STEP - Earnings call transcript Q2 2022

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Operator

Good afternoon ladies and gentlemen, and welcome to Stepstone’s Fiscal 2022 Second Quarter Earnings Conference Call.

During the presentation all participants will be in listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call will be recorded. I would now like to turn the conference over to Seth Weiss, Stepstone’s Head of Investor Relations. ahead. go Please

Seth Weiss

good and Thank afternoon, you everyone.

Randel, on Hart, Scott me Officer, McCabe, and today and are Co-Chief Executive Mike Johnny Strategy of call our Head Financial Officer; Operating Officer. Joining Co-Chief the Chief Jason President Ment,

will prepared website a Relations presentation referring our shareholders.stepstonegroup.com. available During be our is on to we remarks, Investor at which

financial certain this performance expected well as as we I'd begin, call company's periods. like Before future the presentation for to forward-looking contains conference operating regarding remind and everyone that statements the

management's statements are number are implied results or materially Forward-looking risks, of in and various estimates inherently differ uncertain current factors expressed a factors risk the Actual reflect plans, risks, by Stepstones or other and these and section for assumptions. described to may of those expectations future forward-looking periods are that XX-K. most statements subject from to uncertainties recent due

X million income income. XXXX, The fee additional growth net Incorporated of earnings second income for adjusted GAAP Turning million. on million $XX.X $XX.X the September XX, share Group of attributable quarter to net income to related that contributed fee resulting generated adjusted per fund We equity net $XX.X earnings for of GAAP pre-tax XXXX. revenue income $X.XX. fiscal net and $X.X closes to Slide adjusted quarter to million, and fees of of $XXX.X retroactive Stepstones and quarter reported ended Stepstone reflected net results from of million $X.X financial was the our related million we

the million revenue net to over Scott X.X Stepstone closing to Co-Chief earnings fee-related Hart. Officer, which related years X.X to turn comparison for million Stepstones call income. like retroactive million final to from for $X.X partners estate prior fees to now adjusted to For contributed real Executive I pre-tax of quarter benefited and the

Scott Hart

and the expected acquisition the fee-earning AUM on generated on a good of the future closing, ahead to of associates Greenspring quarter the its closed LP exceptional organic closing significantly assets performance I'll time, trusted continued and been strong business by LP platform, September that to and schedule, this of that We the with beginning we increased XX. Greenspring our and in We flow capital. operate well interest is Greenspring developed differentiator. took see schedule. equity growth pipeline team you, capital of which growth clear already well. closed venture strength through have Thank strategic in afternoon, our acquisition, the integration both produced advancement. of one expanded robust driven evidence Seth, earnings and progressing everyone. We're The the standalone of relationships continue ahead and are positive venture over Despite and strides begin as capabilities

to client investment and feedback that clients from of indications in network overlap given size, already and our limited opportunities also will diligence insights. We've yielding opportunities, access our cross-selling relationships exist and early the differentiated base. combined Our due is data received positive observed

a we shown trillion broadly, across Looking manager at market. on on of the half over assets Slide dollars more advise X, as private the firm now

market to moat broad while and and needs. deal and real debt estate, scope competitive destination quarter. $XX.X fee-related of across We share the scale equity, data, unparalleled for our net X, per in million quarter. Shifting global $X.XX infrastructure generated million prior creates down the us solve quarter prior fiscal income results year adjusted on our yield clients increased insights significant make we Our X% second earnings to XXX% or from generated year $XX.X our a as from up flow, one-stop a widens private Slide the advantage a private private

impacts year the As year-over-year $X which fee retroactive million, a significant prior of included period mentioned, comparisons. Seth

of days This results. quarter included Greenspring relatively fees XX smaller and retroactive

which fee-related these assets of billion billion by under fee-earning have would and from management up AUM, fee-earning Greenspring. earnings We $XX $XX Excluding the of with finished items billion $XXX includes XX%. been of quarter assets

