Income Taxes |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 108.60% and 13.70% for the three months ended
March 31, 2025 and 2024, respectively. The effective tax rate for the three months ended March 31, 2025, was higher than
the 21% statutory rate primarily as a result of the non-cash deferred income tax expense from the CCR related to the
acquisition of Velocity, which is described below, offset by a decrease related to income attributable to the non-controlling
interests. The effective tax rate for the three months ended March 31, 2024, was lower than the 21% statutory rate primarily
as a result of the income attributable to the non-controlling interests.
The Company does not believe it has any significant uncertain tax positions and therefore has no unrecognized tax benefits
as of March 31, 2025, 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 $308.9 million and $448.3
million as of March 31, 2025 and December 31, 2024, respectively, on the Consolidated Balance Sheets. The decrease in
the Deferred tax assets during the three months ended March 31, 2025, was primarily the result of the CCR. As of
March 31, 2025, 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 Velocity, which was acquired by a wholly owned subsidiary of Ryan Specialty Holdings,
Inc., the Company converted Velocity into an LLC (“Velocity LLC”) and transferred Velocity LLC to the LLC. This legal
entity reorganization was considered a transaction between entities under common control. The CCR resulted in a
reduction of deferred tax assets in the Company’s basis difference in its investment in the LLC of $145.2 million and a
non-cash deferred income tax expense of $48.1 million for the three months ended March 31, 2025. Additionally, the
difference between the carrying value and the fair value of the investment transferred under common control resulted in an
increase of $29.8 million to Non-controlling interests on the Consolidated Statements of Stockholders’ Equity during the
three months ended March 31, 2025.
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 actually realizes (or under certain circumstances is deemed to realize) from
(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 $447.4 million related to these benefits on the Consolidated
Balance Sheets as of March 31, 2025. The following summarizes activity related to the Tax Receivable Agreement
liabilities:
During the three months ended March 31, 2025 and 2024, increases to the TRA liabilities of $11.1 million and $2.1
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.
Other Comprehensive Income
The following table summarizes the tax effects on the components of Other comprehensive income:
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