STEP

StepStone Group Inc. 10-Q Summary: Q1 2027 (Ended June 30, 2026)

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2026 (First Quarter of Fiscal Year 2027). StepStone Group Inc. (SSG) is a global private markets investment firm providing customized investment solutions, advisory services, and data analytics. The company operates as a single segment, managing assets across private equity, infrastructure, private debt, and real estate. As of June 30, 2026, SSG was responsible for approximately $913 billion of total capital, comprising $245 billion in Assets Under Management (AUM) and $668 billion in Assets Under Advisement (AUA).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 4% to $378.9 million, driven primarily by a 27% increase in management and advisory fees ($269.2 million) due to a 20% growth in average Fee-Earning AUM (FEAUM) and a shift toward higher-fee commingled funds.
• Performance Fees Decline: Total performance fees decreased 28% to $109.7 million. Unrealized carried interest allocations dropped significantly (excluding reversals) due to lower net unrealized appreciation in underlying private equity fund investments compared to the prior year.
• Expense Surge: Total expenses rose 38% to $583.7 million. This was largely driven by a 68% increase in equity-based compensation ($317.3 million), primarily due to a $126.1 million increase in expenses related to liability-classified awards for the StepStone Group Private Wealth (SPW) subsidiary.
• GAAP Loss Widening: The GAAP net loss attributable to SSG widened to $(115.8) million from $(38.4) million, reflecting the spike in non-cash equity compensation and lower unrealized performance fees, despite strong fee revenue growth.
• Non-GAAP Profitability: Adjusted Net Income (ANI) increased 24% to $60.3 million, indicating underlying operational profitability remained strong despite GAAP volatility.

Guidance, Outlook, and Risks

• Market Environment: Management notes continued volatility driven by elevated inflation, interest rate uncertainty, and geopolitical tensions (Russia-Ukraine, Middle East). These factors have led to slower fundraising and capital deployment, potentially delaying management fees and performance fee realizations.
• Consolidation Impact: The company consolidated six additional StepStone Funds during the quarter, which significantly impacted cash flows and balance sheet presentation but did not alter the underlying economic performance attributable to SSG.
• SPW Liability: Future periods may experience significant fluctuations in equity-based compensation due to changes in the fair value of liability-classified awards tied to SPW profitability. As of June 30, 2026, the accrued liability for these awards was $2.55 billion.
• Dividends: On August 6, 2026, the company announced a quarterly cash dividend of $0.33 per share of Class A common stock, payable September 15, 2026.
• Stock Repurchases: The company repurchased 469,897 shares of Class A common stock for $19.2 million during the quarter. Approximately $72.1 million remains available under the $100 million repurchase program authorized in March 2026.

Investor Verification Checklist

• Equity Compensation Volatility: Verify the sustainability of the $317 million equity-based compensation expense, specifically the $126 million increase related to SPW liability awards, and its impact on future GAAP earnings.
• Unrealized Carried Interest: Assess the sensitivity of revenue to market valuations, as unrealized carried interest allocations decreased significantly due to lower net appreciation in underlying funds.
• Cash Flow Dynamics: Review the negative operating cash flow of $(457.5) million, which was heavily influenced by net contributions to investments of Consolidated Funds ($614.6 million) rather than core operating losses.
• Debt Covenants: Confirm continued compliance with debt covenants, specifically the total net leverage ratio and minimum fee-earning AUM requirements under the Senior Notes and Revolver agreements.
• Non-GAAP Reconciliation: Scrutinize the reconciliation between GAAP Net Loss and Adjusted Net Income to understand the magnitude of non-cash adjustments and the exclusion of Consolidated Fund activities.