Ryan Specialty Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Equity Based Compensation

Equity Based Compensation

9 Months Ended

Sep. 30, 2024

Share-Based Payment Arrangement [Abstract]

Equity-Based Compensation

The Ryan Specialty Holdings, Inc., 2021 Omnibus Incentive Plan (the “Omnibus Plan”) governs, among other things, the

types of awards the Company can grant to employees as equity-based compensation awards. The Omnibus Plan provides

for potential grants of the following awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock awards,

(iv) performance awards, (v) other stock-based awards, (vi) other cash-based awards, and (vii) analogous equity awards

made in equity of the LLC.

IPO-Related Awards

As a result of the Organizational Transactions, pre-IPO holders of LLC Units that were granted as incentive awards, which

had historically been classified as equity and vested pro rata over five years, were required to exchange their LLC Units for

either Restricted Stock or Restricted Common Units. Additionally, Reload Options or Reload Class C Incentive Units were

issued to employees in order to protect against the dilution of their existing awards upon exchange to the new awards.

Separately, certain employees were granted one or more of the following new awards: (i) Restricted Stock Units (“RSUs”),

(ii) Staking Options, (iii) Restricted LLC Units (“RLUs”), or (iv) Staking Class C Incentive Units. The terms of these

awards are described below. All awards granted as part of the Organizational Transactions and the IPO are subject to non-

linear transfer restrictions for at least the five-year period following the IPO.

Incentive Awards

As part of the Company’s annual compensation process, the Company issues certain employees and directors equity-based

compensation awards (“Incentive Awards”). Additionally, the Company offers Incentive Awards to certain new hires.

These Incentive Awards typically take the form of (i) RSUs, (ii) RLUs, (iii) Class C Incentive Units, (iv) Stock Options,

(v) Performance Stock Units (“PSUs”), and (vi) Performance LLC Units (“PLUs”). The terms of these awards are

described below.

Restricted Stock and Restricted Common Units

As part of the Organizational Transactions, certain existing employee unitholders were granted Restricted Stock or

Restricted Common Units in exchange for their LLC Units. The Restricted Stock and Restricted Common Units follow the

vesting schedule of the LLC Units for which they were exchanged. LLC Units historically vested pro rata over 5 years.


	Nine Months Ended September 30, 2024
	Restricted Stock	Weighted Average Grant Date Fair Value	Restricted Common Units	Weighted Average Grant Date Fair Value
Unvested at beginning of period	938,910	$21.15	1,122,564	$23.84
Granted	—	—	—	—
Vested	(457,906)	21.15	(869,906)	23.84
Forfeited	(1,883)	21.15	—	—
Unvested at end of period	479,121	$21.15	252,658	$23.84

Restricted Stock Units (RSUs)

IPO RSUs

Related to the IPO, the Company granted RSUs to certain employees. The IPO RSUs vest either pro rata over 5 years from

the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year

10.

Incentive RSUs

As part of the Company’s compensation process, the Company issues Incentive RSUs to certain employees. The Incentive

RSUs vest either 100% 3 or 5 years from the grant date, pro rata over 3 or 5 years from the grant date, over 5 years from

the grant date, with one-third of the grant vesting in each of years 3, 4 and 5, or over 7 years from the grant date, with 20%

vesting in each of years 3 through 7.

Upon vesting, RSUs automatically convert on a one-for-one basis into Class A common stock.


	Nine Months Ended September 30, 2024
	IPO RSUs		Incentive RSUs
	Restricted Stock Units	Weighted Average Grant Date Fair Value	Restricted Stock Units	Weighted Average Grant Date Fair Value
Unvested at beginning of period	3,359,778	$23.07	1,819,916	$38.02
Granted	—	—	794,643	52.72
Vested	(596,879)	22.81	(177,713)	37.73
Forfeited	(40,332)	22.77	(70,305)	40.07
Unvested at end of period	2,722,567	$23.13	2,366,541	$42.92

Stock Options

Reload and Staking Options

As part of the Organizational Transactions and IPO, certain employees were granted Reload Options or Staking Options

that entitle the award holder to future purchases of Class A common stock, on a one-for-one basis, at the IPO price of

$23.50. The Reload Options vest either 100% 3 years from the grant date or over 5 years from the grant date, with one-

third of the grant vesting in each of years 3, 4 and 5. In general, vested Reload Options are exercisable up to the tenth

anniversary of the grant date. The Staking Options vest over 10 years from the grant date, with 10% vesting in each of

years 3 through 9 and 30% vesting in year 10. In general, vested Staking Options are exercisable up to the eleventh

anniversary of the grant date.

