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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 June 30, 2021
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 GROUP 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)
(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 September 1, 2021, the Registrant had 
109,903,867 shares of Class A common stock, $0.001 par value, outstanding.
 
 
 
Ryan Specialty Group Holdings, Inc.
INDEX
 
  
 
7
 
Item 1.
 
  
 
7
 
 
  
 
7
 
 
  
 
8
 
 
  
 
11
 
 
  
 
12
 
 
  
 
13
 
 
  
 
14
 
 
  
 
15
 
 
  
 
17
 
Item 2.
 
  
 
33
 
Item 3.
 
  
 
62
 
Item 4.
 
  
 
63
 
  
 
64
 
Item 1.
 
  
 
64
 
Item 1A.
 
  
 
64
 
Item 2.
 
  
 
65
 
Item 3.
 
  
 
66
 
Item 4.
 
  
 
66
 
Item 5.
 
  
 
66
 
Item 6.
 
  
 
67
 
Forward-Looking Statements
This Quarterly Report on Form
10-Q
s 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, intended use of proceeds, anticipated cost savings relating to the Restructuring Plan and the amount and timing of delivery of annual cost savings, 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 (many of which may be amplified on account of the
COVID-19
pandemic) that may cause actual results to differ materially from those that we expected, including:
 
  •  
our potential failure to develop a succession plan for the senior management team, including Patrick G. Ryan, and/or to recruit and retain revenue producers;
 
  •  
the cyclicality of, and the economic conditions in, the markets in which we operate;
 
  •  
conditions that result in reduced insurer capacity;
 
  •  
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;
 
  •  
significant competitive pressures in each of our businesses;
 
  •  
decreases in the 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;
 
  •  
the potential that our underwriting models contain errors or that are otherwise ineffective;
 
  •  
damage to our reputation;
 
  •  
failure to maintain, protect and enhance our brand;
 
  •  
decreases in current market share as a result of disintermediation within the insurance industry, including increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets;
 
  •  
changes in the mode of compensation in the insurance industry;
 
  •  
changes in our accounting estimates, assumptions or methodologies, or changes in accounting guidance generally;
 
  •  
changes in interest rates that affect our cost of capital and net investment income;
 
1
  •  
changes in interest rates and deterioration of credit quality that reduce the value of our cash balances;
 
  •  
impairment of goodwill;
 
  •  
any failure to maintain our corporate culture;
 
  •  
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;
 
  •  
the impact if our MGU programs are terminated or changed;
 
  •  
the risks associated with the evaluation of potential acquisitions and the integration of acquired businesses as well as introduction of new products, lines of business and markets;
 
  •  
any unsuccessful attempts to open new officers, enter new product lines, establish distribution channels, or hire new brokers and underwriters;
 
  •  
our inability to gain internal efficiencies through the application of technology or effectively apply technology in driving value for our clients through innovation and technology-based solutions;
 
  •  
the unavailability or inaccuracy of our clients’ and third parties’ data for pricing and underwriting our insurance policies;
 
  •  
a variety of risks in our third-party claims administration operations that are distinct from those we face in our insurance intermediary operations;
 
  •  
the competitiveness and cyclicality of the reinsurance industry;
 
  •  
the higher risk of delinquency or collection inherent in our premium finance business;
 
  •  
the occurrence of natural or
man-made
disasters;
 
  •  
our inability to successfully recover upon experiencing a disaster or other business continuity problem;
 
  •  
the economic and political conditions of the countries and regions in which we operate;
 
  •  
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;
 
  •  
the impact of third parties that perform key functions of our business operations acting in ways that harm our business;
 
  •  
our global operations expose us to various international risks, including exchange rate fluctuations;
 
  •  
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;
 
2
  •  
changes in tax laws or regulations;
 
  •  
decreased commission revenues due to proposed tort reform legislation;
 
  •  
the impact of regulations affecting insurance carriers;
 
  •  
the impact on our operations and financial condition from the effects of the current
COVID-19
pandemic and resulting governmental and societal responses;
 
  •  
the impact of breaches in security that cause significant system or network disruptions;
 
  •  
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 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;
 
  •  
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;
 
  •  
the impact of being unable to refinance our indebtedness;
 
  •  
being affected by further changes in the U.S.-based credit markets;
 
  •  
changes in our credit ratings;
 
  •  
the impact of failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future; and
 
  •  
other factors disclosed in the section entitled “Risk Factors” and elsewhere in the IPO Prospectus and this Quarterly Report 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.
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 other SEC filings and 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 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.
 
3
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.
 
4
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”, “RSG”, and similar references refer: (i) following the consummation of the Organizational Transactions, including our IPO, to Ryan Specialty Group Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including Holdings LLC, and (ii) prior to the completion of the Organizational Transactions, including our IPO, to Holdings LLC and, unless otherwise stated, all of its subsidiaries.
 
  •  
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.
 
  •  
Affiliate (and, with a correlative meaning, “Affiliated”): With respect to a specified Person, each other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. As used in this definition, “control” (including with correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities or by contract or other agreement).
 
  •  
All Risks: 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, RSG acquired All Risks.
 
  •  
ARL: Collectively, All Risks, Limited and Independent Claims Services.
 
  •  
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.
 
  •  
Common Units: Collectively, all Class A common units and all Class B common units of Holdings LLC.
 
  •  
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.
 
  •  
Family Group: (i) In the case of a member of Holdings LLC or a Holdings LLC Employee who is an individual, such individual’s spouse, parents and descendants (whether natural or adopted) and any trust or estate planning vehicle or entity solely for the benefit of such individual and/or the individual’s spouse, parents, descendants and/or other relatives, and (ii) in the case of a member of Holdings LLC or a Holdings LLC Employee that is a trust, the beneficiary of such trust.
 
