SEC Filing | StepStone Group Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to ___________________________

Commission file number 001-39510

STEPSTONE GROUP INC.

(Exact name of Registrant as specified in its charter)


Delaware						84-3868757
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

450 Lexington Avenue, 31st Floor
New York, NY						10017
(Address of principal executive offices)						(Zip Code)

(212) 351-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.001 par value per share

STEP

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of February 8, 2022, there were 60,791,306 shares of the registrant’s Class A common stock, par value $0.001, and 47,499,673 shares of the registrant’s Class B common stock, par value $0.001, outstanding.

Table of Contents


			Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021			5
Condensed Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2021 and 2020			7
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2021 and 2020			8
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2021 and 2020			9
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2021 and 2020			11
Notes to Condensed Consolidated Financial Statements			13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			45
Item 3. Qualitative and Quantitative Disclosures about Market Risk			80
Item 4. Controls and Procedures			82
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			82
Item 1A. Risk Factors			83
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			83
Item 3. Defaults Upon Senior Securities			83
Item 4. Mine Safety Disclosures			83
Item 5. Other Information			83
Item 6. Exhibits			84
Signatures			85

This Quarterly Report on Form 10-Q (“Form 10-Q”) includes certain information regarding the historical investment performance of our focused commingled funds and separately managed accounts. An investment in shares of our Class A common stock is not an investment in any StepStone Fund (as defined below). The StepStone Funds are separate, distinct legal entities that are not our subsidiaries. In the event of our bankruptcy or liquidation, you will have no claim against the StepStone Funds. In considering the performance information relating to the StepStone Funds contained herein, current and prospective Class A common stockholders should bear in mind that the performance of the StepStone Funds is not indicative of the possible performance of shares of our Class A common stock and also is not necessarily indicative of the future results of the StepStone Funds, even if fund investments were in fact liquidated on the dates indicated, and we cannot assure you that the StepStone Funds will continue to achieve, or that future StepStone Funds will achieve, comparable results.

Unless otherwise indicated or the context otherwise requires:

• “StepStone Group Inc.” or “SSG” refer solely to StepStone Group Inc., a Delaware corporation, and not to any of its subsidiaries;

• the “Partnership” refers solely to StepStone Group LP, a Delaware limited partnership, and not to any of its subsidiaries;

• “General Partner” refers to StepStone Group Holdings LLC, a Delaware limited liability company, and the sole general partner of the Partnership;

• “we,” “us,” “our,” the “Company,” “our company,” “StepStone” and similar terms refer to SSG and its consolidated subsidiaries, including the Partnership, following the Reorganization and IPO (each as defined below) and to the Partnership and its consolidated subsidiaries prior to the Reorganization and IPO;

• “StepStone Funds” or “our funds” refer to our focused commingled funds and our separately managed accounts, including acquired Greenspring funds, for which we act as both investment adviser and general partner or managing member;

• references to the “Greenspring acquisition” refer to the acquisition of Greenspring Associates, Inc. and certain of its affiliates, “Greenspring,” that was completed on September 20, 2021;

• references to “FY,” “fiscal” or “fiscal year” are to the fiscal year ended March 31 of the applicable year;

• references to the “Reorganization” refer to the series of transactions immediately before the Company’s initial public offering (“IPO”), which was completed on September 18, 2020;

• references to “private markets allocations” or “combined AUM / AUA” refer to the aggregate amount of our assets under management (“AUM”) and our assets under advisement (“AUA”);

• references to “high-net-worth” individuals refer to individuals with net worth of over $5 million, excluding primary residence; and

• references to “mass affluent” individuals refer to individuals with annual income over $200,000 or net worth between $1 million and $5 million, excluding primary residence.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are owned by us or licensed by us. We also own or have the rights to copyrights that protect the content of our solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Form 10-Q are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this Form 10-Q are forward-looking. We use words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “may,” “plan” and “will” and similar expressions to 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 should not be regarded as a representation by us or any other person 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, our 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 “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 and in our subsequent reports filed from time to time with the U.S. Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q and in our other periodic filings. 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.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

StepStone Group Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)