two acquired model, distributions, strengthening shareholder what some and of over portion activities. recent of than year Shifting and as first last our time. virtual fuel been a confidence of in-person share pleased offices shareholders. year. in meeting that in for also the for which is no level culture. enabled us organic to talent still majority paying We've dividends. have earnings our time, earnings growth in collaborate of environment dividend is months. we've our to globally, we leveraged of COVID is In interactions firm rate face-to-face our prior the per that while on that the of about to XX% healthy company. we've teams. administered capital our report AUM most pleased connections. And increase reflective our to solution, a declining our across the our number these instances, celebrated run for mean and couple of robust last September, for reunite excited I of us development out a more the am I'm announce to grown years the and vast have efficient grown cases encouraging of public our nearly a largely operating we've years doubling sustainability innovating result by fee-earning We've dramatically XX to assets, increased clients' of $X.XX Excluding I'm onboard growth, business the of of a a a organically trends quarterly in to to allowing one and to on The growing enabled resume But teams over vaccinations the and reopened we technology Ultimately, substitute last after the employees and over new there person

to has hard work since we stock a the grow enabled our Our and attract to well serves to currency that our Stepstone help Greenspring. want and the provide listing to business broaden talent, shareholders brand dedication. employees their valuable among acquisition ownership for to entire as equity We're our our delivered and return, the public elevates us the globally retain our our with above means as thank team market's returns I of our IPO, proud demonstrated

hand Monte's to an on Monte a results markets successful This sole foundation issued over look succession clearly that of January off over and reflect communicated to natural continuing that, and call does with to to now established from in entrepreneurial Board I acknowledge X it years. the today, be culture. like foundation, transitioning announcement to that the is about firm opportunity We as our benefit will build to that or the back CEO. step Nevertheless, planned earlier success to and the we firm, as to couldn't that provide while investment Directors turn take our and remaining a that a has With Executive the private opportunity plan over last and been more his I'd of Mike vision Chairman. Chairman carefully Monte the several laid moment the Mike, of become mentorship next our transition before be Executive McCabe. global vision to collaborative over a build for Chairman excited time. Finally, it Brem Co-Founder Co-CEO, will I

MikeMcCabe

Founding funds, Brem could behalf employees CEO. Scott the leadership XX On big for coming said, not as its am a I report, $XX and from X billion XX vision and be commingled in future managed Stepstone of new of gross pleased as and generated of Partner billion last Scott. board brighter. to Stepstone’s But his and our our thank directors, all the billion we The to congratulations inflows you, Monte Thank that with AUM separately accounts. in months you

funds, Turning of X, assets billion an acquisition organically, generated of of under expectations we assets for $XX AUM. figures which from added billion announced the Greenspring capital X.X billion venture interim deal. Slide of in growth a closing we management, the and exceeds when to Greenspring additional quarter the fee-earning These addition to for our include contributed and consummation $XX secondary

an of was coinvest $XXX we asset close across and of million. asset commingle a class. structure strong funds, Within equity Our north fund growth private had initial

interim the accounts the for had Tactical across $XXX we our managed million our size commitments, from asset is Growth its $XXX million with future. finished over of the continue private well which above final growth international will predecessors. X separately our Fund classes. for Growth the Subsequent we we exceptional to growth close the fuel Stepstone quarter. in anticipate Fund in Momentum for addition, the considerable quarter, In AUM debt X, to which strong We generated had clients, to funds of end flows an Tactical and the

new to mandates Strong the enjoy quarters of relationships managed classes, and loyalty account asset faction successfully incredible continue testament and reappraised the as clients. new million three for across remarkable XX% our that which the for we asset strategies these about our To to is for of over classes, all include X, markets its has mark return October investors, accredited including an net continue inception hit prime, fund on achieved AUM to product the make XXXX, relationships Key for in a as X November $XXX developing individuals. reappraise are also extending Furthermore, and the X. gross fund year. and last stickiness AUM evergreen of progress one-year firm. October our our account for of our private current additions key strong We prime on very to investors while since

from progress program and long-term. We to are the pleased near-term excited continues the this about very with be

to in $X quarter, eight, the excluding earning Moving the acquisition. AUM the billion impact fee by Slide we over Greenspring grew of

