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 September 30, 2022


☐			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 November 3, 2022, there were 62,061,427 shares of the registrant’s Class A common stock, par value $0.001, and 46,716,897 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 September 30, 2022 and March 31, 2022			5
Condensed Consolidated Statements of Income (Loss) for the Three and Six Months Ended September 30, 2022 and 2021			7
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2022 and 2021			8
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 2022 and 2021			9
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2022 and 2021			11
Notes to Condensed Consolidated Financial Statements			13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			44
Item 3. Qualitative and Quantitative Disclosures about Market Risk			76
Item 4. Controls and Procedures			78
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			78
Item 1A. Risk Factors			79
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			79
Item 3. Defaults Upon Senior Securities			79
Item 4. Mine Safety Disclosures			79
Item 5. Other Information			79
Item 6. Exhibits			80
Signatures			81

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” refers 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;

• “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, 2022 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
	September 30, 2022		March 31, 2022
Assets
Cash and cash equivalents	$	143,562	$	116,386
Restricted cash	921		1,063
Fees and accounts receivable	34,344		34,141
Due from affiliates	13,516		19,369
Investments:
Investments in funds	106,977		107,045
Accrued carried interest allocations	1,189,323		1,480,515
Legacy Greenspring investments in funds and accrued carried interest allocations(1)	991,116		1,334,581
Deferred income tax assets	39,500		27,866
Lease right-of-use assets, net	62,768		61,065
Other assets and receivables	36,640		27,426
Intangibles, net	376,385		398,126
Goodwill	580,542		580,542
Total assets	$	3,575,594	$	4,188,125
Liabilities and stockholders’ equity
Accounts payable, accrued expenses and other liabilities	$	84,377	$	80,541
Accrued compensation and benefits	75,466		39,966
Accrued carried interest-related compensation	625,360		769,988
Legacy Greenspring accrued carried interest-related compensation(1)	817,673		1,140,101
Due to affiliates	196,410		199,355
Lease liabilities	72,084		70,965
Debt obligations	63,115		62,879
Total liabilities	1,934,485		2,363,795
Commitments and contingencies (Note 15)


Class A common stock, $0.001 par value, 650,000,000 authorized; 62,061,427 and 61,141,306 issued and outstanding as of September 30, 2022 and March 31, 2022, respectively	62		61
Class B common stock, $0.001 par value, 125,000,000 authorized; 46,716,897 and 47,149,673 issued and outstanding as of September 30, 2022 and March 31, 2022, respectively	47		48
Additional paid-in capital	596,355		587,243
Retained earnings	164,044		229,615
Accumulated other comprehensive income	671		658
Total StepStone Group Inc. stockholders’ equity	761,179		817,625
Non-controlling interests in subsidiaries	28,922		32,063
Non-controlling interests in legacy Greenspring entities(1)	173,443		194,480
Non-controlling interests in the Partnership	677,565		780,162
Total stockholders’ equity	1,641,109		1,824,330
Total liabilities and stockholders’ equity	$	3,575,594	$	4,188,125

(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
	September 30, 2022		March 31, 2022
Assets
Cash and cash equivalents	$	25,554	$	19,386
Restricted cash	921		1,063
Fees and accounts receivable	30,882		29,060
Due from affiliates	5,262		5,252
Investments in funds	26,282		22,808
Legacy Greenspring investments in funds and accrued carried interest allocations	991,116		1,334,581
Deferred income tax assets	316		301
Lease right-of-use assets, net	16,403		17,206
Other assets and receivables	5,081		5,588
Total assets	$	1,101,817	$	1,435,245

Liabilities
Accounts payable, accrued expenses and other liabilities	$	14,246	$	8,548
Accrued compensation and benefits	23,767		14,806
Legacy Greenspring accrued carried interest-related compensation	817,673		1,140,101
Due to affiliates	76		190
Lease liabilities	15,907		17,593
Total liabilities	$	871,669	$	1,181,238

See accompanying notes to condensed consolidated financial statements.

StepStone Group Inc.

