Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.24.3
Income Taxes
 9 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company is taxed as a corporation for income tax purposes and is subject to federal, state, and local taxes with respect
to its allocable share of any net taxable income from the LLC. The LLC is a limited liability company taxed as a
partnership for income tax purposes, and its taxable income or loss is passed through to its members, including the
Company. The LLC is subject to income taxes on its taxable income in certain foreign countries, in certain state and local
jurisdictions that impose income taxes on partnerships, and on the taxable income of its U.S. corporate subsidiaries.
Effective Tax Rate
The Company’s effective tax rate from continuing operations was (45.50)% and 61.26% for the three months ended
September 30, 2024 and 2023, respectively, and 7.90% and 23.92% for the nine months ended September 30, 2024 and
2023, respectively. The effective tax rates for the three and nine months ended September 30, 2024, were lower than the
21% statutory rate primarily as a result of the vesting of IPO RSUs, exercising of Stock Options, and the income
attributable to the non-controlling interests. The effective tax rates for the three and nine months ended September 30,
2023, were higher than the 21% statutory rate primarily as a result of the $20.7 million non-cash deferred income tax
expense from the common control reorganization described below, which was recognized in Income tax expense in the
Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2023.
The Company does not believe it has any significant uncertain tax positions and therefore has no unrecognized tax benefits
as of September 30, 2024, that, if recognized, would affect the annual effective tax rate. The Company does not anticipate
material changes in unrecognized tax benefits within the next twelve-month period. 
Deferred Taxes
The Company reported Deferred tax assets, net of deferred tax liabilities where appropriate, of $486.4 million and $383.8
million as of September 30, 2024 and December 31, 2023, respectively, on the Consolidated Balance Sheets. The increase
in the Deferred tax assets during the nine months ended September 30, 2024, was primarily related to exchanges of LLC
Common Units. As of September 30, 2024, the Company concluded that, based on the weight of all available positive and
negative evidence, the Deferred tax assets with respect to the Company’s basis difference in its investment in the LLC are
more likely than not to be realized. As such, no valuation allowance has been recognized against that basis difference.
Common Control Reorganization (“CCR”)
Subsequent to the acquisition of Socius, which was acquired by a wholly owned subsidiary of Ryan Specialty Holdings,
Inc., the Company converted Socius to an LLC (“Socius LLC”) and transferred Socius LLC to the LLC. This legal entity
reorganization was considered a transaction between entities under common control. The CCR resulted in deferred tax
liabilities of $64.5 million established and non-cash deferred income tax expense of $20.7 million for the three and nine
months ended September 30, 2023. Additionally, the difference between the carrying value and the fair value of the
investment transferred under common control resulted in an increase of $13.1 million to Non-controlling interests on the
Consolidated Statements of Stockholders’ Equity during the three months ended September 30, 2023.
Tax Receivable Agreement (TRA)
The Company is party to a TRA with current and certain former LLC Unitholders. The TRA provides for the payment by
the Company to the current and certain former LLC Unitholders of 85% of the net cash savings, if any, in U.S. federal,
state, and local income taxes that the Company realizes (or is deemed to realize in certain circumstances) as a result of (i)
certain increases in the tax basis of the assets of the LLC resulting from purchases or exchanges of LLC Common Units
(“Exchange Tax Attributes”), (ii) certain tax attributes of the LLC that existed prior to the IPO (“Pre-IPO M&A Tax
Attributes”), (iii) certain favorable “remedial” partnership tax allocations to which the Company becomes entitled (if any),
and (iv) certain other tax benefits related to the Company entering into the TRA, including certain tax benefits attributable
to payments that the Company makes under the TRA (“TRA Payment Tax Attributes”). The Company recognizes a
liability on the Consolidated Balance Sheets based on the undiscounted estimated future payments under the TRA. The
amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing
of the taxable income of the Company in the future.
Based on current projections, the Company anticipates having sufficient taxable income to be able to realize the benefits
and has recorded Tax Receivable Agreement liabilities of $455.1 million related to these benefits on the Consolidated
Balance Sheets as of September 30, 2024. The following summarizes activity related to the Tax Receivable Agreement
liabilities:
Exchange Tax
Attributes
Pre-IPO M&A
Tax Attributes
TRA Payment
Tax Attributes
TRA Liabilities
Balance at December 31, 2023
$194,668
$85,814
$78,416
$358,898
Exchange of LLC Common Units
68,931
5,287
21,365
95,583
Accrued interest
—
—
646
646
Balance at September 30, 2024
$263,599
$91,101
$100,427
$455,127
During the nine months ended September 30, 2024 and 2023, increases to the TRA liabilities of $95.6 million and $63.2
million, respectively, due to exchanges of LLC Common Units for Class A common stock were recognized in Additional
paid-in capital on the Consolidated Statements of Stockholders’ Equity. During the nine months ended September 30, 2024
and 2023, increases to the TRA liabilities of $0.6 million and $0.5 million, respectively, due to accrued interest were
recognized in Other non-operating loss on the Consolidated Statements of Income (Loss).
Other Comprehensive Income (Loss)
The following table summarizes the tax effects on the components of Other comprehensive income (loss):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
(Gain) loss on interest rate cap
$1,022
$(914)
$(1,009)
$(2,583)
Gain on interest rate cap reclassified to earnings
863
733
2,479
1,866
Foreign currency translation adjustments
(2,357)
188
(2,540)
54
Change in share of equity method investment in
related party
52
88
(348)
(96)