	As of
	December 31, 2021		March 31, 2021
Assets
Cash and cash equivalents	$	135,885	$	179,886
Restricted cash	1,031		3,977
Fees and accounts receivable	32,641		32,096
Due from affiliates	11,092		7,474
Investments:
Investments in funds	98,780		74,379
Accrued carried interest allocations	1,347,448		896,523
Legacy Greenspring investments in funds and accrued carried interest allocations(1)	1,311,475		—
Deferred income tax assets	18,966		89,439
Lease right-of-use assets, net	63,322		—
Other assets and receivables	23,619		24,715
Intangibles, net	409,174		5,491
Goodwill	583,196		6,792
Total assets	$	4,036,629	$	1,320,772
Liabilities and stockholders’ equity
Accounts payable, accrued expenses and other liabilities	$	60,007	$	47,723
Accrued compensation and benefits	60,299		34,224
Accrued carried interest-related compensation	688,116		465,610
Legacy Greenspring accrued carried interest-related compensation(1)	1,069,983		—
Due to affiliates	203,971		113,522
Lease liabilities	73,437		—
Debt obligations	62,762		—
Total liabilities	2,218,575		661,079
Commitments and contingencies (Note 15)


Class A common stock, $0.001 par value, 650,000,000 authorized; 60,782,690 and 38,437,500 issued and outstanding as of December 31, 2021 and March 31, 2021, respectively	61		38
Class B common stock, $0.001 par value, 125,000,000 authorized; 47,499,673 and 56,378,831 issued and outstanding as of December 31, 2021 and March 31, 2021, respectively	48		57
Additional paid-in capital	578,118		188,751
Retained earnings	197,222		60,407
Accumulated other comprehensive income	250		155
Total StepStone Group Inc. stockholders’ equity	775,699		249,408
Non-controlling interests in subsidiaries	28,571		25,885
Non-controlling interests in legacy Greenspring entities(1)	241,493		—
Non-controlling interests in the Partnership	772,291		384,400
Total stockholders’ equity	1,818,054		659,693
Total liabilities and stockholders’ equity	$	4,036,629	$	1,320,772

(1)Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests. See notes 5 and 14 for more information.

See accompanying notes to condensed consolidated financial statements.

StepStone Group Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands)

The following presents the portion of the condensed consolidated balances presented above attributable to consolidated variable interest entities.


	As of
	December 31, 2021		March 31, 2021
Assets
Cash and cash equivalents	$	26,561	$	16,833
Restricted cash	1,031		1,074
Fees and accounts receivable	28,061		25,282
Due from affiliates	3,664		3,467
Investments in funds	19,405		13,658
Legacy Greenspring investments in funds and accrued carried interest allocations	1,311,475		—
Deferred income tax assets	719		671
Lease right-of-use assets, net	17,813		—
Other assets and receivables	3,025		4,340
Total assets	$	1,411,754	$	65,325

Liabilities
Accounts payable, accrued expenses and other liabilities	$	8,478	$	10,370
Accrued compensation and benefits	25,365		14,705
Legacy Greenspring accrued carried interest-related compensation	1,069,983		—
Due to affiliates	460		1,854
Lease liabilities	17,936		—
Total liabilities	$	1,122,222	$	26,929

See accompanying notes to condensed consolidated financial statements.

StepStone Group Inc.

Condensed Consolidated Statements of Income (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Revenues
Management and advisory fees, net	$	106,384	$	70,093	$	268,028	$	209,245
Performance fees:
Incentive fees	27		313		6,005		5,098
Carried interest allocations:
Realized	66,559		26,063		169,053		38,257
Unrealized	132,535		150,681		452,789		176,050
Total carried interest allocations	199,094		176,744		621,842		214,307
Legacy Greenspring carried interest allocations(1)	104,960		—		104,960		—
Total revenues	410,465		247,150		1,000,835		428,650
Expenses
Compensation and benefits:
Cash-based compensation	51,665		36,732		138,217		113,858
Equity-based compensation	3,407		3,206		10,363		4,641
Performance fee-related compensation:
Realized	34,033		10,241		86,122		17,952
Unrealized	68,368		73,629		228,146		83,487
Total performance fee-related compensation	102,401		83,870		314,268		101,439
Legacy Greenspring performance fee-related compensation(1)	104,960		—		104,960		—
Total compensation and benefits	262,433		123,808		567,808		219,938
General, administrative and other	30,299		12,624		72,049		34,487
Total expenses	292,732		136,432		639,857		254,425
Other income (expense)
Investment income	7,230		5,361		20,841		6,508
Legacy Greenspring investment income(1)	17,890		—		17,890		—
Interest income	43		83		329		342
Interest expense	(543)		(26)		(637)		(7,353)
Other income (loss)	(273)		799		(2,662)		1,261
Total other income	24,347		6,217		35,761		758
Income before income tax	142,080		116,935		396,739		174,983
Income tax expense	15,787		9,546		16,065		11,585
Net income	126,293		107,389		380,674		163,398
Less: Net income attributable to non-controlling interests in subsidiaries	7,091		5,496		18,737		18,634
Less: Net income attributable to non-controlling interests in legacy Greenspring entities(1)	17,890		—		17,890		—
Less: Net income attributable to non-controlling interests in the Partnership	52,966		76,315		191,977		119,976
Net income attributable to StepStone Group Inc.	$	48,346	$	25,578	$	152,070	$	24,788
Earnings per share of Class A common stock:
Basic	$	0.84	$	0.87	$	3.29	$	0.85
Diluted	$	0.83	$	0.87	$	3.22	$	0.84
Weighted-average shares of Class A common stock:
Basic	57,875,758		29,237,500		46,247,353		29,237,500
Diluted	61,483,233		32,704,975		50,118,482		32,664,198

