STEP

StepStone Group Inc. (STEP) - Q2 2026 10-Q Summary

Business Context and Reporting Period

This summary covers the quarterly period ended September 30, 2025 (Q2 of Fiscal Year 2026). StepStone Group Inc. is a global private markets investment firm providing customized investment solutions, advisory services, and data analytics. The company operates as a single reporting segment and manages assets across private equity, infrastructure, private debt, and real estate. As of September 30, 2025, the firm was responsible for approximately $771 billion in total capital, comprising $209 billion in Assets Under Management (AUM) and $562 billion in Assets Under Advisement (AUA).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 67% year-over-year (YoY) for the quarter and 79% for the six-month period. This was driven primarily by a surge in carried interest allocations (up 196% YoY for the quarter excluding reversals) and a 17% increase in management and advisory fees.
• Net Loss: The company reported a significant net loss attributable to SSG of $(366.1) million for the quarter, compared to net income of $17.6 million in the prior year quarter. This reversal is primarily due to a massive increase in equity-based compensation expenses.
• Compensation Spike: Equity-based compensation expenses jumped to $884.5 million for the quarter (from $37.3 million YoY). This increase is largely attributable to an $847.7 million expense related to the remeasurement of liability-classified awards (profits interests) issued to the StepStone Group Private Wealth (SPW) team, driven by SPW's profitability.
• Fee-Earning AUM: Fee-Earning AUM (FEAUM) grew to $132.8 billion, an increase of approximately $5.6 billion from the prior quarter and $11.4 billion from the prior fiscal year-end.

Outlook, Risks, and Unusual Items

• Unusual Items: The primary driver of the reported net loss is the non-cash, mark-to-market adjustment of the SPW profits interest liability. Management expects this expense to fluctuate based on SPW's future profitability. Additionally, the company recognized a tax benefit of $100.3 million for the quarter due to the pre-tax net loss.
• Market Risks: Management notes ongoing volatility due to U.S. trade policy, tariffs, and geopolitical tensions (China, Russia, Ukraine, Middle East). A U.S. government shutdown began on October 1, 2025, which could impact operations and capital markets, though management does not currently expect a significant financial impact.
• Guidance: The filing does not provide specific numerical guidance for future periods. Management emphasizes that performance fees are volatile and dependent on market realizations. They anticipate continued growth in FEAUM driven by new client activity and capital deployment.
• Dividends: The company declared a quarterly cash dividend of $0.28 per share of Class A common stock, payable on December 15, 2025.

Investor Verification Checklist

• SPW Liability Volatility: Verify the sustainability of the $884.5 million equity-based compensation expense and its correlation to SPW's operating performance, as this significantly distorts GAAP net income.
• Carried Interest Realization: Assess the quality of the revenue growth, noting that a large portion of the increase in carried interest is unrealized (mark-to-market) and subject to potential reversal if underlying fund valuations decline.
• Liquidity Position: Confirm the company's ability to service its $275 million in debt obligations and meet the $321.6 million liability under Tax Receivable Agreements (TRA) using operating cash flows and existing cash reserves.
• Fee-Earning AUM Growth: Validate the 27-28% growth in average FEAUM and its impact on the stability of recurring management fee revenue.
• Non-GAAP Measures: Review the reconciliation of GAAP Net Loss to Adjusted Net Income (ANI) and Fee-Related Earnings (FRE) to understand the core operating profitability excluding non-cash compensation and unrealized gains/losses.