  •  
Founder: Patrick G. Ryan.
 
  •  
Founder Group: Founder, members of the Founder’s Family Group and Founder’s Affiliates.
 
  •  
Person: An individual or any corporation, partnership, limited liability company, trust, unincorporated organization, association, joint venture or any other organization or entity, whether or not a legal entity.
 
  •  
Holdings LLC: Ryan Specialty Group, LLC and its subsidiaries.
 
  •  
Incentive units: Incentive-based common units of Holdings LLC.
 
  •  
IPO: Initial public offering.
 
  •  
IPO Prospectus: our final prospectus for our IPO dated as of July 21, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.
 
  •  
LLC Unitholders: holders of the LLC Units.
 
  •  
LLC Units:
non-voting
common interest units of Holdings LLC.
 
5
  •  
Management Incentive Units: management incentive units with a participation threshold equal to the IPO price, which are subject to vesting and will be exchangeable into LLC Units.
 
  •  
Mandatory Participation: As part of the reclassification of common stock related to the Organizational Transactions and subject to certain limited exceptions, all existing holders of LLC Units were required to sell 15.0% of their vested interest (inclusive of vested equity grants and purchased equity) in Holdings LLC in connection with the IPO.
 
  •  
MGA: Managing general agent.
 
  •  
MGU: Managing general underwriter.
 
  •  
Onex: Onex Corporation and its affiliates, a holder of LLC Units prior to the Organizational Transactions, and one of our shareholders following the Organizational Transactions.
 
  •  
Optional Participation: As part of the reclassification of common stock related to the Organizational Transactions, all existing holders of LLC Units had the option to sell up to (i) an additional 10.0% of their vested interest received as an equity grant under compensatory plans or arrangements and (ii) 100% of their remaining purchased interest, in each case, on a pro rata basis, subject to reduction in connection with the IPO and certain other limited exceptions.
 
  •  
Organizational Transactions: The series of organizational transactions completed by the Company in connection with the IPO, as described in the IPO Prospectus.
 
  •  
Participation: Collectively, the Mandatory Participation and the Optional Participation.
 
  •  
Restructuring Plan: Plan to reduce costs and increase efficiencies, streamline management reporting structures, and centralize functions across the Company to improve operating margin, which is expected to be fully actioned by June 30, 2022.
 
  •  
Ryan Parties: Patrick G. Ryan, founder, chairman and chief executive officer of RSG 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.
 
  •  
Securities Act: Securities Act of 1933, as amended.
 
  •  
Specialty: One of the three RSG primary distribution channels, which includes Wholesale Brokerage, Binding Authority, and Underwriting Management.
 
  •  
Tax Receivable Agreement or TRA: The tax receivable agreement entered into in connection with the IPO.
 
  •  
U.S. GAAP: Accounting principles generally accepted in the United States of America.
 
  •  
Underwriting Management: Underwriting Management administers an expansive 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 RSG’s carrier trading partners which retain the insurance underwriting risk.
 
  •  
Wholesale Brokerage: Wholesale Brokerage 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.
 
6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Ryan Specialty Group Holdings, Inc.
Balance Sheets (Unaudited)
(dollars in actuals)
 
    
June 30, 2021
    
March 5, 2021
  
ASSETS
                 
Cash
    $ 590     $ —    
    
 
 
    
 
 
  
TOTAL ASSETS
   
$
590
 
  
$
—  
 
    
 
 
    
 
 
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Payable due to affiliate
    $ 590     $ —    
    
 
 
    
 
 
  
Total liabilities
   
$
590
 
  
$
—  
 
    
 
 
    
 
 
  
STOCKHOLDERS’ EQUITY
                 
Stock subscription receivable from Ryan Specialty Group, LLC
    $ (10 )    $ (10 ) 
Class A common stock, $0.001 par value per share; 500,000,000 shares authorized; 10,000 shares issued and outstanding
      10       10  
    
 
 
    
 
 
  
Total Stockholders’ equity
    $ —     $ —    
    
 
 
    
 
 
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   
$
590
 
  
$
—  
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the financial statements.
 
7
Ryan Specialty Group Holdings, Inc.
Notes to Balance Sheets (Unaudited)
1. Organization
The Company was formed as a Delaware corporation on March 5, 2021. The Company was formed for the purpose of completing an IPO and related transactions in order to carry on the business of Holdings LLC. Subsequent to the IPO and pursuant to the Organizational Transactions, as described in Note 5,
Subsequent Events
, the Company became the parent and sole managing member of Holdings LLC. As the sole managing member, the Company operates and controls all of the business and affairs of Holdings LLC, and through Holdings LLC and its subsidiaries, conducts its business.
2. Summary of Significant Accounting Policies
Basis of Presentation and Accounting
The financial statements have been prepared in accordance with U.S. GAAP. Separate statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows have not been presented because there have been no material activities in this entity for the period ended June 30, 2021. See Note 4,
Related Parties
for further discussion.
Use of Estimates
The preparation of the financial statement in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
3. Common Stock
On March 5, 2021, the Company was authorized to issue 500,000,000 shares of Class A common stock, par value $0.001 per share. As of the balance sheet dates, 10,000 shares have been issued, for $10, and are outstanding. As of June 30, 2021,
all
shares were owned by
Holdings
LLC.
4. Related Parties
Per the LLC Operating Agreement (as defined herein), Holdings LLC will reimburse the Company for any reasonable
out-of-pocket
expenses incurred on behalf of Holdings LLC, including all expenses associated with the IPO. During the period ended June 30, 2021, Holdings LLC funded the Company
$25,000
 
in order to pay IPO related expenses. Holdings LLC overfunded the Company by
$590
, which is included as the Payable due to affiliate on the Balance Sheet. Costs incurred were borne by Holdings LLC and not the Company. As such, the Company has not prepared a statement of operations or statement of cash flows as a result of the funding or expense payments.
5. Subsequent Events
IPO and Reorganization
On July 26, 2021, the Company, Ryan Specialty Group Holdings, Inc., completed its IPO of
 