a in capital, nearly among Growth quarter undeployed powder on from reflects billion We the significant to highest over XX and record in continues includes inherently Growth approximately had for the is billion jump in future. requests undeployed assets existing balance earning simultaneous fee the our This $X.XX runway dry up is our several also is acquisition. $X Greenspring in our and which the lumpy. healthy provide billion. relationships

where to think it is over we growth. term at longer productive most basis, a trends we the look consistently have delivered robust So

the XX% delivered acquisitions impact shows growth and our management rate from earning XX%. evolution than last Over XX annual we fees, million excluding doubled of more months. for a in Slide million organic and which we've $XXX new the X.X of XX last advisory by over XXXX the X grew over the fiscal compounded last the XXX fee of months, to AUM years, have

quarter, the started trends revenue we Greenspring shareholders. impacts growth minimal a normalize to have is M&A this and showing realized there basis impact on of and earnings per the from share for While illustrates

have three a couple years, we of the fee fee last Switching of years. flat CAGR. bottom of last XX table is to page, the by blended the Over compared on revenue and the per points relatively share rate half grown basis the XX% the to a

a and function at the components, the of X fee If positively a Underlying you fee commingle decline again estate which impacted $X individual the primarily million look of here in by fund and fiscal the real asset stable. have notice class a very is fees, pricing remains XXXX million ago, place rate retroactive fund earning. year you'll

As and separately a rate are the funds, Greenspring a earn managed which fund. tend to assets fee reminder, weighted acquired toward higher heavily commingled

As like detail. to over turn rise a fee period benefit Greenspring result, we to points, anticipate in as the Randall with basis of a the few the call full financials more Johnny will I'd fees. we And our to blended discuss from rate that,

Johnny Randel

Mike. highlights. touch on few you, our Slide your to turn attention I Thank financial of XX like to to a

and $X.XX. were related A&I was management also For of X the million adjusted pre-tax weighted million, X.X short income the days contribution needle of an fee million which million move million, quarter quarter of EPS. of net on stub million XX.X we resulted added in the did share. given fee-related average acquisition Greenspring, adjusted XX.X quarter XX of earnings Greenspring accretive net not fees adjusted Greenspring additional from and in and of X.X income the per Included this advisory share period earnings earnings. XX.X generated

the material current go same driven quarter, the the Our earlier, period. the robust it's million for the performance XX.X We down from and would illustrate the over are quarter impact in the net and activity. basis. term. trends have bar share and points by for next with benefits minimal underlying quarterly year-over-year the The as provides year of retroactive last step and for fees quarters. the were net from Slide last begin month the in absolute reflecting and even absolute Gross quarter, Normalizing and in fees XX% the margins period XX the of which longer The quarter. a few FRE rates Greenspring positive this realization market significant show these basis we year of FRE appendix strong next realized been four continued fees slides Greenspring, realizations difference Others on will both margins in an in ago up retroactive performance display the fee per of earnings level investment period. numbers performance full the over mentioned growth presented benefited XXX growth underlying XX% XX quarter. dollars the year-over-year reflecting in the environments acquisition and revenue

performance move growth we compounded measure will revenue XX% first realized Revenue we half per annual impact fiscal account we in realized the the I'll of earnings the grown As our the a XX% start driven fee. per and share and over are large unusually by term. prior of the Slide impact trajectory forward, and by same X%. for longer period with revenues in profitability fee-related on in This the year-to-date the exceptional to comparison growth XX, Slide share includes about represent about fees Shifting growing is fee-earning growth XX, for fiscal assets the retroactive in have M&A and year. per share on rate shareholders. the growth strong year

and three a per earnings achieved fee-related we've of a CAGR last the share. years, in XX% Over half

advisory Our the adjusted term, grown our share [indiscernible] fees, over XX% in XXX% earnings income long-term We've longer reflecting FRE strong net by performance of the and by per the leverage of and progression operating net growth fee-related realized rate management our positive and year-to-date, model. fee. demonstrating

