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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 March 31, 2024

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

 

img150566298_0.jpg 

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.)

 

 

 

155 N. Wacker Drive, Suite 4000

 

 

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

 

 


 

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 April 30, 2024, the Registrant had 260,446,873 shares of common stock outstanding, consisting of 119,055,569 shares of Class A common stock, $0.001 par value, and 141,391,304 shares of Class B common stock, $0.001 par value.

 

 


 

Ryan Specialty Holdings, Inc.

INDEX

 

 

 

PART I. FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

 

Consolidated Statements of Income (Unaudited)

1

 

Consolidated Statements of Comprehensive Income (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)

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

45

 

Item 4.

Controls and Procedures

46

 

PART II. OTHER INFORMATION

47

 

Item 1.

Legal Proceedings

47

 

Item 1A.

Risk Factors

47

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

 

Item 3.

Defaults Upon Senior Securities

47

 

Item 4.

Mine Safety Disclosures

47

 

Item 5.

Other Information

47

 

Item 6.

Exhibits

49

 

 


 

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, any future dividend, our plans, anticipated amount and timing of cost savings relating to the restructuring plan, 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:

our failure to successfully execute our succession plan for Patrick G. Ryan or other members of our senior management team or to recruit and retain revenue producers;
the impact of breaches in security that cause significant system or network disruption or business interruption;
the impact of improper disclosure of confidential, personal or proprietary data, misuse of information by employees or counterparties, or as a result of cyberattacks;
the potential loss of our relationships with insurance carriers or our clients, failure to maintain good relationships with insurance carriers or clients, becoming dependent upon a limited number of insurance carriers or clients, or the failure to develop new insurance carrier and client relationships;
errors in, or ineffectiveness of, our underwriting models and the risks presented to our reputation and relationships with insurance carriers, retail brokers, and agents;
failure to maintain, protect, and enhance our brand or prevent damage to our reputation;
unsatisfactory evaluation of potential acquisitions and the integration of acquired businesses as well as introduction of new products, lines of business, and markets;
our inability to successfully recover upon experiencing a disaster or other interruption in business continuity;
the impact of third parties that perform key functions of our business operations acting in ways that harm our business;
the cyclicality of, and the economic conditions in, the markets in which we operate and conditions that result in reduced insurer capacity or a migration of business away from the E&S market and into the Admitted market;
a reduction in insurer capacity to adequately and appropriately underwrite risk and provide coverage;
our international operations expose us to various international risks, including required compliance with legal and regulatory obligations, that are different, and at times more burdensome, than those set forth in the United States;
changes in interest rates and deterioration of credit quality could reduce the value of our cash balances or interest income;
failure to maintain the valuable aspects of our Company’s culture;
significant competitive pressures in each of our businesses;
decreases in premiums or commission rates set by insurers, or actions by insurers seeking repayment of commissions;
decrease in the amount of supplemental or contingent commissions we receive;
our inability to collect our receivables;
disintermediation within the insurance industry and shifts away from traditional insurance markets;
changes in the mode of compensation in the insurance industry;
impairment of goodwill and intangibles;
the impact on our operations and financial condition from the effects of a pandemic or the outbreak of a contagious disease and resulting governmental and societal responses;
the inability to maintain rapid growth and generate sufficient revenue to maintain profitability;
the loss of clients or business as a result of consolidation within the retail insurance brokerage industry;

i


 