Incentive Options

As part of the Company’s compensation process, the Company may issue Incentive Options to certain employees that

entitle the award holder to future purchases of Class A common stock, on a one-for-one basis, at the respective exercise

prices. The Incentive Options vest either over 5 years from the grant date, with one-third of the grant vesting in each of

years 3, 4 and 5 or pro rata over 7 years from the grant date. In general, vested Incentive Options are exercisable up to the

tenth anniversary of the grant date.


	Nine Months Ended September 30, 2024
	Reload Options1	Staking Options1	Incentive Options	Incentive Options Weighted Average Exercise Price
Outstanding at beginning of period	4,473,388	66,667	165,684	$34.39
Granted	—	—	150,000	52.38
Exercised	(508,613)	—	—	—
Forfeited	(17,611)	—	(11,002)	34.39
Outstanding at end of period	3,947,164	66,667	304,682	$43.25

1As the Reload and Staking Options were one-time grants at the IPO, the weighted average exercise price for any

movements in these awards will perpetually be $23.50. As such, the values are not presented in the table above.

The fair value of Incentive Options granted during the nine months ended September 30, 2024, was determined using the

Black-Scholes option pricing model with the following assumptions:


	Incentive Options
Volatility	25.0%
Time to maturity (years)	7.0
Risk-free rate	4.2%
Dividend yield	0.8%
Fair value per option	$17.09

The use of a valuation model for the Options requires management to make certain assumptions with respect to selected

model inputs. Expected volatility was calculated based on the observed volatility for comparable companies. The expected

time to maturity was based on the weighted-average vesting term and contractual term of the awards. The risk-free interest

rate was based on U.S. Treasury rates commensurate with the expected life of the award. The dividend yield was based on

the Company’s expected dividend rate.

As of September 30, 2024, there were 1,601,823 and 6,666 exercisable Staking and Reload Options, respectively, and no

exercisable Incentive Options. The aggregate intrinsic values and weighted average remaining contractual terms of Stock

Options outstanding and exercisable as of September 30, 2024, were as follows:


Aggregate intrinsic value ($ in thousands)
Reload Options outstanding		$169,294
Reload Options exercisable		68,702
Staking Options outstanding		2,859
Staking Options exercisable		286
Incentive Options outstanding		7,051
Incentive Options exercisable		—
Weighted-average remaining contractual term (in years)
Reload Options outstanding		6.6
Reload Options exercisable		6.5
Staking Options outstanding		7.8
Staking Options exercisable		7.8
Incentive Options outstanding		8.4
Incentive Options exercisable		—

Restricted LLC Units (RLUs)

IPO RLUs

Related to the IPO, the Company granted RLUs to certain employees that vest either pro rata over 5 years from the grant

date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Incentive RLUs

As part of the Company’s compensation process, the Company issues Incentive RLUs to certain employees. The Incentive

RLUs vest either 100% 3 years from the grant date, pro rata over 3 or 5 years from the grant date, or over 7 years from the

grant date, with 20% vesting in each of years 3 through 7.

Upon vesting, RLUs convert on a one-for-one basis into either LLC Common Units or Class A common stock at the

election of the Company.


	Nine Months Ended September 30, 2024
	IPO RLUs		Incentive RLUs
	Restricted LLC Units	Weighted Average Grant Date Fair Value	Restricted LLC Units	Weighted Average Grant Date Fair Value
Unvested at beginning of period	1,448,127	$25.09	482,329	$39.80
Granted	—	—	249,971	51.33
Vested	(154,589)	25.05	(45,588)	35.60
Forfeited	—	—	—	—
Unvested at end of period	1,293,538	$25.10	686,712	$44.30

Class C Incentive Units

Reload and Staking Class C Incentive Units

As part of the Organizational Transactions and IPO, certain employees were granted Reload Class C Incentive Units or

Staking Class C Incentive Units, which are profits interests. When the value of Class A common stock exceeds the

participation threshold, vested profits interests may be exchanged for LLC Common Units of equal value. On exchange,

the LLC Common Units are immediately redeemed on a one-for-one basis for Class A common stock. The Reload Class C

