Summary of Significant Accounting Policies |
12 Months Ended |
|---|---|
Dec. 31, 2025 | |
| Accounting Policies [Abstract] | |
| Summary of Significant Accounting Policies |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Segment Reporting
In accordance with ASC 280, Segment Reporting, Ryan Specialty’s operations are reported as a single operating and
reporting segment. See Note 19, Segment Reporting, for additional information on the Company’s segment reporting.
Revenue Recognition
The Company generates revenues primarily through commissions and fees from customers, as well as compensation from
insurance and reinsurance companies for services provided to them.
The Company incurs both costs to fulfill contracts, principally in pre-placement activities, and costs to obtain contracts,
principally through certain sales commissions paid to employees. For situations in which the renewal period is one year or
less and renewal costs are commensurate with the initial contract, the Company applies a practical expedient and
recognizes the costs of obtaining a contract as an expense when incurred.
Net Commissions and Policy Fees
Net commissions and policy fees revenue is primarily based on a percentage of premiums or fees received for an agreed-
upon level of service. The Company’s customers for this revenue stream are agents of the insured. The net commissions
and policy fees are recognized at the point in time when an insurance policy is bound and issued, which occurs on the later
of the policy effective date or the date the Company receives a request to bind coverage from the customer. Most insurance
premiums are subject to cancellations; therefore, commission revenue is considered to be variable consideration at the
contract effective date and is recognized net of a constraint for estimated policy cancellations. Estimated policy
cancellations are based upon the Company’s historical cancellations. Any endorsement made to a contract is treated as a
new contract with revenue recognized on the later of the endorsement effective date or the date the Company receives a
request to bind coverage from the customer.
Supplemental and Contingent Commissions
Supplemental and contingent commissions are additional revenues paid to the Company based on the volume and/or
underwriting profitability of the eligible insurance contracts placed. The Company’s performance obligation is satisfied and
revenue is recognized over time using the output method as the Company places eligible or profitable policies. For this
revenue stream, the customer is the carrier as the carrier is the entity that will ultimately pay the Company additional
revenues once certain volume and/or profitability targets are achieved by the carrier. Because of the limited visibility into
the satisfaction of performance indicators outlined in the contracts, the Company constrains such revenues until the time
that the carrier provides explicit confirmation of amounts owed to the Company to avoid a significant reversal of revenue
in a future period. The uncertainty regarding the ultimate transaction price for contingent commissions is principally the
profitability of the underlying insurance policies placed as determined by the development of loss ratios maintained by the
carriers. The uncertainty is resolved over the contractual term as actual results are achieved.
Loss Mitigation Fees
Loss mitigation fees, or mergers and acquisitions (“M&A”) fees, consist of revenue earned from the review of due
diligence and other relevant information in underwriting a risk. The customer of this revenue stream is the agent of the
insured. The performance obligation is the production of an Expense Agreement (“EA”) or Letter of Intent (“LOI”). As the
M&A fees are not dependent on the outcome of the risk being insured, the Company recognizes these fees at the point in
time when control transfers to the customer, which occurs on the effective date of an executed EA or LOI.
Disaggregation of Revenue
Wholesale Brokerage revenue primarily includes insurance commissions and fees for services rendered to retail agents and
brokers, as well as supplemental and contingent commissions from carriers. Wholesale Brokerage distributes a wide range
and diversified mix of specialty property, casualty, professional lines, and workers’ compensation insurance products from
insurance carriers to retail brokerage firms.
Binding Authority revenue primarily includes insurance commissions, including supplemental and contingent commissions
from carriers. The Company’s binding authorities receive underwriting authority from a variety of carriers for both
Admitted and non-admitted business for small- to mid-size risks. Wholesale binding authorities generally have authority to
bind coverage on behalf of an insurance carrier for a specific type of risk, subject to agreed-upon guidelines and limits.
Wholesale binding authorities receive submissions for insurance directly from retail brokers, evaluate price, make
underwriting decisions regarding these submissions, and bind and issue policies on behalf of insurance carriers. Wholesale
binding authorities are typically created to handle large volumes of small-premium policies across commercial and
personal lines within strictly defined underwriting criteria. Binding authorities allow the insured to access additional capital
and the carrier to efficiently aggregate its distribution.