(1)Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests. See notes 3, 5 and 14 for more information.

See accompanying notes to condensed consolidated financial statements.

StepStone Group Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Net income	$	126,293	$	107,389	$	380,674	$	163,398
Other comprehensive income (loss):
Foreign currency translation adjustment	(155)		446		236		983

Total other comprehensive income (loss)	(155)		446		236		983
Comprehensive income before non-controlling interests	126,138		107,835		380,910		164,381
Less: Comprehensive income attributable to non-controlling interests in subsidiaries	7,014		5,719		18,856		19,131
Less: Comprehensive income attributable to non-controlling interests in legacy Greenspring entities	17,890		—		17,890		—
Less: Comprehensive income attributable to non-controlling interests in the Partnership	52,925		76,463		192,049		120,409
Comprehensive income attributable to StepStone Group Inc.	$	48,309	$	25,653	$	152,115	$	24,841

See accompanying notes to condensed consolidated financial statements.

StepStone Group Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)


	Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Non-Controlling Interests in Subsidiaries		Non-Controlling Interests in Legacy Greenspring Entities		Non-Controlling Interests in the Partnership		Total Stockholders’ Equity
Balance at September 30, 2021	$	56	$	53	$	525,118	$	158,131	$	268	$	24,558	$	219,086	$	804,483	$	1,731,753
Net income	—		—		—		48,346		—		7,091		17,890		52,966		126,293
Other comprehensive loss	—		—		—		—		(37)		(77)		—		(41)		(155)
Contributed capital	—		—		—		—		—		—		9,141		23		9,164
Equity-based compensation	—		—		1,771		—		—		4		—		1,632		3,407
Distributions	—		—		—		—		—		(3,005)		(4,624)		(15,649)		(23,278)

Dividends declared	—		—		—		(9,255)		—		—		—		—		(9,255)



Exchange of Class B units for Class A common stock and redemption of corresponding Class B common shares	5		(5)		(5)		—		—		—		—		—		(5)



Deferred offering costs	—		—		(357)		—		—		—		—		(296)		(653)
Equity reallocation between controlling and non-controlling interests	—		—		70,808		—		19		—		—		(70,827)		—
Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements(1)	—		—		(19,217)		—		—		—		—		—		(19,217)
Balance at December 31, 2021	$	61	$	48	$	578,118	$	197,222	$	250	$	28,571	$	241,493	$	772,291	$	1,818,054


Balance at March 31, 2021	$	38	$	57	$	188,751	$	60,407	$	155	$	25,885	$	—	$	384,400	$	659,693
Net income	—		—		—		152,070		—		18,737		17,890		191,977		380,674
Other comprehensive income	—		—		—		—		45		119		—		72		236
Contributed capital	—		—		—		—		—		—		9,141		65		9,206
Equity-based compensation	—		—		4,702		—		—		8		—		5,653		10,363
Distributions	—		—		—		—		—		(15,590)		(4,624)		(58,898)		(79,112)
Purchase of non-controlling interests	—		—		(657)		—		—		(1,502)		—		(887)		(3,046)
Dividends declared	—		—		—		(15,255)		—		—		—		—		(15,255)
Vesting of RSUs	1		—		(1)		—		—		—		—		—		—
Class A common stock issued for Greenspring acquisition	13		—		267,842		—		—		—		—		290,744		558,599
Class C Partnership units issued for Greenspring acquisition	—		—		64,847		—		—		—		—		70,392		135,239
Exchange of Class B units for Class A common stock and redemption of corresponding Class B common shares	9		(9)		(9)		—		—		—		—		—		(9)
Initial consolidation of legacy Greenspring general partner entities	—		—		—		—		—		—		219,086		—		219,086


