StepStone Group Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2024. The requested “2023 Q4” period is not separately presented; this filing provides annual fiscal 2024 results and comparative fiscal 2023 and 2022 results.
Business context
StepStone is a global private-markets investment firm providing customized investment solutions, asset management, advisory, data, portfolio analytics and reporting services across private equity, infrastructure, private debt and real estate. As of March 31, 2024, the Company was responsible for approximately $678 billion of total capital, including $157 billion of AUM and $521 billion of AUA. Fee-earning AUM was $93.9 billion, up 10% year over year.
Key financial metrics
| Metric | FY2024 | FY2023 | Change |
|---|---|---|---|
| Total revenue | $711.6 million | $(67.6) million | Improved by $779.2 million |
| Management and advisory fees, net | $585.1 million | $497.2 million | Up 18% |
| Performance fees | $126.5 million | $(564.8) million | Returned to positive |
| Income before tax | $195.4 million | $(41.5) million | Returned to profit |
| Net income attributable to StepStone Group Inc. | $58.1 million | $(18.4) million | Returned to profit |
| Basic/diluted EPS | $0.91 / $0.91 | $(0.30) / $(0.30) | Improved |
| Fee-related earnings | $189.8 million | $156.2 million | Up 22% |
| Adjusted net income | $139.4 million | $142.7 million | Down 2% |
| Operating cash flow | $161.5 million | $151.2 million | Up 7% |
GAAP net margin attributable to StepStone Group Inc. was approximately 8.2%; income before tax margin was approximately 27.5%. Adjusted net income was $1.21 per adjusted share versus $1.24 in fiscal 2023. The difference between GAAP and adjusted results reflects, among other items, unrealized carried interest, legacy Greenspring items, consolidation of funds, equity compensation, amortization and transaction-related items.
Cash flow, liquidity and debt
- Cash, cash equivalents and restricted cash totaled $144.1 million excluding Consolidated Funds, or $182.3 million including them. Cash held by Consolidated Funds is not generally available for corporate liquidity.
- Investments in StepStone Funds totaled $1.49 billion, including $1.354 billion of accrued carried interest allocations.
- Debt obligations were $148.8 million net of issuance costs, consisting of $150.0 million drawn under a $225.0 million revolving facility. The weighted-average interest rate was 7.42%, and maturity was September 20, 2026 at year-end.
- The Company generated $161.5 million of operating cash flow, used $47.3 million in investing activities and $58.0 million in financing activities.
- Management stated that available cash and expected cash flows should be sufficient for the next 12 months. The Company was in compliance with its leverage and minimum fee-earning AUM covenants.
- On May 16, 2024, the revolving facility was amended to increase commitments to $300 million and extend maturity to 2029.
Material changes versus fiscal 2023
- Management and advisory fees increased 18%, driven by new client activity, 9% growth in average FEAUM and $11.6 million of retroactive fees from fund closings.
- Incentive fees increased 162% to $25.3 million, reflecting better investment performance and greater realization activity.
- Realized carried interest declined 62% to $49.4 million because of lower private-equity realization activity, while total carried interest allocations improved to $176.3 million from a $122.3 million loss.
- Legacy Greenspring carried interest losses narrowed to $75.2 million from $452.2 million. These economics are attributable to employees and non-controlling interests rather than directly to the Company.
- Cash-based compensation increased 16% to $293.0 million, equity compensation increased 70% to $42.4 million, and general and administrative expense increased 14% to $167.3 million.
- Fee-related earnings increased 22%, but adjusted net income declined 2% because of lower realized performance-fee earnings, greater non-controlling interest allocations and higher interest expense.
- On February 7, 2024, the Company entered into agreements providing a path to acquire the remaining interests in its real estate, real assets and private debt operating entities through up to ten annual exchanges, or up to fifteen in certain real-assets circumstances. The agreements may involve cash, Class D Partnership interests or Class A shares and could result in future dilution or cash requirements.
- On December 31, 2023, the Company sold Greenspring Back Office Solutions for an $8.4 million secured note payable over approximately six years and recorded a $0.8 million loss.
Outlook, commentary and risks
Management did not provide a specific quantitative earnings or revenue outlook in the filing. The Company expects growth to be supported by existing-client expansion, deployment of $22.6 billion of undeployed fee-earning capital, new client fundraising, private-wealth distribution and potential operating leverage. However, management noted that fundraising, capital deployment and exit activity have slowed, which may delay management fees and performance fees.
- Performance fees and carried interest are volatile, depend substantially on unrealized valuations and may reverse if fund performance deteriorates.
- Private-market investments are illiquid and frequently valued using subjective Level III methodologies. Valuation of underlying co-investments was the audit’s critical audit matter.
- Higher interest rates, reduced credit availability, commercial real estate weakness, inflation, geopolitical conflicts and banking-system volatility could impair portfolio values, fundraising, realizations and carried interest.
- As of March 31, 2024, no material clawback liability was accrued, but the estimated maximum carried-interest contingent repayment exposure, excluding legacy Greenspring, was $287.5 million net of tax under an extreme zero-value assumption.
- The Company had $115.7 million of unfunded commitments to StepStone Funds and an additional $67.8 million related to legacy Greenspring funds, generally callable over several years.
- Tax Receivable Agreement liabilities totaled $206.8 million at year-end. The Company paid $10.3 million under these agreements during fiscal 2024, and future payments could be substantial.
- The Company remains exposed to regulatory changes affecting private-fund advisers, cybersecurity, privacy, ESG disclosures, artificial intelligence, anti-money-laundering requirements and international operations.
- The dual-class structure gives Class B holders five votes per share before the September 18, 2025 sunset date or an earlier triggering event. Class B holders continue to control a majority of voting power.
Investor verification items
- Reconcile recurring fee growth and fee-related earnings with the more volatile GAAP revenue and net-income figures.
- Assess the quality, realization prospects and valuation sensitivity of the $1.354 billion accrued carried interest balance.
- Review the effect of the asset-class entity transactions on future dilution, cash payments, non-controlling interests and earnings per share.
- Confirm liquidity after considering the revolving facility, capital commitments, earn-out obligations, Tax Receivable Agreement payments, dividends and potential carried-interest clawbacks.
- Monitor fundraising, deployment and realization trends, particularly in private equity and commercial real estate.
- Review the May 2024 refinancing, including the $300 million commitment, 2029 maturity and revised covenants.
- Consider the implications of valuation subjectivity, fund-performance lagging data and the concentration of accrued carried interest in certain funds.
- Verify dividend sustainability: fiscal 2024 dividends were $1.08 per Class A share, while future dividends remain subject to board discretion and holding-company liquidity.