level strong over Slide to underlying driven and last performance in X.X XXX% the on XX% carry billion which quarter the continues gross increase last sheet year. an accrued XX months the in by the exceptional was balance over the of investment was up at prior to Moving quarter realizations over XX, despite

crude our or in our a lag. in share gains income our quarter occur, As our reflects of reminder, on unrealized carry the performance losses period our balance realized fees they one clients statement portfolios the changes our of that

quarter own investment the of fee a quarter the XX million pool of XX% commitments diversified end. performance Unfunded programs at [indiscernible] same as quarter chart, On the XX XX year with these our unrealized at We is are large of prior XX% million prior of market XXXX in from and or contribution. and the programs our bottom quarter X% up approximately portfolio managed to both appreciation the ended programs the over XX. across reflecting net carry benches widely billion capital XXX eligible capital as and September of earlier. of

portion the these amount sheet, carry the source Assuming to by that of fund programs are harvesting of model, comment carry liability of at sunrise a the being realized Greenspring portion quick small the exit. A we the will payable on XX% from time of the balance debt investment waterfall deal be to of acquisition. vehicle the used

LIBOR. As relatively top drawn modest line turn flexibility top amount normal I line of of and the against us over of initiatives, of our will generation have including the on growth on pay is This of the line a any fiscal our it to our X% flow leverage quarter, XXX remarks million open end to commitment. the concludes the prepared significant second of gives we on which for operator, we cash a credit This GP questions. and spread back little a support credit future of over now

Operator

from with Ken comes question Instructions] first Worthington [Operator the you. JPMorgan. Thank Our line of

Ken Worthington

Maybe two.

absolutely of on distribution the outstanding. build the I'm product. C-prime, But in of the are interested First continued out the returns sort in really

terms opportunities? as distribution you're would what who And that coming are? see assets are milestone against that products above do for sort of is of And then, returns that of of that further open XXX the doors are distribution in the access you. the the sort strong new like to Anyway, intermediaries how drive million, in Now sort what against. thank are up C-prime given stacking up product product you that

Jason Ment

This for Thanks the Ken. Hi, is question. Jason.

doors reach wires opening a size, are couple of here in now. the with as So, as before, about diligence we additional the U.S. we've in we're spoken the definitely

a as The get as of over on of and some in XX well the starting in did or the So traction RAA have the up a U.S., platforms past one-time IBDs outside the list more that this approved over channel a well, us of Mexico excited And opened we C-prime, material allocators about number last progress. U.S. as vehicle to that this buoyed so. were in community then, month with larger for for up month. Mexico, here fundraise

the comp are there number a mostly concentrated equity. of of In private terms around other set, funds,

out they again, eligible, the called U.S. two other we've investor client not here ones think purchaser many product that the focused qualified accredited that, of I is in before, on qualified this or one, differentiators are the are

importantly, ability really market equity all differentiator is private two outside standard you team to private the performance. differentiator. they've deliver higher deliver the set. clear to private peer go the relative this a and what most equity for So Congrats material That's to solution and product. as stepstone the away our for opposed solution, and an deploy But pretty of wider only to to for been a able noting thank

Ken Worthington

Great. earning to grow. clearly And management undeployed XX.X Thank the you. billion fee continues

a it in of three around suggests the I this years get would you current we mandatory longer products, to environment this at I'm remain that invested like years time, actually their sorry, years? this four this a be be that that or to possible or structures over even drive pipeline five of of contracts does work in to three guys pipeline next fabulous period through -- invested is that you pipeline or sort fabulous billion think X.X this through environment, investment. quarter, would It's if clearly pace

Scott Hart

question. is this Scott, the for thanks Again,

more year to you're operate we may geo think I no quite years would deployed time we three making over undeployed we really you're as always period. to were I diversification the that about we And like any less years. to to-date to approach even diversifying that years to this. about. time capital have so continue a talked the opportunities period. likely a of be capital, liked we to the from being like like patient, be over probably are operate it more, re-ups focused selective that expect today, means sure an pipeline right over there's across fee-earning capital have in new standpoint, that environment be vintage that structural really into environment because reasons I that I in continued fact hopefully, employed five faster it invest that is three be would the replenish think than the be not an that fee-earning the that and we go think in to that And in can five one we've that we one And additional we on the time have flexibility can vintage as undeployed out properly idea come rush or continue same the