Incentive Units vest either 100% 3 years from the grant date or over 5 years from the grant date, with one-third of the grant

vesting in each of years 3, 4 and 5. The Staking Class C Incentive Units vest either pro rata over 5 years from the grant date

or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Class C Incentive Units

As part of the Company’s compensation process, the Company issues Class C Incentive Units to certain employees, which

are profits interests. When the value of Class A common stock exceeds the participation threshold, vested profits interests

may be exchanged for LLC Common Units of equal value. On exchange, the LLC Common Units are immediately

redeemed on a one-for-one basis for Class A common stock. The Class C Incentive Units vest over 8 years from the grant

date, with 15% vesting in each of years 3 through 7 and 25% vesting in year 8, or over 7 years from the grant date, with

20% vesting in each of years 3 through 7.


	Nine Months Ended September 30, 2024
	Reload Class C Incentive Units	Staking Class C Incentive Units	Class C Incentive Units	Class C Incentive Units Weighted Average Participation Threshold
Unvested at beginning of period	3,911,490	1,876,669	495,822	$36.96
Granted	—	—	—	—
Vested	(2,958,895)	(271,666)	—	—
Forfeited	—	—	—	—
Unvested at end of period	952,595	1,605,003	495,822	$36.84

As the Reload and Staking Class C Incentive Units were one-time grants at the IPO, the weighted average participation

threshold for these awards will be consistent across any type of movement. The weighted average participation threshold

for Reload and Staking Class C Incentive Units was $23.38 and $23.50 as of September 30, 2024 and December 31, 2023,

respectively. The decrease in the participation thresholds for the various types of Class C Incentive Units was due to the

distributions declared to these awards during the nine months ended September 30, 2024.

Performance Based Awards

Performance Stock Units (PSUs) and Performance LLC Units (PLUs)

Certain employees were granted performance-based equity awards, either PSUs or PLUs, subject to the Company’s

achievement of several defined performance metrics including (i) an Adjusted EBITDAC Margin target, (ii) an Organic

Revenue Growth Compound Annual Growth Rate (“CAGR”) target, and (iii) total shareholder return (“TSR”) CAGR

targets. The TSR CAGR targets are measured from the grant date share price to the sum of (i) the average of (a) the volume

weighted average price (“VWAP”) of the Class A common stock for the fourth quarter of 2027 and (b) the VWAP of the

Class A common stock for the first quarter of 2028 and (ii) dividends paid to Class A common shareholders. The Adjusted

EBITDAC Margin and the Organic Revenue Growth CAGR targets as well as a minimum threshold for the TSR CAGR

target must be achieved for the awards to vest. If the Adjusted EBITDAC Margin or the Organic Revenue Growth CAGR

targets are not met, or the TSR CAGR is below the minimum threshold, the awards will be forfeited.

PSUs represent the right to receive Class A common shares and PLUs represent the right to receive LLC Common Units

upon vesting. If the Adjusted EBITDAC Margin and the Organic Revenue Growth CAGR targets are achieved, and the

TSR CAGR meets at least the minimum threshold, the TSR CAGR targets will determine how many Class A common

shares or LLC Common Units, as applicable, the awards vest into. Assuming the minimum threshold is met, the awards

will vest into between 75% and 150% of the applicable stock or units. The payout percentage between the TSR CAGR

range will be determined on a graduated basis. Confirmation of the targets will not occur until after the Company’s fiscal

year 2028 earnings are reported. If the targets are achieved, the awards will vest on April 1, 2029. The probability of

achieving the performance metrics is assessed each reporting period for expense purposes.


	Nine Months Ended September 30, 2024
	PSUs		PLUs
	Performance Stock Units	Weighted Average Grant Date Fair Value	Performance LLC Units	Weighted Average Grant Date Fair Value
Unvested at beginning of period	—	$—	—	$—
Granted	303,721	24.75	487,218	24.40
Vested	—	—	—	—
Forfeited	—	—	—	—
Unvested at end of period	303,721	$24.75	487,218	$24.40

The fair value of the performance-based awards granted during the nine months ended September 30, 2024, was

determined using the Monte Carlo simulation valuation model with the following assumptions:


	PSUs and PLUs
Volatility	24.7%
Time to maturity (years)	4.1
Risk-free rate	4.2%
Initial RYAN stock price	$52.38

The use of a valuation model for the PSUs and PLUs requires management to make certain assumptions with respect to

selected model inputs. Expected volatility was calculated based on the observed volatility for comparable companies. The

time to maturity was based on the stock price CAGR target through the first quarter of 2028. The risk-free interest rate was

based on U.S. Treasury rates commensurate with the performance period. The initial RYAN stock price is the base for the

stock price CAGR target. The difference in the grant date fair value of the PSUs and PLUs relates to the difference in

Dividend Equivalents and Distributions Declared (as defined below) each award is entitled to accrue.