Condensed Consolidated Statements of Income (Loss) (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Revenues
Management and advisory fees, net	$	119,121	$	83,583	$	235,853	$	161,644
Performance fees:
Incentive fees	5,365		1,796		5,365		5,978
Carried interest allocations:
Realized	22,469		52,531		96,076		102,494
Unrealized	(176,778)		143,855		(290,728)		320,254
Total carried interest allocations	(154,309)		196,386		(194,652)		422,748
Legacy Greenspring carried interest allocations(1)	(128,672)		—		(282,279)		—
Total revenues	(158,495)		281,765		(235,713)		590,370
Expenses
Compensation and benefits:
Cash-based compensation	59,501		43,881		119,562		86,552
Equity-based compensation	3,783		3,213		7,497		6,956
Performance fee-related compensation:
Realized	13,630		26,781		55,365		52,089
Unrealized	(86,126)		74,206		(140,679)		159,778
Total performance fee-related compensation	(72,496)		100,987		(85,314)		211,867
Legacy Greenspring performance fee-related compensation(1)	(128,672)		—		(282,279)		—
Total compensation and benefits	(137,884)		148,081		(240,534)		305,375
General, administrative and other	33,733		25,320		67,965		41,750
Total expenses	(104,151)		173,401		(172,569)		347,125
Other income (expense)
Investment income (loss)	(3,691)		7,187		(4,792)		13,611
Legacy Greenspring investment loss(1)	(15,357)		—		(23,961)		—
Interest income	356		206		367		286
Interest expense	(817)		(88)		(1,404)		(94)
Other loss	(634)		(1,952)		(1,738)		(2,389)
Total other income (expense)	(20,143)		5,353		(31,528)		11,414
Income (loss) before income tax	(74,487)		113,717		(94,672)		254,659
Income tax expense (benefit)	(7,422)		(14,145)		(6,136)		278
Net income (loss)	(67,065)		127,862		(88,536)		254,381
Less: Net income attributable to non-controlling interests in subsidiaries	8,690		6,032		16,261		11,646
Less: Net loss attributable to non-controlling interests in legacy Greenspring entities(1)	(15,357)		—		(23,961)		—
Less: Net income (loss) attributable to non-controlling interests in the Partnership	(31,177)		59,756		(40,575)		139,011
Net income (loss) attributable to StepStone Group Inc.	$	(29,221)	$	62,074	$	(40,261)	$	103,724
Net income (loss) per share of Class A common stock:
Basic	$	(0.48)	$	1.49	$	(0.66)	$	2.57
Diluted	$	(0.48)	$	1.45	$	(0.66)	$	2.50
Weighted-average shares of Class A common stock:
Basic	61,407,834		41,745,492		61,276,707		40,401,379
Diluted	61,407,834		45,908,361		61,276,707		44,405,055

(1)Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests. The three and six months ended September 30, 2021 reflect the net effect of gross realized gains and the reversal of such amounts in unrealized gains. 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 (Loss) (Unaudited)

(in thousands)


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	(67,065)	$	127,862	$	(88,536)	$	254,381
Other comprehensive income:
Foreign currency translation adjustment	286		143		61		391

Total other comprehensive income	286		143		61		391
Comprehensive income (loss) before non-controlling interests	(66,779)		128,005		(88,475)		254,772
Less: Comprehensive income attributable to non-controlling interests in subsidiaries	8,831		6,101		16,291		11,842
Less: Comprehensive loss attributable to non-controlling interests in legacy Greenspring entities	(15,357)		—		(23,961)		—
Less: Comprehensive income (loss) attributable to non-controlling interests in the Partnership	(31,112)		59,797		(40,561)		139,124
Comprehensive income (loss) attributable to StepStone Group Inc.	$	(29,141)	$	62,107	$	(40,244)	$	103,806

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 June 30, 2022	$	61	$	48	$	593,159	$	205,946	$	586	$	31,829	$	187,365	$	730,381	$	1,749,375
Net income (loss)	—		—		—		(29,221)		—		8,690		(15,357)		(31,177)		(67,065)
Other comprehensive income	—		—		—		—		80		141		—		65		286
Contributed capital	—		—		—		—		—		—		3,798		17		3,815
Equity-based compensation	—		—		2,087		—		—		4		—		1,692		3,783
Distributions	—		—		—		—		—		(11,742)		(2,363)		(16,847)		(30,952)

Dividends declared	—		—		—		(12,681)		—		—		—		—		(12,681)
Vesting of RSUs, net of shares withheld for employee taxes	—		—		(1,504)		—		—		—		—		(1,203)		(2,707)


Exchange of Class B units for Class A common stock and redemption of corresponding Class B common shares	1		(1)		—		—		—		—		—		—		—


Equity reallocation between controlling and non-controlling interests	—		—		5,358		—		5		—		—		(5,363)		—
Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements(1)	—		—		(2,745)		—		—		—		—		—		(2,745)
Balance at September 30, 2022	$	62	$	47	$	596,355	$	164,044	$	671	$	28,922	$	173,443	$	677,565	$	1,641,109