56,918,278
 
shares, 65,456,020 shares after the underwriters exercised their option in full, of its Class A common stock,
$
0.001
 
par value per share, at an offering price of
$
23.50
 
per share. The Company received net proceeds from the IPO of approximately
$
1.3
 
billion, approximately $1.5 billion after the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions and estimated offering expenses,
of which
(i)
$
119.9
 
million was used to acquire
 
5,889,570
 
of newly issued LLC Units in Holdings LLC, (ii)
$
343.5
 million was used to acquire the outstanding
260,000,000
 
Class B Preferred Units held by Onex, (iii) $
795.7
 million was used to acquire
35,641,682
 
outstanding Holdings LLC units from certain existing holders of Holdings LLC, (iv) $76.2 million
was used
to purchase an additional 3,415,097 newly issued LLC Units in Holdings LLC, and (v) $114.4 million
was used
to repurchase and retire 5,122,645 shares of Class A common stock held by Onex. The Company is now a publicly traded company whose Class A common stock is traded on the New York Stock Exchange under the ticker symbol “RYAN”. Prior to the completion of the IPO, Holdings LLC and certain Holdings LLC subsidiaries consummated an internal reorganization.
 
8
In connection with
the
IPO, the Company completed the Organizational Transactions. The Organizational Transactions included:
 
  •  
The adoption of the Sixth Amended and Restated Limited Liability Company Agreement of Holdings LLC (the “LLC Operating Agreement”) to, among other things, appoint Ryan Specialty Group Holdings, Inc. as the sole managing member of Holdings LLC.
 
 
  •  
All Class A common units of
Holdings
LLC, including existing units with a participation threshold, were reclassified into an aggregate of 213,693,861 LLC
Units, and all Class B common units of Holdings LLC were reclassified into an aggregate 
of 20,680,420 LLC Units. Upon the completion of this reclassification, subject to certain limited exceptions, all existing holders of LLC Units were (i) required to sell 15.0% of
their vested interest (inclusive of vested equity grants and purchased equity) in Holdings LLC and (ii) had the option to sell up to (x) an 
additional 10.0% of their vested interest received as an equity grant under compensatory plans or arrangements and (y) 100% of their remaining purchased interest, in each case, on a pro rata basis, subject to reduction in connection with the IPO and certain other limited exceptions.
 
  •  
We amended and restated the certificate of incorporation of Ryan Specialty Group Holdings, Inc. to, among other things, provide for Class A common stock and Class B common stock.
 
  •  
An entity through which Onex held its common unit interest in Holdings LLC (the “Common Blocker Entity”) engaged in a series of transactions that resulted in Onex exchanging all of the equity interests in the Common Blocker Entity 
for 20,680,420 shares of Class A common stock and a right to participate in the Tax Receivable Agreement.
 
  •  
The Ryan Parties exchanged an aggregate 
of 11,540,324 units for 11,540,324 shares of Class A common stock and a right to participate in the Tax Receivable Agreement on account of such shares received.
 
  •  
Through a series of internal transactions, certain of our current and past employees and existing investors in
Holdings
LLC (i) either sold 100% of their LLC Units in connection with the IPO or had their LLC Units (after giving effect to the Participation and excluding the incentive units described in the following item) exchanged into an aggregate of 38,143,990 shares of Class A common stock on a
one-for-one
basis and (ii) received TRA alternative payments (“TRA Alternative Payments”).
 
  •  
With respect to certain current and former employee holders of incentive units that ceased to be holders of LLC Units and became holders of Class A common stock in connection with the Organizational Transactions, such incentive units (after giving effect to the Participation) were exchanged for an aggregate of 11,426,502 shares of Class A common stock and were additionally granted an aggregate of 4,637,622 options to purchase shares of Class A common stock under the Ryan Specialty Group Holdings, Inc. 2021 Omnibus Incentive Plan (
the “top-up options” or “reload options
”). Each such
top-up
option issued under the 2021 Plan is exercisable for one share of our Class A common stock at an exercise price equal to the
IPO
price of $23.50.
 
  •  
With respect to the LLC Unitholders who have incentive units and remained as LLC Unitholders after completion of the Organizational Transactions, subject to any reclassification adjustment, such incentive units were exchanged (i) for an aggregate of 27,493,190 LLC Units (after giving effect to the Participation) and (ii) an aggregate of 3,911,482 Management Incentive Units with a participation threshold equal to the
IPO
price of $23.50, which Management Incentive Units are subject to vesting and will be exchangeable into LLC Units, which will then be immediately redeemed for Class A common stock based on the value of Management Incentive Units and the fair market value of the Class A common stock at the time of the applicable exchange. The Management Incentive Units granted under this paragraph are referred to as the
“top-up
Management Incentive Units.”
 
9
  •  
The issuance of an aggregate of 8,171,522 equity awards, including (i) an aggregate of 66,667 options to purchase Class A common stock with an exercise price equal to the
IPO
price of $23.50, (ii) an aggregate of 4,444,911 restricted stock units of Class A common stock, (iii) an aggregate of 2,116,667 Management
Incentive Units (exclusive of the top-up Management Incentive Units) with a participation threshold equal to the 
IPO
price of $23.50, and (iv) an aggregate of 1,543,277 restricted LLC units of
Holdings
LLC, in each case, were issued to certain employees in connection with the IPO as IPO awards and are subject to vesting.
 
  •  
With respect to the Ryan Parties, subject to any reclassification adjustment, their common units with a participation threshold were exchanged (after giving effect to the Participation) for an aggregate of 736,435 LLC Units.
 
