Ryan Specialty Reports Third Quarter 2022 Results

- Total Revenue grew 16.8% year-over-year to $412.0 million

- Organic Revenue Growth Rate of 13.7% year-over-year 

- Net Income of $29.3 million, or $0.09 per diluted share 

- Adjusted EBITDAC grew 11.2% year-over-year to $116.8 million 

- Adjusted Net Income grew 5.7% year-over-year to $66.6 million, or $0.25 per diluted share 

CHICAGO--(BUSINESS WIRE)-- Ryan Specialty Holdings, Inc. (NYSE: RYAN) (“Ryan Specialty” or the “Company”), a leading international specialty insurance firm, today announced results for the third quarter ended September 30, 2022.

Third Quarter 2022 Highlights

  • Revenue grew 16.8% year-over-year to $412.0 million, compared to $352.8 million in the prior-year period
  • Organic Revenue Growth Rate* was 13.7% for the quarter, compared to 28.9% in the prior-year period
  • Net Income increased to $29.3 million, compared to a net loss of $32.6 million in the prior-year period. Diluted Earnings per Share was $0.09
  • Adjusted EBITDAC* increased 11.2% to $116.8 million, compared to $105.0 million in the prior-year period
  • Adjusted EBITDAC Margin* of 28.4%, compared to 29.8% in the prior-year period
  • Adjusted Net Income* increased 5.7% to $66.6 million, compared to $62.9 million in the prior-year period
  • Adjusted Diluted Earnings per Share* for the third quarter of 2022 was $0.25, compared to $0.24 in the prior-year period

“Ryan Specialty yet again validated our differentiated business model by delivering strong results in the face of an increasingly challenging economic environment,” said Patrick G. Ryan, Founder, Chairman and Chief Executive Officer of Ryan Specialty. “Another quarter of double-digit organic growth and healthy profitability is a testament to the unrelenting effort of our teammates to innovate and provide best-in-class solutions for existing and new clients. We also continued to add top talent to our team in the quarter, as we further enhanced our reputation as a destination of choice. With our strong balance sheet, our resilient business model and our focus on the growing E&S market, we are well positioned to skillfully navigate through this challenging economic environment and continue generating long-term value for our investors.”

Summary of Third Quarter 2022 Results

 

 

Three Months Ended September 30,

 

 

Change

 

 

Nine Months Ended September 30,

 

 

Change

 

(in thousands, except percentages and per share data)

 

2022

 

 

2021

 

 

$

 

 

%

 

 

2022

 

 

2021

 

 

$

 

 

%

 

GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

411,996

 

 

$

352,766

 

 

$

59,230

 

 

 

16.8

%

 

$

1,290,178

 

 

$

1,054,236

 

 

$

235,942

 

 

 

22.4

%

Compensation and benefits

 

 

274,108

 

 

 

286,538

 

 

 

(12,430

)

 

 

(4.3

)

 

 

858,439

 

 

 

737,825

 

 

 

120,614

 

 

 

16.3

 

General and administrative

 

 

48,991

 

 

 

38,754

 

 

 

10,237

 

 

 

26.4

 

 

 

139,851

 

 

 

96,984

 

 

 

42,867

 

 

 

44.2

 

Total operating expenses

 

 

350,652

 

 

 

353,496

 

 

 

(2,844

)

 

 

(0.8

)

 

 

1,079,919

 

 

 

922,861

 

 

 

157,058

 

 

 

17.0

 

Operating income (loss)

 

 

61,344

 

 

 

(730

)

 

 

62,074

 

 

n/m

 

 

 

210,259

 

 

 

131,375

 

 

 

78,884

 

 

 

60.0

 

Net income (loss)

 

 

29,279

 

 

 

(32,590

)

 

 

61,869

 

 

n/m

 

 

 

117,475

 

 

 

27,016

 

 

 

90,459

 

 

n/m

 

Net income (loss) attributable to Ryan Specialty Holdings, Inc.

 

 

11,745

 

 

 

(1,334

)

 

 

13,079

 

 

n/m

 

 

 

43,157

 

 

 

55,822

 

 

 

(12,665

)

 

 

(22.7

)

Compensation and benefits expense ratio (1)

 

 

66.5

%

 

 

81.2

%

 

 

 

 

 

 

 

 

66.5

%

 

 

70.0

%

 

 

 

 

 

 

General and administrative expense ratio (2)

 

 

11.9

%

 

 

11.0

%

 

 

 

 

 

 

 

 

10.8

%

 

 

9.2

%

 

 

 

 

 

 

Net income (loss) margin

 

 

7.1

%

 

 

(9.2

)%

 

 

 

 

 

 

 

 

9.1

%

 

 

2.6

%

 

 

 

 

 

 

Earnings (loss) per share (3)

 

$

0.11

 

 

$

(0.16

)

 

 

 

 

 

 

 

$

0.40

 

 

$

(0.16

)

 

 

 

 

 

 

Diluted earnings (loss) per share (3)

 

$

0.09

 

 

$

(0.16

)

 

 

 

 

 

 

 

$

0.37

 

 

$

(0.16

)

 

 

 

 

 

 

Non-GAAP financial measures*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organic revenue growth rate

 

 

13.7

%

 

 

28.9

%

 

 

 

 

 

 

 

 

18.7

%

 

 

25.6

%

 

 

 

 

 

 

Adjusted compensation and benefits expense

 

$

247,095

 

 

$

212,590

 

 

$

34,505

 

 

 

16.2

%

 

$

769,253

 

 

$

625,452

 

 

$

143,801

 

 

 

23.0

%

Adjusted compensation and benefits expense ratio

 

 

60.0

%

 

 

60.3

%

 

 

 

 

 

 

 

 

59.6

%

 

 

59.3

%

 

 

 

 

 

 

Adjusted general and administrative expense

 

$

48,084

 

 

$

35,153

 

 

$

12,931

 

 

 

36.8

%

 

$

130,774

 

 

$

88,870

 

 

$

41,904

 

 

 

47.2

%

Adjusted general and administrative expense ratio

 

 

11.7

%

 

 

10.0

%

 

 

 

 

 

 

 

 

10.1

%

 

 

8.4

%

 

 

 

 

 

 

Adjusted EBITDAC

 

$

116,817

 

 

$

105,023

 

 

$

11,794

 

 

 

11.2

%

 

$

390,151

 

 

$

339,914

 

 

$

50,237

 

 

 

14.8

%

Adjusted EBITDAC margin

 

 

28.4

%

 

 

29.8

%

 

 

 

 

 

 

 

 

30.2

%

 

 

32.2

%

 

 

 

 

 

 

Adjusted net income

 

$

66,560

 

 

$

62,949

 

 

$

3,611

 

 

 

5.7

%

 

$

237,774

 

 

$

209,739

 

 

$

28,035

 

 

 

13.4

%

Adjusted net income margin

 

 

16.2

%

 

 

17.8

%

 

 

 

 

 

 

 

 

18.4

%

 

 

19.9

%

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.25

 

 

$

0.24

 

 

 

 

 

 

 

 

$

0.88

 

 

$

0.78

 

 

 

 

 

 

 

* For a definition and a reconciliation of Organic revenue growth rate, Adjusted compensation and benefits expense, Adjusted compensation and benefits ratio, Adjusted general and administrative expense, Adjusted general and administrative expense ratio, Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted net income, Adjusted net income margin, and Adjusted diluted earnings per share to the most directly comparable GAAP measure, see “Non-GAAP Financial Measures and Key Performance Indicators” below.

(1) Compensation and benefits expense ratio is defined as Compensation and benefits divided by Total revenue.

(2) General and administrative expense ratio is defined as General and administrative expense divided by Total revenue.