Underwriting Management revenue primarily includes insurance commissions, including contingent commissions for
placing profitable business with carrier partners, reinsurance commissions, and loss mitigation fees. Underwriting
Management provides retail and wholesale brokers specialty market expertise in distinct and complex market niches
underserved in today’s marketplace through MGUs, which act on behalf of insurance carriers that have given the Company
the authority to underwrite and bind coverage for specific risks in a cost-effective manner, and programs that offer
commercial and personal insurance for specific product lines or industry classes.
Contract Balances
Contract assets, which arise primarily from the Company’s supplemental and contingent commission arrangements,
medical stop loss business, and multi-year structured solutions business, are included within Commissions and fees
receivable – net on the Consolidated Balance Sheets. These assets relate to the unbilled amounts of services for which the
Company recognizes revenue over time. Payment related to contract assets is typically due within one year of the
completed performance obligation. Occasionally, the Company receives cash payments from customers in advance of the
Company’s performance obligation being satisfied, which represent a contract liability and are included within Accounts
payable and accrued liabilities on the Consolidated Balance Sheets. Contract liabilities are recognized as revenue when the
performance obligations are satisfied.
Cash and Cash Equivalents
Cash and cash equivalents include cash in demand deposit accounts and short-term investments, consisting principally of
AAA-rated money market funds and treasury bills, having original maturities of 90 days or less. Interest income is
recognized in Interest expense, net on the Consolidated Statements of Income.
Commissions and Fees Receivable
The Company earns commissions and fees through its Wholesale Brokerage, Binding Authority, and Underwriting
Management Specialties. The Company records a receivable once a performance obligation is satisfied. In some instances,
the Company advances premiums on behalf of clients, or advances claims payments and refunds to clients on behalf of
underwriters. These amounts are reflected within Commissions and fees receivable – net on the Consolidated Balance
Sheets.
The Company’s receivables are shown net of an allowance for expected credit losses, which is estimated based on a
combination of factors, including evaluation of historical write-offs, current economic conditions, aging of balances, and
other qualitative and quantitative analyses.
Fiduciary Assets, Fiduciary Liabilities, and Related Income
In its role as an insurance intermediary, the Company collects and remits amounts between insurance agents and brokers
and insurance underwriters. Because these amounts are collected on behalf of third parties, they are excluded from the
measurement of the transaction price. Similarly, the Company elected to exclude surplus lines taxes from the measurement
of the transaction price, as these are assessed by and remitted to governmental authorities. The Company recognizes
fiduciary amounts collectible and held on behalf of others, including insurance policyholders, clients, other insurance
intermediaries, and insurance carriers, as Fiduciary cash and receivables on the Consolidated Balance Sheets. Cash and
cash equivalents held in excess of the amount required to meet the Company’s fiduciary obligations are recognized as Cash
and cash equivalents on the Consolidated Balance Sheets. The Company recognizes premiums, claims payable, and surplus
lines taxes as Fiduciary liabilities on the Consolidated Balance Sheets. The Company does not have any rights or
obligations in connection with these amounts with the exception of segregating these amounts from the Company’s
operating accounts and liabilities.
Unremitted insurance premiums are held in a fiduciary capacity until disbursement. The Company holds these funds in
cash and, where permitted, cash equivalents, including AAA-rated money market funds registered with the U.S. Securities
and Exchange Commission under Rule 2a-7 of the Investment Company Act of 1940. Interest income is earned on the
unremitted funds, which is included in Fiduciary investment income in the Consolidated Statements of Income. Interest
earned on fiduciary funds held is not accounted for under ASC 606, Revenue from Contracts with Customers.
Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of consideration transferred over the fair value of the net assets acquired in the acquisition
of a business. The Company recognizes goodwill as the amount of consideration transferred which cannot be assigned to
other tangible or intangible assets and liabilities.
The Company reviews goodwill for impairment at least annually, and whenever events or changes in circumstances
indicate that the carrying value of the reporting unit may not be recoverable. In the performance of the annual evaluation,
the Company also considers qualitative and quantitative developments between the date of the goodwill impairment review
and the fiscal year end to determine if an impairment should be recognized.
