenspring entities refers to certain entities for which the Company, indirectly through its subsidiaries, became the sole and/or managing member in connection with the Greenspring acquisition.

SSG refers solely to StepStone Group Inc., a Delaware corporation, and not to any of its subsidiaries.

StepStone Funds refer to SMAs and focused commingled funds of the Company, including acquired Greenspring funds, for which the Partnership or one of its subsidiaries acts as both investment adviser and general partner or managing member.

The Partnership refers solely to StepStone Group LP, a Delaware limited partnership, and not to any of its subsidiaries.

Total capital responsibility equals AUM plus AUA. AUM includes any accounts for which StepStone Group has full discretion over the investment decisions, has responsibility to arrange or effectuate transactions, or has custody of assets. AUA refers to accounts for which StepStone Group provides advice or consultation but for which the firm does not have discretionary authority, responsibility to arrange or effectuate transactions, or custody of assets.

Undeployed fee-earning capital represents the amount of capital commitments to StepStone Funds that has not yet been invested or considered active but will generate management fee revenue once this capital is invested or activated. We believe undeployed fee-earning capital is a useful metric for measuring the amount of capital that we can put to work in the future and thus earn management fee revenue thereon.