the impact if our MGA or MGU programs are terminated or changed;
the inability to achieve the intended results of our previously announced restructuring program;
significant investment in our growth strategy and whether expectation of internal efficiencies are realized;
our ability to gain internal efficiencies through the application of technology or effectively apply technology in driving value for our clients or the failure of technology and automated systems to function or perform as expected;
the unavailability or inaccuracy of our clients’ and third parties’ data for pricing and underwriting insurance policies;
the competitiveness and cyclicality of the reinsurance industry;
the occurrence of natural or man-made disasters;
the economic and political conditions of the countries and regions in which we operate;
the challenges with properly assessing, and managing the adoption and use of, artificial intelligence technologies;
the failure or take-over by the FDIC of one of the financial institutions that we use;
our inability to respond quickly to operational or financial problems or promote the desired level of cooperation and interaction among our offices;
our international operations expose us to various international risks, including exchange rate fluctuations and risks resulting from geopolitical tensions;
the impact of governmental regulations, legal proceedings, and governmental inquiries related to our business;
being subject to E&O claims as well as other contingencies and legal proceedings;
our handling of client funds and surplus lines taxes that exposes us to complex fiduciary regulations;
the impact of infringement, misappropriation, or dilution of our intellectual property;
the impact of the failure to protect our intellectual property rights, or allegations that we have infringed on the intellectual property rights of others;
changes in tax laws or regulations;
decreased commission revenues due to proposed tort reform legislation;
the impact of regulations affecting insurance carriers;
our outstanding debt potentially adversely affecting our financial flexibility and subjecting us to restrictions and limitations that could significantly affect our ability to operate;
not being able to generate sufficient cash flow to service all of our indebtedness and being forced to take other actions to satisfy our obligations under such indebtedness;
being affected by further changes in the U.S. based credit markets;
changes in our credit ratings;
risks related to the payments required by our Tax Receivable Agreement;
risks relating to our organizational structure that could result in conflicts of interest between the LLC Unitholders, the Ryan Parties, and the holders of our Class A common stock; and
other factors disclosed in the section entitled “Risk Factors” in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

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 Annual Report on Form 10-K for the year ended December 31, 2023. 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.

ii


 

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 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:

we,” “us,” “our,” the “Company,” “Ryan Specialty,” and similar references refer: (i) Following the consummation of the Organizational Transactions, including our IPO, to Ryan Specialty Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including the LLC, and (ii) prior to the completion of the Organizational Transactions, including our IPO, to the LLC and, unless otherwise stated, all of its subsidiaries.
Adjusted Term SOFR”: Prior to January 19, 2024, the interest rate per annum based on the Secured Overnight Financing Rate (“SOFR”) plus a Credit Spread Adjustment of 10 basis points, 15 basis points, or 25 basis points for the one-month, three-month, or six-month borrowing periods, respectively, subject to a 75 basis point floor. After January 19, 2024, the interest rate per annum no longer includes the Credit Spread Adjustment.
Admitted”: The insurance market comprising insurance carriers licensed to write business on an “admitted” basis by the insurance commissioner of the state in which the risk is located. Insurance rates and forms in this market are highly regulated by each state and coverages are largely uniform.
All Risks” or “ARL”: All Risks Specialty, LLC (f/k/a All Risk, Ltd.), an insurance specialist providing services in wholesale brokerage and delegated underwriting authority.
All Risks Acquisition”: In September 2020, Ryan Specialty acquired All Risks.
Binding Authority”: Our Binding Authority receives submissions for insurance directly from retail brokers, evaluates price and makes underwriting decisions regarding these submissions based on narrowly prescribed guidelines provided by carriers, and binds and issues policies on behalf of insurance carriers who retain the insurance underwriting risk.
Board” or “Board of Directors”: The board of directors of Ryan Specialty.
Class C Incentive Units”: Class C common incentive units, initially of the LLC on and prior to September 30, 2021 and then subsequently of New LLC, that are subject to vesting and will be exchangeable into LLC Common Units.
Credit Agreement”: The credit agreement, as amended, dated September 1, 2020, among Ryan Specialty, LLC and JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto.
Credit Facility”: The Term Loan and the Revolving Credit Facility.
E&O”: Errors and omissions.
E&S”: Excess and surplus lines. In this insurance market, carriers are licensed on a “non-admitted” basis. The excess and surplus lines market often offers carriers more flexibility in terms, conditions, and rates than does the Admitted market.
Exchange Act”: Securities Exchange Act of 1934, as amended.
IPO”: Initial public offering.
LLC”: Ryan Specialty, LLC, together with its parent New LLC, and their subsidiaries.