  •  
Ryan Specialty Group Holdings, Inc. issued shares of Class B common stock to the LLC Unitholders, on a
one-to-one
 basis with the number of LLC Units each LLC Unitholder owns upon the consummation of the Organizational Transactions, for nominal consideration. Shares of Class B common stock were not issued to the LLC Unitholders with respect to the Management Incentive Units.
 
  •  
Pursuant to the LLC Operating Agreement, the LLC Unitholders were entitled to exchange LLC Units for shares of Class A common stock on a
one-for-one
basis or, at our election, for cash, from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). The LLC Unitholders were also required to deliver to us an equivalent number of shares of Class B common stock to effectuate such an exchange. Any shares of Class B common stock so delivered were canceled.
 
  •  
Ryan Specialty Group Holdings, Inc.
entered into a Tax Receivable Agreement with
 the LLC Unitholders and Onex that will provide for the payment by us to the LLC Unitholders and Onex, collectively, of 85%
 
of the amount of cash savings, if any, in U.S. federal, state and local income taxes (computed using simplifying assumptions to address the impact of state and local taxes) the Company actually realizes (or, under certain circumstances is deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the Tax Receivable Agreement, as discussed below) as a result of certain (i) increases in the tax basis of assets of Holdings LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) tax attributes of Holdings LLC and subsidiaries of Holdings LLC that existed prior to the IPO or to which we succeed as a result of the Common Blocker Mergers,
(iii)
favorable “remedial” partnership tax allocations to which we become entitled (if any), and (iv) other tax benefits related to our entering into the Tax Receivable Agreement, including certain tax benefits attributable to payments that we are required to make under the Tax Receivable Agreement. Additionally, with respect to the holders of LLC Units who either sold
 100% of their LLC Units in connection with
the IPO 
or had their LLC Units (after giving effect to the Participation) exchanged for shares of Class A common stock on a
one-for-one
basis in the Organizational Transactions, such holders had the right to receive a
one-time
lump sum payment in an aggregate amount of $72.9 million, comprised of (i) $36.5 million of consideration for certain tax attributes arising as a result of the sale of any of their vested interest in connection with the Participation and (ii) $36.4 million of certain additional consideration related to the exchange of their LLC Units for Class A common stock (in amounts intended to approximate what the holders would have received had their exchange with us been taxable and provided us with additional tax attributes, although these exchanges will not relate to actual tax benefits obtained or to be obtained by us) (collectively, the TRA Alternative Payments).
In connection with the IPO, the Company became the sole managing member of Holdings LLC and controls the management of Holdings LLC. As a result, the Company will consolidate Holdings LLC’s financial results in its consolidated financial statements and report a
non-controlling
interest in the economic interest in Holdings LLC held by the remaining LLC Unitholders.
 
10
Ryan Specialty Group, LLC
Consolidated Statements of Income (Unaudited)
All balances presented in thousands
 
    
Three months ended

June 30,
    
Six months ended

June 30,
  
    
2021
    
2020
    
2021
    
2020
  
REVENUE
         
Net commissions and fees
    $ 389,846     $ 246,065     $ 701,190     $ 453,150  
Fiduciary investment income
      166       259       280       1,366  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total revenue
   
$
390,012
 
  
$
246,324
 
  
$
701,470
 
  
$
454,516
 
  
 
 
    
 
 
    
 
 
    
 
 
  
EXPENSES
         
Compensation and benefits
      236,801       156,811       451,287       298,113  
General and administrative
      30,685       21,868       58,230       50,385  
Amortization
      27,319       9,118       55,113       19,149  
Depreciation
      1,222       851       2,422       1,629  
Change in contingent consideration
      1,723       —         2,313       1,032  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
   
$
297,750
 
  
$
188,648
 
  
$
569,365
 
  
$
370,308
 
  
 
 
    
 
 
    
 
 
    
 
 
  
OPERATING INCOME
   
$
92,262
 
  
$
57,676
 
  
$
132,105
 
  
$
84,208
 
  
 
 
    
 
 
    
 
 
    
 
 
  
Interest expense
      18,986       6,759       39,031       15,436  
Income from equity method investment in related party
      353       —         434       87  
Other
non-operating
income (loss)
      (7,890 )      555       (29,336 )      (2,492 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
INCOME BEFORE INCOME TAXES
   
$
65,739
 
  
$
51,472
 
  
$
64,172
 
  
$
66,367
 
Income tax expense
      2,332       1,585       4,566       3,162  
  
 
 
    
 
 
    
 
 
    
 
 
  
NET INCOME
   
$
63,407
 
  
$
49,887
 
  
$
59,606
 
  
$
63,205
 
Net income (loss) attributable to
non-controlling
interests, net of tax
      —         (54 )      2,450       946  
  
 
 
    
 
 
    
 
 
    
 
 
  
NET INCOME ATTRIBUTABLE TO MEMBERS
   
$
63,407
 
  
$
49,941
 
  
$
57,156
 
  
$
62,259
 
  
 
 
    
 
 
    
 
 
    
 
 
  
 
Refer to Notes to the Consolidated Financial Statements
 
1
1
Ryan Specialty Group, LLC
Consolidated Statements of Comprehensive Income (Unaudited)
All balances presented in thousands
 
    
Three months ended

June 30,
    
Six months ended

June 30,
  
    
2021
     
2020
    
2021
    
2020
  
NET INCOME
   
$
63,407
 
   
$
49,887
 
  
$
59,606
 
  
$
63,205
 
Net income (loss) attributable to
non-controlling
interests, net of tax
      —          (54 )      2,450       946  
  
 
 
     
 
 
    
 
 
    
 
 
  