(3) See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

Third Quarter 2022 Review*

Total revenue for the third quarter of 2022 was $412.0 million, an increase of 16.8% compared to $352.8 million in the prior-year period. This increase was primarily due to continued strong Organic revenue growth of 13.7%, driven by new client wins and expanded relationships with existing clients, coupled with continued expansion of the E&S market, revenue from acquisitions completed in the fourth quarter of 2021 and increased fiduciary income.

Total operating expenses for the third quarter of 2022 were $350.7 million, a 0.8% decrease compared to the prior-year period. This was primarily due to significant reduction in IPO-related compensation expense, partially offset by an increase in Compensation and benefits expense, which is heavily correlated to revenue growth. General and administrative expense also increased compared to the prior-year period to accommodate revenue growth, including continued normalization of business travel and client entertainment.

Net income for the third quarter of 2022 increased to $29.3 million, compared to a net loss of $32.6 million in the prior-year period. The increase was mainly due to strong year-over-year revenue growth, as well as IPO related expenses and Other non-operating loss (income) in the prior-year quarter that did not recur in the third quarter of 2022, partially offset by higher interest and income tax expense. Diluted earnings per share for the third quarter of 2022 was $0.09, compared to a loss of $0.16 in the prior-year period.

Adjusted EBITDAC of $116.8 million grew 11.2% from $105.0 million in the prior-year period. Adjusted EBITDAC margin for the quarter was 28.4%, compared to 29.8% in the prior-year period. The increase in Adjusted EBITDAC was driven primarily by strong revenue growth and higher Fiduciary investment income, partially offset by increased Adjusted compensation and benefits expense, as well as higher Adjusted general and administrative expense.

Adjusted net income for the third quarter of 2022 rose 5.7% to $66.6 million, compared to $62.9 million in the prior-year period. Adjusted net income margin was 16.2%, compared to 17.8% in the prior-year period. Adjusted diluted earnings per share for the third quarter of 2022 was $0.25, compared to $0.24 in the prior-year period.

* For the definition of each of the non-GAAP measures referred to above as well as a reconciliation of such non-GAAP measures to their most directly comparable GAAP measures, see “Non-GAAP Financial Measures and Key Performance Indicators” below.

Third Quarter 2022 Revenue by Specialty

Growth in Net commissions and fees in all specialties was primarily driven by strong organic growth.

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2022

 

 

% of
total

 

 

2021

 

 

% of
total

 

 

Change

 

Wholesale Brokerage

 

$

267,222

 

 

 

65.6

%

 

$

229,146

 

 

 

65.0

%

 

$

38,076

 

 

 

16.6

%

Binding Authorities

 

 

55,607

 

 

 

13.6

 

 

 

52,795

 

 

 

15.0

 

 

 

2,812

 

 

 

5.3

 

Underwriting Management

 

 

84,722

 

 

 

20.8

 

 

 

70,669

 

 

 

20.0

 

 

 

14,053

 

 

 

19.9

 

Total Net commissions and fees

 

$

407,551

 

 

 

 

 

$

352,610

 

 

 

 

 

$

54,941

 

 

 

15.6

%

Liquidity and Financial Condition

As of September 30, 2022, the Company had Cash and cash equivalents of $833.1 million and outstanding debt principal of $2.0 billion.

Full Year 2022 Outlook*

Considering current and developing market factors impacting the binding of project-based construction and M&A transactional liability policies, along with observed shifts in the market for public company D&O insurance, the Company is adjusting its full year 2022 outlook for Organic revenue growth rate:

  • Organic revenue growth rate guidance range for the full year 2022 is now 14.5 – 16.0%, compared to the Company’s prior guidance range of 16.5% - 18.0%.

The Company is also updating its full year 2022 outlook for Adjusted EBITDAC margin:

  • Adjusted EBITDAC margin guidance range for the full year 2022 is now 29.5% - 30.0%, compared to the Company’s prior guidance range of 29.0% - 30.0%.

* For a definition of Organic revenue growth rate and Adjusted EBITDAC margin as well as an explanation of the Company’s inability to provide reconciliations of these forward-looking non-GAAP measures, see “Non-GAAP Financial Measures and Key Performance Indicators” below.

Conference Call Information

Ryan Specialty will host a conference call today at 5:00 PM ET to discuss these results. A live audio webcast of the conference call will be available on the Company’s website at ryanspecialty.com in its Investors section.

The dial-in number for the conference call is (877) 451-6152 (toll-free) or (201) 389-0879 (international). Please dial the number 10 minutes prior to the scheduled start time.

A webcast replay of the call will be available on the Company’s website at ryanspecialty.com in its Investors section for one year following the call.

About Ryan Specialty

Founded in 2010, Ryan Specialty (NYSE: RYAN) is a service provider of specialty products and solutions for insurance brokers, agents and carriers. Ryan Specialty provides distribution, underwriting, product development, administration and risk management services by acting as a wholesale broker and a managing underwriter with delegated authority from insurance carriers. Our mission is to provide industry-leading innovative specialty insurance solutions for insurance brokers, agents and carriers. Learn more at ryanspecialty.com.

Forward-Looking Statements

All statements in this release and in the corresponding earnings call that are not historical are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve substantial risks and uncertainties. For example, all statements the Company makes relating to its estimated and projected costs, expenditures, cash flows, growth rates and financial results or its plans and objectives for future operations, growth initiatives, or strategies and the statements under the caption “Full Year 2022 Outlook” are forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and variations of such words and similar expressions are intended to identify such forward-looking statements. All forward-looking statements are subject to risks and uncertainties, known and unknown, that may cause actual results to differ materially from those that the Company expected. Specific factors that could cause such a difference include, but are not limited to, those disclosed previously in the Company’s filings with the Securities and Exchange Commission (“SEC”) that include, but are not limited to: the Company’s potential failure to develop a succession plan for the senior management team, including Patrick G. Ryan; the Company’s failure to recruit and retain revenue producers; the cyclicality of, and the economic conditions in, the markets in which the Company operates; conditions that result in reduced insurer capacity; the potential loss of the Company’s relationships with insurance carriers or its 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 the Company’s businesses; decreases in the premiums or commission rates set by insurers, or actions by insurers seeking repayment of commissions; decreases in the amounts of supplemental or contingent commissions the Company receives; the Company’s inability to collect its receivables; the potential that the Company’s underwriting models contain errors or are otherwise ineffective; any damage to the Company’s reputation; decreases in current market share as a result of disintermediation within the insurance industry; impairment of goodwill; the inability to maintain rapid growth or to generate sufficient revenue to achieve and maintain profitability; the impact if the Company’s 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; the occurrence of natural or man-made disasters; being subject to E&O claims as well as other contingencies and legal proceedings; the impact on the Company’s operations and financial condition from the effects of the current COVID-19 pandemic; the impact of breaches in security that cause significant system or network disruptions; not being able to generate sufficient cash flow to service all of the Company’s indebtedness and being forced to take other actions to satisfy its obligations under such indebtedness; and the impact of being unable to refinance the Company’s indebtedness.

For more detail on the risk factors that may affect the Company’s results, see the section entitled ‘‘Risk Factors’’ in its annual report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2022, and in other documents filed with, or furnished to, the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Given these factors, as well as other variables that may affect the Company’s operating results, you are cautioned not to place undue reliance on these forward-looking statements, not to assume that past financial performance will be a reliable indicator of future performance, and not to use historical trends to anticipate results or trends in future periods. The forward-looking statements included in this press release and on the related earnings call relate only to events as of the date hereof. The Company does not undertake, and expressly disclaims, any duty or obligation to update publicly any forward-looking statement after the date of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

Non-GAAP Financial Measures and Key Performance Indicators

In assessing the performance of the Company’s business, non-GAAP financial measures are used that are derived from the Company’s consolidated financial information, but which are not presented in the Company’s consolidated financial statements prepared in accordance with GAAP. The Company considers these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures, tax positions, depreciation, amortization and certain other items that the Company believes are not representative of its core business. The Company uses the following non-GAAP measures for business planning purposes, in measuring performance relative to that of its competitors, to help investors to understand the nature of the Company's growth, and to enable investors to evaluate the run-rate performance of the Company. Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the consolidated financial statements prepared and presented in accordance with GAAP. The footnotes to the reconciliation tables below should be read in conjunction with the unaudited consolidated quarterly financial statements in the Company’s Quarterly Report on form 10-Q filed with the SEC. Industry peers may provide similar supplemental information but may not define similarly-named metrics in the same way and may not make identical adjustments.