iii


 

LLC Common Units”: Non-voting common interest units initially of the LLC on and prior to September 30, 2021 and then subsequently of New LLC or LLC, as the context requires.
LLC Operating Agreement”: The Seventh Amended and Restated Limited Liability Company Agreement of the LLC.
LLC Units”: Class A common units and Class B common units of the LLC prior to the Organizational Transactions.
LLC Unitholders”: Holders of the LLC Units or the LLC Common Units, as the context requires.
MGA”: Managing general agent.
MGU”: Managing general underwriter.
New LLC”: New Ryan Specialty, LLC is a Delaware limited liability company and a direct subsidiary of Ryan Specialty Holdings, Inc.
New LLC Operating Agreement”: The Amended and Restated Limited Liability Company Agreement of New LLC.
Onex”: Onex Corporation and its affiliates, a holder of LLC Units and Class B preferred units of the LLC held prior to the Organizational Transactions, and one of our shareholders following the Organizational Transactions.
Organizational Transactions”: The series of organizational transactions completed by the Company in connection with the IPO, as described in the Form 10-K filed with the SEC on March 16, 2022.
Revolving Credit Facility”: The $600 million senior secured revolving credit facility under our Credit Agreement.
Ryan Parties”: Patrick G. Ryan and certain members of his family and various entities and trusts over which Patrick G. Ryan and his family exercise control.
SEC”: The Securities and Exchange Commission.
Senior Secured Notes”: The 4.375% senior secured notes due 2030 issued on February 3, 2022.
Specialty”: One of the three Ryan Specialty primary distribution channels, which includes Wholesale Brokerage, Binding Authority, and Underwriting Management.
Stock Option”: A non-qualified stock option award that gives the grantee the option to buy a specified number of shares of Class A common stock at the grant date price.
Tax Receivable Agreement” or “TRA”: The tax receivable agreement entered into in connection with the IPO.
Term Loan”: The senior secured Term Loan B for $1.65 billion in principal amount under our Credit Agreement.
U.S. GAAP”: Accounting principles generally accepted in the United States of America.
Underwriting Management”: Our Underwriting Management Specialty administers a number of MGUs, MGAs, and programs that offer commercial and personal insurance for specific product lines or industry classes. Underwriters act with delegated underwriting authority based on varying degrees of prescribed guidelines as provided by carriers, quoting, binding and issuing policies on behalf of Ryan Specialty’s carrier trading partners which retain the insurance underwriting risk.
Wholesale Brokerage”: Our Wholesale Brokerage Specialty distributes a wide range and diversified mix of specialty property, casualty, professional lines, personal lines and workers’ compensation insurance products, as a broker between the carriers and retail brokerage firms.

iv


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Ryan Specialty Holdings, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

REVENUE

 

 

 

 

 

 

Net commissions and fees

 

$

537,887

 

 

$

447,513

 

Fiduciary investment income

 

 

14,159

 

 

 

10,086

 

Total revenue

 

$

552,046

 

 

$

457,599

 

EXPENSES

 

 

 

 

 

 

Compensation and benefits

 

 

373,527

 

 

307,722

 

General and administrative

 

 

75,867

 

 

 

51,699

 

Amortization

 

 

27,988

 

 

 

25,185

 

Depreciation

 

 

2,080

 

 

 

2,192

 

Change in contingent consideration

 

 

(65

)

 

 

714

 

Total operating expenses

 

$

479,397

 

 

$

387,512

 

OPERATING INCOME

 

$

72,649

 

 

$

70,087

 

Interest expense, net

 

 

29,400

 

 

 

29,468

 

(Income) from equity method investment in related party

 

 

(5,606

)

 

 

(1,995

)

Other non-operating loss (income)

 

 

1,752

 

 

 

(138

)

INCOME BEFORE INCOME TAXES

 

$

47,103

 

 

$

42,752

 

Income tax expense

 

 

6,426

 

 

 

6,295

 

NET INCOME

 

$

40,677

 

 

$

36,457

 

Net income attributable to non-controlling interests, net of tax

 

 

24,142

 

 

 

23,297

 

NET INCOME ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.