NET INCOME ATTRIBUTABLE TO MEMBERS
   
$
63,407
 
   
$
49,941
 
  
$
57,156
 
  
$
62,259
 
  
 
 
     
 
 
    
 
 
    
 
 
  
Other comprehensive income (loss), net of tax:
          
Foreign currency translation adjustments
      796        533       444       702  
Change in share of equity method investment in related party other comprehensive loss
      —          —         (738 )      —    
  
 
 
     
 
 
    
 
 
    
 
 
  
Total other comprehensive income (loss), net of tax
   
$
796
 
   
$
533
 
  
$
(294
) 
  
$
702
 
  
 
 
     
 
 
    
 
 
    
 
 
  
COMPREHENSIVE INCOME ATTRIBUTABLE TO MEMBERS
   
$
64,203
 
   
$
50,474
 
  
$
56,862
 
  
$
62,961
 
  
 
 
     
 
 
    
 
 
    
 
 
  
 
Refer to Notes to the Consolidated Financial Statements
 
1
2
Ryan Specialty Group, LLC
Consolidated Statements of Financial Position (Unaudited)
All balances presented in thousands, except unit and par value data
 
    
June 30, 2021 
  
 
    
December 31, 2020
  
ASSETS
     
CURRENT ASSETS
     
Cash and cash equivalents
    $ 307,528     $ 312,651  
Commissions and fees receivable – net
      206,800       177,699  
Fiduciary assets
      2,293,363       1,978,152  
Prepaid incentives – net
      7,805       8,842  
Other current assets
      25,556       16,006  
  
 
 
    
 
 
  
Total current assets
   
$
2,841,052
 
  
$
2,493,350
 
NON-CURRENT
ASSETS
     
Goodwill
      1,224,299       1,224,196  
Other intangible assets
      552,904       604,764  
Prepaid incentives – net
      28,924       36,199  
Equity method investment in related party
      46,911       47,216  
Property and equipment – net
      15,961       17,423  
Lease
right-of-use
assets
      86,565       93,941  
Other
non-current
assets
      10,531       12,293  
  
 
 
    
 
 
  
Total
non-current
assets
   
$
1,966,095
 
  
$
2,036,032
 
  
 
 
    
 
 
  
TOTAL ASSETS
   
$
4,807,147
 
  
$
4,529,382
 
  
 
 
    
 
 
  
LIABILITIES, MEZZANINE EQUITY AND MEMBERS’ EQUITY
     
CURRENT LIABILITIES
     
Accounts payable and accrued liabilities
      131,948       115,573  
Preferred units repurchase payable
      78,256       —    
Accrued compensation
      314,510       349,558  
Operating lease liabilities
      19,909       19,880  
Short-term debt and current portion of long-term debt
      22,547       19,158  
Fiduciary liabilities
      2,293,363       1,978,152  
  
 
 
    
 
 
  
Total current liabilities
   
$
2,860,533
 
  
$
2,482,321
 
NON-CURRENT
LIABILITIES
     
Accrued compensation
      73,577       69,121  
Operating lease liabilities
      76,046       83,737  
Long-term debt
      1,570,227       1,566,192  
Net deferred tax liabilities
      537       577  
Other
non-current
liabilities
      6,020       16,709  
  
 
 
    
 
 
  
Total
non-current
liabilities
   
$
1,726,407
 
  
$
1,736,336
 
  
 
 
    
 
 
  
TOTAL LIABILITIES
   
$
4,586,940
 
  
$
4,218,657
 
  
 
 
    
 
 
  
MEZZANINE EQUITY
     
Preferred units (260,000,000 par value; 260,000,000 issued and outstanding at June 30, 2021 and December 31, 2020)
    $ 240,831     $ 239,635  
MEMBERS’ EQUITY
     
Preferred units (74,990,000 par value; 74,990,000 issued and outstanding at June 30, 2021 and
December 31, 2020)
      —         74,270  
Class A common units (692,753,835 par value; 692,753,835 issued and outstanding at June 30, 2021, 693,876,105 par value; 693,876,105 issued and outstanding at December 31, 2020)
      274,741       267,248  
Class B common units (75,478,586 par value; 75,478,586 issued and outstanding at June 30, 2021 and December 31, 2020)
      71,874       71,874  
Accumulated deficit
      (369,647 )      (346,304 ) 
Accumulated other comprehensive income
      2,408       2,702  
  
 
 
    
 
 
  
Total RSG members’ equity
   
$
(20,624
) 
  
$
69,790
 
  
 
 
    
 
 
  
Non-controlling
interests
      —         1,300  
  
 
 
    
 
 
  
Total members’ equity
   
 
(20,624
) 
  
 
71,090
 
  
 
 
    
 
 
  
TOTAL LIABILITIES, MEZZANINE AND MEMBERS’ EQUITY
   
$
 
 
 
 
 
 
 
 
 
4,807,147
 
  
$
4,529,382
 
  
 
 
    
 
 
  
 
Refer to Notes to the Consolidated Financial Statements
 
1
3
Ryan Specialty Group, LLC
Consolidated Statements of Cash Flows (Unaudited)
All balances presented in thousands
 
    
Six months ended June 30,
  
    
2021
    
2020
  
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net income
    $ 59,606     $ 63,205  
Adjustments to reconcile net income to cash flows from (used for) operating activities:
                 
Loss (gain) from
non-controlling
equity interest
      (434 )      (87 ) 
Amortization
      55,113       19,149  
Depreciation
      2,422       1,629  
Prepaid & deferred compensation expense
      23,035       7,297  
Equity-based compensation expense
      7,595       4,136  
Amortization of deferred debt issuance costs
      4,748       687  
Deferred tax benefit (loss)
      (40 )      196  
Change (net of acquisitions and divestitures) in:
                 