Organic revenue growth rate: Organic revenue growth rate is defined as the percentage change in revenue, as compared to the prior-year period, adjusted for revenue attributable to acquisitions during their first 12 months of the Company’s ownership, and other adjustments such as contingent commissions, fiduciary investment income, and the impact of changes in foreign exchange rates. The most directly comparable GAAP financial metric is Total revenue growth rate.

Adjusted compensation and benefits expense: Adjusted compensation and benefits expense is defined as Compensation and benefits expense adjusted to reflect items such as (i) equity-based compensation, (ii) acquisition and restructuring related compensation expenses, and (iii) other exceptional or non-recurring compensation expenses, as applicable. The most directly comparable GAAP financial metric is Compensation and benefits expense.

Adjusted general and administrative expense: Adjusted general and administrative expense is defined as General and administrative expense adjusted to reflect items such as (i) acquisition and restructuring related general and administrative expenses, and (ii) other exceptional or non-recurring general and administrative expenses, as applicable. The most directly comparable GAAP financial metric is General and administrative expense.

Adjusted compensation and benefits expense ratio: Adjusted compensation and benefits expense ratio is defined as the Adjusted compensation and benefits expense as a percentage of Total revenue. The most directly comparable GAAP financial metric is Compensation and benefits expense ratio.

Adjusted general and administrative expense ratio: Adjusted general and administrative expense ratio is defined as the Adjusted general and administrative expense as a percentage of Total revenue. The most directly comparable GAAP financial metric is General and administrative expense ratio.

Adjusted EBITDAC: Adjusted EBITDAC is defined as Net income (loss) before Interest expense, net, Income tax expense (benefit), Depreciation, Amortization, and Change in contingent consideration, adjusted to reflect items such as (i) equity-based compensation, (ii) acquisition-related expenses, and (iii) other exceptional or non-recurring items, as applicable. The most directly comparable GAAP financial metric is Net income (loss).

Adjusted EBITDAC margin: Adjusted EBITDAC margin is defined as Adjusted EBITDAC as a percentage of Total revenue. The most directly comparable GAAP financial metric is Net income (loss) margin.

Adjusted net income: Adjusted net income is defined as tax-effected earnings before amortization and certain items of income and expense, gains and losses, equity-based compensation, acquisition related long-term incentive compensation, acquisition-related expenses, costs associated with the IPO and certain exceptional or non-recurring items. The Company will be subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to its allocable share of any net taxable income of Ryan Specialty, LLC. For comparability purposes, this calculation incorporates the impact of federal and state statutory tax rates on 100% of the Company's adjusted pre-tax income as if the Company owned 100% of Ryan Specialty, LLC. The most directly comparable GAAP financial metric is Net income (loss).

Adjusted net income margin: Adjusted net income margin is defined as Adjusted net income as a percentage of Total revenue. The most directly comparable GAAP financial metric is Net income (loss) margin.

Adjusted diluted earnings per share: Adjusted diluted earnings per share is defined as Adjusted net income divided by diluted shares outstanding after adjusting for the effect of the exchange of 100% of the outstanding common units of New RS Holdings, LLC (together with the shares of Class B common stock) into shares of Class A common stock and the effect of unvested equity awards. The most directly comparable GAAP financial metric is Diluted earnings (loss) per share.

The reconciliation of the above non-GAAP measures to their most directly comparable GAAP financial measure is set forth in the reconciliation table accompanying this release.

With respect to the Organic revenue growth rate and Adjusted EBITDAC margin outlook presented in the “Full Year 2022 Outlook” section of this press release, the Company is unable to provide a comparable outlook for, or a reconciliation to, Total revenue growth rate or Net income (loss) margin because it cannot provide a meaningful or accurate calculation or estimation of certain reconciling items without unreasonable effort. Its inability to do so is due to the inherent difficulty in forecasting the timing of items that have not yet occurred and quantifying certain amounts that are necessary for such reconciliation, including variations in effective tax rate, expenses to be incurred for acquisition activities and other one-time or exceptional items.

Consolidated Statements of Income (Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages and per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Net commissions and fees

 

$

407,551

 

 

$

352,610

 

 

$

1,284,459

 

 

$

1,053,800

 

Fiduciary investment income

 

 

4,445

 

 

 

156

 

 

 

5,719

 

 

 

436

 

Total revenue

 

$

411,996

 

 

$

352,766

 

 

$

1,290,178

 

 

$

1,054,236

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

274,108

 

 

 

286,538

 

 

 

858,439

 

 

 

737,825

 

General and administrative

 

 

48,991

 

 

 

38,754

 

 

 

139,851

 

 

 

96,984

 

Amortization

 

 

25,667

 

 

 

26,982

 

 

 

78,563

 

 

 

82,095

 

Depreciation

 

 

1,463

 

 

 

1,179

 

 

 

3,903

 

 

 

3,601

 

Change in contingent consideration

 

 

423

 

 

 

43

 

 

 

(837

)

 

 

2,356

 

Total operating expenses

 

$

350,652

 

 

$

353,496

 

 

$

1,079,919

 

 

$

922,861

 

Operating income (loss)

 

$

61,344

 

 

$

(730

)

 

$

210,259

 

 

$

131,375

 

Interest expense, net

 

 

28,864

 

 

 

21,193

 

 

 

75,462

 

 

 

60,224

 

Loss (income) from equity method investment in related party

 

 

(144

)

 

 

(176

)

 

 

414

 

 

 

(610

)

Other non-operating loss (income)

 

 

(66

)

 

 

16,211

 

 

 

6,832

 

 

 

45,547

 

Income (loss) before income taxes

 

$

32,690

 

 

$

(37,958

)

 

$

127,551

 

 

$

26,214

 

Income tax expense (benefit)

 

 

3,411

 

 

 

(5,368

)

 

 

10,076

 

 

 

(802

)

Net income (loss)

 

$

29,279

 

 

$

(32,590

)

 

$

117,475

 

 

$

27,016

 

GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

411,996

 

 

$

352,766

 

 

$

1,290,178

 

 

$

1,054,236

 

Compensation and benefits

 

 

274,108

 

 

 

286,538

 

 

 

858,439

 

 

 

737,825

 

General and administrative

 

 

48,991

 

 

 

38,754

 

 

 

139,851

 

 

 

96,984

 

Net income (loss)

 

$

29,279

 

 

$

(32,590

)

 

$

117,475

 

 

$

27,016

 

Compensation and benefits expense ratio

 

 

66.5

%

 

 

81.2

%

 

 

66.5

%

 

 

70.0

%

General and administrative expense ratio

 

 

11.9

%

 

 

11.0

%

 

 

10.8

%

 

 

9.2

%

Net income (loss) margin

 

 

7.1

%

 

 

(9.2

)%

 

 

9.1

%

 

 

2.6

%

Earnings (loss) per share

 

$

0.11

 

 

$

(0.16

)

 

$

0.40

 

 

$

(0.16

)

Diluted earnings (loss) per share

 

$

0.09

 

 

$

(0.16

)

 

$

0.37

 

 

$

(0.16

)

 

Non-GAAP Financial Measures (unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages and per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Non-GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

Organic revenue growth rate

 

 

13.7

%

 

 

28.9

%

 

 

18.7

%

 

 

25.6

%

Adjusted compensation and benefits expense

 

$

247,095

 

 

$

212,590

 

 

$

769,253

 

 

$

625,452

 

Adjusted compensation and benefits expense ratio

 

 

60.0

%

 

 

60.3

%

 

 

59.6

%

 

 

59.3

%

Adjusted general and administrative expense

 

$

48,084

 

 

$

35,153

 

 

$

130,774

 

 

$

88,870

 

Adjusted general and administrative expense ratio

 

 

11.7

%

 

 

10.0

%

 

 

10.1

%

 

 

8.4

%

Adjusted EBITDAC

 

$

116,817

 

 

$

105,023

 

 

$

390,151

 

 

$

339,914

 

Adjusted EBITDAC margin

 

 

28.4

%

 

 

29.8

%

 

 

30.2

%

 

 

32.2

%

Adjusted net income

 

$

66,560

 

 

$

62,949

 

 

$

237,774

 

 

$

209,739

 

Adjusted net income margin

 

 

16.2

%

 

 

17.8

%

 

 

18.4

%

 

 

19.9

%

Adjusted diluted earnings per share

 

$

0.25

 

 

$

0.24

 

 

$

0.88

 

 

$

0.78

 

Consolidated Statements of Financial Position (Unaudited)

(in thousands, except share and per share data)

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

833,135

 

 

$

386,962

 

Commissions and fees receivable – net

 

 

187,223

 

 

 

210,252

 

Fiduciary cash and receivables

 

 

2,146,894

 

 

 

2,390,185

 

Prepaid incentives – net

 

 

7,782

 

 

 

7,726

 

Other current assets

 

 

24,559

 

 

 

15,882

 

Total current assets

 

$

3,199,593

 

 

$

3,011,007

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Goodwill

 

 

1,314,301

 

 

 

1,309,267

 

Other intangible assets

 

 

501,254

 

 

 

573,930

 

Prepaid incentives – net

 

 

20,234

 

 

 

25,382

 

Equity method investment in related party

 

 

38,514

 

 

 

45,417

 

Property and equipment – net

 

 

22,669

 

 

 

15,290

 

Lease right-of-use assets

 

 

135,283

 

 

 

84,874

 

Deferred tax assets

 

 

398,990

 

 

 

382,753

 

Other non-current assets

 

 

57,124

 

 

 

10,788

 

Total non-current assets

 

$

2,488,369

 

 

$

2,447,701

 

TOTAL ASSETS

 

$

5,687,962

 

 

$

5,458,708

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

81,975

 

 

 

99,403

 

Accrued compensation

 

 

232,728

 

 

 

386,301

 

Operating lease liabilities

 

 

19,114

 

 

 

18,783

 

Tax Receivable Agreement liabilities

 

 

7,977

 

 

 

 

Short-term debt and current portion of long-term debt

 

 

29,157

 

 

 

23,469

 

Fiduciary liabilities

 

 

2,146,894

 

 

 

2,390,185

 

Total current liabilities

 

$

2,517,845

 

 

$

2,918,141

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

Accrued compensation

 

 

9,067

 

 

 

4,371

 

Operating lease liabilities

 

 

135,040

 

 

 

74,386

 

Long-term debt

 

 

1,953,461

 

 

 

1,566,627

 

Deferred tax liabilities

 

 

624

 

 

 

631

 

Tax Receivable Agreement liabilities

 

 

294,385

 

 

 

272,100

 

Other non-current liabilities

 

 

20,016

 

 

 

27,675

 

Total non-current liabilities

 

$

2,412,593

 

 

$

1,945,790

 

TOTAL LIABILITIES

 

$

4,930,438

 

 

$

4,863,931

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Class A common stock ($0.001 par value; 1,000,000,000 shares authorized, 112,212,653 and 109,894,548 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)

 

 

112

 

 

 

110

 

Class B common stock ($0.001 par value; 1,000,000,000 shares authorized, 147,390,500 and 149,162,107 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)

 

 

147

 

 

 

149

 

Class X common stock ($0.001 par value; 10,000,000 shares authorized, 640,784 shares issued and 0 outstanding at September 30, 2022 and December 31, 2021)

 

 

 

 

 

 

Preferred stock ($0.001 par value; 500,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2022 and December 31, 2021)

 

 

 

 

 

 

Additional paid-in capital

 

 

402,026

 

 

 

348,865

 

Retained earnings (accumulated deficit)

 

 

36,093

 

 

 

(7,064

)

Accumulated other comprehensive income

 

 

4,367

 

 

 

1,714

 

Total stockholders' equity attributable to Ryan Specialty Holdings, Inc.

 

$

442,745

 

 

$

343,774

 

Non-controlling interests

 

 

314,779

 

 

 

251,003

 

Total stockholders' equity

 

 

757,524

 

 

 

594,777

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

5,687,962

 

 

$

5,458,708

 

Consolidated Statements of Cash Flows (Unaudited)

 

 

Nine Months Ended
September 30,

 

(in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

117,475

 

 

$

27,016

 

Adjustments to reconcile net income to cash flows provided by operating activities:

 

 

 

 

 

 

Loss (gain) from equity method investment

 

 

414

 

 

 

(610

)

Amortization

 

 

78,563

 

 

 

82,095

 

Depreciation

 

 

3,903

 

 

 

3,601

 

Prepaid and deferred compensation expense

 

 

27,256

 

 

 

34,960

 

Non-cash equity-based compensation

 

 

61,084

 

 

 

46,877

 

Amortization of deferred debt issuance costs

 

 

9,017

 

 

 

8,546

 

Amortization of interest rate cap premium

 

 

2,898

 

 

 

 

Deferred income tax expense (benefit)

 

 

4,597

 

 

 

(5,860

)

Loss on extinguishment of existing debt

 

 

 

 

 

8,634

 

Loss on Tax Receivable Agreement

 

 

7,173

 

 

 

 

Change (net of acquisitions) in:

 

 

 

 

 

 

Commissions and fees receivable – net

 

 

24,341

 

 

 

6,004

 

Accrued interest liability

 

 

3,016

 

 

 

602

 

Other current assets and accrued liabilities

 

 

(192,752

)

 

 

27,751

 

Other non-current assets and accrued liabilities

 

 

3,999

 

 

 

(85,241

)

Total cash flows provided by operating activities

 

$

150,984

 

 

$

154,375

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Asset acquisitions

 

 

 

 

 

(343,158

)

Prepaid incentives issued – repayments

 

 

337

 

 

 

4,136

 

Capital expenditures

 

 

(12,026

)

 

 

(6,429

)

Total cash flows used for investing activities

 

$

(11,689

)

 

$

(345,451

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from senior secured notes

 

 

394,000

 

 

 

 

Payment of interest rate cap premium

 

 

(25,500

)

 

 

 

Repayment of term debt

 

 

(12,375

)

 

 

(12,375

)

Debt issuance costs paid

 

 

(2,369

)

 

 

(1,893

)

Finance lease and other costs paid

 

 

(27

)

 

 

(108

)

Payment of contingent consideration

 

 

(6,241

)

 

 

(4,495

)

Purchase of remaining interest in RyanRe

 

 

 

 

 

(48,368

)

Repurchase of preferred equity

 

 

 

 

 

(78,256

)

Equity repurchases from pre-IPO unitholders

 

 

 

 

 

(3,880

)

Cash distribution to LLC unitholders

 

 

(32,678

)

 

 

(47,039

)

Repurchase of Class A common stock in the IPO

 

 

 

 

 

(183,616

)

Repurchase of pre-IPO LLC Units and payment of Alternative TRA Payments

 

 

 

 

 

(780,352

)

Issuance of Class A common stock in the IPO, net of offering costs paid

 

 

 

 

 

1,455,184

 

Repayment of unsecured promissory notes

 

 

 

 

 

(1,108

)

Receipt of taxes related to net share settlement of equity awards

 

 

7,132

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(6,832

)

 

 

 

Net change in fiduciary liabilities

 

 

(54,775

)

 

 

52,422

 

Total cash flows provided by financing activities

 

$

260,335

 

 

$

346,116

 