Deferred offering costs	—		—		(357)		—		—		—		—		(296)		(653)
Equity reallocation between controlling and non-controlling interests	—		—		109,967		—		50		914		—		(110,931)		—
Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements(1)	—		—		(56,967)		—		—		—		—		—		(56,967)
Balance at December 31, 2021	$	61	$	48	$	578,118	$	197,222	$	250	$	28,571	$	241,493	$	772,291	$	1,818,054

(1)See notes 10, 13 and 14 for more information.

See accompanying notes to condensed consolidated financial statements.

StepStone Group Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands)


	Partners’ Capital		Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interests in Subsidiaries		Non-Controlling Interests in the Partnership		Total Stockholders’ Equity / Partners’ Capital
Balance at September 30, 2020	$	—	$	29	$	66	$	120,278	$	(790)	$	(22)	$	20,729	$	284,105	$	424,395
Net income	—		—		—		—		25,578		—		5,496		76,315		107,389
Other comprehensive income	—		—		—		—		—		75		223		148		446
Contributed capital	—		—		—		—		—		—		—		19		19
Equity-based compensation	—		—		—		988		—		—		3		2,215		3,206
Distributions	—		—		—		—		—		—		(1,318)		—		(1,318)











Balance at December 31, 2020	$	—	$	29	$	66	$	121,266	$	24,788	$	53	$	25,133	$	362,802	$	534,137






















Balance at March 31, 2020	$	216,051	$	—	$	—	$	—	$	—	$	178	$	20,738	$	—	$	236,967
Net income prior to Reorganization and IPO	45,265		—		—		—		—		—		12,428		—		57,693
Other comprehensive income prior to Reorganization and IPO	—		—		—		—		—		335		350		—		685
Contributed capital prior to Reorganization and IPO	27		—		—		—		—		—		—		—		27
Equity-based compensation prior to Reorganization and IPO	723		—		—		—		—		—		2		—		725
Sale of non-controlling interests prior to Reorganization and IPO	—		—		—		—		—		—		3,308		—		3,308
Purchase of non-controlling interests prior to Reorganization and IPO	—		—		—		—		—		—		(3,308)		—		(3,308)
Distributions prior to Reorganization and IPO	(50,424)		—		—		—		—		—		(13,161)		—		(63,585)
Equity reallocation between controlling and non-controlling interests prior to Reorganization and IPO	252		—		—		—		—		—		(252)		—		—
Effect of Reorganization and purchase of units in the Partnership	(211,894)		9		73		23,432		—		(513)		—		188,893		—
Issuance of Class A common stock sold in IPO, net of underwriting discounts	—		20		—		337,778		—		—		—		—		337,798
Purchase of partnership interests with IPO net proceeds	—		—		(7)		(127,979)		—		—		—		—		(127,986)
Deferred IPO costs	—		—		—		(2,981)		—		—		—		(6,686)		(9,667)
Equity reallocation between controlling and non-controlling interests subsequent to Reorganization and IPO	—		—		—		(103,063)		—		—		—		103,063		—
Deferred tax effect resulting from purchase of Class B units, net of amounts payable under Tax Receivable Agreements	—		—		—		(7,128)		—		—		—		—		(7,128)
Net income subsequent to Reorganization and IPO	—		—		—		—		24,788		—		6,206		74,711		105,705
Other comprehensive income subsequent to Reorganization and IPO	—		—		—		—		—		53		147		98		298
Contributed capital subsequent to Reorganization and IPO	—		—		—		—		—		—		—		19		19
Equity-based compensation subsequent to Reorganization and IPO	—		—		—		1,207		—		—		5		2,704		3,916
Distributions subsequent to Reorganization and IPO	—		—		—		—		—		—		(1,330)		—		(1,330)
Balance at December 31, 2020	$	—	$	29	$	66	$	121,266	$