Commissions and fees receivable - net
      (29,089 )      (24,434 ) 
Accrued interest
      333       129  
Other current assets and accrued liabilities
      (11,932 )      12,282  
Other
non-current
assets and accrued liabilities
      (3,642 )     (15,855 ) 
    
 
 
    
 
 
  
Total cash flows provided by operating activities
   
$
107,715
 
  
$
68,334
 
CASH FLOWS FROM INVESTING ACTIVITIES
                 
 
Asset acquisitions
      —         (5,236 ) 
 
Prepaid incentives issued – net of repayments
      3,786       (4,279 ) 
 
Equity method investment in related party
      —         (23,500 ) 
 
Capital expenditures
      (3,941 )      (7,858 ) 
    
 
 
    
 
 
  
Total cash flows used for investing activities
   
$
(155
) 
  
$
(40,873
) 
CASH FLOWS FROM FINANCING ACTIVITIES
                 
 
Distribution to
non-controlling
interest holders
      (48,368 )      —    
 
Equity repurchases
      (3,880 )      (39,156 ) 
 
Repayment of term debt
      (8,250 )      (4,063 ) 
 
Borrowing of term debt
      —         150,000  
 
Repayment of subordinated notes
      —         (20,000 ) 
 
Borrowings on revolving credit facilities
      —         848  
 
Repayments on revolving credit facilities
      —         (44,000 ) 
 
Deferred offering costs paid
      (4,191 )      —    
 
Finance lease costs paid
      (75 )      (36 ) 
 
Debt issuance costs paid
      (1,289 )      —    
 
Cash distributions to members
      (47,039 )      (13,644 ) 
    
 
 
    
 
 
  
Total cash flows (used for) provided by financing activities
   
$
(113,092
) 
  
$
29,949
 
    
 
 
    
 
 
  
Effect of changes in foreign exchange rates on cash and cash equivalents
   
 
409
 
  
 
(2,130
) 
    
 
 
    
 
 
  
NET CHANGE IN CASH AND CASH EQUIVALENTS
   
$
(5,123
) 
  
$
55,280
 
    
 
 
    
 
 
  
CASH AND CASH EQUIVALENTS—Beginning balance
   
$
312,651
 
  
$
52,016
 
    
 
 
    
 
 
  
CASH AND CASH EQUIVALENTS—Ending balance
   
$
307,528
 
  
$
107,296
 
    
 
 
    
 
 
  
Supplemental cash flow information:
                 
Interest and financing costs paid
    $ 32,518     $ 14,032  
Income taxes paid
    $ 5,897     $ 2,055  
Related party asset acquisition
    $ —       $ (6,077 ) 
Forgiveness of related party receivable
    $ —       $ 6,077  
Accretion of premium on mezzanine equity
    $ 1,196     $ 615  
Accretion of premium on mezzanine equity in accumulated deficit
    $ (1,196 )    $ (615 ) 
Repurchase of vested common units
    $ (745 )    $ —    
Issuance of unsecured promissory note
    $ 745     $ —    
 
Refer to Notes to the Consolidated Financial Statements
 
1
4
Ryan Specialty Group, LLC
Consolidated Statements of Members’ Equity (Unaudited)
All balances presented in thousands
 
 
  
Mezzanine
Equity
 
 
 
Preferred
Units
 
 
Common
Units

Class A
 
 
Common
Units

Class B
 
  
Retained
Earnings
(Accumulated
Deficit)
 
 
Accumulated
Other

Comprehensive
Income (Loss)
 
 
Non-controlling

Interests
 
 
Total
Members’

Equity (Deficit)
 
Balance at January 1, 2021
   
$
239,635
 
  
 
$
74,270
 
  
$
267,248
 
  
$
71,874
 
   
$
(346,304
) 
  
$
2,702
 
  
$
1,300
 
  
$
71,090
 
Net income (loss)
      —           —         —         —          (6,251 )      —         2,450       (3,801 ) 
Foreign currency translation adjustments
      —           —         —         —          —         (352 )      —         (352 ) 
Change in share of equity method investment in related party other comprehensive income
      —           —         —         —          —         (738 )      —         (738 ) 
Accumulation of preferred dividends (% return), net of tax distributions
      —             —         —         —          (6,736 )      —         —         (6,736 ) 
Accretion of premium on mezzanine equity
      598         —         —         —          (598 )      —         —         (598 ) 
Related party acquisition
      —           —         —         —          (44,517 )      —         (3,750 )      (48,267 ) 
Distributions declared—tax advances
      —           —         —         —          (14,236 )      —         —         (14,236 ) 
Repurchases of Class A units
      —           —         —         —          (227 )      —         —         (227 ) 
Equity-based compensation expense
      —             —         4,430       —          —         —         —         4,430  
    
 
 
           
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
Balance at March 31, 2021
   
$
240,233
 
    
$
74,270
 
  
$
271,678
 
  
$
71,874
 
   
$
(418,869
) 
  
$
1,612
 
  
$
—  
 
  
$
565
 
    
 
 
           
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss)
      —             —         —         —          63,407       —         —         63,407  
Foreign currency translation adjustments
      —           —         —         —          —         796       —         796  
Accumulation of preferred dividends (% return), net of tax distributions
      —             —         —         —          1,073       —         —         1,073  
Accretion of premium on mezzanine equity
      598         —         —         —          (598 )      —         —         (598 ) 
Related party acquisition
      —           —         —         —          (101 )      —         —         (101 ) 
Distributions declared—tax advances
      —           —         —         —          (9,521 )      —         —         (9,521 ) 
Reclassification from preferred units to repurchase payable
      —           (74,270 )      —         —          (742 )      —         —         (75,012 ) 
Repurchases of Class A units
      —           —         (102 )      —          (4,296 )      —         —         (4,398 ) 
Equity-based compensation expense
      —           —         3,165       —          —         —         —         3,165  
    
 
 
           
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
          
Balance at June 30, 2021
   
$
240,831
 
    
$
—  
 
  
$
274,741
 
  
$
71,874
 
   
$
(369,647
) 
  
$
2,408
 
  
$
—  
 
  
$
(20,624
) 
    
 
 
           
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
          
 
Refer to Notes to the Consolidated Financial Statements
 
1
5
Ryan Specialty Group, LLC
Consolidated Statements of Members’ Equity (Unaudited)
All balances presented in thousands
 
 
  
Mezzanine
Equity
 
 
 
 
  
Preferred
Units
 
  
Common
Units

Class A
 
 
Common
Units

Class B
 
  
Retained
Earnings
(Accumulated
Deficit)
 
 
Accumulated
Other

Comprehensive

Income (Loss)
 
  
Non-controlling

Interests
 
 
Total
Members’

Equity (Deficit)
 
Balance at January 1, 2020
   
$
139,644
 
           
$
—  
 
   
$
138,540
 
  
$
61,225
 
   
$
(276,009
) 
  
$
864
 
   
$
(1,109
) 
  
$
(76,489
) 
Net income (loss)
      —                  —          —         —          12,318                1,000       13,318  
Foreign currency translation adjustments
      —                  —          —         —          —         169        —         169  
Accumulation of preferred dividends (% return), net
of tax distributions
      —                  —          —         —          (2,992 )      —          —         (2,992 ) 
Accretion of premium on mezzanine equity
      308                —          —         —          (308 )      —          —         (308 ) 
Related party asset
acquisition
      —                  —          —         —          (3,039 )      —          —         (3,039 ) 
Distributions declared—tax advances
      —                  —          —         —          (12,288 )      —          —         (12,288 ) 
Repurchases of Class A units
      —                  —          (586 )      —          (33,918 )      —          —         (34,504 ) 
Equity issued to the Board of Directors
      —                  —          640       —          —         —          —         640  
Equity-based compensation expense
      —                  —          2,041       —          —         —          —         2,041  
    
 
 
             
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
Balance at March 31, 2020
   
$
139,952
 
           
$
—  
 
 
   
$
140,635
 
 
  
$
61,225
 
 
   
$
(316,236
)
 
 
  
$
1,033
 
 
 
   
$
(109
) 
  
$
(113,452
) 
    
 
 
             
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
Net income (loss)
      —                  —          —         —          49,941       —          (54 )      49,887  
Foreign currency translation adjustments
      —                  —          —         —          —         533        —         533  
Accumulation of preferred dividends (% return), net
of tax distributions
      —                  —          —         —          (3,176 )      —          —         (3,176 ) 
Accretion of premium on mezzanine equity
      307                —          —         —          (307 )      —          —         (307 ) 
Distributions declared—tax advances
      —                  —          —         —          (8,087 )      —          —         (8,087 ) 
Repurchases of Class A units
      —                  —          (13 )      —          (4,639 )      —          —         (4,652 ) 
Equity-based compensation expense
      —                  —          1,456       —          —         —          —         1,456  
    
 
 
             
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
Balance at June 30, 2020
   
$
140,259
 
           
$
—  
 
   
$
142,078
 
  
$
61,225
 
   
$
(282,504
) 
  
$
1,566
 
   
$
(163
) 
  
$
(77,798
) 
    
 
 
             
 
 
     
 
 
    
 
 
     
 
 
    
 
 
     
 
 
    
 
 
  
 
Refer to Notes to the Consolidated Financial Statements
 
1
6
Ryan Specialty Group, LLC
Notes to the Consolidated Financial Statements (Unaudited)
Tabular
balances presented in thousands
 
1.
Basis of Presentation
Nature of Operations
Ryan Specialty Group, LLC provides specialty prod
u
cts and solutions for insurance brokers, agents and carriers. This encompasses distribution, underwriting, product development, administration and risk management services by acting as a wholesale broker and a managing underwriter service to a wide variety of personal, commercial, industrial, institutional, and governmental organizations 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, and continental Europe.
Ryan Specialty Group Holdings, Inc. was formed as a Delaware corporation on March 5, 2021 for the purpose of completing a public offering and related transactions in order to carry on the business of the Company. On July 26, 2021, Ryan Specialty Group Holdings, Inc. completed its IPO of
 
56,918,278
shares,
65,456,020
shares after the underwriters exercised their option in full
, of its Class A common stock at an offering price of $
23.50
per share. Ryan Specialty Group Holdings, Inc. received approximately
$
1.3
billion of net proceeds from the IPO, approximately $
1.5
 billion after the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions and estimated offering expenses. As the parent and sole managing member of the Company, Ryan Specialty Group Holdings, Inc. operates and controls all of the business and affairs of the Company, and through the Company, conducts its business.
Basis of Presentation
The accompanying Consolidated Financial Statements and Notes thereto have been prepared in accordance with U.S. GAAP. The Consolidated Financial Statements include the Company’s accounts and those of all controlled subsidiaries. Certain information and disclosures normally included in the Financial Statements prepared in accordance with U.S. GAAP have been condensed or omitted. The Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report for the year ended December 31, 2020.
Intercompany accounts and transactions have been eliminated. In the opinion of management, the Consolidated 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.
The consolidated financial statements as of and for the periods March 31, 2021 and December 31, 2020 did not reflect the correct value for the Class A common units issued. The identification of this classification error resulted in an increase of $102.3
m
illion
in Class A common units and an offsetting increase of $102.3
million i
n Accumulated deficit for all periods presented. The Company evaluated the impact of the classification error in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99 and No. 108 based upon quantitative and qualitative factors analyzed. The Company concluded the classification error was not material to the previously issued annual financial statements and disclosures, which were also included in the confidential registration statements. The Company has revised its prior period financial statements to reflect this change.
Use of Estimates
The preparation of the Consolidated Financial Statements and Notes thereto that conform to U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated 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.
 