Non-Employee Director Stock Grants

The Company grants RSUs to non-employee directors serving as members of the Company’s Board of Directors (“Director

Stock Grants”), with the exception of the one director appointed by Onex in accordance with Onex’s nomination rights

who has agreed to forgo any compensation for his service to the Board. The Director Stock Grants are fully vested upon

grant. The Company granted 22,935 Director Stock Grants with a weighted-average grant date fair value of $49.07 and

19,698 Director Stock Grants with a weighted-average grant date fair value of $40.86 during the nine months ended

September 30, 2024 and 2023, respectively.

Dividend Equivalents and Declared Distributions

A majority of the Company’s unvested equity-based compensation awards, with the exception of Options and Class C

Incentive Units, are entitled to accrue dividend equivalents if the award vests into Class A common stock (“Dividend

Equivalents”) or declared distributions if the award vests into LLC Common Units (“Declared Distributions”) over the

period the underlying award vests. The Dividend Equivalents and Declared Distributions will be paid in cash to award

holders at the time the underlying award vests. If an award holder forfeits their underlying award, the accrued Dividend

Equivalents or Declared Distributions will also be forfeited. Class C Incentive Units do not accrue cash distributions but

instead have their participation thresholds lowered by each distribution declared. Options do not participate in dividends.

As of September 30, 2024, the Company accrued $0.8 million and $0.1 million related to Dividend Equivalents and

Declared Distributions, respectively, in Accounts payable and accrued liabilities, and $2.4 million and $0.3 million related

to Dividend Equivalents and Declared Distributions, respectively, in Other non-current liabilities on the Consolidated

Balance Sheets.

Equity-Based Compensation Expense

As of September 30, 2024, the unrecognized equity-based compensation costs related to each type of equity-based

compensation award described above and the related weighted-average remaining expense period were as follows:


	Amount	Weighted Average Remaining Expense Period (Years)
Restricted Stock	$1,268	0.5
IPO RSUs	29,887	3.4
Incentive RSUs	62,355	2.4
Reload Options	1,216	0.7
Staking Options	253	3.9
Incentive Options	2,650	1.6
PSUs	6,607	4.3
Restricted Common Units	670	0.2
IPO RLUs	18,062	4.7
Incentive RLUs	21,336	2.0
Reload Class C Incentive Units	788	0.9
Staking Class C Incentive Units	9,797	4.2
Class C Incentive Units	5,882	3.8
PLUs	10,448	4.3
Total unrecognized equity-based compensation expense	$171,219

The following table includes the equity-based compensation the Company recognized by award type from the view of

expense related to pre-IPO and post-IPO awards. The table also presents the unrecognized equity-based compensation

expense as of September 30, 2024, in the same view.


	Recognized				Unrecognized
	Three Months Ended September 30,		Nine Months Ended September 30,		As of September 30, 2024
	2024	2023	2024	2023	As of September 30, 2024
IPO awards
IPO RSUs and Staking Options	$2,720	$3,654	$9,226	$12,599	$30,140
IPO RLUs and Staking Class C Incentive Units	2,146	2,738	7,277	8,866	27,859
Incremental Restricted Stock and Reload Options	622	1,156	2,485	3,723	1,850
Incremental Restricted Common Units and Reload Class C Incentive Units	586	1,779	3,018	5,779	1,257
Pre-IPO incentive awards
Restricted Stock	498	646	1,333	2,144	634
Restricted Common Units	4,733	308	5,095	1,224	201
Post-IPO incentive awards
Incentive RSUs	8,001	5,237	21,759	13,896	62,355
Incentive RLUs	2,058	1,214	5,671	3,329	21,336
Incentive Options	272	125	823	368	2,650
Class C Incentive Units	521	521	1,551	1,385	5,882
PSUs	391	—	910	—	6,607
PLUs	619	—	1,439	—	10,448
Other expense
Director Stock Grants	292	230	1,077	823	N/A
Total equity-based compensation expense	$23,459	$17,608	$61,664	$54,136	$171,219