UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40645

 

 

RYAN SPECIALTY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware		86-2526344
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
Two Prudential Plaza
180 N. Stetson Avenue, Suite 4600
Chicago, IL		60601
(Address of principal executive offices)		(Zip Code)

 

(312) 784-6001

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class	Trading symbol	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	RYAN	The New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

 

 

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On October 31, 2023, the Registrant had 260,250,593 shares of common stock outstanding, consisting of 118,299,258 shares of Class A common stock, $0.001 par value, and 141,951,335 shares of Class B common stock, $0.001 par value.

 

 

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Ryan Specialty Holdings, Inc.

INDEX

PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Consolidated Statements of Income (Loss) (Unaudited)	1
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	2
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	4
	Consolidated Statements of Stockholders' Equity (Unaudited)	5
	Notes to the Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	45
Item 4.	Controls and Procedures	46
PART II. OTHER INFORMATION		46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48

 

 

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated costs, expenditures, cash flows, growth rates and financial results, our plans, anticipated amount and timing of cost savings relating to the ACCELERATE 2025 program, and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation, are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

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We derive many of our forward-looking statements from our operating budgets and forecasts that are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q and under the Section entitled “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and the Annual Report on Form 10-K for the year ended December 31, 2022. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our filings with the SEC and other public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should

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not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Commonly Used Defined Terms

As used in this Quarterly Report on Form 10-Q, unless the context indicates or otherwise requires, the following terms have the following meanings:

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iv

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Ryan Specialty Holdings, Inc.

Consolidated Statements of Income (Loss) (Unaudited)

(In thousands, except share and per share data)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
REVENUE
Net commissions and fees		$	487,345			$	407,551			$	1,507,878			$	1,284,459
Fiduciary investment income			14,593				4,445				36,808				5,719
Total revenue		$	501,938			$	411,996			$	1,544,686			$	1,290,178
EXPENSES
Compensation and benefits			329,212				274,108				989,294				858,439
General and administrative			69,288				48,991				202,595				139,851
Amortization			29,572				25,667				79,125				78,563
Depreciation			2,201				1,463				6,570				3,903
Change in contingent consideration			1,848				423				4,358				(837	)
Total operating expenses		$	432,121			$	350,652			$	1,281,942			$	1,079,919
OPERATING INCOME		$	69,817			$	61,344			$	262,744			$	210,259
Interest expense, net			31,491				28,864				89,840				75,462
Loss (income) from equity method investment in related party			(2,271	)			(144	)			(5,882	)			414
Other non-operating loss (income)			67				(66	)			37				6,832
INCOME BEFORE INCOME TAXES		$	40,530			$	32,690			$	178,749			$	127,551
Income tax expense			24,827				3,411				42,772				10,076
NET INCOME		$	15,703			$	29,279			$	135,977			$	117,475
Net income attributable to non-controlling interests, net of tax			20,750				17,534				97,786				74,318
NET INCOME (LOSS) ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.		$	(5,047	)		$	11,745			$	38,191			$	43,157
NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK:
Basic		$	(0.04	)		$	0.11			$	0.34			$	0.40
Diluted		$	(0.04	)		$	0.09			$	0.34			$	0.37
WEIGHTED-AVERAGE SHARES OF CLASS A COMMON STOCK OUTSTANDING:
Basic			115,872,327				109,428,073				113,291,850				108,035,360
Diluted			115,872,327				266,352,389				124,883,523				265,070,739

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

 

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Ryan Specialty Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
NET INCOME		$	15,703			$	29,279			$	135,977			$	117,475
Net income attributable to non-controlling interests, net of tax			20,750				17,534				97,786				74,318
NET INCOME (LOSS) ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.		$	(5,047	)		$	11,745			$	38,191			$	43,157
Other comprehensive income (loss), net of tax:
Gain on interest rate cap			2,760				7,596				7,628				7,723
(Gain) on interest rate cap reclassified to earnings			(2,215	)			—				(5,518	)			—
Foreign currency translation adjustments			(567	)			(1,752	)			(179	)			(2,996	)
Change in share of equity method investment in related party other comprehensive income (loss)			(267	)			(218	)			270				(2,074	)
Total other comprehensive income (loss), net of tax		$	(289	)		$	5,626			$	2,201			$	2,653
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.		$	(5,336	)		$	17,371			$	40,392			$	45,810

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

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Ryan Specialty Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)

 