The Company reviews goodwill for impairment at the reporting unit level, which coincides with the operating segment,
Ryan Specialty. The determinations of impairment indicators and the fair value of the reporting unit are based on estimates
and assumptions related to the amount and timing of future cash flows and future interest rates. Such estimates and
assumptions could change in the future as more information becomes available, which could impact the amounts reported
and disclosed herein.
Intangible Assets
Intangible assets consist primarily of customer relationships. Customer relationships are amortized over their estimated
useful lives, ranging from to fifteen years, in proportion with the realization of their economic benefit. Generally, the
Company uses outside valuation specialists to value acquired intangible assets. Other intangible assets include trade names,
internally developed software, and assembled workforces, which are amortized over their estimated useful lives, typically
to three years, to seven years, and five years, respectively. The Company has no indefinite-lived intangible assets.
Equity Method Investments
The Company uses the equity method to account for equity investments for which the Company has the ability to exercise
significant influence, but not control, over the investee’s operating and financial policies. Equity method investments are
initially recorded at cost and subsequently adjusted to recognize the Company’s proportionate share of the investee’s net
income or loss. The Company’s proportionate share of the other comprehensive income or loss from equity method
investments is reflected on the Consolidated Statements of Comprehensive Income. Intra-entity profits or losses arising
from transactions with equity method investees are eliminated in proportion with the Company’s ownership interest until
realized by the investee. The eliminations are recognized through Equity method investments on the Consolidated Balance
Sheets and Income from equity method investments on the Consolidated Statements of Income. The Company may incur
certain expenses on behalf of its investees, which are recognized within Income from equity method investments on the
Consolidated Statements of Income. The Company’s equity method investments are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the impairment
is determined to be other-than-temporary, the Company will recognize an impairment loss equal to the difference between
the expected realizable value and the carrying value of the investment.
Leases
The Company evaluates contracts entered into to determine whether the contract involves the use of an asset. The
Company then evaluates whether it controls the use of the asset, which is determined by assessing whether it obtains
substantially all economic benefits from the use of the asset, and whether it has the right to direct the use of the asset. If
these criteria are met and a lease has been identified, the Company accounts for the contract under the requirements of ASC
842, Leases.
The Company’s leased assets consist primarily of real estate for occupied offices and office equipment. Certain of these
leases have options permitting renewals for additional periods or clauses allowing for early termination, and where those
are reasonably certain to be executed, they are recognized as a component of the initial lease term. All of the Company’s
real estate leases and office equipment leases are recognized as operating leases. The Company also subleases some real
estate properties to third parties, which are classified as operating leases. The Company recognizes lease payments for
short-term leases of twelve months or less on a straight-line basis over the lease term in the Consolidated Statements of
Income.
For leases in which an implicit rate is not provided in the contract, the Company uses an incremental borrowing rate based
on the information available at the lease commencement date in determining the present value of lease payments. The
Company does not account for separate lease components of a contract and its associated non-lease components as a single
lease component. Further, variable expenses related to real estate and office equipment leases are expensed as incurred.
At the lease commencement for operating leases, the Company recognizes the total lease liability through the lease term as
the present value of all remaining payments, discounted by the rate determined at commencement. Operating leases are
included in Lease right-of-use assets, Current Operating lease liabilities, and Non-current Operating lease liabilities on the
Consolidated Balance Sheets. In the event the lease liability is remeasured due to a change in the scope of, or the
consideration for, a lease, an adjustment is made to the right-of-use asset. If a right-of-use asset is impaired, the impairment
charge is recognized within General and administrative expense on the Consolidated Statements of Income.