Effect of changes in foreign exchange rates on cash, cash equivalents, and cash held in a fiduciary capacity

 

 

(1,274

)

 

 

(1,486

)

NET CHANGE IN CASH, CASH EQUIVALENTS, AND CASH HELD IN A FIDUCIARY CAPACITY

 

$

398,356

 

 

$

153,554

 

CASH, CASH EQUIVALENTS, AND CASH HELD IN A FIDUCIARY CAPACITY—Beginning balance

 

$

1,139,661

 

 

$

895,704

 

CASH, CASH EQUIVALENTS, AND CASH HELD IN A FIDUCIARY CAPACITY—Ending balance

 

$

1,538,017

 

 

$

1,049,258

 

Reconciliation of cash, cash equivalents, and cash held in a fiduciary capacity

 

 

 

 

 

 

Cash and cash equivalents

 

$

833,135

 

 

$

413,695

 

Cash held in a fiduciary capacity

 

$

704,882

 

 

$

635,563

 

Total cash, cash equivalents, and cash held in a fiduciary capacity

 

$

1,538,017

 

 

$

1,049,258

 

Net Commissions and Fees

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2022

 

 

% of
total

 

 

2021

 

 

% of
total

 

 

Change

 

Wholesale Brokerage

 

$

267,222

 

 

 

65.6

%

 

$

229,146

 

 

 

65.0

%

 

$

38,076

 

 

 

16.6

%

Binding Authorities

 

 

55,607

 

 

 

13.6

 

 

 

52,795

 

 

 

15.0

 

 

 

2,812

 

 

 

5.3

 

Underwriting Management

 

 

84,722

 

 

 

20.8

 

 

 

70,669

 

 

 

20.0

 

 

 

14,053

 

 

 

19.9

 

Total Net commissions and fees

 

$

407,551

 

 

 

 

 

$

352,610

 

 

 

 

 

$

54,941

 

 

 

15.6

%

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2022

 

 

% of
total

 

 

2021

 

 

% of
total

 

 

Change

 

Wholesale Brokerage

 

$

841,273

 

 

 

65.5

%

 

$

676,229

 

 

 

64.2

%

 

$

165,044

 

 

 

24.4

%

Binding Authorities

 

 

178,351

 

 

 

13.9

 

 

 

161,436

 

 

 

15.3

 

 

 

16,915

 

 

 

10.5

 

Underwriting Management

 

 

264,835

 

 

 

20.6

 

 

 

216,135

 

 

 

20.5

 

 

 

48,700

 

 

 

22.5

 

Total Net commissions and fees

 

$

1,284,459

 

 

 

 

 

$

1,053,800

 

 

 

 

 

$

230,659

 

 

 

21.9

%

 

Reconciliation of Organic Revenue Growth Rate to Total Revenue Growth Rate

 

 

Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

Total revenue growth rate (GAAP) (1)

 

 

16.8

%

 

 

49.0

%

Less: Mergers and acquisitions (2)

 

 

(2.8

)

 

 

(18.8

)

Change in other (3)

 

 

(0.3

)

 

 

(1.3

)

Organic revenue growth rate (Non-GAAP)

 

 

13.7

%

 

 

28.9

%

(1)

September 30, 2022 revenue of $412.0 million less September 30, 2021 revenue of $352.8 million is a $59.2 million period-over-period change. The change, $59.2 million, divided by the September 30, 2021 revenue of $352.8 million is a total revenue change of 16.8%. September 30, 2021 revenue of $352.8 million less September 30, 2020 revenue of $236.8 million is a $116.0 million period-over-period change. The change, $116.0 million, divided by the September 30, 2020 revenue of $236.8 million is a total revenue change of 49.0%. See “Comparison of the Three Months Ended September 30, 2022 and 2021” for further details.

(2)

The acquisitions adjustment excludes net commission and fees revenue generated during the first 12 months following an acquisition. The total adjustment for the three months ended September 30, 2022 and three months ended September 30, 2021 was $9.9 million and $44.4 million, respectively.

(3)

The other adjustments exclude the period-over-period change in contingent commissions, fiduciary investment income, and foreign exchange rates. The total adjustment for the three months ended September 30, 2022 and three months ended September 30, 2021 was $0.9 million and $2.9 million, respectively.

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

Total revenue growth rate (GAAP) (1)

 

 

22.4

%

 

 

52.5

%

Less: Mergers and acquisitions (2)

 

 

(3.0

)

 

 

(26.7

)

Change in other (3)

 

 

(0.7

)

 

 

(0.2

)

Organic revenue growth rate (Non-GAAP)

 

 

18.7

%

 

 

25.6

%

(1)

September 30, 2022 revenue of $1,290.2 million less September 30, 2021 revenue of $1,054.2 million is a $235.9 million period-over-period change. The change, $235.9 million, divided by the September 30, 2021 revenue of $1,054.2 million is a total revenue change of 22.4%. September 30, 2021 revenue of $1,054.2 million less September 30, 2020 revenue of $691.3 million is a $362.9 million period-over-period change. The change, $362.9 million, divided by the September 30, 2020 revenue of $691.3 million is a total revenue change of 52.5%. See “Comparison of the Nine Months Ended September 30, 2022 and 2021” for further details.

(2)

The acquisitions adjustment excludes net commission and fees revenue generated during the first 12 months following an acquisition. The total adjustment for the nine months ended September 30, 2022 and nine months ended September 30, 2021 was $31.5 million and $184.4 million, respectively.

(3)

The other adjustments exclude the period-over-period change in contingent commissions, fiduciary investment income, and foreign exchange rates. The total adjustment for the nine months ended September 30, 2022 and nine months ended September 30, 2021 was $7.0 million and $1.2 million, respectively.

 

Reconciliation of Adjusted Compensation and Benefits Expense to Compensation and Benefits Expense

 

 

Three Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

411,996

 

 

$

352,766

 

Compensation and benefits expense

 

$

274,108

 

 

$

286,538

 

Acquisition-related expense

 

 

(21

)

 

 

 

Acquisition related long-term incentive compensation

 

 

(7,383

)

 

 

(10,333

)

Restructuring and related expense

 

 

(19

)

 

 

(895

)

Amortization and expense related to discontinued prepaid incentives

 

 

(1,533

)

 

 

(1,759

)

Equity-based compensation

 

 

(5,530

)

 

 

(3,371

)

Initial public offering related expense

 

 

(12,527

)

 

 

(57,590

)

Adjusted compensation and benefits expense (1)

 

$

247,095

 

 

$

212,590

 

Compensation and benefits expense ratio

 

 

66.5

%

 

 

81.2

%

Adjusted compensation and benefits expense ratio

 

 

60.0

%

 

 

60.3

%

(1)

Adjustments made to Compensation and benefits expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net income (loss) in “Reconciliation of Adjusted EBITDAC to Net Income.”

 

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

1,290,178

 

 

$

1,054,236

 

Compensation and benefits expense

 

$

858,439

 

 

$

737,825

 

Acquisition-related expense

 

 

(122

)

 

 

 

Acquisition related long-term incentive compensation

 

 

(22,181

)

 

 

(28,837

)

Restructuring and related expense

 

 

(724

)

 

 

(9,246

)

Amortization and expense related to discontinued prepaid incentives

 

 

(5,075

)

 

 

(5,441

)

Equity-based compensation

 

 

(18,009

)

 

 

(11,259

)

Initial public offering related expense

 

 

(43,075

)

 

 

(57,590

)

Adjusted compensation and benefits expense (1)

 

$

769,253

 

 

$

625,452

 

Compensation and benefits expense ratio

 

 

66.5

%

 

 

70.0

%

Adjusted compensation and benefits expense ratio

 

 

59.6

%

 

 

59.3

%

(1)

Adjustments made to Compensation and benefits expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net income (loss) in “Reconciliation of Adjusted EBITDAC to Net Income.”