 

$

16,535

 

 

$

13,160

 

NET INCOME PER SHARE OF CLASS A COMMON STOCK:

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

0.12

 

Diluted

 

$

0.13

 

 

$

0.11

 

WEIGHTED-AVERAGE SHARES OF CLASS A COMMON STOCK OUTSTANDING:

 

 

 

 

 

 

Basic

 

 

117,811,805

 

 

 

111,034,503

 

Diluted

 

 

269,922,368

 

 

 

266,978,224

 

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

 

1


 

Ryan Specialty Holdings, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

NET INCOME

 

$

40,677

 

 

$

36,457

 

Net income attributable to non-controlling interests, net of tax

 

 

24,142

 

 

 

23,297

 

NET INCOME ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.

 

$

16,535

 

 

$

13,160

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Gain (loss) on interest rate cap

 

 

4,208

 

 

 

(813

)

(Gain) on interest rate cap reclassified to earnings

 

 

(2,290

)

 

 

(1,438

)

Foreign currency translation adjustments

 

 

(408

)

 

 

285

 

Change in share of equity method investment in related party other comprehensive income

 

 

1,510

 

 

 

214

 

Total other comprehensive income (loss), net of tax

 

$

3,020

 

 

$

(1,752

)

COMPREHENSIVE INCOME ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.

 

$

19,555

 

 

$

11,408

 

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

2


 

Ryan Specialty Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

665,420

 

 

$

838,790

 

Commissions and fees receivable – net

 

 

299,162

 

 

 

294,195

 

Fiduciary cash and receivables

 

 

3,181,352

 

 

 

3,131,660

 

Prepaid incentives – net

 

 

8,149

 

 

 

8,718

 

Other current assets

 

 

62,289

 

 

 

62,229

 

Total current assets

 

$

4,216,372

 

 

$

4,335,592

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Goodwill

 

 

1,647,252

 

 

 

1,646,482

 

Customer relationships

 

 

546,722

 

 

 

572,416

 

Other intangible assets

 

 

45,043

 

 

 

38,254

 

Prepaid incentives – net

 

 

15,756

 

 

 

15,103

 

Equity method investment in related party

 

 

56,016

 

 

 

46,099

 

Property and equipment – net

 

 

42,671

 

 

 

42,427

 

Lease right-of-use assets

 

 

121,596

 

 

 

127,708

 

Deferred tax assets

 

 

382,636

 

 

 

383,816

 

Other non-current assets

 

 

42,438

 

 

 

39,312

 

Total non-current assets

 

$

2,900,130

 

 

$

2,911,617

 

TOTAL ASSETS

 

$

7,116,502

 

 

$

7,247,209

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

230,709

 

 

$

136,340

 

Accrued compensation

 

 

184,254

 

 

 

419,560

 

Operating lease liabilities

 

 

19,615

 

 

 

21,369

 

Tax Receivable Agreement liabilities

 

 

22,075

 

 

 

 

Short-term debt and current portion of long-term debt

 

 

39,374

 

 

 

35,375

 

Fiduciary liabilities

 

 

3,181,352

 

 

 

3,131,660

 

Total current liabilities

 

$

3,677,379

 

 

$

3,744,304

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

Accrued compensation

 

 

30,012

 

 

 

24,917

 

Operating lease liabilities

 

 

147,700

 

 

 

154,457

 

Long-term debt

 

 

1,942,542

 

 

 

1,943,837

 

Tax Receivable Agreement liabilities

 

 

338,942

 

 

 

358,898

 

Other non-current liabilities

 

 

5,174

 

 

 

41,152

 

Total non-current liabilities

 

$

2,464,370

 

 

$

2,523,261

 

TOTAL LIABILITIES

 

$

6,141,749

 

 