Equity-Based Compensation
The Company issues equity-based awards to employees in the form of Restricted Stock, Restricted Stock Units (“RSUs”),
Performance Stock Units (“PSUs”), Stock Options, Restricted Common Units, Restricted LLC Units (“RLUs”),
Performance LLC Units (“PLUs”), and Class C Incentive Units. Compensation expense for equity awards is measured at
the grant date fair value. The grant date fair value of Restricted Stock and RSUs is based on the closing price of the
underlying stock the day prior to issuance. The grant date fair value of RLUs is valued consistently to RSUs less a discount
for the lower distributions that they are entitled to accrue. The grant date fair value of Stock Options is estimated using the
Black-Scholes option pricing model, and the grant date fair value of PSUs, PLUs, Restricted Common Units and Class C
Incentive Units is estimated using a Monte Carlo simulation based pricing model. These pricing models require
management to make assumptions with respect to the fair value of the equity awards on the grant date, including the
expected term of the award, the expected volatility of the Company’s stock based on a period of time generally
commensurate with the expected term of the award, risk-free interest rates, and expected dividend yields of the Company’s
Class A common stock, among other items including the Company’s Class A common stock price and taxable income
forecasts. These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market
conditions generally outside the control of the Company. As a result, if other assumptions are used, compensation expense
could be materially impacted.
The Company accounts for equity-based compensation in accordance with ASC 718, Compensation- Stock Compensation
(“ASC 718”). In accordance with ASC 718, compensation expense is measured at the estimated grant date fair value of the
equity-based awards and is expensed over the vesting period during which an employee provides service in exchange for
the award. Compensation expense is recognized using the graded vesting attribution method and forfeitures are accounted
for as they occur. For performance-based awards, the Company assesses the probability of achieving the relevant
performance metrics each reporting period. If the Company determines that it is no longer probable that a performance
metric will be achieved, the expense previously recognized for the related awards is reversed. Equity-based compensation
expense is recorded in Compensation and benefits on the Consolidated Statements of Income. See Note 10, Equity-Based
Compensation, for additional information on the Company’s equity-based compensation awards.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings attributable to Ryan Specialty Holdings, Inc. by the number
of weighted-average shares of Class A common stock outstanding during the period. Diluted earnings per share is
computed by dividing net earnings attributable to Ryan Specialty Holdings, Inc. by the number of weighted-average shares
of Class A common stock outstanding during the period after adjusting for the impact of securities that would have a
dilutive effect on earnings per share. See Note 11, Earnings Per Share, for additional information on dilutive securities.
Derivative Instruments and Hedging Activities
The Company generally uses derivative financial instruments to manage the risk profile of existing underlying exposures,
including changes in interest rates and foreign currency exchange rates. For cash flow hedges, the Company assesses
effectiveness both at inception and on an on-going basis. For hedging derivatives that qualify as effective cash flow hedges,
the Company records the cumulative changes in the fair value of the financial instrument in Other comprehensive income
(loss) (“OCI”). Amounts recorded in OCI are reclassified into earnings in the periods in which earnings are affected by the
hedged cash flow. If a derivative is not designated as an accounting hedge, such as forward contracts periodically used by
the Company to limit foreign currency exchange rate exposure, the change in fair value is recorded in earnings. The
Company utilized an interest rate cap for interest rate risk management purposes. The Company amortized the premium
paid for the interest rate cap on a straight-line basis over the life of the instrument. The premium amortization was
recognized in Interest expense, net on the Consolidated Statements of Income. The Company recognizes cash flows related
to designated and non-designated hedges in the same section of the Consolidated Statement of Cash Flows as the cash
flows related to the item being hedged. The Company does not hold or issue derivative instruments for trading or
speculative purposes. See Note 12, Derivatives, for further discussion of derivative financial instruments.
Defined Contribution Plan
The Company offers a defined contribution retirement benefit plan, the Ryan Specialty Employee Savings Plan (the
“Savings Plan”), to all eligible U.S. employees, based on a minimum number of service hours in a year. Under the Savings
Plan, eligible employees may contribute a percentage of their compensation, subject to certain limitations. Further, the
Savings Plan authorizes the Company to make a discretionary matching contribution, which has historically equaled 50%
of each eligible employee’s contribution. The Company makes discretionary matching contributions throughout the year
and recognizes expense for the matching contribution in the period where requisite employee service is performed. The
Company recognized expense related to discretionary matching contributions of $31.0 million, $25.3 million, and $21.3
million for the years ended December 31, 2025, 2024, and 2023, respectively, which was included in Compensation and
benefits on the Consolidated Statements of Income.