		September 30, 2023				December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	754,370			$	992,723
Commissions and fees receivable – net			238,827				231,423
Fiduciary cash and receivables			2,521,021				2,611,647
Prepaid incentives – net			9,577				8,584
Other current assets			62,629				49,690
Total current assets		$	3,586,424			$	3,894,067
NON-CURRENT ASSETS
Goodwill			1,581,759				1,314,984
Other intangible assets			591,879				486,444
Prepaid incentives – net			16,585				20,792
Equity method investment in related party			45,272				38,514
Property and equipment – net			32,208				31,271
Lease right-of-use assets			131,833				143,870
Deferred tax assets			383,094				396,814
Other non-current assets			56,808				56,987
Total non-current assets		$	2,839,438			$	2,489,676
TOTAL ASSETS		$	6,425,862			$	6,383,743
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities			114,952				119,022
Accrued compensation			273,417				350,369
Operating lease liabilities			19,922				22,744
Tax Receivable Agreement liabilities			16,959				—
Short-term debt and current portion of long-term debt			35,566				30,587
Fiduciary liabilities			2,521,021				2,611,647
Total current liabilities		$	2,981,837			$	3,134,369
NON-CURRENT LIABILITIES
Accrued compensation			21,999				10,048
Operating lease liabilities			156,983				151,944
Long-term debt			1,945,495				1,951,900
Deferred tax liabilities			126				562
Tax Receivable Agreement liabilities			342,115				295,347
Other non-current liabilities			36,066				21,761
Total non-current liabilities		$	2,502,784			$	2,431,562
TOTAL LIABILITIES		$	5,484,621			$	5,565,931
STOCKHOLDERS' EQUITY
Class A common stock ($0.001 par value; 1,000,000,000 shares authorized, 118,222,528 and 112,437,825 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)			118				112
Class B common stock ($0.001 par value; 1,000,000,000 shares authorized, 142,026,335 and 147,214,275 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)			141				147
Class X common stock ($0.001 par value; 10,000,000 shares authorized, 640,784 shares issued and 0 outstanding at September 30, 2023 and December 31, 2022)			—				—
Preferred stock ($0.001 par value; 500,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2023 and December 31, 2022)			—				—
Additional paid-in capital			442,304				418,123
Retained earnings			92,179				53,988
Accumulated other comprehensive income			8,236				6,035
Total stockholders' equity attributable to Ryan Specialty Holdings, Inc.		$	542,978			$	478,405
Non-controlling interests			398,263				339,407
Total stockholders' equity		$	941,241			$	817,812
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	6,425,862			$	6,383,743

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

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Ryan Specialty Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

		Nine Months Ended September 30,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	135,977			$	117,475
Adjustments to reconcile net income to cash flows provided by operating activities:
Loss (income) from equity method investment in related party			(5,882	)			414
Amortization			79,125				78,563
Depreciation			6,570				3,903
Prepaid and deferred compensation expense			8,882				27,256
Non-cash equity-based compensation			54,136				61,084
Amortization of deferred debt issuance costs			9,125				9,017
Amortization of interest rate cap premium			5,216				2,898
Deferred income tax expense			11,745				4,597
Deferred income tax expense from reorganization			20,679				—
Loss on Tax Receivable Agreement			478				7,173
Change (net of acquisitions) in:
Commissions and fees receivable – net			3,875				24,341
Accrued interest liability			(4,293	)			3,016
Other current assets and accrued liabilities			(98,213	)			(192,752	)
Other non-current assets and accrued liabilities			22,915				3,999
Total cash flows provided by operating activities		$	250,335			$	150,984
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures			(16,013	)			(12,026	)
Business combinations – net of cash acquired and cash held in a fiduciary capacity			(366,149	)			—
Repayments of prepaid incentives			228				337
Total cash flows used for investing activities		$	(381,934	)		$	(11,689	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from senior secured notes			—				394,000
Payment of interest rate cap premium			—				(25,500	)
Repayment of term debt			(12,375	)			(12,375	)
Debt issuance costs paid			—				(2,369	)
Finance lease and other costs paid			—				(27	)
Payment of contingent consideration			(4,477	)			(6,241	)
Tax distributions to LLC Unitholders			(52,633	)			(32,678	)
Receipt of taxes related to net share settlement of equity awards			7,786				7,132
Taxes paid related to net share settlement of equity awards			(7,091	)			(6,832	)
Net change in fiduciary liabilities			36,832				(54,775	)
Total cash flows (used for) provided by financing activities		$	(31,958	)		$	260,335
Effect of changes in foreign exchange rates on cash, cash equivalents, and cash held in a fiduciary capacity			(828	)			(1,274	)
NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH HELD IN A FIDUCIARY CAPACITY		$	(164,385	)		$	398,356
CASH, CASH EQUIVALENTS, AND CASH HELD IN A FIDUCIARY CAPACITY—Beginning balance			1,767,385				1,139,661
CASH, CASH EQUIVALENTS, AND CASH HELD IN A FIDUCIARY CAPACITY—Ending balance		$	1,603,000			$	1,538,017
Reconciliation of cash, cash equivalents, and cash held in a fiduciary capacity
Cash and cash equivalents			754,370				833,135
Cash held in a fiduciary capacity			848,630				704,882
Total cash, cash equivalents, and cash held in a fiduciary capacity		$	1,603,000			$	1,538,017

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

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