$

6,267,565

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Class A common stock ($0.001 par value; 1,000,000,000 shares authorized, 118,737,470 and 118,593,062 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively)

 

 

119

 

 

 

119

 

Class B common stock ($0.001 par value; 1,000,000,000 shares authorized, 141,486,229 and 141,621,188 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively)

 

 

142

 

 

 

142

 

Class X common stock ($0.001 par value; 10,000,000 shares authorized, 640,784 shares issued and 0 outstanding at March 31, 2024 and December 31, 2023)

 

 

 

 

 

 

Preferred stock ($0.001 par value; 500,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2024 and December 31, 2023)

 

 

 

 

 

 

Additional paid-in capital

 

 

459,456

 

 

 

441,997

 

Retained earnings

 

 

88,537

 

 

 

114,420

 

Accumulated other comprehensive income

 

 

6,096

 

 

 

3,076

 

Total stockholders’ equity attributable to Ryan Specialty Holdings, Inc.

 

$

554,350

 

 

$

559,754

 

Non-controlling interests

 

 

420,403

 

 

 

419,890

 

Total stockholders’ equity

 

$

974,753

 

 

$

979,644

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

7,116,502

 

 

$

7,247,209

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

3


 

Ryan Specialty Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

40,677

 

 

$

36,457

 

Adjustments to reconcile net income to cash flows used in operating activities:

 

 

 

 

 

 

(Income) from equity method investment in related party

 

 

(5,606

)

 

 

(1,995

)

Amortization

 

 

27,988

 

 

 

25,185

 

Depreciation

 

 

2,080

 

 

 

2,192

 

Prepaid and deferred compensation expense

 

 

918

 

 

 

2,212

 

Non-cash equity-based compensation

 

 

17,310

 

 

 

17,879

 

Amortization of deferred debt issuance costs

 

 

3,409

 

 

 

3,039

 

Amortization of interest rate cap premium

 

 

1,739

 

 

 

1,739

 

Deferred income tax expense

 

 

2,139

 

 

 

2,875

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Commissions and fees receivable – net

 

 

(4,751

)

 

 

(1,212

)

Accrued interest liability

 

 

5,958

 

 

 

(4,743

)

Other current and non-current assets

 

 

2,061

 

 

 

11,197

 

Other current and non-current accrued liabilities

 

 

(210,461

)

 

 

(254,036

)

Total cash flows used in operating activities

 

$

(116,539

)

 

$

(159,211

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Business combinations – net of cash acquired and cash held in a fiduciary capacity

 

 

 

 

 

(102,059

)

Capital expenditures

 

 

(7,628

)

 

 

(2,793

)

Total cash flows used in investing activities

 

$

(7,628

)

 

$

(104,852

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Repayment of term debt

 

 

 

 

 

(4,125

)

Payment of contingent consideration

 

 

 

 

 

(4,477

)

Tax distributions to non-controlling LLC Unitholders

 

 

 

 

 

(264

)

Receipt of taxes related to net share settlement of equity awards

 

 

130

 

 

 

404

 

Taxes paid related to net share settlement of equity awards

 

 

(130

)

 

 

(404

)

Dividends paid to Class A common shareholders

 

 

(40,021

)

 

 

 

Distributions to non-controlling LLC Unitholders

 

 

(5,617

)

 

 

 

Payment of accrued return on Ryan Re preferred units

 

 

(1,883

)

 

 

 

Net change in fiduciary liabilities

 

 

37,326

 

 

 

(20,754

)

Total cash flows used in financing activities

 

$

(10,195

)

 

$

(29,620

)

Effect of changes in foreign exchange rates on cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity

 

 

(657

)

 

 

85

 

NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH AND CASH EQUIVALENTS HELD IN A FIDUCIARY CAPACITY

 

$

(135,019

)

 

$

(293,598

)

CASH, CASH EQUIVALENTS, AND CASH AND CASH EQUIVALENTS HELD IN A FIDUCIARY CAPACITY—Beginning balance

 

 

1,756,332

 