Deferred Compensation Plan
The Company offers a non-qualified deferred compensation plan to certain senior employees and members of management.
Under this plan, amounts deferred remain assets of the Company and are subject to the claims of the Company’s creditors
in the event of insolvency. Amounts deferred are not invested in any funds. However, the liability balance is updated to
reflect hypothetical interest, earnings, appreciation, losses, and depreciation that would be accrued or realized if the
deferred compensation amounts had been invested in the applicable benchmark investments. Changes in the value of
deferred amounts held are recognized within Compensation and benefits in the Consolidated Statements of Income. The
Company recognized liabilities for employee deferrals, inclusive of changes in the value of deferred amounts held, of $8.0
million and $5.2 million in Current Accrued compensation as of December 31, 2025 and 2024, respectively, and $50.8
million and $36.5 million in Non-current Accrued compensation on the Consolidated Balance Sheets as of December 31,
2025 and 2024, respectively.
Non-Controlling Interests
As noted above, the Company consolidates the financial results of the LLC; therefore, it reports non-controlling interests
based on the LLC Common Units not owned by the Company on the Consolidated Balance Sheets. Net income and OCI
are attributed to the non-controlling interests based on the weighted-average LLC Common Units outstanding during the
period. Net income attributable to the non-controlling interests is presented on the Consolidated Statements of Income.
Refer to Note 9, Stockholders’ Equity, for more information.
The non-controlling interest holders may, subject to certain exceptions, exchange some or all of their LLC Common Units
for newly-issued shares of Class A common stock on a one-for-one basis, or for cash, at the Company’s election
(determined by a majority of the Company’s directors who are disinterested) and only to the extent that the Company has
received cash proceeds pursuant to a secondary offering. As any redemption settled in cash would be limited to proceeds
received from the sale of new permanent equity securities, the Non-controlling interests are classified as permanent equity
on the Consolidated Balance Sheets.
Captive Insurance Cells
Through acquisitions, the Company has an ownership interest in three entities that hold segregated account protected cell
captives. These entities are structured with protected cell captives for each insured (“Captive Cells”) and the core regulated
companies (“Core Companies”). The Core Companies are owned and operated by the Company, and are not exposed to the
insurance and investment risks that the Captive Cells are designed to create and distribute on behalf of the insureds. The
Company has a variable interest in the Core Companies due to its ownership interests, however, as the Core Companies are
not exposed to the variability of the Captive Cells, only the activity of the regulated Core Companies is recorded in the
Company’s consolidated financial statements, including cash and any expenses incurred to operate the Captive Cells.
Litigation and Contingent Liabilities
The Company is subject to various legal actions related to claims, lawsuits, and proceedings incident to the nature of the
business. The Company records liabilities for loss contingencies when it is probable that a liability has been incurred on or
before the balance sheet date and the amount of the liability can be reasonably estimated. The Company does not discount
such contingent liabilities and recognizes related legal costs, such as fees and expenses of external counsel and other
service providers, as period expenses when incurred. Loss contingencies are recorded within Accounts payable and accrued
liabilities on the Consolidated Balance Sheets. Significant management judgment is required to estimate the amounts of
such contingent liabilities. The Company records loss recoveries from E&O insurance coverage, up to the amount of the
financial statement loss incurred, when the realization of the indemnity for a claim presented under the Company’s E&O
insurance coverage is deemed probable in Other current assets on the Consolidated Balance Sheets. In order to assess
potential liabilities and any recoveries, the Company analyzes the litigation exposure based upon available information,
including consultation with counsel handling the defense of these matters. As these liabilities are uncertain by their nature,
the recorded amounts may change due to a variety of factors, including new developments or changes in the approach, such
as changing the settlement strategy as applicable to a matter.