1
7
Impact of
COVID-19
In March 2020, the World Health Organization declared a global pandemic related to the outbreak of a respiratory illness caused by the coronavirus,
COVID-19.
Related impacts and disruptions continue to be experienced in the geographical areas in which the Company operates, and the ultimate duration and intensity of this global health emergency is unclear. There is significant uncertainty related to the economic outcomes from the ongoing COVID-19 pandemic, including the response of the federal, state and local governments as well as regulators. Given the dynamic nature of the emergency, its impact on the Company’s operations, cash flows, and financial condition cannot be reasonably estimated at this time.
New Accounting Pronouncements Recently Adopted
The following reflect recent accounting pronouncements that have been adopted by the Company. The Company qualifies as an emerging growth company and going forward has elected to adopt accounting pronouncements under public business entity adoption dates.
On October 29, 2020, the FASB issued ASU
2020-10
Codification Improvements. This ASU was issued to address a wide variety of topics in the Accounting Standard Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. For public business entities, the amendment is effective for fiscal years beginning after December 15, 2020, and interim periods therein. The Company adopted the new guidance as of January 1, 2021 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
June 30,
     
Six months ended
June 30,
  
    
2021
     
2020
     
2021
     
2020
  
Wholesale brokerage
    $ 255,959      $ 172,118      $ 447,083      $ 306,222  
Binding authorities
      53,596        31,561        108,641        65,707  
Underwriting management
      80,291        42,386        145,466        81,221  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total Net commissions and fees
   
$
389,846
 
   
$
246,065
 
   
$
701,190
 
   
$
453,150
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Contract Assets Balances
Contract assets, which arise from the Company’s volume-based commissions, are included within Commissions and fees receivable – net in the Consolidated Statements of Financial Position. The contract asset balance as of June 30, 2021 and December 31, 2020 was $5.6
million and 
$6.7
 mi
llion
, respectively. For contract assets, payment is typically due within one year of the completed performance obligation. No contract liabilities were recognized as of June 30, 2021 or December 31, 2020.
 
3.
Merger and Acquisition Activity
Acquisition Activity
On March 31, 2021, RSG acquired the remaining outstanding 53% of the common units in Ryan Re, making Ryan Re a wholly owned subsidiary. Refer to Note 15,
Related Parties
.
On September 1, 2020, RSG acquired ARL. Prior to the acquisition, ARL was an independently owned wholesale insurance brokerage, binding, and underwriting operation headquartered in Delray Beach, Florida.
 
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8
Certain amounts included in the Unaudited Consolidated Financial Statements in respect of acquisitions made in the previous twelve months may be provisional and thus subject to further adjustments until purchase accounting is finalized. The estimation of fair value requires numerous judgments, assumptions and estimates about future events and uncertainties, which could materially impact these values, and the related amortization, where applicable, in the Company’s Unaudited Consolidated Financial Statements. As of June 30, 2021, the Company has not recognized any impairments of acquired goodwill and other intangible assets.
The consideration allocation is based on estimates that are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments must be finalized during the measurement period, which for a particular asset, liability, or
non-controlling
interest ends once the acquirer determines that either (i) the necessary information has been obtained or (ii) the information is not available. However, the measurement period for all items is limited to one year from the acquisition date. No adjustment, individually or in aggregate, has been material.
Contingent Consideration
The Company recognizes losses for changes in fair value of estimated contingent consideration within Change in contingent consideration on the Consolidated Statements of Income. The Company also recognizes interest expense for accretion of the discount on these liabilities, which is recognized within Interest expense on the Consolidated Statements of Income. The table below summarizes the change in contingent consideration and interest expense related to contingent consideration liabilities for the three and six months ended June 30, 2021 and 2020:
 
     
         
      
         
      
         
      
         
  
 
  
Three months ended
June 30,
 
  
Six months ended
June 30,
 
 
  
2021
 
  
  2020  
 
  
2021
 
  
2020
 
Change in contingent consideration
    $
 
 1,723      $ —        $ 2,313      $ 1,032  
Interest expense
      313        296        399        587  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
   
$
2,036
 
   
$
 
296
 
   
$
2,712
 
   
$
1,619
 
    
 
 
     
 
 
     
 
 
     
 
 
  
The aggregate amount of maximum contingent consideration obligation related to acquisitions was $99.8
mi
llion
and $102.4
million
as of June 30, 2021 and December 31, 2020, respectively.
 
4.
Restructuring
During 2020, the Company initiated a restructuring plan after the All Risks Acquisition, to reduce costs and increase efficiencies. The restructuring plan is expected to generate annual savings of
$25.0
 million.
This plan involves restructuring costs beginning on July 1, 2020, primarily consisting of employee termination benefits and retention costs. The restructuring plan will also include charges for consolidating leased office space, as well as other professional fees. Restructuring costs incurred for the three and six months ended June 30, 2021 were $3.0
million
and $10.0
 million
, respectively, and cumulative restructuring costs incurred since the inception of the program were $20.8
mi
l
lion
as of June 30, 2021. The Company expects to incur total restructuring costs in the range of $30.0
m
illion
to $35.0
 million
, with
run-rate
savings expected to be realized by June 30, 2023.
The table below presents the restructuring expense incurred in the three and six months ended June 30, 2021:
 
    
Three
 
months
 
ended
June 30, 
     
Six
 
months
 
ended
June 30,
  
    
2021
     
2021
  
Compensation and benefits
    $ 2,162     $ 8,351  
Occupancy and other costs
(1)
      883       1,612  
    
 
 
     
 
 
  
Total