 

 

1,767,385

 

CASH, CASH EQUIVALENTS, AND CASH AND CASH EQUIVALENTS HELD IN A FIDUCIARY CAPACITY—Ending balance

 

$

1,621,313

 

 

$

1,473,787

 

Reconciliation of cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity

 

 

 

 

 

 

Cash and cash equivalents

 

 

665,420

 

 

 

704,746

 

Cash and cash equivalents held in a fiduciary capacity

 

 

955,893

 

 

 

769,041

 

Total cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity

 

$

1,621,313

 

 

$

1,473,787

 

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

4


 

Ryan Specialty Holdings, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands, except share data)

 

Class A
Common Stock

 

Class B
Common Stock

 

Additional
Paid-in

 

Retained

 

Accumulated Other Comprehensive

 

Non-controlling

 

Total
Stockholders’

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Interests

 

Equity

 

Balance at December 31, 2023

 

118,593,062

 

$

119

 

 

141,621,188

 

$

142

 

$

441,997

 

$

114,420

 

$

3,076

 

$

419,890

 

$

979,644

 

Net income

 

 

 

 

 

 

 

 

 

 

 

16,535

 

 

 

 

24,142

 

 

40,677

 

Issuance of common stock

 

9,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange of LLC equity for common stock

 

134,959

 

 

 

 

(134,959

)

 

 

 

240

 

 

 

 

 

 

(240

)

 

 

Class A common stock dividends and Dividend Equivalents

 

 

 

 

 

 

 

 

 

 

 

(42,418

)

 

 

 

 

 

(42,418

)

Distributions and Declared Distributions to non-controlling LLC Unitholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,766

)

 

(5,766

)

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

 

 

 

 

 

 

 

 

(78

)

 

 

 

 

 

 

 

(78

)

Distributions declared for non-controlling interest holders’ tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,177

)

 

(22,177

)

Change in share of equity method investment in related party other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

1,510

 

 

2,270

 

 

3,780

 

Gain on interest rate cap, net

 

 

 

 

 

 

 

 

 

 

 

 

 

1,918

 

 

2,887

 

 

4,805

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(408

)

 

(616

)

 

(1,024

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

17,297

 

 

 

 

 

 

13

 

 

17,310

 

Balance at March 31, 2024

 

118,737,470

 

$

119

 

 

141,486,229

 

$

142

 

$

459,456

 

$

88,537

 

$

6,096

 

$

420,403

 

$

974,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A
Common Stock

 

Class B
Common Stock

 

Additional
Paid-in

 

Retained

 

Accumulated Other Comprehensive

 

Non-controlling

 

Total
Stockholders’

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Interests

 

Equity

 

Balance at December 31, 2022

 

112,437,825

 

$

112

 

 

147,214,275

 

$

147

 

$

418,123

 

$

53,988

 

$

6,035

 

$

339,407

 

$

817,812

 

Net income

 

 

 

 

 

 

 

 

 

 

 

13,160

 

 

 

 

23,297

 

 

36,457

 

Issuance of common stock

 

3,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange of LLC equity for common stock

 

792,358

 

 

1

 

 

(792,358

)

 

(1

)

 

1,430

 

 

 

 

 

 

(1,430

)

 

 

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

 

 

 

 

 

 

 

 

(395

)

 

 

 

 

 

 

 

(395

)

Distributions declared for non-controlling interest holders’ tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,382

)

 

(15,382

)

Change in share of equity method investment in related party other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

214

 

 

370

 

 

584

 

Loss on interest rate cap, net

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,251

)

 

(3,889

)

 

(6,140

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

285

 

 

498

 

 

783

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

17,740

 

 

 

 

 

 

139

 

 

17,879

 

Balance at March 31, 2023

 

113,233,651

 

$

113

 

 

146,421,917

 

$

146

 

$

436,898

 

$

67,148

 

$

4,283

 

$

343,010

 

$

851,598

 

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

5


 

 

Ryan Specialty Holdings, Inc.