 

Reconciliation of Adjusted General and Administrative Expense to General and Administrative Expense

 

 

Three Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

411,996

 

 

$

352,766

 

General and administrative expense

 

$

48,991

 

 

$

38,754

 

Acquisition-related expense

 

 

(716

)

 

 

(106

)

Restructuring and related expense

 

 

 

 

 

(2,465

)

Initial public offering related expense

 

 

(191

)

 

 

(1,030

)

Adjusted general and administrative expense (1)

 

$

48,084

 

 

$

35,153

 

General and administrative expense ratio

 

 

11.9

%

 

 

11.0

%

Adjusted general and administrative expense ratio

 

 

11.7

%

 

 

10.0

%

(1)

Adjustments made to General and administrative expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net income (loss) in “Reconciliation of Adjusted EBITDAC to Net Income.”

 

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

1,290,178

 

 

$

1,054,236

 

General and administrative expense

 

$

139,851

 

 

$

96,984

 

Acquisition-related expense

 

 

(2,767

)

 

 

(2,128

)

Restructuring and related expense

 

 

(4,993

)

 

 

(4,286

)

Other non-recurring expense

 

 

 

 

 

(354

)

Initial public offering related expense

 

 

(1,317

)

 

 

(1,346

)

Adjusted general and administrative expense (1)

 

$

130,774

 

 

$

88,870

 

General and administrative expense ratio

 

 

10.8

%

 

 

9.2

%

Adjusted general and administrative expense ratio

 

 

10.1

%

 

 

8.4

%

(1)

Adjustments made to General and administrative expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net income (loss) in “Reconciliation of Adjusted EBITDAC to Net Income.”

 

Reconciliation of Adjusted EBITDAC to Net Income

 

 

Three Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

411,996

 

 

$

352,766

 

Net income (loss)

 

$

29,279

 

 

$

(32,590

)

Interest expense, net

 

 

28,864

 

 

 

21,193

 

Income tax expense (benefit)

 

 

3,411

 

 

 

(5,368

)

Depreciation

 

 

1,463

 

 

 

1,179

 

Amortization

 

 

25,667

 

 

 

26,982

 

Change in contingent consideration

 

 

423

 

 

 

43

 

EBITDAC

 

$

89,107

 

 

$

11,439

 

Acquisition-related expense (1)

 

 

737

 

 

 

106

 

Acquisition related long-term incentive compensation (2)

 

 

7,383

 

 

 

10,333

 

Restructuring and related expense (3)

 

 

19

 

 

 

3,360

 

Amortization and expense related to discontinued prepaid incentives (4)

 

 

1,533

 

 

 

1,759

 

Other non-operating loss (income) (5)

 

 

(66

)

 

 

16,211

 

Equity-based compensation (6)

 

 

5,530

 

 

 

3,371

 

IPO related expenses (7)

 

 

12,718

 

 

 

58,620

 

(Income) from equity method investments in related party

 

 

(144

)

 

 

(176

)

Adjusted EBITDAC

 

$

116,817

 

 

$

105,023

 

Net income (loss) margin (8)

 

 

7.1

%

 

 

(9.2

)%

Adjusted EBITDAC margin

 

 

28.4

%

 

 

29.8

%

(1)

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were de minimis for the three months ended September 30, 2022, while General and administrative expenses contributed to $0.7 million and $0.1 million of the acquisition-related expense for the three months ended September 30, 2022 and 2021, respectively.

(2)

Acquisition related long-term incentive compensation arises from long-term incentive plans associated with acquisitions.

(3)

Restructuring and related expense consists of Compensation and benefits were de minimis for the three months ended September 30, 2022 and $0.9 million for the three months ended September 30, 2021, and General and administrative costs including occupancy and professional services fees of $2.5 million for the three months ended September 30, 2021, related to the Restructuring Plan. The Compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

(4)

Amortization and expense related to discontinued prepaid incentive programs – see “Note 14, Employee Benefit Plans, Prepaid and Long-Term Incentives” of the unaudited quarterly consolidated financial statements for further discussion.

(5)

For the three months ended September 30, 2022, Other non-operating loss (income) includes a $0.1 million of sublease income. For the three months ended September 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $16.3 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction.

(6)

Equity-based compensation reflects non-cash equity-based expense.

(7)

IPO related expenses include $0.2 million and $1.0 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the three months ended September 30, 2022 and 2021, respectively, and compensation-related expense of $12.5 million and $57.6 million for the three months ended September 30, 2022 and 2021, respectively, primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

(8)

Net income (loss) margin is Net income (loss) as a percentage of Total revenue.

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

1,290,178

 

 

$

1,054,236

 

Net income (loss)

 

$

117,475

 

 

$

27,016

 

Interest expense, net

 

 

75,462

 

 

 

60,224

 

Income tax expense (benefit)

 

 

10,076

 

 

 

(802

)

Depreciation

 

 

3,903

 

 

 

3,601

 

Amortization

 

 

78,563

 

 

 

82,095

 

Change in contingent consideration

 

 

(837

)

 

 

2,356

 

EBITDAC

 

$

284,642

 

 

$

174,490

 

Acquisition-related expense (1)

 

 

2,889

 

 

 

2,128

 

Acquisition related long-term incentive compensation (2)

 

 

22,181

 

 

 

28,837

 

Restructuring and related expense (3)

 

 

5,717

 

 

 

13,532

 

Amortization and expense related to discontinued prepaid incentives (4)

 

 

5,075

 

 

 

5,441

 

Other non-operating loss (income) (5)

 

 

6,832

 

 

 

45,547

 

Equity-based compensation (6)

 

 

18,009

 

 

 

11,259

 

Other non-recurring expense (7)

 

 

 

 

 

354

 

IPO related expenses (8)

 

 

44,392

 

 

 

58,936

 

(Income) from equity method investments in related party

 

 

414

 

 

 

(610

)

Adjusted EBITDAC (9)

 

$

390,151

 

 

$

339,914

 

Net income (loss) margin (10)

 

 

9.1

%

 

 

2.6

%

Adjusted EBITDAC margin

 

 

30.2

%

 

 

32.2

%

(1)

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $0.1 million for the nine months ended September 30, 2022, while General and administrative expenses contributed to $2.8 million and $2.1 million of the acquisition-related expense for the nine months ended September 30, 2022 and 2021, respectively.

(2)

Acquisition related long-term incentive compensation arises from long-term incentive plans associated with acquisitions.

(3)

Restructuring and related expense consists of Compensation and benefits of $0.7 million and $9.2 million for the nine months ended September 30, 2022 and 2021, respectively, and General and administrative costs including occupancy and professional services fees of $5.0 million and $4.3 million for the nine months ended September 30, 2022 and 2021, respectively, related to the Restructuring Plan. The Compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

(4)

Amortization and expense related to discontinued prepaid incentive programs – see “Note 14, Employee Benefit Plans, Prepaid and Long-Term Incentives” of the unaudited quarterly consolidated financial statements for further discussion.

(5)

For the nine months ended September 30, 2022, Other non-operating loss (income) includes a $7.2 million charge related to the change in the TRA liability caused by a change in our blended state tax rates. For the nine months ended September 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $36.9 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction. For the nine months ended September 30, 2021, Other non-operating loss (income) also includes expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt.

(6)

Equity-based compensation reflects non-cash equity-based expense.

(7)

Other non-recurring expense includes one-time impacts that do not reflect the core performance of the business, including General and administrative expenses of $0.4 million for the nine months ended September 30, 2021. Other non-recurring items include one-time professional services costs associated with term debt repricing, one-time non-income tax charges, and tax and accounting consultancy costs associated with potential structure changes.

(8)

IPO related expenses include $1.3 million and $1.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the nine months ended September 30, 2022 and 2021, respectively, and compensation-related expense of $43.1 million and $57.6 million for nine months ended September 30, 2022 and 2021, respectively, primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

(9)

Consolidated Adjusted EBITDAC does not reflect a deduction for the Adjusted EBITDAC associated with the non-controlling interest in Ryan Re for the period of time prior to March 31, 2021 when we did not own 100% of Ryan Re.