Operator

from with next of comes Sachs. line the Folstein question Goldman Our Alex

Alex Folstein

start schedule. Congrats, could with the we little you that of Scott, question mentioned closed unfold despite integration obviously, really Scott. deal fact Greenspring. around out maybe continues hoping nicely, a bit the I was a to your that

of been they is maybe hopper companies their two have growth, up product seeing How the perspective. obviously and anything Greenspring expect main from you trends can a pretty in here standalone sort So you us from focus flows sense to kind distribution you at standalone what which perspective? And accelerate in a together, a in of then so look of coming the strong? has some combined, do September maybe, that quarter, if the the is business, their give recent

Scott Hart

Appreciate continue signing by on Alex. you closing. And thanks, things. that. couple say of we a encouraged heard and very Again, all, between a of standalone even the performance to that be on Greenspring, it First basis

secondaries heard to fund. You the the capital fundraising reference progress venture across

you at And in really we've position. leadership I just active continued think in venture combine only in And of strategies but capital encouraged been when think sort the Greenspring general, so the interest, knew the been I those of that, think fact in established the of funds announcement particular, the and the by merger it's continued I particularly that the stepstone, the market that through investors has some with suggests enhanced the the combination the -- through with really in effect, really benefits clearly closing combination and there interest in understand that that flywheel the off. are the not

we allowing I us I about sense look, channels solve opportunity on clients. distribution in a the able think our investors, of a of overlap particularly between international calls been very innovative more StepStone large tremendous the just the we relationships the create fund heard about think for prior even that to develop LPs today, sovereign forward, more some think pension there's expands there toolbox, as further funds, real has going solutions not that with to the there's you've tech, think amount problems that wealth and us talk those

I really think investor tapping base as we into one here. forward move another's

Alex Folstein

carried Thanks. is my the interest P&L. the through of and second Okay, evolving then running question And cash got nature really, that's kind around of it. the flows

now Now, quarters out to performance fees, more multiple given come obviously, [indiscernible] there we've continue and come will expectations that. incentive well presumably, growing to be and environment, the of seen more on in fees where

from increase very real thoughts are your to helps about or uses cash estate stakes but for here, team? acquisitions dividend So, opportunities buy from around what our you minority nice, of as credit and thinking more the either

Mike McCabe

that kind your I for different couple unpack think think question, it. thanks a ways. I and we a capital question Yes, in is of management broad can It of

-- highly we business foremost, are effective capital a efficient structure. capital and effective capital and supported flexible model, a by is maintaining which cost First focused on

basically So priorities. the at number we're a at of moment, looking

$XXX little a the down acquisition revolver million our mentioned, to over First fund as Greenspring. Johnny of help from we threw

down is the leverage intention though represents this a revolver to even modest overtime. Now, ratio, our pay

be environment, working healthy nimble very what M&A while source managing So cash our flexible to needs. be of a a this a us capital But forward. opportunistic turn creates that and in to very capital structure appears going allows is in that

to use fund third the general continue to is the think partner. really I

to mentioned in call in I some in Greenspring We coming with on funds. are addition market of be back currently the shortly co-investment fund will layering market the funds, all larger the with to as other

So we the to have GP the is a being fund sure priority. adequately available capital

our us, lastly, to our product dividend, peers. which payout we've mentioned, this our structure, continue plan maintain ratio. I And business structure. And to think we data, management same invest revolver, ratio with you the business whether with of For expect flexibility model, we you'd as standpoint, technology, our our to efficient capital effective in reflects with very going priority us feel with a optimal our a created development, a a doubled to more and aligned payout capital do for From forward. growth, capital it's distribution, largely we've cost very is the

Operator

a comes of Stanley. with next Our Instructions] question Cyprys line from Michael [Operator Morgan