Notes to the Consolidated Financial Statements (Unaudited)

(Tabular amounts presented in thousands, except share and per share data)

1.
Basis of Presentation

Nature of Operations

Ryan Specialty Holdings, Inc., (the “Company”) is a service provider of specialty products and solutions for insurance brokers, agents, and carriers. These services encompass distribution, underwriting, product development, administration, and risk management by acting as a wholesale broker and a managing underwriter or a program administrator with delegated authority from insurance carriers. The Company’s offerings cover a wide variety of sectors including commercial, industrial, institutional, governmental, and personal through one operating segment, Ryan Specialty. With the exception of the Company’s equity method investment, the Company does not take on any underwriting risk.

The Company is headquartered in Chicago, Illinois, and has operations in the United States, Canada, the United Kingdom, Europe, and Singapore. The Company’s Class A common stock is traded on the New York Stock Exchange under the ticker symbol “RYAN”.

Organization

Ryan Specialty Holdings, Inc., was formed as a Delaware corporation on March 5, 2021, for the purpose of completing an IPO and to carry on the business of the LLC. New Ryan Specialty, LLC, or New LLC, was formed as a Delaware limited liability company on April 20, 2021, for the purpose of becoming, subsequent to our IPO, an intermediate holding company between Ryan Specialty Holdings, Inc., and the LLC. The Company is the sole managing member of New LLC. New LLC is a holding company with its sole material asset being a controlling equity interest in the LLC. The Company operates and controls the business and affairs of the LLC through New LLC and, through the LLC, conducts its business. Accordingly, the Company consolidates the financial results of New LLC, and therefore the LLC, and reports the non-controlling interests of New LLC’s Common Units on its consolidated financial statements. As the LLC is substantively the same as New LLC, for the purpose of this document, we will refer to both New LLC and the LLC as the “LLC”. As of March 31, 2024, the Company owned 45.6% of the outstanding LLC Common Units.

Basis of Presentation

The accompanying unaudited consolidated interim financial statements and notes thereto have been prepared in accordance with U.S. GAAP. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC for interim financial information. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2024. Interim results are not necessarily indicative of results for the full fiscal year due to seasonality and other factors.

In the opinion of management, the consolidated interim financial statements include all normal recurring adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, and cash flows for all periods presented. Certain prior period amounts in the Consolidated Statements of Cash Flows have been reclassified to conform to the current year presentation.

Principles of Consolidation

The unaudited consolidated interim financial statements include the accounts of the Company and its subsidiaries that it controls due to ownership of a majority voting interest or pursuant to variable interest entity (“VIE”) accounting. All intercompany transactions and balances have been eliminated in consolidation.

The Company, through its intermediate holding company New LLC, owns a minority economic interest in, and operates and controls the businesses and affairs of, the LLC. The LLC is a VIE of the Company and the Company is the primary beneficiary of the LLC as the Company has both the power to direct the activities that most significantly impact the LLC’s economic performance and has the obligation to absorb losses of, and receive benefits from, the LLC, which could be significant to the Company. Accordingly, the Company has prepared these consolidated financial statements in accordance with Accounting Standards Codification 810, Consolidation (“ASC 810”). ASC 810 requires that if an entity is the primary beneficiary of a VIE, the assets, liabilities, and results of operations of the VIE should be included in the consolidated financial statements of such entity. The Company’s relationship with the LLC results in no recourse to the general credit of the Company and the Company has no contractual requirement to provide financial support to the LLC. The Company shares in the income and losses of the LLC in direct proportion to the Company’s ownership percentage.