(10)

Net income (loss) margin is Net income (loss) as a percentage of Total revenue.

 

Reconciliation of Adjusted Net Income to Net Income

 

 

Three Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

411,996

 

 

$

352,766

 

Net income (loss)

 

$

29,279

 

 

$

(32,590

)

Income tax expense (benefit)

 

 

3,411

 

 

 

(5,368

)

Amortization

 

 

25,667

 

 

 

26,982

 

Amortization of deferred debt issuance costs (1)

 

 

3,033

 

 

 

2,777

 

Change in contingent consideration

 

 

423

 

 

 

43

 

Acquisition-related expense (2)

 

 

737

 

 

 

106

 

Acquisition related long-term incentive compensation (3)

 

 

7,383

 

 

 

10,333

 

Restructuring and related expense (4)

 

 

19

 

 

 

3,360

 

Amortization and expense related to discontinued prepaid incentives (5)

 

 

1,533

 

 

 

1,759

 

Other non-operating loss (income) (6)

 

 

(66

)

 

 

16,211

 

Equity-based compensation (7)

 

 

5,530

 

 

 

3,371

 

IPO related expenses (8)

 

 

12,718

 

 

 

58,620

 

(Income) / loss from equity method investments in related party

 

 

(144

)

 

 

(176

)

Adjusted income before income taxes

 

$

89,523

 

 

$

85,428

 

Adjusted tax expense (9)

 

 

(22,963

)

 

 

(22,479

)

Adjusted net income

 

$

66,560

 

 

$

62,949

 

Net income (loss) margin (10)

 

 

7.1

%

 

 

(9.2

)%

Adjusted net income margin

 

 

16.2

%

 

 

17.8

%

(1)

Interest expense, net includes amortization of deferred debt issuance costs.

(2)

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were de minimis for the three months ended September 30, 2022, while General and administrative expenses contributed to $0.7 million and $0.1 million of the acquisition-related expense for the three months ended September 30, 2022 and 2021, respectively.

(3)

Acquisition related long-term incentive compensation arises from long-term incentive plans associated with acquisitions.

(4)

Restructuring and related expense consists of Compensation and benefits were de minimis for the three months ended September 30, 2022 and $0.9 million for the three months ended September 30, 2021, and General and administrative costs including occupancy and professional services fees of $2.5 million for the three months ended September 30, 2021, related to the Restructuring Plan. The Compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

(5)

Amortization and expense related to discontinued prepaid incentive programs – see “Note 14, Employee Benefit Plans, Prepaid and Long-Term Incentives” of the unaudited quarterly consolidated financial statements for further discussion.

(6)

For the three months ended September 30, 2022, Other non-operating loss (income) includes a $0.1 million of sublease income. For the three months ended September 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $16.3 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction.

(7)

Equity-based compensation reflects non-cash equity-based expense.

(8)

IPO related expenses include $0.2 million and $1.0 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the three months ended September 30, 2022 and 2021, respectively, and compensation-related expense of $12.5 million and $57.6 million for the three months ended September 30, 2022 and 2021, respectively, primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

(9)

The Company is subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of the LLC. For the three months ended September 30, 2022, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 4.65% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC. For the three months ended September 30, 2021, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 5.31% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC.

(10)

Net income (loss) margin is Net income (loss) as a percentage of Total revenue.

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

1,290,178

 

 

$

1,054,236

 

Net income (loss)

 

$

117,475

 

 

$

27,016

 

Income tax expense (benefit)

 

 

10,076

 

 

 

(802

)

Amortization

 

 

78,563

 

 

 

82,095

 

Amortization of deferred debt issuance costs (1)

 

 

9,017

 

 

 

8,546

 

Change in contingent consideration

 

 

(837

)

 

 

2,356

 

Acquisition-related expense (2)

 

 

2,889

 

 

 

2,128

 

Acquisition related long-term incentive compensation (3)

 

 

22,181

 

 

 

28,837

 

Restructuring and related expense (4)

 

 

5,717

 

 

 

13,532

 

Amortization and expense related to discontinued prepaid incentives (5)

 

 

5,075

 

 

 

5,441

 

Other non-operating loss (income) (6)

 

 

6,832

 

 

 

45,547

 

Equity-based compensation (7)

 

 

18,009

 

 

 

11,259

 

Other non-recurring items (8)

 

 

 

 

 

354

 

IPO related expenses (9)

 

 

44,392

 

 

 

58,936

 

(Income) / loss from equity method investments in related party

 

 

414

 

 

 

(610

)

Adjusted income before income taxes

 

$

319,803

 

 

$

284,635

 

Adjusted tax expense (10)

 

 

(82,029

)

 

 

(74,896

)

Adjusted net income (11)

 

$

237,774

 

 

$

209,739

 

Net income (loss) margin (12)

 

 

9.1

%

 

 

2.6

%

Adjusted net income margin

 

 

18.4

%

 

 

19.9

%

(1)

Interest expense, net includes amortization of deferred debt issuance costs.

(2)

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $0.1 million for the nine months ended September 30, 2022, while General and administrative expenses contributed to $2.8 million and $2.1 million of the acquisition-related expense for the nine months ended September 30, 2022 and 2021, respectively.

(3)

Acquisition related long-term incentive compensation arises from long-term incentive plans associated with acquisitions.

(4)

Restructuring and related expense consists of Compensation and benefits of $0.7 million and $9.2 million for the nine months ended September 30, 2022 and 2021, respectively, and General and administrative costs including occupancy and professional services fees of $5.0 million and $4.3 million for the nine months ended September 30, 2022 and 2021, respectively, related to the Restructuring Plan. The Compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

(5)

Amortization and expense related to discontinued prepaid incentive programs – see “Note 14, Employee Benefit Plans, Prepaid and Long-Term Incentives” of the unaudited quarterly consolidated financial statements for further discussion.

(6)

For the nine months ended September 30, 2022, Other non-operating loss (income) includes a $7.2 million charge related to the change in the TRA liability caused by a change in our blended state tax rates. For the nine months ended September 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $36.9 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction. For the nine months ended September 30, 2021, Other non-operating loss (income) also includes expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt

(7)

Equity-based compensation reflects non-cash equity-based expense.

(8)

Other non-recurring expense includes one-time impacts that do not reflect the core performance of the business, including General and administrative expenses of $0.4 million for the nine months ended September 30, 2021. Other non-recurring items include one-time professional services costs associated with term debt repricing, one-time non-income tax charges, and tax and accounting consultancy costs associated with potential structure changes.

(9)

IPO related expenses include $1.3 million and $1.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the nine months ended September 30, 2022 and 2021, respectively, and compensation-related expense of $43.1 million and $57.6 million for nine months ended September 30, 2022 and 2021, respectively, primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

(10)

The Company is subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of the LLC. For the nine months ended September 30, 2022, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 4.65% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC. For the nine months ended September 30, 2021, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 5.31% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC.

(11)

Consolidated Adjusted net income does not reflect a deduction for the Adjusted net income associated with the non-controlling interest in Ryan Re for the period of time prior to March 31, 2021 when the Company did not own 100% of Ryan Re or the non-controlling interest attributed to the retained ownership of the LLC.

(12)

Net income (loss) margin is Net income (loss) as a percentage of Total revenue.