Michael Cyprys

resources? Is you about distribution here sales product, about those can on Scott on back horizon expanded of here. you to the think the for from it up? team accelerate or record? I sales put work a some but given strong you and you're think congratulations, a expanding putting of talk kind one-year three-year that what that I just than it's need the role. track do that catalysts of more the And rather thinking circle help that you're the wanted to resources tracker just And could topic about how guess and performance a to maybe retail growth

Johnny Randel

Mike. Thanks,

team is but bit see U.S. C-prime out European the parallel the raising to the for as some strong, We'll in team the about expand the build capital to foreseeable largely over focused expansion from existing future. footprint well, U.S. as an XX starting here vehicles. So look more we the also a European perspective, in

I a enough activity. catalyst, of terms crossed for honest, in the probably one-year think to long we've business the requisite of be worth with In think I threshold

of now the also XXX necessary most box size, over mark I crossing and think the platforms think XXX, the even, checks out there. the for I

rate see we raise And few for start groups, so as product with increased flow you'll the process I of to the this diligence more through. think through a get

won't C-prime channel. required we'll looking time. So not the based That's out of our additional anything but for course, on in And channel I'm over for feedback outside product. presently. of it roll really our the is product, that's our last this And solutions first to seek control be

Michael Cyprys

X a so biggest looks about up talk here. just and that billion fee excluding just on about undeployed follow that's Great, about earning XX Can contributors capital or of the question you some up the to up new increase Greenspring the opportunity of sequentially? pent again, billion to like expand in door. of top probably talk I the And could initiatives travel you're of funnel? about the maybe mentioned about talk to some you you this think customers starting the to bring

Scott Hart

Sure, Scott This is again. Mike. thanks,

contribution asset quite we're Yes, drivers, there. strong, driven of client or relationships, this infrastructure larger the accounts, strong this just performance as So asset and breakdown, And I quarter been strategies, and through of as for strong all particularly undeployed say strategies equity, continued capital, in well expansion classes but good new the whether fee-earning really activity, clients. four particular and I'd order some look, the re-up existing news there our exact from across we've just the never all classes, provided is, re-ups the an us. by and in is across across think, three to has strong of and private but magnitude a in particularly really, contributors re-up a combination appetite quarter

COVID But be of or business XX around to the travel on say now In LP only side. a of active separate like place account continued is on the to may positioned. a the feel team domestic even the yes, bit world with we activities, some throughout are more terms on taking be again, there's period. internationally, clearly, our development offices front, if activity yet not the beginning has funnel top broadening the of that bit clients new basis, quite the front, well travel a Even of I'd domestic new on

you I started relations true think about been of encouraged through time. especially the expansion new whether our as some relationships, those and we've capital well. But commingled or when commitments we are across of we to think funds, to that re-ups way expansion able new by over the -- grow is establish, relationship

but toolbox, I enhanced think asset expanded classes, here. now four growth with across significantly capabilities the with our not again, of only venture late and

I about our to with lot think a have we clients. talk

Michael Cyprys

just the customers mentioned, much of XX%? could and in those I that magnitudes how I Any if they scaling back guess help on from scaling are you are Are re-ups seeing that you XX%, re-upping? coming XX%, there? And

Scott Hart

generalize. hard It’s to

their steady. separate see some clients account is be going we think to very look at that I just that's allegation something

they re-up the consistently, to double once may it's and at looking prove And time. over look may fairly out proven, the allocation same be others concept so size, the to

disclose -- generalize the of there's certainly And sketch in the But what continue I use as are we work to the it difficult to double-digit of account on accounts. best this separate separate they growth So of the rate. in account think it's to about, it, no terms the details to over well over is, re-ups way both as some the time. growth growth you're

Michael Cyprys

you. Thank

Operator

to questions at will no I time. go over the this now Scott Hart. Please turn are There further call ahead.

Scott Hart

future to the for forward in continued keep for and Well, and Thank questions you dialing interest in great. course. to you. in your Thanks for updated StepStone we continue look everyone

Operator

for your That the you disconnect call conference for does your today ask and that please thank we conclude lines. you participation

StepStone (STEP) 15 Nov 212022 Q2 Earnings call transcript