Foreign Currency Translation
The Company assigns functional currencies to its foreign operations, which are generally the currencies of the local
operating environment. Balances denominated in non-functional currency are remeasured to the functional currency using
current exchange rates, and the resulting foreign exchange gains or losses are reflected in earnings. Functional currency
balances are then translated into the reporting currency (i.e., USD) using (i) exchange rates at the balance sheet date for
items reported as assets or liabilities on the Consolidated Balance Sheets, (ii) historical rates for items reported in the
Consolidated Statements of Stockholders’ Equity other than retained earnings, and (iii) average exchange rates for items
recorded in earnings and included in retained earnings. The resulting change in unrealized translation gains or losses is a
component of Accumulated other comprehensive income on the Consolidated Balance Sheets.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying values of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and deferred tax liabilities is recognized in income in the period that includes the
enactment date.
The Company recognizes deferred tax assets to the extent that it is believed that these assets are more likely than not to be
realized. In making such a determination, the Company considers all available positive and negative evidence, including
future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies,
carryback potential if permitted under the tax law, and results of recent operations. A valuation allowance is provided if it
is determined that it is more likely than not that the deferred tax asset will not be realized.
The Company evaluates and accounts for uncertain tax positions in accordance with ASC 740, Income Taxes, using a two-
step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical
merits, is more likely than not to be sustainable upon examination. Measurement (step two) determines the amount of tax
benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur if the
Company subsequently determines that a tax position no longer meets the more likely than not threshold of being
sustained. The Company records interest, and penalties where applicable, net of any applicable related income tax benefit,
on potential income tax contingencies as a component of Income tax expense on the Consolidated Statements of Income.
Holders of the LLC Common Units, including the Company, incur U.S. federal, state, and local income taxes on their share
of any taxable income of the LLC. The LLC Operating Agreement provides for pro rata cash distributions (“Members’ Tax
Distributions”) to the holders of the LLC Common Units in an amount generally calculated to provide each holder of LLC
Common Units with sufficient cash to cover their tax liability in respect of the LLC Common Units. In general, these
Members’ Tax Distributions are computed based on the LLC’s estimated taxable income, multiplied by an assumed tax rate
as set forth in the LLC Operating Agreement.
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 amount of net cash savings, if any, in U.S.
federal, state, and local income taxes the Company actually realizes (or under certain circumstances are 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 tax benefits attributable to
payments that the Company makes under the TRA (“TRA Payment Tax Attributes”).
The Company accounts for amounts payable under the TRA in accordance with ASC 450, Contingencies. The amounts
payable under the TRA will vary depending upon a number of factors, including the timing of exchanges by the LLC
Unitholders, the amount of gain recognized by the LLC Unitholders, the amount and timing of the taxable income the
Company generates in the future, and the federal tax rates then applicable. Actual tax benefits realized by the Company
may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the agreement. Any
such changes in these factors or changes in the Company’s determination of the need for a valuation allowance related to
the tax benefits acquired under the TRA could adjust the Tax Receivable Agreement liabilities recognized on the
Consolidated Balance Sheets.
The Company accounts for the effects of the increases in tax basis and associated liabilities under the TRA arising from
exchanges with respect to Exchange Tax Attributes and TRA Payment Tax Attributes (i) by recording an increase in
deferred tax assets for the estimated income tax effects of the increases in tax basis based on the enacted federal and state
tax rates at the date of the exchange, (ii) to the extent it is estimated that the Company will not realize the full benefit
represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future
earnings, by reducing the deferred tax asset with a valuation allowance, and (iii) by recording an offsetting increase in the
Tax Receivable Agreement liability for 85% of the realizable tax benefit and an increase in Additional paid-in capital for
the remaining 15% of the realizable tax benefit on the Consolidated Balance Sheets.
The Company accounts for the associated liability under the TRA arising from exchanges with respect to the Pre-IPO
M&A Tax Attributes by recording an increase in the Tax Receivable Agreement liability for 85% of the realizable tax
benefits associated with the Pre-IPO M&A Tax Attributes with an offsetting decrease to Additional paid-in capital on the
Consolidated Balance Sheets.
Subsequent changes to the initial establishment of the increases in deferred tax assets and Tax Receivable Agreement
liability between reporting periods will be recognized in the Consolidated Statements of Stockholders’ Equity as the
exchanges represent transactions among shareholders. Subsequent changes in the fair value of the Tax Receivable
Agreement liabilities between reporting periods, as well as any interest accrued on the TRA between the Company’s annual
tax filing date and the TRA payment date, are recognized in the Consolidated Statements of Income. In the unlikely event
of an early termination of the TRA, either due to Company default or a change of control, the Company is required to pay
to each holder of the TRA an early termination payment equal to the discounted present value of all unpaid TRA payments.