 

Reconciliation of Adjusted Diluted Earnings per Share to Diluted Earnings per Share

 

 

Three Months Ended September 30, 2022

 

 

 

 

 

Adjustments

 

 

 

 

(in thousands, except per share data)

 

U.S. GAAP

 

 

Less: Net
income
attributed to
dilutive
awards and
substantively
vested shares
(1)

 

 

Plus: Net
income (loss)
attributed to
non-controlling
interests
(2)

 

 

Plus:
Adjustments
to Adjusted
net income
(3)

 

 

Plus:
Dilutive
impact of
unvested
equity
awards
(4)

 

 

Adjusted
diluted
earnings
per share

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Class A common shareholders- diluted

 

$

24,824

 

 

$

(13,079

)

 

$

17,534

 

 

$

37,281

 

 

$

 

 

$

66,560

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding- diluted

 

 

266,352

 

 

 

 

 

 

 

 

 

 

 

 

4,153

 

 

 

270,505

 

Net income (loss) per share of Class A common stock- diluted

 

$

0.09

 

 

$

(0.05

)

 

$

0.07

 

 

$

0.14

 

 

$

 

 

$

0.25

 

(1)

Adjustment removes the impact of Net income (loss) attributed to dilutive awards and substantively vested RSUs to arrive at Net income (loss) attributable to Ryan Specialty Holdings, Inc. See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(2)

For comparability purposes, this calculation incorporates the Net income (loss) that would be outstanding if all LLC Common Units (together with shares of Class B common stock) were exchanged for shares of Class A common stock. 144,085 weighted average outstanding LLC Common Units were considered dilutive for the three months ended September 30, 2022 and included in the 266,352 Weighted-average shares outstanding within Diluted EPS. See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(3)

Adjustments to Adjusted net income are described in the footnotes of the reconciliation of Adjusted net income to Net income (loss) in “Adjusted Net Income and Adjusted Net Income Margin.”

(4)

For comparability purposes and to be consistent with the treatment of the adjustments to arrive at Adjusted net income, the dilutive effect of unvested equity awards is calculated using the treasury stock method as if the weighted average unrecognized cost associated with the awards was $0 over the period, less any unvested equity awards determined to be dilutive within the Diluted earnings per share calculation disclosed in “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

 

 

Three Months Ended September 30, 2021

 

 

 

 

 

 

Adjustments

 

 

 

 

(in thousands, except per share data)

 

U.S. GAAP

 

 

Plus: Net
income
attributable to
the LLC before
the
Organizational
Transactions

 

 

Plus: Impact of
all LLC
Common Units
exchanged for
Class A shares
(1)

 

 

Plus:
Adjustments
to Adjusted
net income
(2)

 

 

Plus: Dilutive
impact of
unvested
equity awards
(3)

 

 

Adjusted
diluted
earnings
per share

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Class A common shareholders- diluted

 

$

(17,115

)

 

$

15,781

 

 

$

(31,256

)

 

$

95,539

 

 

$

 

 

$

62,949

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding- diluted

 

 

105,309

 

 

 

 

 

 

142,727

 

 

 

 

 

 

19,684

 

 

 

267,721

 

Net income (loss) per share of Class A common stock- diluted

 

$

(0.16

)

 

$

0.15

 

 

$

(0.12

)

 

$

0.39

 

 

$

(0.02

)

 

$

0.24

 

(1)

For comparability purposes, this calculation incorporates the Net income (loss) and weighted average shares of Class A common stock that would be outstanding if all LLC Common Units (together with shares of Class B common stock) were exchanged for shares of Class A common stock. See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(2)

Adjustments to Adjusted net income are described in the footnotes of the reconciliation of Adjusted net income to Net income (loss) in “Adjusted Net Income and Adjusted Net Income Margin.”

(3)

For comparability purposes and to be consistent with the treatment of the adjustments to arrive at Adjusted net income, the dilutive effect of unvested equity awards is calculated using the treasury stock method as if the weighted average unrecognized cost associated with the awards was $0 over the period, less any unvested equity awards determined to be dilutive within the Diluted earnings per share calculation disclosed in “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

Adjustments

 

 

 

 

(in thousands, except per share data)

 

U.S. GAAP

 

 

Less: Net
income
attributed to
dilutive
awards and
substantively
vested shares
(1)

 

 

Plus: Net
income (loss)
attributed to
non-controlling
interests
(2)

 

 

Plus:
Adjustments
to Adjusted
net income
(3)

 

 

Plus:
Dilutive
impact of
unvested
equity
awards
(4)

 

 

Adjusted
Diluted
Earnings
per Share

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Class A common shareholders- diluted

 

$

98,565

 

 

$

(55,408

)

 

$

74,318

 

 

$

120,299

 

 

$

 

 

$

237,774

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding- diluted

 

 

265,071

 

 

 

 

 

 

 

 

 

 

 

 

5,011

 

 

 

270,082

 

Net income (loss) per share of Class A common stock- diluted

 

$

0.37

 

 

$

(0.21

)

 

$

0.28

 

 

$

0.46

 

 

$

(0.02

)

 

$

0.88

 

(1)

Net income (loss) attributable to Ryan Specialty Holdings, Inc. See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(2)

For comparability purposes, this calculation incorporates the Net income (loss) that would be outstanding if all LLC Common Units (together with shares of Class B common stock) were exchanged for shares of Class A common stock. 144,004 weighted average outstanding LLC Common Units were considered dilutive for the three months ended September 30, 2022 and included in the 265,071 Weighted-average shares outstanding within Diluted EPS. See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(3)

Adjustments to Adjusted net income are described in the footnotes of the reconciliation of Adjusted net income to Net income (loss) in “Adjusted Net Income and Adjusted Net Income Margin.”

(4)

For comparability purposes and to be consistent with the treatment of the adjustments to arrive at Adjusted net income, the dilutive effect of unvested equity awards is calculated using the treasury stock method as if the weighted average unrecognized cost associated with the awards was $0 over the period, less any unvested equity awards determined to be dilutive within the Diluted earnings per share calculation disclosed in “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

 

Nine Months Ended September 30, 2021

 

 

 

 

 

 

Adjustments

 

 

 

 

(in thousands, except per share data)

 

U.S. GAAP

 

 

Plus: Net
income
attributable to
the LLC before
the
Organizational
Transactions

 

 

Plus: Impact of
all LLC
Common Units
exchanged for
Class A shares
(1)

 

 

Plus:
Adjustments
to Adjusted
net income
(2)

 

 

Plus: Dilutive
impact of
unvested
equity awards
(3)

 

 

Adjusted
Diluted
Earnings
per Share

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Class A common shareholders- diluted

 

$

(17,115

)

 

$

75,387

 

 

$

(31,256

)

 

$

182,723

 

 

$

 

 

$

209,739

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding- diluted

 

 

105,309

 

 

 

 

 

 

142,727

 

 

 

 

 

 

19,684

 

 

 

267,721

 

Net income (loss) per share of Class A common stock- diluted

 

$

(0.16

)

 

$

0.72

 

 

$

(0.44

)

 

$

0.74

 

 

$

(0.06

)

 

$

0.78

 

(1)

For comparability purposes, this calculation incorporates the Net income (loss) and weighted average shares of Class A common stock that would be outstanding if all LLC Common Units (together with shares of Class B common stock) were exchanged for shares of Class A common stock. See “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(2)

Adjustments to Adjusted net income are described in the footnotes of the reconciliation of Adjusted net income to Net income (loss) in “Adjusted Net Income and Adjusted Net Income Margin.”

(3)

For comparability purposes and to be consistent with the treatment of the adjustments to arrive at Adjusted net income, the dilutive effect of unvested equity awards is calculated using the treasury stock method as if the weighted average unrecognized cost associated with the awards was $0 over the period, less any unvested equity awards determined to be dilutive within the Diluted earnings per share calculation disclosed in “Note 12, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

 

Investor Relations
Noah Angeletti
SVP, Head of Investor Relations & Treasurer
Ryan Specialty
IR@ryanspecialty.com
Phone: (312) 784-6152

Media Relations
Alice Phillips Topping
SVP, Chief Marketing & Communications Officer
Ryan Specialty
Alice.Topping@ryansg.com
Phone: (312) 635-5976

Source: Ryan Specialty Holdings, Inc.