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StepStone (STEP) - 2025 Q1 - Earnings Call Transcript
STEPStepStone (STEP)2024-08-10 10:16
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Financial Data and Key Metrics - GAAP net income for Q1 2025 was 48million,with48 million, with 13.3 million attributable to StepStone Group Incorporated, or 0.20pershare[4]−Fee−relatedearnings(FRE)reached0.20 per share [4] - Fee-related earnings (FRE) reached 71.7 million, up 61% YoY, with an FRE margin of 40% [4] - Adjusted net income was 57.2million,or57.2 million, or 0.48 per share, up from 29.4millionor29.4 million or 0.26 per share in Q1 2024 [5] - Retroactive fees contributed 19.1milliontorevenue,comparedto19.1 million to revenue, compared to 2.8 million in Q1 2024 [4] - Realized performance fees were 43million,thehighestinthelasttwoyears[10]BusinessLineDataandKeyMetrics−Privatewealthsubscriptionsreached43 million, the highest in the last two years [10] Business Line Data and Key Metrics - Private wealth subscriptions reached 800 million, the strongest quarter ever for private wealth [8] - Four evergreen private wealth funds are in market: SPRIM, SPRING, STRUX, and CRDEX [8] - SPRING was added to a second wirehouse, expanding distribution to nearly 400 partners [8] - Private equity secondaries fund raised over 4billion,surpassingthepreviousfundsizeof4 billion, surpassing the previous fund size of 2.1 billion [11] - Venture capital secondaries fund reached a final close of 3.3billion,thelargestintheindustry[12]−Realestatespecialsituationsecondariesfundraisedover3.3 billion, the largest in the industry [12] - Real estate special situation secondaries fund raised over 400 million, surpassing the prior vintage size of 1.4billion[12]MarketDataandKeyMetrics−GrossAUMadditionstotaled1.4 billion [12] Market Data and Key Metrics - Gross AUM additions totaled 12.6 billion, with 3billionfromcommingledfundsand3 billion from commingled funds and 9 billion from separately managed accounts (SMAs) [6] - Over the last 12 months, nearly 28billionwasraised,thestrongest12−monthperiodever[7]−Fee−earningAUMgrewby28 billion was raised, the strongest 12-month period ever [7] - Fee-earning AUM grew by 7 billion, the largest quarterly addition in history, with 3.3billionfromtheactivationoftheventurecapitalsecondariesfund[14]−Undeployedfee−earningcapital(UFEC)reached3.3 billion from the activation of the venture capital secondaries fund [14] - Undeployed fee-earning capital (UFEC) reached 27.6 billion, up 5billionQoQ[14]−Totalfee−earningAUMandUFECstoodat5 billion QoQ [14] - Total fee-earning AUM and UFEC stood at 128 billion, up 10% sequentially and 23% YoY [15] Company Strategy and Industry Competition - The company is focused on expanding its private wealth offerings, with strong growth in evergreen funds and distribution partnerships [8][35] - StepStone aims to double fee-related earnings over five years, leveraging robust fundraising and commingled fund activations [9] - The company is investing in business development, private wealth teams, and other support areas to sustain growth [17] - StepStone's differentiated products, such as SPRING, are gaining traction in the wealth channel, with strong performance and distribution [35] Management Commentary on Operating Environment and Future Outlook - Management highlighted a record-breaking quarter, with strong fundraising and fee-earning AUM growth, setting the stage for sustained growth in fiscal 2025 and beyond [6][10] - The company expects continued growth in management fees as capital is deployed or activated, with over 4billionofcapitalfrommanagedaccountsexpectedtoactivatebytheendofthecalendaryear[15]−Whileretroactivefeesarenotexpectedtopersistatthesamepace,thegrowthinfee−earningassetsandUFECprovidesahigherbaseforsustainableearnings[10]−Managementremainsconfidentinachievingmid−30sFREmarginsoverthemediumterm,despitesomevolatilityinperformancefees[28]OtherImportantInformation−Thecompanyraiseditsquarterlydividendfrom4 billion of capital from managed accounts expected to activate by the end of the calendar year [15] - While retroactive fees are not expected to persist at the same pace, the growth in fee-earning assets and UFEC provides a higher base for sustainable earnings [10] - Management remains confident in achieving mid-30s FRE margins over the medium term, despite some volatility in performance fees [28] Other Important Information - The company raised its quarterly dividend from 0.21 per share to 0.24pershare,reflectingconfidenceinstrongandsustainablegrowthinfee−relatedearnings[15]−Cash−basedcompensationincreased50.24 per share, reflecting confidence in strong and sustainable growth in fee-related earnings [15] - Cash-based compensation increased 5% QoQ and 12% YoY, driven by business development and revenue sharing tied to retroactive fees [17] - Equity-based compensation expense grew to 2.4 million, reflecting the layering of RSU awards [18] - Net accrued carry finished the quarter at 677million,up7677 million, up 7% QoQ, driven by underlying fund valuation appreciation [19] Q&A Session Summary Question: Feedback on ticker-based products in wealth management - The ticker innovation has been well-received, with about half of U.S. fund flows coming from ticker-based subscriptions [22] Question: Impact of Greenspring back office sale on P&L - The sale of Greenspring back office and NCI buy-in were fully baked into Q1 results, with no expected impact in future quarters [23] Question: Fundraising and retro fees expectations - The private equity secondaries fund is expected to have a final close of a few hundred million dollars in Q2, with retro fees expected to continue throughout the year [26][28] Question: SMA flow pipeline and trajectory - The SMA pipeline remains solid, with over 4 billion of UFEC expected to activate by the end of the calendar year [32][33] Question: Competition in wealth management distribution - StepStone's differentiated products, such as SPRING, are gaining traction on wirehouse platforms, with strong performance and a dedicated team supporting growth [35] Question: Next stage of innovation in private wealth - Model portfolios and solutions outside the U.S. are expected to play a role in further reducing friction for private market investors [39] Question: Margin profile and investment spend - Excluding retro fees, the underlying FRE margin was 34%, with expectations to reach mid-30s over the medium term despite ongoing investment in business development and private wealth teams [41] Question: Fee rate contribution from wealth management - Private wealth assets grew to 4.2billion,contributingtoahigherblendedfeerate,thoughitwilltaketimetosignificantlyimpacttheoverallrate[43]Question:UFECbalancegrowthandactivationconfidence−UFECgrowthwasdrivenby4.2 billion, contributing to a higher blended fee rate, though it will take time to significantly impact the overall rate [43] Question: UFEC balance growth and activation confidence - UFEC growth was driven by 9 billion of SMA-related AUM flows, with confidence in activating $4 billion of SMA capital by year-end based on deployment expectations [49][52]