Recently Issued Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) — Improvements to Income Tax Disclosures,
which includes amendments that enhance income tax disclosures, primarily through standardization and the disaggregation
of rate reconciliation categories and income taxes paid by jurisdiction. This ASU is effective for annual reporting periods
beginning after December 15, 2024. The amendments in this ASU should be applied on a prospective basis, however,
retrospective application is permitted. The Company adopted this ASU retrospectively as of December 31, 2025. See Note
17, Income Taxes, for the resulting incremental disclosures related to the Company’s income taxes.
In July 2025, the FASB issued ASU 2025-05 Financial Instruments — Credit Losses (Topic 326) — Measurement of
Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting entities to
assume that current conditions as of the balance sheet date do not change for the remaining life of current accounts
receivables and contract assets when estimating expected credit losses. This ASU is effective for annual reporting periods
beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early
adoption permitted. The Company early adopted this ASU prospectively in the third quarter of 2025, with no material
impact to the consolidated financial statements or disclosures.
In November 2025, the FASB issued ASU 2025-09 Derivatives and Hedging (Topic 815) — Hedge Accounting
Improvements, which includes amendments to better align hedge accounting with the economics of an entity’s risk
management activities by allowing entities to achieve and sustain hedge accounting for highly effective economic hedges
of forecasted transactions. This ASU is effective for annual reporting periods beginning after December 15, 2026, and
interim periods within those annual reporting periods, with early adoption permitted. The Company early adopted this ASU
as of December 31, 2025, and will apply it prospectively to new hedging relationships.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03 Income Statement — Reporting Comprehensive Income — Expense
Disaggregation Disclosures (Subtopic 220-40) — Disaggregation of Income Statement Expenses, which requires the
disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial
statements. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods
within fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments in this ASU may
be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adopting this ASU on
its disclosures.
In September 2025, the FASB issued ASU 2025-06 Intangibles — Goodwill and Other — Internal-Use Software (Subtopic
350-40) — Targeted Improvements to the Accounting for Internal-Use Software, which removes all references to
prescriptive and sequential software development stages and instead requires entities to begin capitalizing costs once
management has authorized and committed to funding the software, and it is probable that the project will be completed
and used to perform its intended functions. Significant uncertainty regarding development activities must be assessed when
evaluating if a project is probable to be completed. Additionally, the ASU clarifies certain disclosure requirements for
capitalized internal-use software costs. This ASU is effective for annual reporting periods beginning after December 15,
2027, and interim reporting periods within those annual reporting periods, with early adoption permitted. The amendments
in this ASU may be applied prospectively, using a modified transition approach, or retrospectively. The Company is
currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270) — Narrow-Scope Improvements, which
includes amendments that clarify when the interim reporting guidance is applicable, outlines the interim disclosures
required under this guidance and all other ASC topics, and establishes a disclosure principle that requires an entity to
disclose material events that have occurred since the last annual reporting period. This ASU is effective for interim
reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The
amendments in this ASU may be applied prospectively or retrospectively. The Company is currently evaluating the impact
of adopting this ASU on its consolidated financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-12 Codification Improvements, which includes amendments that provide
clarification, correct technical errors, and make minor improvements with the intent to make the Accounting Standard
Codification easier to understand and apply. This ASU is effective for annual reporting periods beginning after December
15, 2026, and interim periods within those annual reporting periods, with early adoption permitted. The amendments in this
ASU may be applied prospectively or retrospectively. The Company is currently evaluating the impact of adopting this
ASU on its consolidated financial statements and disclosures.
Recent Tax Legislation
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”), which includes a broad range of tax reform provisions, such
as the provision allowing accelerated tax deductions for qualified property and research expenditures, was signed into law
in the United States. OBBBA did not have a material impact on the Company’s consolidated financial statements or
disclosures for the year ended December 31, 2025.
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