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Use of Estimates

The preparation of the unaudited consolidated interim financial statements and notes thereto requires management to make estimates, judgments, and assumptions that affect the amounts reported in the unaudited consolidated interim financial statements and in the notes thereto. Such estimates and assumptions could change in the future as circumstances change or more information becomes available, which could affect the amounts reported and disclosed herein.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those that were disclosed for the year ended December 31, 2023 in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2024.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) — Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

 

New Accounting Pronouncements Recently Adopted

 

In March 2024, the FASB issued ASU 2024-01 Compensation — Stock Compensation (Topic 718) — Scope Application of Profits Interest and Similar Awards, which provides illustrative examples to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interests and similar awards should be accounted for in accordance with Topic 718. This ASU is effective for public companies for fiscal years beginning after December 15, 2024, but early adoption is permitted. The Company adopted this standard retrospectively on January 1, 2024 with no material impact to the consolidated financial statements or disclosures.

 

In March 2024, the FASB issued ASU 2024-02 Codification Improvements — Amendments to Remove References to the Concept Statements, which removes references to various FASB Concepts Statements which will simplify the Codification and draw a distinction between authoritative and nonauthoritative literature. This ASU is effective for public companies for fiscal years beginning after December 15, 2024, but early adoption is permitted. The Company adopted this standard prospectively on January 1, 2024 with no material impact to the consolidated financial statements or disclosures.

2.
Revenue from Contracts with Customers

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers by Specialty:

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

Wholesale Brokerage

 

$

323,445

 

$

285,850

 

Binding Authority

 

 

88,635

 

 

69,526

 

Underwriting Management

 

 

125,807

 

 

92,137

 

Total Net commissions and fees

 

$

537,887

 

$

447,513

 

 

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Contract Balances

Contract assets, which arise primarily from the Company’s supplemental commission arrangements and medical stop loss business, are included within Commissions and fees receivable – net on the Consolidated Balance Sheets. The contract assets balance was $18.0 million and $13.4 million as of March 31, 2024 and December 31, 2023, respectively. For contract assets, payment is typically due within one year of the completed performance obligation. The contract liability balance related to deferred revenue, which is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $5.7 million and $7.8 million as of March 31, 2024 and December 31, 2023, respectively. During the three months ended March 31, 2024, $3.5 million of the contract liabilities outstanding as of December 31, 2023 were recognized in revenue.

3.
Mergers and Acquisitions

There were no acquisitions completed during the three months ended March 31, 2024.

2023 Acquisitions

On January 3, 2023, the Company completed the acquisition of certain assets of Griffin Underwriting Services (“Griffin”), a binding authority specialist and wholesale insurance broker headquartered in Bellevue, Washington, for cash consideration of $115.5 million.

On July 1, 2023, the Company completed the acquisitions of certain assets of ACE Benefit Partners, Inc. (“ACE”), a medical stop loss general agent headquartered in Eagle, Idaho, and Point6 Healthcare, LLC (“Point6”), a distributor of medical stop loss insurance on behalf of retail brokers and third-party administrators headquartered in Plano, Texas, for an aggregate $46.8 million of cash consideration and $2.3 million of contingent consideration. During the three months ended March 31, 2024, a measurement period adjustment related to the initial valuation of contingent consideration of $0.6 million was recognized in Goodwill on the Consolidated Balance Sheets.

On July 3, 2023, the Company completed the acquisition of Socius Insurance Services (“Socius”), a national wholesale insurance broker headquartered in Northern California, for $253.5 million of cash consideration, $5.8 million of contingent consideration, and $2.7 million of RYAN Class A common stock.

On December 1, 2023, the Company completed the acquisition of AccuRisk Holdings, LLC (“AccuRisk”), a medical stop loss managing general underwriter headquartered in Chicago, Illinois, for $98.3 million of cash consideration. During the three months ended March 31, 2024, a measurement period adjustment related to the initial valuation of contingent consideration of $0.3 million was recognized in Goodwill on the Consolidated Balance Sheets.

 

Estimates and assumptions used in the acquisition valuations are subject to change within the measurement period up to one year from each acquisition date.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of the Company as if the 2023 acquisitions, excluding Griffin as it is already included in the results of both periods presented, occurred on January 1, 2023. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place on the date indicated or of results that may occur in the future.

 

Three Months Ended

 

 

March 31, 2023

 

Total revenue

$

488,482