Balance at March 31, 2022	$	61	$	48	$	587,243	$	229,615	$	658	$	32,063	$	194,480	$	780,162	$	1,824,330
Net income (loss)	—		—		—		(40,261)		—		16,261		(23,961)		(40,575)		(88,536)
Other comprehensive income	—		—		—		—		17		30		—		14		61
Contributed capital	—		—		—		—		—		—		8,785		17		8,802
Equity-based compensation	—		—		4,126		—		—		8		—		3,363		7,497
Distributions	—		—		—		—		—		(19,440)		(5,861)		(54,346)		(79,647)

Dividends declared	—		—		—		(25,310)		—		—		—		—		(25,310)
Vesting of RSUs, net of shares withheld for employee taxes	—		—		(1,504)		—		—		—		—		(1,203)		(2,707)


Exchange of Class B units for Class A common stock and redemption of corresponding Class B common shares	1		(1)		—		—		—		—		—		—		—




Equity reallocation between controlling and non-controlling interests	—		—		9,871		—		(4)		—		—		(9,867)		—
Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements(1)	—		—		(3,381)		—		—		—		—		—		(3,381)
Balance at September 30, 2022	$	62	$	47	$	596,355	$	164,044	$	671	$	28,922	$	173,443	$	677,565	$	1,641,109

(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)


	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 June 30, 2021	$	40	$	55	$	205,561	$	99,057	$	215	$	26,585	$	—	$	429,622	$	761,135
Net income	—		—		—		62,074		—		6,032		—		59,756		127,862
Other comprehensive income	—		—		—		—		33		69		—		41		143
Contributed capital	—		—		—		—		—		—		—		21		21
Equity-based compensation	—		—		1,385		—		—		—		—		1,828		3,213
Distributions	—		—		—		—		—		(7,540)		—		(18,806)		(26,346)
Purchase of non-controlling interests	—		—		(657)		—		—		(1,502)		—		(887)		(3,046)
Dividends declared	—		—		—		(3,000)		—		—		—		—		(3,000)
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	2		(2)		(2)		—		—		—		—		—		(2)
Initial consolidation of legacy Greenspring general partner entities	—		—		—		—		—		—		219,086		—		219,086
Equity reallocation between controlling and non-controlling interests	—		—		27,294		—		20		914		—		(28,228)		—
Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements(1)	—		—		(41,151)		—		—		—		—		—		(41,151)
Balance at September 30, 2021	$	56	$	53	$	525,118	$	158,131	$	268	$	24,558	$	219,086	$	804,483	$	1,731,753

Balance at March 31, 2021	$	38	$	57	$	188,751	$	60,407	$	155	$	25,885	$	—	$	384,400	$	659,693
Net income	—		—		—		103,724		—		11,646		—		139,011		254,381
Other comprehensive income	—		—		—		—		82		196		—		113		391
Contributed capital	—		—		—		—		—		—		—		42		42
Equity-based compensation	—		—		2,931		—		—		4		—		4,021		6,956
Distributions	—		—		—		—		—		(12,585)		—		(43,249)		(55,834)
Purchase of non-controlling interests	—		—		(657)		—		—		(1,502)		—		(887)		(3,046)
Dividends declared	—		—		—		(6,000)		—		—		—		—		(6,000)
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	4		(4)		(4)		—		—		—		—		—		(4)
Initial consolidation of legacy Greenspring general partner entities	—		—		—		—		—		—		219,086		—		219,086
Equity reallocation between controlling and non-controlling interests	—		—		39,159		—		31		914		—		(40,104)		—
Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements(1)	—		—		(37,750)		—		—		—		—		—		(37,750)
Balance at September 30, 2021	$	56	$	53	$	525,118	$	158,131	$	268	$	24,558	$	219,086	$	804,483	$	1,731,753

(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 Cash Flows (Unaudited)

(in thousands)


	Six Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	(88,536)	$	254,381
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	23,245		3,626
Unrealized carried interest allocations and investment (income) loss	299,593		(329,031)
Unrealized legacy Greenspring carried interest allocations and investment loss	349,763		—
Unrealized performance fee-related compensation	(140,679)		159,778
Unrealized legacy Greenspring performance fee-related compensation	(322,428)		—

Amortization of deferred financing costs	236		—
Equity-based compensation	7,497		6,956
Change in deferred income taxes	(13,113)		(3,700)
Fair value adjustment for acquisition-related contingent consideration	7,960		—
Gain on remeasurement of lease liabilities	(2,709)		—
Other non-cash activities	17		1,852
Changes in operating assets and liabilities: