UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JuneSeptember 30, 2021

2023

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File Number: 001-40645

img149648542_0.jpg 

RYAN SPECIALTY GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

86-2526344

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

Two Prudential Plaza

180 N. Stetson Avenue, Suite 4600

Chicago, IL

60601

(Address of principal executive offices)

(Zip Code)

Two Prudential Plaza
180 N. Stetson Avenue
Suite 4600
Chicago,
IL
60601
(Address of principal executive offices)
(312) 784-6001
(Registrant’s telephone number, including area code)

(312) 784-6001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

symbol

Trading
symbol

Name of each exchange

on which registered

Class A Common Stock, $0.001 par value per share

RYAN

RYAN

The New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ☐ ☒ No ☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2
of the Exchange Act.

Large accelerated filer

☒

☐

Accelerated filer

☐

Non-accelerated

filer

☐

☒

Smaller reporting company

☐

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2
of the Exchange Act). Yes ☐
No
☒

On September 1, 2021,October 31, 2023, the Registrant had

109,903,867260,250,593 shares of common stock outstanding, consisting of 118,299,258 shares of Class A common stock, $0.001 par value, outstanding.
and 141,951,335 shares of Class B common stock, $0.001 par value.

Ryan Specialty Group Holdings, Inc.

INDEX

PART I. FINANCIAL INFORMATION
7
Item 1.

Financial Statements (Unaudited)
7

PART I. FINANCIAL INFORMATION

1

Ryan Specialty Group Holdings, Inc. Balance Sheets (Unaudited)
7

Item 1.

Financial Statements

1

Ryan Specialty Group Holdings, Inc. Notes to Balance Sheets (Unaudited)
8

Ryan Specialty Group, LLC Consolidated Statements of Income (Loss) (Unaudited)

11

1

Ryan Specialty Group, LLC Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

12

2

Consolidated Balance Sheets (Unaudited)

Ryan Specialty Group, LLC Consolidated Statements of Financial Position (Unaudited)
13

3

Ryan Specialty Group, LLC Consolidated Statements of Cash Flows (Unaudited)

14

4

Ryan Specialty Group, LLC Consolidated Statements of Members’Stockholders' Equity (Unaudited)

15

5

Ryan Specialty Group, LLC Notes to the Consolidated Financial Statements (Unaudited)

17

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

25

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

62

45

Item 4.

Controls and Procedures

63

46

PART IIII. OTHER INFORMATION

64

46

Item 1.

Legal Proceedings

64

46

Item 1A.

Risk Factors

64

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

46

Item 3.

Defaults Upon Senior Securities

66

47

Item 4.

Mine Safety Disclosures

66

47

Item 5.

Other Information

66

47

Item 6.

Exhibits

Exhibits
67

48

Forward-Looking Statements

This Quarterly Report on Form

10-Q
s contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. All statements, other than statements of historical fact included in this Quarterly Report on Form
10-Q,
are forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated costs, expenditures, cash flows, growth rates and financial results, our plans, intended useanticipated amount and timing of proceeds, anticipated cost savings relating to the Restructuring Plan and the amount and timing of delivery of annual cost savings,ACCELERATE 2025 program, and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation, are forward-looking statements. All forward-looking statements are subject to risks and uncertainties (many of which may be amplified on account of the
COVID-19
pandemic) that may cause actual results to differ materially from those that we expected, including:

•
our potential failure to develop asuccessfully execute our succession plan for thePatrick G. Ryan or other members of our senior management team including Patrick G. Ryan, and/or to recruit and retain revenue producers;
•
the impact of breaches in security that cause significant system or network disruption or business interruption;
•
the cyclicalityimpact of and the economic conditions in, the markets in which we operate;
improper disclosure of confidential, personal or proprietary data, misuse of information by employees or counterparties, or as a result of cyber-attacks;
conditions that result in reduced insurer capacity;
•
the potential loss of our relationships with insurance carriers or our clients, failure to maintain good relationships with insurance carriers or clients, becoming dependent upon a limited number of insurance carriers or clients, or the failure to develop new insurance carrier and client relationships;
•
errors in, or ineffectiveness of, our underwriting models and the risks presented to our reputation and relationships with insurance carriers, retail brokers, and agents;
•
failure to maintain, protect, and enhance our brand or prevent damage to our reputation;
•
failure to achieve the intended results of our restructuring program, ACCELERATE 2025;
•
any failure to maintain the valuable aspects of our Company’s culture;
•
our inability to successfully recover upon experiencing a disaster or other business continuity problem;
•
the impact of third parties that perform key functions of our business operations acting in ways that harm our business;
•
the cyclicality of, and the economic conditions in, the markets in which we operate and conditions that result in reduced insurer capacity or a migration of business away from the E&S market and into the Admitted market;
•
a reduction in insurer capacity;
•
significant competitive pressures in each of our businesses;
•
decreases in the premiums or commission rates set by insurers, or actions by insurers seeking repayment of commissions;
•
decrease in the amount of supplemental or contingent commissions we receive;
•
our inability to collect our receivables;
•
the potential that our underwriting models contain errors or that are otherwise ineffective;
damage to our reputation;
failure to maintain, protect and enhance our brand;
decreases in current market share as a result of disintermediation within the insurance industry including increased competition from insurance companies, technology companies and the financial services industry, as well as the shiftshifts away from traditional insurance markets;
•
changes in the mode of compensation in the insurance industry;
changes in our accounting estimates, assumptions or methodologies, or changes in accounting guidance generally;
changes in interest rates that affect our cost of capital and net investment income;
1
changes in interest rates and deterioration of credit quality that reduce the value of our cash balances;
•
impairment of goodwill;
goodwill and intangibles;
•
the impact on our operations and financial condition from the effects of a pandemic or the outbreak of a contagious disease and resulting governmental and societal responses;
any failure to maintain our corporate culture;
•
the inability to maintain rapid growth and generate sufficient revenue to maintain profitability;
•
the loss of clients or business as a result of consolidation within the retail insurance brokerage industry;
•
the impact if our MGA or MGU programs are terminated or changed;
•
the risks associated with theunsatisfactory evaluation of potential acquisitions and the integration of acquired businesses as well as introduction of new products, lines of business, and markets;

i

•
significant investment in our growth strategy and whether expectation of internal efficiencies are realized;
any unsuccessful attempts to open new officers, enter new product lines, establish distribution channels, or hire new brokers and underwriters;
•
our inabilityability to gain internal efficiencies through the application of technology or effectively apply technology in driving value for our clients through innovationor the failure of technology and technology-based solutions;
automated systems to function or perform as expected;
•
the unavailability or inaccuracy of our clients’ and third parties’ data for pricing and underwriting our insurance policies;
a variety of risks in our third-party claims administration operations that are distinct from those we face in our insurance intermediary operations;
•
the competitiveness and cyclicality of the reinsurance industry;
the higher risk of delinquency or collection inherent in our premium finance business;
•
the occurrence of natural or
man-made
disasters;
our inability to successfully recover upon experiencing a disaster or other business continuity problem;
•
the economic and political conditions of the countries and regions in which we operate;
•
the failure or take-over by the FDIC of one of the financial institutions that we use;
•
our inability to respond quickly to operational or financial problems or promote the desired level of cooperation and interaction among our offices;
the impact of third parties that perform key functions of our business operations acting in ways that harm our business;
our global operations expose us to various international risks, including exchange rate fluctuations;
the impact of governmental regulations, legal proceedings and governmental inquiries related to our business;
being subject to E&O claims as well as other contingencies and legal proceedings;
our handling of client funds and surplus lines taxes that exposes us to complex fiduciary regulations;
2
changes in tax laws or regulations;
decreased commission revenues due to proposed tort reform legislation;
the impact of regulations affecting insurance carriers;
the impact on our operations and financial condition from the effects of the current
COVID-19
pandemic and resulting governmental and societal responses;
the impact of breaches in security that cause significant system or network disruptions;
the impact of improper disclosure of confidential, personal or proprietary data, misuse of information by employees or counterparties or as a result of cyberattacks;
•
the impact of infringement, misappropriation, or dilution of our intellectual property;
•
the impact of the failure to protect our intellectual property rights, or allegations that we have infringed on the intellectual property rights of others;
•
our international operations expose us to various international risks, including exchange rate fluctuations and risks resulting from geopolitical tensions;
•
the impact of governmental regulations, legal proceedings, and governmental inquiries related to our business;
•
being subject to E&O claims as well as other contingencies and legal proceedings;
•
our handling of client funds and surplus lines taxes that exposes us to complex fiduciary regulations;
•
changes in tax laws or regulations;
•
decreased commission revenues due to proposed tort reform legislation;
•
the impact of regulations affecting insurance carriers;
•
our outstanding debt potentially adversely affecting our financial flexibility and subjecting us to restrictions and limitations that could significantly affect our ability to operate;
•
not being able to generate sufficient cash flow to service all of our indebtedness and being forced to take other actions to satisfy our obligations under such indebtedness;
the impact of being unable to refinance our indebtedness;
•
being affected by further changes in the U.S.-basedU.S. based credit markets;
•
changes in our credit ratings;
•
risks related to the payments required by our Tax Receivable Agreement;
•
risks relating to our organizational structure that could result in conflicts of interest between the impactLLC Unitholders and the holders of failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future;Class A common stock; and
•
other factors disclosed in the section entitled “Risk Factors” and elsewhere“Risk Factors” in the IPO Prospectus and this Quarterlyour Annual Report on Form
10-K and our Quarterly Reports on Form 10-Q.

We derive many of our forward-looking statements from our operating budgets and forecasts that are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form

10-Q.
10-Q and under the Section entitled “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and the Annual Report on Form 10-K for the year ended December 31, 2022. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our otherfilings with the SEC filings and other public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form
10-Q
in the context of these risks and uncertainties.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form

10-Q,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should

ii

not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

3

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form

10-Q
are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
4

Commonly Used Defined Terms

As used in this Quarterly Report on Form

10-Q,
unless the context indicates or otherwise requires, the following terms have the following meanings:

•
“we”we, “us”” “us, “our”” “our,” the “Company”“Company, “RSG”,” “Ryan Specialty,” and similar references refer: (i) followingFollowing the consummation of the Organizational Transactions, including our IPO, to Ryan Specialty Group Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including Holdingsthe LLC, and (ii) prior to the completion of the Organizational Transactions, including our IPO, to Holdingsthe LLC and, unless otherwise stated, all of its subsidiaries.
•
“Adjusted Term SOFR”: Interest rate per annum based on the Secured Overnight Financing Rate (“SOFR”) plus a Credit Spread Adjustment of 10 basis points, 15 basis points, or 25 basis points for the one-month, three-month, or six-month borrowing periods, respectively, subject to a 75 basis point floor.
•
Admitted:“Admitted”: The insurance market comprising insurance carriers licensed to write business on an “admitted” basis by the insurance commissioner of the state in which the risk is located. Insurance rates and forms in this market are highly regulated by each state and coverages are largely uniform.
•
Affiliate (and, with a correlative meaning, “Affiliated”): With respect to a specified Person, each other Person that directly,“All Risks” or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. As used in this definition, “control” (including with correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities or by contract or other agreement).
All Risks:“ARL”: All Risks Specialty, LLC (f/k/a All Risk, Ltd.), an insurance specialist providing services in wholesale brokerage and delegated underwriting authority.
•
“All Risks Acquisition:Acquisition”: In September 2020, RSGRyan Specialty acquired All Risks.
•
ARL: Collectively, All Risks, Limited and Independent Claims Services.
“Binding Authority:Authority”: Our Binding Authority receives submissions for insurance directly from retail brokers, evaluates price and makes underwriting decisions regarding these submissions based on narrowly prescribed guidelines provided by carriers, and binds and issues policies on behalf of insurance carriers who retain the insurance underwriting risk.
•
“Board” or “Board of Directors”: The board of directors of Ryan Specialty.
•
“Class C Incentive Units”: Class C common incentive units, initially of the LLC on and prior to September 30, 2021 and then subsequently of New LLC, that are subject to vesting and will be exchangeable into LLC Common Units: Collectively, all Class A common units and all Class B common units of Holdings LLC.
Units.
•
“Credit Agreement”: The credit agreement, as amended, dated September 1, 2020, among Ryan Specialty, LLC and JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto.
•
“Credit Facility”: The Term Loan and the Revolving Credit Facility.
•
“E&O:&O”: Errors and omissions.
•
“E&S:&S”: Excess and surplus lines. In this insurance market, carriers are licensed on a
“non-admitted”
“non-admitted” basis. The excess and surplus lines market often offers carriers more flexibility in terms, conditions, and rates than does the Admitted market.
•
“Family Group:Group”: (i) In the case of a member of Holdingsthe LLC or a Holdings LLC Employee who is an individual, such individual’s spouse, parents and descendants (whether natural or adopted) and any trust or estate planning vehicle or entity solely for the benefit of such individual and/or the individual’s spouse, parents, descendants and/or other relatives, and (ii) in the case of a member of Holdingsthe LLC or a Holdings LLC Employee that is a trust, the beneficiary of such trust.
•
“IPO”: Initial public offering.
•
Founder: Patrick G. Ryan.“LLC”: Ryan Specialty, LLC, together with its parent New LLC, and their subsidiaries.

iii

•
Founder Group: Founder, members“LLC Common Units”: Non-voting common interest units initially of the Founder’s Family GroupLLC on and Founder’s Affiliates.
prior to September 30, 2021 and then subsequently of New LLC or LLC, as the context requires.
•
“LLC Operating Agreement”: The Seventh Amended and Restated Limited Liability Company Agreement of the LLC.
•
“LLC Units”: Class A common units and Class B common units of the LLC prior to the Organizational Transactions.
Person: An individual•
“LLC Unitholders”: Holders of the LLC Units or any corporation, partnership,the LLC Common Units, as the context requires.
•
“MGA”: Managing general agent.
•
“MGU”: Managing general underwriter.
•
“New LLC”: New Ryan Specialty, LLC is a Delaware limited liability company trust, unincorporated organization, association, joint venture or any other organization or entity, whether or notand a legal entity.
Holdings LLC:direct subsidiary of Ryan Specialty Group,Holdings, Inc.
•
“New LLC Operating Agreement”: The Amended and its subsidiaries.
Restated Limited Liability Company Agreement of New LLC.
•
Incentive units: Incentive-based common units of Holdings LLC.
IPO: Initial public offering.
IPO Prospectus: our final prospectus for our IPO dated as of July 21, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.
LLC Unitholders: holders of the LLC Units.
LLC Units:
non-voting
common interest units of Holdings LLC.
5
Management Incentive Units: management incentive units with a participation threshold equal to the IPO price, which are subject to vesting and will be exchangeable into LLC Units.
Mandatory Participation: As part of the reclassification of common stock related to the Organizational Transactions and subject to certain limited exceptions, all existing holders of LLC Units were required to sell 15.0% of their vested interest (inclusive of vested equity grants and purchased equity) in Holdings LLC in connection with the IPO.
MGA: Managing general agent.
MGU: Managing general underwriter.
Onex:“Onex”: Onex Corporation and its affiliates, a holder of LLC Units and Redeemable Preferred Units prior to the Organizational Transactions, and one of our shareholders following the Organizational Transactions.
•
Optional Participation: As part of the reclassification of common stock related to the “Organizational Transactions all existing holders of LLC Units had the option to sell up to (i) an additional 10.0% of their vested interest received as an equity grant under compensatory plans or arrangements and (ii) 100% of their remaining purchased interest, in each case, on a pro rata basis, subject to reduction in connection with the IPO and certain other limited exceptions.
Organizational Transactions:”: The series of organizational transactions completed by the Company in connection with the IPO, as described in the IPO Prospectus.
Form 10-K filed with the SEC on March 16, 2022.
•
“Revolving Credit Facility”: The $600 million senior secured revolving credit facility under our Credit Agreement.
•
Participation: Collectively, the Mandatory Participation and the Optional Participation.
Restructuring Plan: Plan to reduce costs and increase efficiencies, streamline management reporting structures, and centralize functions across the Company to improve operating margin, which is expected to be fully actioned by June 30, 2022.
Ryan Parties: Patrick G. Ryan, founder, chairman and chief executive officer of RSG and certain members of his family and various entities and trusts over which Patrick G. Ryan and his family exercise control.
SEC:“SEC”: The Securities and Exchange Commission.
•
“Senior Secured Notes”: The 4.375% senior secured notes due 2030 issued on February 3, 2022.
•
Securities Act: Securities Act of 1933, as amended.
Specialty:“Specialty”: One of the three RSGRyan Specialty primary distribution channels, which includes Wholesale Brokerage, Binding Authority, and Underwriting Management.
•
“Stock Option”: A non-qualified stock option award that gives the grantee the option to buy a specified number of shares of Class A common stock at the grant date price.
•
“Tax Receivable Agreement” or TRA:“TRA”: The tax receivable agreement entered into in connection with the IPO.
•
“Term Loan”: The senior secured Term Loan B for $1.65 billion in principal amount under our Credit Agreement.
•
“U.S. GAAP:GAAP”: Accounting principles generally accepted in the United States of America.
•
“Underwriting Management:Management”: Our Underwriting Management Specialty administers an expansivea number of MGUs, MGAs, and programs that offer commercial and personal insurance for specific product lines or industry classes. Underwriters act with delegated underwriting authority based on varying degrees of prescribed guidelines as provided by carriers, quoting, binding and issuing policies on behalf of RSG’sRyan Specialty’s carrier trading partners which retain the insurance underwriting risk.
•
Wholesale Brokerage: “Wholesale Brokerage”: Our Wholesale Brokerage Specialty distributes a wide range and diversified mix of specialty property, casualty, professional lines, personal lines and workers’ compensation insurance products, as a broker between the carriers and retail brokerage firms.
6

iv

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Ryan Specialty Group Holdings, Inc.

Balance Sheets (Unaudited)
(dollars in actuals)
   
June 30, 2021
  
March 5, 2021
 
ASSETS
         
Cash
  $590  $—   
   
 
 
  
 
 
 
TOTAL ASSETS
  
$
590
 
 
$
—  
 
   
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Payable due to affiliate
  $590  $—   
   
 
 
  
 
 
 
Total liabilities
  
$
590
 
 
$
—  
 
   
 
 
  
 
 
 
STOCKHOLDERS’ EQUITY
         
Stock subscription receivable from Ryan Specialty Group, LLC
  $(10)  $(10) 
Class A common stock, $0.001 par value per share; 500,000,000 shares authorized; 10,000 shares issued and outstanding
   10   10 
   
 
 
  
 
 
 
Total Stockholders’ equity
  $0—  $—   
   
 
 
  
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
590
 
 
$
—  
 
   
 
 
  
 
 
 
The accompanying notes are an integral part of the financial statements.
7
Ryan Specialty Group Holdings, Inc.
Notes to Balance Sheets (Unaudited)
1. Organization
The Company was formed as a Delaware corporation on March 5, 2021. The Company was formed for the purpose of completing an IPO and related transactions in order to carry on the business of Holdings LLC. Subsequent to the IPO and pursuant to the Organizational Transactions, as described in Note 5,
Subsequent Events
, the Company became the parent and sole managing member of Holdings LLC. As the sole managing member, the Company operates and controls all of the business and affairs of Holdings LLC, and through Holdings LLC and its subsidiaries, conducts its business.
2. Summary of Significant Accounting Policies
Basis of Presentation and Accounting
The financial statements have been prepared in accordance with U.S. GAAP. Separate statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows have not been presented because there have been no material activities in this entity for the period ended June 30, 2021. See Note 4,
Related Parties
for further discussion.
Use of Estimates
The preparation of the financial statement in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
3. Common Stock
On March 5, 2021, the Company was authorized to issue 500,000,000 shares of Class A common stock, par value $0.001 per share. As of the balance sheet dates, 10,000 shares have been issued, for $10, and are outstanding. As of June 30, 2021,
all
shares were owned by
Holdings
LLC.
4. Related Parties
Per the LLC Operating Agreement (as defined herein), Holdings LLC will reimburse the Company for any reasonable
out-of-pocket
expenses incurred on behalf of Holdings LLC, including all expenses associated with the IPO. During the period ended June 30, 2021, Holdings LLC funded the Company
$25,000
in order to pay IPO related expenses. Holdings LLC overfunded the Company by
$590
, which is included as the Payable due to affiliate on the Balance Sheet. Costs incurred were borne by Holdings LLC and not the Company. As such, the Company has not prepared a statement of operations or statement of cash flows as a result of the funding or expense payments.
5. Subsequent Events
IPO and Reorganization
On July 26, 2021, the Company, Ryan Specialty Group Holdings, Inc., completed its IPO of
56,918,278
shares, 65,456,020 shares after the underwriters exercised their option in full, of its Class A common stock,
$
0.001
par value per share, at an offering price of
$
23.50
per share. The Company received net proceeds from the IPO of approximately
$
1.3
billion, approximately $1.5 billion after the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions and estimated offering expenses,
of which
(i)
$
119.9
million was used to acquire
5,889,570
of newly issued LLC Units in Holdings LLC, (ii)
$
343.5
 million was used to acquire the outstanding
260,000,000
Class B Preferred Units held by Onex, (iii) $
795.7
 million was used to acquire
35,641,682
outstanding Holdings LLC units from certain existing holders of Holdings LLC, (iv) $76.2 million
was used
to purchase an additional 3,415,097 newly issued LLC Units in Holdings LLC, and (v) $114.4 million
was used
to repurchase and retire 5,122,645 shares of Class A common stock held by Onex. The Company is now a publicly traded company whose Class A common stock is traded on the New York Stock Exchange under the ticker symbol “RYAN”. Prior to the completion of the IPO, Holdings LLC and certain Holdings LLC subsidiaries consummated an internal reorganization.
8
In connection with
the
IPO, the Company completed the Organizational Transactions. The Organizational Transactions included:
The adoption of the Sixth Amended and Restated Limited Liability Company Agreement of Holdings LLC (the “LLC Operating Agreement”) to, among other things, appoint Ryan Specialty Group Holdings, Inc. as the sole managing member of Holdings LLC.
All Class A common units of
Holdings
LLC, including existing units with a participation threshold, were reclassified into an aggregate of 213,693,861 LLC
Units, and all Class B common units of Holdings LLC were reclassified into an aggregate 
of 20,680,420 LLC Units. Upon the completion of this reclassification, subject to certain limited exceptions, all existing holders of LLC Units were (i) required to sell 15.0% of
their vested interest (inclusive of vested equity grants and purchased equity) in Holdings LLC and (ii) had the option to sell up to (x) an 
additional 10.0% of their vested interest received as an equity grant under compensatory plans or arrangements and (y) 100% of their remaining purchased interest, in each case, on a pro rata basis, subject to reduction in connection with the IPO and certain other limited exceptions.
We amended and restated the certificate of incorporation of Ryan Specialty Group Holdings, Inc. to, among other things, provide for Class A common stock and Class B common stock.
An entity through which Onex held its common unit interest in Holdings LLC (the “Common Blocker Entity”) engaged in a series of transactions that resulted in Onex exchanging all of the equity interests in the Common Blocker Entity 
for 20,680,420 shares of Class A common stock and a right to participate in the Tax Receivable Agreement.
The Ryan Parties exchanged an aggregate 
of 11,540,324 units for 11,540,324 shares of Class A common stock and a right to participate in the Tax Receivable Agreement on account of such shares received.
Through a series of internal transactions, certain of our current and past employees and existing investors in
Holdings
LLC (i) either sold 100% of their LLC Units in connection with the IPO or had their LLC Units (after giving effect to the Participation and excluding the incentive units described in the following item) exchanged into an aggregate of 38,143,990 shares of Class A common stock on a
one-for-one
basis and (ii) received TRA alternative payments (“TRA Alternative Payments”).
With respect to certain current and former employee holders of incentive units that ceased to be holders of LLC Units and became holders of Class A common stock in connection with the Organizational Transactions, such incentive units (after giving effect to the Participation) were exchanged for an aggregate of 11,426,502 shares of Class A common stock and were additionally granted an aggregate of 4,637,622 options to purchase shares of Class A common stock under the Ryan Specialty Group Holdings, Inc. 2021 Omnibus Incentive Plan (
the “top-up options” or “reload options
”). Each such
top-up
option issued under the 2021 Plan is exercisable for 1share of our Class A common stock at an exercise price equal to the
IPO
price of $23.50.
With respect to the LLC Unitholders who have incentive units and remained as LLC Unitholders after completion of the Organizational Transactions, subject to any reclassification adjustment, such incentive units were exchanged (i) for an aggregate of 27,493,190 LLC Units (after giving effect to the Participation) and (ii) an aggregate of 3,911,482 Management Incentive Units with a participation threshold equal to the
IPO
price of $23.50, which Management Incentive Units are subject to vesting and will be exchangeable into LLC Units, which will then be immediately redeemed for Class A common stock based on the value of Management Incentive Units and the fair market value of the Class A common stock at the time of the applicable exchange. The Management Incentive Units granted under this paragraph are referred to as the
“top-up
Management Incentive Units.”
9
The issuance of an aggregate of 8,171,522 equity awards, including (i) an aggregate of 66,667 options to purchase Class A common stock with an exercise price equal to the
IPO
price of $23.50, (ii) an aggregate of 4,444,911 restricted stock units of Class A common stock, (iii) an aggregate of 2,116,667 Management
Incentive Units (exclusive of the top-up Management Incentive Units) with a participation threshold equal to the 
IPO
price of $23.50, and (iv) an aggregate of 1,543,277 restricted LLC units of
Holdings
LLC, in each case, were issued to certain employees in connection with the IPO as IPO awards and are subject to vesting.
With respect to the Ryan Parties, subject to any reclassification adjustment, their common units with a participation threshold were exchanged (after giving effect to the Participation) for an aggregate of 736,435 LLC Units.
Ryan Specialty Group Holdings, Inc. issued shares of Class B common stock to the LLC Unitholders, on a
one-to-one
basis with the number of LLC Units each LLC Unitholder owns upon the consummation of the Organizational Transactions, for nominal consideration. Shares of Class B common stock were not issued to the LLC Unitholders with respect to the Management Incentive Units.
Pursuant to the LLC Operating Agreement, the LLC Unitholders were entitled to exchange LLC Units for shares of Class A common stock on a
one-for-one
basis or, at our election, for cash, from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). The LLC Unitholders were also required to deliver to us an equivalent number of shares of Class B common stock to effectuate such an exchange. Any shares of Class B common stock so delivered were canceled.
Ryan Specialty Group Holdings, Inc.
entered into a Tax Receivable Agreement with
 the LLC Unitholders and Onex that will provide for the payment by us to the LLC Unitholders and Onex, collectively, of 85%
of the amount of cash savings, if any, in U.S. federal, state and local income taxes (computed using simplifying assumptions to address the impact of state and local taxes) the Company actually realizes (or, under certain circumstances is deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the Tax Receivable Agreement, as discussed below) as a result of certain (i) increases in the tax basis of assets of Holdings LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) tax attributes of Holdings LLC and subsidiaries of Holdings LLC that existed prior to the IPO or to which we succeed as a result of the Common Blocker Mergers,
(iii)
favorable “remedial” partnership tax allocations to which we become entitled (if any), and (iv) other tax benefits related to our entering into the Tax Receivable Agreement, including certain tax benefits attributable to payments that we are required to make under the Tax Receivable Agreement. Additionally, with respect to the holders of LLC Units who either sold
 100% of their LLC Units in connection with
the IPO 
or had their LLC Units (after giving effect to the Participation) exchanged for shares of Class A common stock on a
one-for-one
basis in the Organizational Transactions, such holders had the right to receive a
one-time
lump sum payment in an aggregate amount of $72.9 million, comprised of (i) $36.5 million of consideration for certain tax attributes arising as a result of the sale of any of their vested interest in connection with the Participation and (ii) $36.4 million of certain additional consideration related to the exchange of their LLC Units for Class A common stock (in amounts intended to approximate what the holders would have received had their exchange with us been taxable and provided us with additional tax attributes, although these exchanges will not relate to actual tax benefits obtained or to be obtained by us) (collectively, the TRA Alternative Payments).
In connection with the IPO, the Company became the sole managing member of Holdings LLC and controls the management of Holdings LLC. As a result, the Company will consolidate Holdings LLC’s financial results in its consolidated financial statements and report a
non-controlling
interest in the economic interest in Holdings LLC held by the remaining LLC Unitholders.
10
Ryan Specialty Group, LLC

Consolidated Statements of Income (Loss) (Unaudited)

All balances presented in thousands
   
Three months ended

June 30,
  
Six months ended

June 30,
 
   
2021
  
2020
  
2021
  
2020
 
REVENUE
     
Net commissions and fees
  $389,846  $246,065  $701,190  $453,150 
Fiduciary investment income
   166   259   280   1,366 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenue
  
$
390,012
 
 
$
246,324
 
 
$
701,470
 
 
$
454,516
 
  
 
 
  
 
 
  
 
 
  
 
 
 
EXPENSES
     
Compensation and benefits
   236,801   156,811   451,287   298,113 
General and administrative
   30,685   21,868   58,230   50,385 
Amortization
   27,319   9,118   55,113   19,149 
Depreciation
   1,222   851   2,422   1,629 
Change in contingent consideration
   1,723   —     2,313   1,032 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
  
$
297,750
 
 
$
188,648
 
 
$
569,365
 
 
$
370,308
 
  
 
 
  
 
 
  
 
 
  
 
 
 
OPERATING INCOME
  
$
92,262
 
 
$
57,676
 
 
$
132,105
 
 
$
84,208
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Interest expense
   18,986   6,759   39,031   15,436 
Income from equity method investment in related party
   353   —     434   87 
Other
non-operating
income (loss)
   (7,890)   555   (29,336)   (2,492) 
  
 
 
  
 
 
  
 
 
  
 
 
 
INCOME BEFORE INCOME TAXES
  
$
65,739
 
 
$
51,472
 
 
$
64,172
 
 
$
66,367
 
Income tax expense
   2,332   1,585   4,566   3,162 
  
 
 
  
 
 
  
 
 
  
 
 
 
NET INCOME
  
$
63,407
 
 
$
49,887
 
 
$
59,606
 
 
$
63,205
 
Net income (loss) attributable to
non-controlling
interests, net of tax
   —     (54)   2,450   946 
  
 
 
  
 
 
  
 
 
  
 
 
 
NET INCOME ATTRIBUTABLE TO MEMBERS
  
$
63,407
 
 
$
49,941
 
 
$
57,156
 
 
$
62,259
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Refer to Notes to the Consolidated Financial Statements
1
1
Ryan Specialty Group, LLC
Consolidated Statements of Comprehensive Income (Unaudited)
All balances presented in thousands
   
Three months ended

June 30,
  
Six months ended

June 30,
 
   
2021
   
2020
  
2021
  
2020
 
NET INCOME
  
$
63,407
 
  
$
49,887
 
 
$
59,606
 
 
$
63,205
 
Net income (loss) attributable to
non-controlling
interests, net of tax
   —      (54)   2,450   946 
  
 
 
   
 
 
  
 
 
  
 
 
 
NET INCOME ATTRIBUTABLE TO MEMBERS
  
$
63,407
 
  
$
49,941
 
 
$
57,156
 
 
$
62,259
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss), net of tax:
      
Foreign currency translation adjustments
   796    533   444   702 
Change in share of equity method investment in related party other comprehensive loss
   —      —     (738)   —   
  
 
 
   
 
 
  
 
 
  
 
 
 
Total other comprehensive income (loss), net of tax
  
$
796
 
  
$
533
 
 
$
(294
) 
 
$
702
 
  
 
 
   
 
 
  
 
 
  
 
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO MEMBERS
  
$
64,203
 
  
$
50,474
 
 
$
56,862
 
 
$
62,961
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Refer to Notes to the Consolidated Financial Statements
1
2
Ryan Specialty Group, LLC
Consolidated Statements of Financial Position (Unaudited)
All balances presented in

(In thousands, except unitshare and par value data

   
June 30, 2021 
  
 
  
December 31, 2020
 
ASSETS
   
CURRENT ASSETS
   
Cash and cash equivalents
  $307,528  $312,651 
Commissions and fees receivable – net
   206,800   177,699 
Fiduciary assets
   2,293,363   1,978,152 
Prepaid incentives – net
   7,805   8,842 
Other current assets
   25,556   16,006 
  
 
 
  
 
 
 
Total current assets
  
$
2,841,052
 
 
$
2,493,350
 
NON-CURRENT
ASSETS
   
Goodwill
   1,224,299   1,224,196 
Other intangible assets
   552,904   604,764 
Prepaid incentives – net
   28,924   36,199 
Equity method investment in related party
   46,911   47,216 
Property and equipment – net
   15,961   17,423 
Lease
right-of-use
assets
   86,565   93,941 
Other
non-current
assets
   10,531   12,293 
  
 
 
  
 
 
 
Total
non-current
assets
  
$
1,966,095
 
 
$
2,036,032
 
  
 
 
  
 
 
 
TOTAL ASSETS
  
$
4,807,147
 
 
$
4,529,382
 
  
 
 
  
 
 
 
LIABILITIES, MEZZANINE EQUITY AND MEMBERS’ EQUITY
   
CURRENT LIABILITIES
   
Accounts payable and accrued liabilities
   131,948   115,573 
Preferred units repurchase payable
   78,256   —   
Accrued compensation
   314,510   349,558 
Operating lease liabilities
   19,909   19,880 
Short-term debt and current portion of long-term debt
   22,547   19,158 
Fiduciary liabilities
   2,293,363   1,978,152 
  
 
 
  
 
 
 
Total current liabilities
  
$
2,860,533
 
 
$
2,482,321
 
NON-CURRENT
LIABILITIES
   
Accrued compensation
   73,577   69,121 
Operating lease liabilities
   76,046   83,737 
Long-term debt
   1,570,227   1,566,192 
Net deferred tax liabilities
   537   577 
Other
non-current
liabilities
   6,020   16,709 
  
 
 
  
 
 
 
Total
non-current
liabilities
  
$
1,726,407
 
 
$
1,736,336
 
  
 
 
  
 
 
 
TOTAL LIABILITIES
  
$
4,586,940
 
 
$
4,218,657
 
  
 
 
  
 
 
 
MEZZANINE EQUITY
   
Preferred units (260,000,000 par value; 260,000,000 issued and outstanding at June 30, 2021 and December 31, 2020)
  $240,831  $239,635 
MEMBERS’ EQUITY
   
Preferred units (74,990,000 par value; 74,990,000 issued and outstanding at June 30, 2021 and
December 31, 2020)
   —     74,270 
Class A common units (692,753,835 par value; 692,753,835 issued and outstanding at June 30, 2021, 693,876,105 par value; 693,876,105 issued and outstanding at December 31, 2020)
   274,741   267,248 
Class B common units (75,478,586 par value; 75,478,586 issued and outstanding at June 30, 2021 and December 31, 2020)
   71,874   71,874 
Accumulated deficit
   (369,647)   (346,304) 
Accumulated other comprehensive income
   2,408   2,702 
  
 
 
  
 
 
 
Total RSG members’ equity
  
$
(20,624
) 
 
$
69,790
 
  
 
 
  
 
 
 
Non-controlling
interests
   —     1,300 
  
 
 
  
 
 
 
Total members’ equity
  
 
(20,624
) 
 
 
71,090
 
  
 
 
  
 
 
 
TOTAL LIABILITIES, MEZZANINE AND MEMBERS’ EQUITY
  
$
 
 
 
 
 
 
 
 
 
4,807,147
 
 
$
4,529,382
 
  
 
 
  
 
 
 
Refer to Notes to the Consolidated Financial Statements
1
3
Ryan Specialty Group, LLC
Consolidated Statements of Cash Flows (Unaudited)
All balances presented in thousands
   
Six months ended June 30,
 
   
2021
  
2020
 
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net income
  $59,606  $63,205 
Adjustments to reconcile net income to cash flows from (used for) operating activities:
         
Loss (gain) from
non-controlling
equity interest
   (434)   (87) 
Amortization
   55,113   19,149 
Depreciation
   2,422   1,629 
Prepaid & deferred compensation expense
   23,035   7,297 
Equity-based compensation expense
   7,595   4,136 
Amortization of deferred debt issuance costs
   4,748   687 
Deferred tax benefit (loss)
   (40)   196 
Change (net of acquisitions and divestitures) in:
         
Commissions and fees receivable - net
   (29,089)   (24,434) 
Accrued interest
   333   129 
Other current assets and accrued liabilities
   (11,932)   12,282 
Other
non-current
assets and accrued liabilities
   (3,642)  (15,855) 
   
 
 
  
 
 
 
Total cash flows provided by operating activities
  
$
107,715
 
 
$
68,334
 
CASH FLOWS FROM INVESTING ACTIVITIES
         
 
Asset acquisitions
   —     (5,236) 
 
Prepaid incentives issued – net of repayments
   3,786   (4,279) 
 
Equity method investment in related party
   —     (23,500) 
 
Capital expenditures
   (3,941)   (7,858) 
   
 
 
  
 
 
 
Total cash flows used for investing activities
  
$
(155
) 
 
$
(40,873
) 
CASH FLOWS FROM FINANCING ACTIVITIES
         
 
Distribution to
non-controlling
interest holders
   (48,368)   —   
 
Equity repurchases
   (3,880)   (39,156) 
 
Repayment of term debt
   (8,250)   (4,063) 
 
Borrowing of term debt
   —     150,000 
 
Repayment of subordinated notes
   —     (20,000) 
 
Borrowings on revolving credit facilities
   —     848 
 
Repayments on revolving credit facilities
   —     (44,000) 
 
Deferred offering costs paid
   (4,191)   —   
 
Finance lease costs paid
   (75)   (36) 
 
Debt issuance costs paid
   (1,289)   —   
 
Cash distributions to members
   (47,039)   (13,644) 
   
 
 
  
 
 
 
Total cash flows (used for) provided by financing activities
  
$
(113,092
) 
 
$
29,949
 
   
 
 
  
 
 
 
Effect of changes in foreign exchange rates on cash and cash equivalents
  
 
409
 
 
 
(2,130
) 
   
 
 
  
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
  
$
(5,123
) 
 
$
55,280
 
   
 
 
  
 
 
 
CASH AND CASH EQUIVALENTS—Beginning balance
  
$
312,651
 
 
$
52,016
 
   
 
 
  
 
 
 
CASH AND CASH EQUIVALENTS—Ending balance
  
$
307,528
 
 
$
107,296
 
   
 
 
  
 
 
 
Supplemental cash flow information:
         
Interest and financing costs paid
  $32,518  $14,032 
Income taxes paid
  $5,897  $2,055 
Related party asset acquisition
  $—    $(6,077) 
Forgiveness of related party receivable
  $—    $6,077 
Accretion of premium on mezzanine equity
  $1,196  $615 
Accretion of premium on mezzanine equity in accumulated deficit
  $(1,196)  $(615) 
Repurchase of vested common units
  $(745)  $—   
Issuance of unsecured promissory note
  $745  $—   
Refer to Notes to the Consolidated Financial Statements
1
4
Ryan Specialty Group, LLC
Consolidated Statements of Members’ Equity (Unaudited)
All balances presented in thousands
   
Mezzanine
Equity
   
Preferred
Units
  
Common
Units

Class A
  
Common
Units

Class B
   
Retained
Earnings
(Accumulated
Deficit)
  
Accumulated
Other

Comprehensive
Income (Loss)
  
Non-controlling

Interests
  
Total
Members’

Equity (Deficit)
 
Balance at January 1, 2021
  
$
239,635
 
  
$
74,270
 
 
$
267,248
 
 
$
71,874
 
  
$
(346,304
) 
 
$
2,702
 
 
$
1,300
 
 
$
71,090
 
Net income (loss)
   —      —     —     —      (6,251)   —     2,450   (3,801) 
Foreign currency translation adjustments
   —      —     —     —      —     (352)   —     (352) 
Change in share of equity method investment in related party other comprehensive income
   —      —     —     —      —     (738)   —     (738) 
Accumulation of preferred dividends (% return), net of tax distributions
   —       —     —     —      (6,736)   —     —     (6,736) 
Accretion of premium on mezzanine equity
   598    —     —     —      (598)   —     —     (598) 
Related party acquisition
   —      —     —     —      (44,517)   —     (3,750)   (48,267) 
Distributions declared—tax advances
   —      —     —     —      (14,236)   —     —     (14,236) 
Repurchases of Class A units
   —      —     —     —      (227)   —     —     (227) 
Equity-based compensation expense
   —       —     4,430   —      —     —     —     4,430 
   
 
 
      
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at March 31, 2021
  
$
240,233
 
  
$
74,270
 
 
$
271,678
 
 
$
71,874
 
  
$
(418,869
) 
 
$
1,612
 
 
$
0  
 
 
$
565
 
   
 
 
      
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss)
   —       —     —     —      63,407   —     —     63,407 
Foreign currency translation adjustments
   —      —     —     —      —     796   —     796 
Accumulation of preferred dividends (% return), net of tax distributions
   —       —     —     —      1,073   —     —     1,073 
Accretion of premium on mezzanine equity
   598    —     —     —      (598)   —     —     (598) 
Related party acquisition
   —      —     —     —      (101)   —     —     (101) 
Distributions declared—tax advances
   —      —     —     —      (9,521)   —     —     (9,521) 
Reclassification from preferred units to repurchase payable
   —      (74,270)   —     —      (742)   —     —     (75,012) 
Repurchases of Class A units
   —      —     (102)   —      (4,296)   —     —     (4,398) 
Equity-based compensation expense
   —      —     3,165   —      —     —     —     3,165 
   
 
 
      
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
     
Balance at June 30, 2021
  
$
240,831
 
  
$
0  
 
 
$
274,741
 
 
$
71,874
 
  
$
(369,647
) 
 
$
2,408
 
 
$
0  
 
 
$
(20,624
) 
   
 
 
      
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
     
Refer to Notes to the Consolidated Financial Statements
1
5
Ryan Specialty Group, LLC
Consolidated Statements of Members’ Equity (Unaudited)
All balances presented in thousands
   
Mezzanine
Equity
      
Preferred
Units
   
Common
Units

Class A
  
Common
Units

Class B
   
Retained
Earnings
(Accumulated
Deficit)
  
Accumulated
Other

Comprehensive

Income (Loss)
   
Non-controlling

Interests
  
Total
Members’

Equity (Deficit)
 
Balance at January 1, 2020
  
$
139,644
 
      
$
0  
 
  
$
138,540
 
 
$
61,225
 
  
$
(276,009
) 
 
$
864
 
  
$
(1,109
) 
 
$
(76,489
) 
Net income (loss)
   —          —      —     —      12,318        1,000   13,318 
Foreign currency translation adjustments
   —          —      —     —      —     169    —     169 
Accumulation of preferred dividends (% return), net
of tax distributions
   —          —      —     —      (2,992)   —      —     (2,992) 
Accretion of premium on mezzanine equity
   308        —      —     —      (308)   —      —     (308) 
Related party asset
acquisition
   —          —      —     —      (3,039)   —      —     (3,039) 
Distributions declared—tax advances
   —          —      —     —      (12,288)   —      —     (12,288) 
Repurchases of Class A units
   —          —      (586)   —      (33,918)   —      —     (34,504) 
Equity issued to the Board of Directors
   —          —      640   —      —     —      —     640 
Equity-based compensation expense
   —          —      2,041   —      —     —      —     2,041 
   
 
 
       
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at March 31, 2020
  
$
139,952
 
      
$
0  
 
 
  
$
140,635
 
 
 
$
61,225
 
 
  
$
(316,236
)
 
 
 
$
1,033
 
 
 
  
$
(109
) 
 
$
(113,452
) 
   
 
 
       
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Net income (loss)
   —          —      —     —      49,941   —      (54)   49,887 
Foreign currency translation adjustments
   —          —      —     —      —     533    —     533 
Accumulation of preferred dividends (% return), net
of tax distributions
   —          —      —     —      (3,176)   —      —     (3,176) 
Accretion of premium on mezzanine equity
   307        —      —     —      (307)   —      —     (307) 
Distributions declared—tax advances
   —          —      —     —      (8,087)   —      —     (8,087) 
Repurchases of Class A units
   —          —      (13)   —      (4,639)   —      —     (4,652) 
Equity-based compensation expense
   —          —      1,456   —      —     —      —     1,456 
   
 
 
       
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at June 30, 2020
  
$
140,259
 
      
$
0  
 
  
$
142,078
 
 
$
61,225
 
  
$
(282,504
) 
 
$
1,566
 
  
$
(163
) 
 
$
(77,798
) 
   
 
 
       
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Refer to Notes to the Consolidated Financial Statements
1
6
Ryan Specialty Group, LLC
per share data)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Net commissions and fees

 

$

487,345

 

 

$

407,551

 

 

$

1,507,878

 

 

$

1,284,459

 

Fiduciary investment income

 

 

14,593

 

 

 

4,445

 

 

 

36,808

 

 

 

5,719

 

Total revenue

 

$

501,938

 

 

$

411,996

 

 

$

1,544,686

 

 

$

1,290,178

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

329,212

 

 

274,108

 

 

 

989,294

 

 

 

858,439

 

General and administrative

 

 

69,288

 

 

 

48,991

 

 

 

202,595

 

 

 

139,851

 

Amortization

 

 

29,572

 

 

 

25,667

 

 

 

79,125

 

 

 

78,563

 

Depreciation

 

 

2,201

 

 

 

1,463

 

 

 

6,570

 

 

 

3,903

 

Change in contingent consideration

 

 

1,848

 

 

 

423

 

 

 

4,358

 

 

 

(837

)

Total operating expenses

 

$

432,121

 

 

$

350,652

 

 

$

1,281,942

 

 

$

1,079,919

 

OPERATING INCOME

 

$

69,817

 

 

$

61,344

 

 

$

262,744

 

 

$

210,259

 

Interest expense, net

 

 

31,491

 

 

 

28,864

 

 

 

89,840

 

 

 

75,462

 

Loss (income) from equity method investment in related party

 

 

(2,271

)

 

 

(144

)

 

 

(5,882

)

 

 

414

 

Other non-operating loss (income)

 

 

67

 

 

 

(66

)

 

 

37

 

 

 

6,832

 

INCOME BEFORE INCOME TAXES

 

$

40,530

 

 

$

32,690

 

 

$

178,749

 

 

$

127,551

 

Income tax expense

 

 

24,827

 

 

 

3,411

 

 

 

42,772

 

 

 

10,076

 

NET INCOME

 

$

15,703

 

 

$

29,279

 

 

$

135,977

 

 

$

117,475

 

Net income attributable to non-controlling interests, net of tax

 

 

20,750

 

 

 

17,534

 

 

 

97,786

 

 

 

74,318

 

NET INCOME (LOSS) ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.

 

$

(5,047

)

 

$

11,745

 

 

$

38,191

 

 

$

43,157

 

NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

0.11

 

 

$

0.34

 

 

$

0.40

 

Diluted

 

$

(0.04

)

 

$

0.09

 

 

$

0.34

 

 

$

0.37

 

WEIGHTED-AVERAGE SHARES OF CLASS A COMMON STOCK OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

115,872,327

 

 

 

109,428,073

 

 

 

113,291,850

 

 

 

108,035,360

 

Diluted

 

 

115,872,327

 

 

 

266,352,389

 

 

 

124,883,523

 

 

 

265,070,739

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

1

Ryan Specialty Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

NET INCOME

 

$

15,703

 

 

$

29,279

 

 

$

135,977

 

 

$

117,475

 

Net income attributable to non-controlling interests, net of tax

 

 

20,750

 

 

 

17,534

 

 

 

97,786

 

 

 

74,318

 

NET INCOME (LOSS) ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.

 

$

(5,047

)

 

$

11,745

 

 

$

38,191

 

 

$

43,157

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Gain on interest rate cap

 

 

2,760

 

 

 

7,596

 

 

 

7,628

 

 

 

7,723

 

(Gain) on interest rate cap reclassified to earnings

 

 

(2,215

)

 

 

—

 

 

 

(5,518

)

 

 

—

 

Foreign currency translation adjustments

 

 

(567

)

 

 

(1,752

)

 

 

(179

)

 

 

(2,996

)

Change in share of equity method investment in related party other comprehensive income (loss)

 

 

(267

)

 

 

(218

)

 

 

270

 

 

 

(2,074

)

Total other comprehensive income (loss), net of tax

 

$

(289

)

 

$

5,626

 

 

$

2,201

 

 

$

2,653

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.

 

$

(5,336

)

 

$

17,371

 

 

$

40,392

 

 

$

45,810

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

2

Ryan Specialty Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)

 

 

September 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

754,370

 

 

$

992,723

 

Commissions and fees receivable – net

 

 

238,827

 

 

 

231,423

 

Fiduciary cash and receivables

 

 

2,521,021

 

 

 

2,611,647

 

Prepaid incentives – net

 

 

9,577

 

 

 

8,584

 

Other current assets

 

 

62,629

 

 

 

49,690

 

Total current assets

 

$

3,586,424

 

 

$

3,894,067

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Goodwill

 

 

1,581,759

 

 

 

1,314,984

 

Other intangible assets

 

 

591,879

 

 

 

486,444

 

Prepaid incentives – net

 

 

16,585

 

 

 

20,792

 

Equity method investment in related party

 

 

45,272

 

 

 

38,514

 

Property and equipment – net

 

 

32,208

 

 

 

31,271

 

Lease right-of-use assets

 

 

131,833

 

 

 

143,870

 

Deferred tax assets

 

 

383,094

 

 

 

396,814

 

Other non-current assets

 

 

56,808

 

 

 

56,987

 

Total non-current assets

 

$

2,839,438

 

 

$

2,489,676

 

TOTAL ASSETS

 

$

6,425,862

 

 

$

6,383,743

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

114,952

 

 

 

119,022

 

Accrued compensation

 

 

273,417

 

 

 

350,369

 

Operating lease liabilities

 

 

19,922

 

 

 

22,744

 

Tax Receivable Agreement liabilities

 

 

16,959

 

 

 

—

 

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

 

 

35,566

 

 

 

30,587

 

Fiduciary liabilities

 

 

2,521,021

 

 

 

2,611,647

 

Total current liabilities

 

$

2,981,837

 

 

$

3,134,369

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

Accrued compensation

 

 

21,999

 

 

 

10,048

 

Operating lease liabilities

 

 

156,983

 

 

 

151,944

 

Long-term debt

 

 

1,945,495

 

 

 

1,951,900

 

Deferred tax liabilities

 

 

126

 

 

 

562

 

Tax Receivable Agreement liabilities

 

 

342,115

 

 

 

295,347

 

Other non-current liabilities

 

 

36,066

 

 

 

21,761

 

Total non-current liabilities

 

$

2,502,784

 

 

$

2,431,562

 

TOTAL LIABILITIES

 

$

5,484,621

 

 

$

5,565,931

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Class A common stock ($0.001 par value; 1,000,000,000 shares authorized, 118,222,528 and 112,437,825 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)

 

 

118

 

 

 

112

 

Class B common stock ($0.001 par value; 1,000,000,000 shares authorized, 142,026,335 and 147,214,275 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)

 

 

141

 

 

 

147

 

Class X common stock ($0.001 par value; 10,000,000 shares authorized, 640,784 shares issued and 0 outstanding at September 30, 2023 and December 31, 2022)

 

 

—

 

 

 

—

 

Preferred stock ($0.001 par value; 500,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2023 and December 31, 2022)

 

 

—

 

 

 

—

 

Additional paid-in capital

 

 

442,304

 

 

 

418,123

 

Retained earnings

 

 

92,179

 

 

 

53,988

 

Accumulated other comprehensive income

 

 

8,236

 

 

 

6,035

 

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

 

$

542,978

 

 

$

478,405

 

Non-controlling interests

 

 

398,263

 

 

 

339,407

 

Total stockholders' equity

 

$

941,241

 

 

$

817,812

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

6,425,862

 

 

$

6,383,743

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

3

Ryan Specialty Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

135,977

 

 

$

117,475

 

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

 

 

 

 

 

 

Loss (income) from equity method investment in related party

 

 

(5,882

)

 

 

414

 

Amortization

 

 

79,125

 

 

 

78,563

 

Depreciation

 

 

6,570

 

 

 

3,903

 

Prepaid and deferred compensation expense

 

 

8,882

 

 

 

27,256

 

Non-cash equity-based compensation

 

 

54,136

 

 

 

61,084

 

Amortization of deferred debt issuance costs

 

 

9,125

 

 

 

9,017

 

Amortization of interest rate cap premium

 

 

5,216

 

 

 

2,898

 

Deferred income tax expense

 

 

11,745

 

 

 

4,597

 

Deferred income tax expense from reorganization

 

 

20,679

 

 

 

—

 

Loss on Tax Receivable Agreement

 

 

478

 

 

 

7,173

 

Change (net of acquisitions) in:

 

 

 

 

 

 

Commissions and fees receivable – net

 

 

3,875

 

 

 

24,341

 

Accrued interest liability

 

 

(4,293

)

 

 

3,016

 

Other current assets and accrued liabilities

 

 

(98,213

)

 

 

(192,752

)

Other non-current assets and accrued liabilities

 

 

22,915

 

 

 

3,999

 

Total cash flows provided by operating activities

 

$

250,335

 

 

$

150,984

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures

 

 

(16,013

)

 

 

(12,026

)

Business combinations – net of cash acquired and cash held in a fiduciary capacity

 

 

(366,149

)

 

 

—

 

Repayments of prepaid incentives

 

 

228

 

 

 

337

 

Total cash flows used for investing activities

 

$

(381,934

)

 

$

(11,689

)

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

)

Finance lease and other costs paid

 

 

—

 

 

 

(27

)

Payment of contingent consideration

 

 

(4,477

)

 

 

(6,241

)

Tax distributions to LLC Unitholders

 

 

(52,633

)

 

 

(32,678

)

Receipt of taxes related to net share settlement of equity awards

 

 

7,786

 

 

 

7,132

 

Taxes paid related to net share settlement of equity awards

 

 

(7,091

)

 

 

(6,832

)

Net change in fiduciary liabilities

 

 

36,832

 

 

 

(54,775

)

Total cash flows (used for) provided by financing activities

 

$

(31,958

)

 

$

260,335

 

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

 

 

(828

)

 

 

(1,274

)

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

 

$

(164,385

)

 

$

398,356

 

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

 

 

1,767,385

 

 

 

1,139,661

 

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

 

$

1,603,000

 

 

$

1,538,017

 

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

 

 

 

 

 

 

Cash and cash equivalents

 

 

754,370

 

 

 

833,135

 

Cash held in a fiduciary capacity

 

 

848,630

 

 

 

704,882

 

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

 

$

1,603,000

 

 

$

1,538,017

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

4

Ryan Specialty Holdings, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

(In thousands, except share data)

 

Class A
Common Stock

 

Class B
Common Stock

 

Additional
Paid-in

 

Retained

 

Accumulated Other Comprehensive

 

Non-controlling

 

Total
Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Interests

 

Equity

 

Balance at January 1, 2023

 

112,437,825

 

$

112

 

 

147,214,275

 

$

147

 

$

418,123

 

$

53,988

 

$

6,035

 

$

339,407

 

$

817,812

 

Net income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

13,160

 

 

—

 

 

23,297

 

 

36,457

 

Issuance of common stock

 

3,468

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Exchange of LLC equity for common stock

 

792,358

 

 

1

 

 

(792,358

)

 

(1

)

 

1,430

 

 

—

 

 

—

 

 

(1,430

)

 

—

 

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

—

 

 

—

 

 

—

 

 

—

 

 

(395

)

 

—

 

 

—

 

 

—

 

 

(395

)

Distributions declared – members' tax

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(15,382

)

 

(15,382

)

Change in share of equity method investment in related party other comprehensive income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

214

 

 

370

 

 

584

 

Loss on interest rate cap, net

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(2,251

)

 

(3,889

)

 

(6,140

)

Foreign currency translation adjustments

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

285

 

 

498

 

 

783

 

Equity-based compensation

 

—

 

 

—

 

 

—

 

 

—

 

 

17,740

 

 

—

 

 

—

 

 

139

 

 

17,879

 

Balance at March 31, 2023

 

113,233,651

 

$

113

 

 

146,421,917

 

$

146

 

$

436,898

 

$

67,148

 

$

4,283

 

$

343,010

 

$

851,598

 

Net income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

30,078

 

 

—

 

 

53,739

 

 

83,817

 

Issuance of common stock

 

104,196

 

 

—

 

 

21,006

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Exchange of LLC equity for common stock

 

1,871,084

 

 

2

 

 

(1,871,084

)

 

(2

)

 

3,474

 

 

—

 

 

—

 

 

(3,474

)

 

—

 

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

—

 

 

—

 

 

—

 

 

—

 

 

449

 

 

—

 

 

—

 

 

—

 

 

449

 

Distributions declared – members' tax

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(21,992

)

 

(21,992

)

Change in share of equity method investment in related party other comprehensive income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

323

 

 

545

 

 

868

 

Gain on interest rate cap, net

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

3,816

 

 

6,434

 

 

10,250

 

Foreign currency translation adjustments

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

103

 

 

176

 

 

279

 

Equity-based compensation

 

—

 

 

—

 

 

—

 

 

—

 

 

12,104

 

 

—

 

 

—

 

 

6,545

 

 

18,649

 

Balance at June 30, 2023

 

115,208,931

 

$

115

 

 

144,571,839

 

$

144

 

$

452,925

 

$

97,226

 

$

8,525

 

$

384,983

 

$

943,918

 

Net income (loss)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(5,047

)

 

—

 

 

20,750

 

 

15,703

 

Issuance of common stock

 

426,647

 

 

—

 

 

41,446

 

 

—

 

 

2,694

 

 

—

 

 

—

 

 

—

 

 

2,694

 

Exchange of LLC equity for common stock

 

2,586,950

 

 

3

 

 

(2,586,950

)

 

(3

)

 

4,804

 

 

—

 

 

—

 

 

(4,804

)

 

—

 

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

—

 

 

—

 

 

—

 

 

—

 

 

(32,970

)

 

—

 

 

—

 

 

13,136

 

 

(19,834

)

Distributions declared – members' tax

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(18,104

)

 

(18,104

)

Change in share of equity method investment in related party other comprehensive loss

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(267

)

 

(405

)

 

(672

)

Gain on interest rate cap, net

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

545

 

 

829

 

 

1,374

 

Foreign currency translation adjustments

 

—

 

 

—

 

 

—

 

 

—

 

 

(17

)

 

—

 

 

(567

)

 

(862

)

 

(1,446

)

Equity-based compensation

 

—

 

 

—

 

 

—

 

 

—

 

 

14,868

 

 

—

 

 

—

 

 

2,740

 

 

17,608

 

Balance at September 30, 2023

 

118,222,528

 

$

118

 

 

142,026,335

 

$

141

 

$

442,304

 

$

92,179

 

$

8,236

 

$

398,263

 

$

941,241

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

5

Ryan Specialty Holdings, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

(In thousands, except share data)

 

Class A
Common Stock

 

Class B
Common Stock

 

Additional Paid-in

 

Retained Earnings (Accumulated

 

Accumulated Other
Comprehensive

 

Non-controlling

 

Total
Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit)

 

Income (Loss)

 

Interests

 

Equity

 

Balance at January 1, 2022

 

109,894,548

 

$

110

 

 

149,162,107

 

$

149

 

$

348,865

 

$

(7,064

)

$

1,714

 

$

251,003

 

$

594,777

 

Net income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

6,911

 

 

—

 

 

11,165

 

 

18,076

 

Issuance of common stock

 

91,743

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Exchange of LLC equity for common stock

 

77,261

 

 

—

 

 

(77,261

)

 

—

 

 

47

 

 

—

 

 

—

 

 

(47

)

 

—

 

Tax Receivable Agreement liability and deferred taxes arising from LLC Interest ownership changes

 

—

 

 

—

 

 

—

 

 

—

 

 

(704

)

 

—

 

 

—

 

 

—

 

 

(704

)

Distributions declared – members' tax

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(7,543

)

 

(7,543

)

Change in share of equity method investment in related party other comprehensive loss

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(1,302

)

 

(1,748

)

 

(3,050

)

Foreign currency translation adjustments

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(58

)

 

(707

)

 

(765

)

Equity-based compensation

 

—

 

 

—

 

 

—

 

 

—

 

 

23,225

 

 

—

 

 

—

 

 

23

 

 

23,248

 

Balance at March 31, 2022

 

110,063,552

 

$

110

 

 

149,084,846

 

$

149

 

$

371,433

 

$

(153

)

$

354

 

$

252,146

 

$

624,039

 

Net income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

24,501

 

 

—

 

 

45,619

 

 

70,120

 

Issuance of common stock

 

60,511

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Exchange of LLC equity for common stock

 

1,094,603

 

 

1

 

 

(1,094,603

)

 

(1

)

 

1,998

 

 

—

 

 

—

 

 

(1,998

)

 

—

 

Forfeiture of common stock

 

(12,554

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

—

 

 

—

 

 

—

 

 

—

 

 

(319

)

 

—

 

 

—

 

 

—

 

 

(319

)

Distributions declared – members' tax

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(7,610

)

 

(7,610

)

Change in share of equity method investment in related party other comprehensive loss

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(554

)

 

(733

)

 

(1,287

)

Gain on interest rate cap, net

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

127

 

 

169

 

 

296

 

Foreign currency translation adjustments

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(1,186

)

 

(2,319

)

 

(3,505

)

Equity-based compensation

 

—

 

 

—

 

 

—

 

 

—

 

 

12,796

 

 

—

 

 

—

 

 

6,984

 

 

19,780

 

Balance at June 30, 2022

 

111,206,112

 

$

111

 

 

147,990,243

 

$

148

 

$

385,908

 

$

24,348

 

$

(1,259

)

$

292,258

 

$

701,514

 

Net income

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

11,745

 

 

—

 

 

17,534

 

 

29,279

 

Issuance of common stock

 

401,463

 

 

—

 

 

17,856

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Exchange of LLC equity for common stock

 

617,599

 

 

1

 

 

(617,599

)

 

(1

)

 

3,171

 

 

—

 

 

—

 

 

(3,171

)

 

—

 

Forfeiture of common stock

 

(12,521

)

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Tax Receivable Agreement liability and deferred taxes arising from LLC interest ownership changes

 

—

 

 

—

 

 

—

 

 

—

 

 

(450

)

 

—

 

 

—

 

 

—

 

 

(450

)

Distributions declared – members' tax

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(6,370

)

 

(6,370

)

Change in share of equity method investment in related party other comprehensive loss

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(218

)

 

(1,218

)

 

(1,436

)

Gain on interest rate cap, net

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

7,596

 

 

13,384

 

 

20,980

 

Foreign currency translation adjustments

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

(1,752

)

 

(2,297

)

 

(4,049

)

Equity-based compensation

 

—

 

 

—

 

 

—

 

 

—

 

 

13,397

 

 

—

 

 

—

 

 

4,659

 

 

18,056

 

Balance at September 30, 2022

 

112,212,653

 

$

112

 

 

147,390,500

 

$

147

 

$

402,026

 

$

36,093

 

$

4,367

 

$

314,779

 

$

757,524

 

See accompanying Notes to the Consolidated Financial Statements (Unaudited)

6

Ryan Specialty Holdings, Inc.

Notes to the Consolidated Financial Statements (Unaudited)

(Tabular

balances amounts presented in thousands,
except share and per share data)

1.
Basis of Presentation
Nature of Operations
Ryan Specialty Group, LLC provides specialty prod
u
cts and solutions for insurance brokers, agents and carriers. This encompasses distribution, underwriting, product development, administration and risk management services by acting as a wholesale broker and a managing underwriter service to a wide variety of personal, commercial, industrial, institutional, and governmental organizations through one operating segment, Ryan Specialty. With the exception of the Company’s equity method investment, the Company does not take on any underwriting risk.
The Company is headquartered in Chicago, Illinois and has operations in the United States, Canada, the United Kingdom, and continental Europe.
Ryan Specialty Group Holdings, Inc. was formed as a Delaware corporation on March 5, 2021 for the purpose of completing a public offering and related transactions in order to carry on the business of the Company. On July 26, 2021, Ryan Specialty Group Holdings, Inc. completed its IPO of
56,918,278
shares,
65,456,020
shares after the underwriters exercised their option in full
, of its Class A common stock at an offering price of $
23.50
per share. Ryan Specialty Group Holdings, Inc. received approximately
$
1.3
billion of net proceeds from the IPO, approximately $
1.5
 billion after the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions and estimated offering expenses. As the parent and sole managing member of the Company, Ryan Specialty Group Holdings, Inc. operates and controls all of the business and affairs of the Company, and through the Company, conducts its business.
1.
Basis of Presentation

Nature of Operations

Ryan Specialty Holdings, Inc., (the “Company”) is a service provider of specialty products and solutions for insurance brokers, agents, and carriers. These services encompass distribution, underwriting, product development, administration, and risk management by acting as a wholesale broker and a managing underwriter or a program administrator with delegated authority from insurance carriers. The Company's offerings cover a wide variety of sectors including commercial, industrial, institutional, governmental, and personal through one operating segment, Ryan Specialty. With the exception of the Company’s equity method investment, the Company does not take on any underwriting risk.

The Company is headquartered in Chicago, Illinois, and has operations in the United States, Canada, the United Kingdom, and Europe. The Company's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “RYAN”.

Organization

Ryan Specialty Holdings, Inc., was formed as a Delaware corporation on March 5, 2021, for the purpose of completing an IPO and to carry on the business of the LLC. New Ryan Specialty, LLC, or New LLC, was formed as a Delaware limited liability company on April 20, 2021, for the purpose of becoming, subsequent to our IPO, an intermediate holding company between Ryan Specialty Holdings, Inc., and the LLC. The Company is the sole managing member of New LLC. New LLC is a holding company with its sole material asset being a controlling equity interest in the LLC. The Company operates and controls the business and affairs of the LLC through New LLC and, through the LLC, conducts its business. Accordingly, the Company consolidates the financial results of New LLC, and therefore the LLC, and reports the non-controlling interests of New LLC's Common Units on its consolidated financial statements. As the LLC is substantively the same as New LLC, for the purpose of this document, we will refer to both New LLC and the LLC as the “LLC”. As of September 30, 2023, the Company owned 45.4% of the outstanding LLC Common Units.

Basis of Presentation

The accompanying Consolidated Financial Statementsunaudited consolidated interim financial statements and Notesnotes thereto have been prepared in accordance with U.S. GAAP. The Consolidated Financial Statements include the Company’s accounts and those of all controlled subsidiaries. Certain information and disclosures normally included in the Financial Statementsfinancial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The Financial Statementsomitted pursuant to the rules and regulations of the SEC for interim financial information. These consolidated interim financial statements should be read in conjunction with the Consolidated Financial Statementsaudited consolidated financial statements and Notesnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2023. Interim results are not necessarily indicative of results for the full fiscal year ended December 31, 2020.

Intercompany accountsdue to seasonality and transactions have been eliminated. other factors.

In the opinion of management, the Consolidated Financial Statementsconsolidated interim financial statements include all normal recurring adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, and cash flows for all periods presented.

Principles of Consolidation

The unaudited consolidated interim financial statements include the accounts of the Company and its subsidiaries that it controls due to ownership of a majority voting interest or pursuant to variable interest entity (“VIE”) accounting guidance. All intercompany transactions and balances have been eliminated in consolidation.

The Company, through its intermediate holding company New LLC, owns a minority economic interest in, and operates and controls the businesses and affairs of, the LLC. The LLC is a VIE of the Company and the Company is the primary beneficiary of the LLC as the Company has both the power to direct the activities that most significantly impact the LLC’s economic performance and has the obligation to absorb losses of, and receive benefits from, the LLC, which could be significant to the Company. Accordingly, the Company has prepared these consolidated financial statements as of and for the periods March 31, 2021 and December 31, 2020 did not reflect the correct value for the Class A common units issued. The identification of this classification error resulted in an increase of $102.3

m
illion
in Class A common units and an offsetting increase of $102.3
million i
n Accumulated deficit for all periods presented. The Company evaluated the impact of the classification error in accordance with SecuritiesAccounting Standards Codification 810, Consolidation (“ASC 810”). ASC 810 requires that if an entity is the primary beneficiary of a VIE, the assets, liabilities, and Exchange Commission Staff Accounting Bulletin No. 99 and No. 108 based upon quantitative and qualitative factors analyzed. The Company concludedresults of operations of the classification error was not material to the previously issued annual financial statements and disclosures, which were alsoVIE should be included in the confidential registration statements.consolidated financial statements of such entity. The Company's relationship with the LLC results in no recourse to the general credit of the Company and the Company has no contractual requirement to provide financial support to the LLC. The Company has revised its prior period financial statementsshares in the income and losses of the LLC in direct proportion to reflect this change.the Company's ownership percentage.

7

Use of Estimates

The preparation of the Consolidated Financial Statementsunaudited consolidated interim financial statements and Notesnotes thereto that conform to U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the Consolidated Financial Statementsunaudited consolidated interim financial statements and in the Notesnotes thereto. Such estimates and assumptions could change in the future as circumstances change or more information becomes available, which could affect the amounts reported and disclosed herein.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those that were disclosed for the year ended December 31, 2022 in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2023.

2.
Revenue from Contracts with Customers
1
7
Impact of
COVID-19
In March 2020, the World Health Organization declared a global pandemic related to the outbreak of a respiratory illness caused by the coronavirus,
COVID-19.
Related impacts and disruptions continue to be experienced in the geographical areas in which the Company operates, and the ultimate duration and intensity of this global health emergency is unclear. There is significant uncertainty related to the economic outcomes from the ongoing COVID-19 pandemic, including the response of the federal, state and local governments as well as regulators. Given the dynamic nature of the emergency, its impact on the Company’s operations, cash flows, and financial condition cannot be reasonably estimated at this time.
New Accounting Pronouncements Recently Adopted
The following reflect recent accounting pronouncements that have been adopted by the Company. The Company qualifies as an emerging growth company and going forward has elected to adopt accounting pronouncements under public business entity adoption dates.
On October 29, 2020, the FASB issued ASU
2020-10
Codification Improvements. This ASU was issued to address a wide variety of topics in the Accounting Standard Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. For public business entities, the amendment is effective for fiscal years beginning after December 15, 2020, and interim periods therein. The Company adopted the new guidance as of January 1, 2021 with no material impact to the consolidated financial statements or disclosures.
2.
Revenue from Contracts with Customers

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers by specialty:Specialty:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Wholesale Brokerage

 

$

308,872

 

$

267,222

 

 

$

976,338

 

$

841,273

 

Binding Authority

 

 

69,245

 

 

55,607

 

 

 

208,547

 

 

178,351

 

Underwriting Management

 

 

109,228

 

 

84,722

 

 

 

322,993

 

 

264,835

 

Total Net commissions and fees

 

$

487,345

 

$

407,551

 

 

$

1,507,878

 

$

1,284,459

 

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Wholesale brokerage
  $255,959   $172,118   $447,083   $306,222 
Binding authorities
   53,596    31,561    108,641    65,707 
Underwriting management
   80,291    42,386    145,466    81,221 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Net commissions and fees
  
$
389,846
 
  
$
246,065
 
  
$
701,190
 
  
$
453,150
 
   
 
 
   
 
 
   
 
 
   
 
 
 

Contract Assets Balances

Contract assets, which arise primarily from the Company’s volume-based commissions, are included within Commissions and fees receivable – net inon the Consolidated Statements of Financial Position.Balance Sheets. The contract assetassets balance was $7.9 million and $13.0 million as of JuneSeptember 30, 20212023 and December 31, 2020 was $5.6

million and 
$6.7
 mi
llion
,2022, respectively. For contract assets, payment is typically due within one year of the completed performance obligation. NaNThe contract liability balance related to deferred revenue, which is included in Accounts payable and accrued liabilities were recognizedon the Consolidated Balance Sheets, was $7.4 million and $1.4 million as of JuneSeptember 30, 2021 or2023 and December 31, 2020.
2022, respectively.

3.
Mergers and Acquisitions
3.
Merger and Acquisition Activity
Acquisition Activity

2023 Acquisitions

On March 31, 2021, RSG acquiredJanuary 3, 2023, the remaining outstanding 53%Company completed the acquisition of certain assets of Griffin Underwriting Services (“Griffin”), a binding authority specialist and wholesale insurance broker headquartered in Bellevue, Washington, for cash consideration of $115.5 million.

On July 1, 2023, the Company completed the acquisitions of certain assets of ACE Benefit Partners, Inc. (“ACE”), a medical stop loss general agent headquartered in Eagle, Idaho, and Point6 Healthcare, LLC (“Point6”), a distributor of medical stop loss insurance on behalf of retail brokers and third-party administrators headquartered in Plano, Texas, for an aggregate $46.8 million of cash consideration and $2.3 million of contingent consideration.

On July 3, 2023, the Company completed the acquisition of Socius Insurance Services (“Socius”), a national wholesale insurance broker headquartered in Northern California, for $253.5 million of cash consideration, $5.8 million of contingent consideration, and $2.7 million of RYAN Class A common stock.

The $8.1 million of contingent consideration liabilities established for the acquisitions that occurred during the nine months ended September 30, 2023 were measured at the estimated acquisition date fair value and were non-cash investing transactions. These contingent consideration arrangements are based on the individual businesses’ revenue or EBITDA targets over the next one to two fiscal years.

8

The following table summarizes the estimated fair values of the common unitsaggregate assets and liabilities acquired through the nine months ended September 30, 2023, as of the date of each acquisition:

 

 

Griffin

 

ACE and Point6

 

Socius

 

Total

 

Cash and cash equivalents

 

$

—

 

$

—

 

$

12,858

 

$

12,858

 

Commissions and fees receivable – net

 

 

1,495

 

 

4,288

 

 

5,470

 

 

11,253

 

Fiduciary cash and receivables

 

 

14,042

 

 

31,502

 

 

53,072

 

 

98,616

 

Goodwill

 

 

63,898

 

 

25,782

 

 

177,057

 

 

266,737

 

Customer relationships1

 

 

51,400

 

 

21,900

 

 

99,200

 

 

172,500

 

Other current and non-current assets

 

 

1,368

 

 

—

 

 

2,995

 

 

4,363

 

Total assets acquired

 

$

132,203

 

$

83,472

 

$

350,652

 

$

566,327

 

Accounts payable and accrued liabilities

 

 

—

 

 

2,358

 

 

2,330

 

 

4,688

 

Accrued compensation

 

 

850

 

 

507

 

 

8,405

 

 

9,762

 

Fiduciary liabilities

 

 

15,824

 

 

31,502

 

 

53,072

 

 

100,398

 

Deferred tax liabilities

 

 

—

 

 

—

 

 

23,575

 

 

23,575

 

Other current and non-current liabilities

 

 

—

 

 

—

 

 

1,226

 

 

1,226

 

Total liabilities assumed

 

$

16,674

 

$

34,367

 

$

88,608

 

$

139,649

 

Net assets acquired

 

$

115,529

 

$

49,105

 

$

262,044

 

$

426,678

 

1The acquired customer relationships have a weighted average amortization period of 13.2 years.

Estimates and assumptions used in Ryan Re, making Ryan Re a wholly owned subsidiary. Refer to Note 15,

Related Parties
.
On September 1, 2020, RSG acquired ARL. Prior to the acquisition ARL was an independently owned wholesale insurance brokerage, binding, and underwriting operation headquartered in Delray Beach, Florida.
1
8
Certain amounts included in the Unaudited Consolidated Financial Statements in respect of acquisitions made in the previous twelve months may be provisional and thusvaluations are subject to further adjustments until purchase accounting is finalized. The estimation of fair value requires numerous judgments, assumptions and estimates about future events and uncertainties, which could materially impact these values, and the related amortization, where applicable, in the Company’s Unaudited Consolidated Financial Statements. As of June 30, 2021, the Company has 0t recognized any impairments of acquired goodwill and other intangible assets.
The consideration allocation is based on estimates that are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments must be finalized duringchange within the measurement period which for a particular asset, liability, or
non-controlling
interest ends once the acquirer determines that either (i) the necessary information has been obtained or (ii) the information is not available. However, the measurement period for all items is limitedup to one year from theeach acquisition date. No adjustment,Estimated tax deductible goodwill of $91.9 million was generated as a result of these acquisitions. The Company recognized acquisition-related expenses, which include advisory, legal, accounting, valuation, and other costs related to diligence, for the acquisitions above of $0.8 million and $4.5 million for the three and nine months ended September 30, 2023, respectively, in General and administrative expense on the Consolidated Statements of Income (Loss).

The Company recognized an aggregate $17.4 million and $29.0 million of revenuerelated to the acquisitions above from their respective acquisition dates for the three and nine months ended September 30, 2023, respectively.Pro forma results of operations for these acquisitions have not been presented because the effects of these acquisitions were not material, either individually or in aggregate, has been material.

to the Company’s total revenue or net income (loss) for the three or nine months ended September 30, 2023 or 2022.

Contingent Consideration

Total consideration for certain acquisitions includes contingent consideration, which is generally based on the EBITDA or revenue of the acquired business following a defined period after purchase. Further information regarding fair value measurements of contingent consideration is detailed in Note 13, Fair Value Measurements. The Company recognizes lossesincome or loss for the changes in fair value of estimated contingent consideration within Change in contingent consideration, on the Consolidated Statements of Income. The Company alsoand recognizes interest expense for accretion of the discount on these liabilities which is recognized within Interest expense, net, on the Consolidated Statements of Income. Income (Loss). The table below summarizes the change in contingent consideration and interest expense related to contingent consideration liabilities for the three and six months ended June 30, 2021 and 2020:amounts recognized:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Change in contingent consideration

 

$

1,848

 

$

423

 

 

$

4,358

 

$

(837

)

Interest expense, net

 

 

789

 

 

577

 

 

 

2,230

 

 

1,375

 

Total

 

$

2,637

 

$

1,000

 

 

$

6,588

 

$

538

 

                                                 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2021
   
  2020  
   
2021
   
2020
 
Change in contingent consideration
  $
 
1,723   $—     $2,313   $1,032 
Interest expense
   313    296    399    587 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
2,036
 
  
$
 
296
 
  
$
2,712
 
  
$
1,619
 
   
 
 
   
 
 
   
 
 
   
 
 
 

The aggregate amount of maximum contingent consideration obligation related to acquisitions was $99.8

mi
llion
and $102.4
$92.0million
as of JuneSeptember 30, 2021 and December 31, 2020, respectively.
2023.

4.
Restructuring
4.
Restructuring
During 2020,

In February 2023, the Company initiated athe ACCELERATE 2025 program that will enable continued growth, drive innovation, and deliver sustainable productivity improvements over the long term. The restructuring plan after the All Risks Acquisition,aims to reduce costs and increase efficiencies. Theefficiencies through a focus on optimizing the Company's operations and technology. In its expanded form, the restructuring plan is expected to generate annual savings of

$25.0
 million.
This plan involves restructuring costs beginning on July 1, 2020, primarily consisting of employee termination benefits and retention costs. The restructuring plan will also include charges for consolidating leased office space, as well as other professional fees. Restructuring costs incurred for the three and six months ended June 30, 2021 were $3.0
million
and $10.0
 million
, respectively, and cumulative restructuring costs incurred since the inception of the program were $20.8
mi
l
lion
as of June 30, 2021. The Company expects to incur total restructuring costs of approximately $90.0 million through December 31, 2024 and to generate annual savings of approximately $50.0 million in 2025. The total expected costs of the range of $30.0
m
illion
plan include $50.0 million related to $35.0
operations and technology optimization, $25.0 million
, with
run-rate
savings expected related to be realized by June 30, 2023.
employee compensation and benefits, and $15.0 million related to asset impairment and other termination costs. The table below presents the restructuring expense incurred in the period:

9

 

 

Three Months Ended September 30, 2023

 

Nine Months Ended September 30, 2023

 

Operations and technology optimization

 

$

10,824

 

$

18,529

 

Compensation and benefits

 

 

5,109

 

 

6,709

 

Asset impairment and other termination costs

 

 

544

 

 

11,057

 

Total

 

$

16,477

 

$

36,295

 

For the three and sixnine months ended JuneSeptember 30, 2021:

2023, the Company recognized restructuring expenses of $11.6 million and $13.4 million, respectively, including contractor costs, in Compensation and benefits, and $4.9 million and $22.9 million, respectively, in General and administrative expense on the Consolidated Statements of Income (Loss).

   
Three
 
months
 
ended
June 30, 
   
Six
 
months
 
ended
June 30,
 
   
2021
   
2021
 
Compensation and benefits
  $2,162  $8,351 
Occupancy and other costs
(1)
   883   1,612 
   
 
 
   
 
 
 
Total
  
$
3,045
 
 
$
9,963
 
   
 
 
   
 
 
 
(1)
Occupancy and Other costs are included within General and administrative expenses within the Consolidated Statements of Income
19

The table below presents a summary of changes in the restructuring liability:

 

 

Operations and Technology Optimization

 

Compensation and Benefits

 

Asset Impairment
and Other
Termination Costs

 

Total

 

Balance at January 1, 2023

 

$

—

 

$

—

 

$

—

 

$

—

 

Accrued costs

 

 

22,953

 

 

6,709

 

 

11,057

 

 

40,719

 

Payments

 

 

(11,390

)

 

(4,128

)

 

(8,220

)

 

(23,738

)

Non-cash adjustments

 

 

—

 

 

—

 

 

(437

)

 

(437

)

Balance at September 30, 2023

 

$

11,563

 

$

2,581

 

$

2,400

 

$

16,544

 

As of September 30, 2023, $11.2 million of the restructuring liability from December 31, 2020 through June 30, 2021was included in Accounts payable and accrued liabilities and $5.3 million was included in Current Accrued compensation on the Consolidated Balance Sheets.

:5.
Receivables and Other Current Assets
   
Compensation and
benefits
   
Occupancy and other
costs
  
Total
 
Balance as of December 31, 2020
  
$
7,049
 
  
$
0  
 
 
$
7,049
 
Accrued cost
s
   8,351    1,612  
 
9,963
 
Payments
   (13,863)   (1,612)
 
 
 
(15,475
) 
   
 
 
   
 
 
   
 
 
 
Balance as of June 30, 2021
  
$
1,537
 
  
$
0  
 
 
$
1,537
 
   
 
 
   
 
 
   
 
 
 
5.
Receivables and Current Assets

Receivables

The Company had receivables of $206.8

$238.8million
and $177.7
$231.4million
outstanding as of JuneSeptember 30, 20212023 and December 31, 2020,2022, respectively, which were recognized within Commissions and fees receivable—receivable – net inon the Consolidated Statements of Financial Position.Balance Sheets. Commission and fees receivable is net of an allowance for credit losses.
Allowance for Credit Losses
The Company’s allowance for credit losses with respect to receivables is based on a combination of factors, including evaluation of historical write-offs, current economic conditions, aging of balances, and other qualitative and quantitative analyses.

The following table provides a rollforwardsummary of changes in the Company’s allowance for expected credit losses:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Beginning of period

 

$

2,089

 

$

2,487

 

 

$

1,980

 

$

2,508

 

Write-offs

 

 

(441

)

 

(393

)

 

 

(1,342

)

 

(912

)

Increase in provision

 

 

869

 

 

375

 

 

 

1,879

 

 

873

 

End of period

 

$

2,517

 

$

2,469

 

 

$

2,517

 

$

2,469

 

   
2021
   
2020
 
Balance at January 1
  
$
2,916
 
  
$
1,555
 
Write-offs
   (329)    0   
Increase in provision
   334    204 
   
 
 
   
 
 
 
Balance at March 31
  
 
2,921
 
  
 
1,759
 
   
 
 
   
 
 
 
Write-offs
   (1,224)    (472) 
Increase in provision
   1,237    284 
   
 
 
   
 
 
 
Balance at June 30
  
$
2,934
 
  
$
1,571
 
   
 
 
   
 
 
 

Other Current Assets

Major classes of other current assets consist of the following:

 

 

September 30, 2023

 

December 31, 2022

 

Prepaid expenses

 

$

25,187

 

$

21,062

 

Insurance recoverable

 

 

22,562

 

 

20,562

 

Other current receivables

 

 

14,880

 

 

8,066

 

Total Other current assets

 

$

62,629

 

$

49,690

 

Other current receivables contain service receivables from Geneva Re, Ltd. See Note 15, Related Parties, for further information regarding related parties. See Note 14, Commitments and Contingencies, for further information on the insurance recoverable.

10

6.
Leases
   
June 30,

2021
   
December 31,

2020
 
Prepaid expenses
  $
 
 
  
  
 
14,452   $
 
 
 
11,973 
Service receivables
(1)
   1,061    508 
Deferred offering costs
   9,766    1,459 
Other current receivables
   277    1,131 
   
 
 
   
 
 
 
Total other current assets
  
$
25,556
 
  
$
15,071
 
   
 
 
   
 
 
 

 
(1)
Service receivables contain receivables from Geneva Re, Ltd. Further information regarding related parties is detailed in Note 15,
Related Parties
.
2
0
6.
Fiduciary Assets and Liabilities
The Company recognizes fiduciary amounts due to others as Fiduciary liabilities and fiduciary amounts collectible and held on behalf of others, including insurance policyholders, clients, other insurance intermediaries, and insurance carriers, as Fiduciary assets in the Company’s Consolidated Statements of Financial Position. 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 in the Consolidated Statements of Financial Position. The excess amounts are held with all other fiduciary assets in fiduciary bank accounts and segregated from operating bank accounts. The Company held or was owed fiduciary funds for premiums and claims of
$2.3
billion and 
$2.0
billion at June 30, 2021 and December 31, 2020, respectively.
7.
Leases

The Company has various

non-cancelable
operating leases with various terms through July 2031September 2038, primarily for office space and office equipment. space. The Company has one lease with an inception date prior to June 30, 2021 that has not yet commenced, for a total future estimated lease liability to be recognized in 2021 of
$4.3following table provides additional information about the Company’s leases:

 million.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Lease costs

 

 

 

 

 

 

 

 

 

 

Operating lease costs

 

$

8,687

 

$

7,734

 

 

$

26,339

 

$

23,344

 

Finance lease costs

 

 

—

 

 

7

 

 

 

—

 

 

24

 

Short-term lease costs

 

 

 

 

 

 

 

 

 

 

Operating lease costs

 

 

234

 

 

152

 

 

 

635

 

 

431

 

Finance lease costs

 

 

—

 

 

2

 

 

 

—

 

 

7

 

Sublease income

 

 

(193

)

 

(122

)

 

 

(439

)

 

(319

)

Lease costs – net

 

$

8,728

 

$

7,773

 

 

$

26,535

 

$

23,487

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

Operating cash flows from operating leases

 

 

 

 

 

 

$

23,245

 

$

18,419

 

Non-cash related activities

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

 

 

 

 

 

9,948

 

 

63,882

 

Weighted average discount rate (percent)

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

 

5.1

%

 

4.6

%

Finance leases

 

 

 

 

 

 

 

—

 

 

3.2

%

Weighted average remaining lease term (years)

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

 

8.3

 

 

7.6

 

Finance leases

 

 

 

 

 

 

 

—

 

 

2.1

 

11

The lease costs for the six months ended June 30, 2021 and 2020 are as follows:7.
Debt
  
Six months ended June 30,
 
   
2021 
   
 2020
 
Lease cost:
          
Operating lease cost
  $
 
 
 
 
 
 
 
 
 
 
 
12,109   $
 
 
 
 
 
 
 
 
 
 
9,073 
Finance lease costs:
          
Amortization of leased assets
   85    32 
Interest on lease liabilities
   2    1 
Short term lease costs:
          
Operating lease cost
   238    346 
Finance lease cost
          
Amortization of leased assets
   4    4 
Interest on lease liabilities
   1    0   
Sublease income
   (179)    (131) 
   
 
 
   
 
 
 
Lease cost – net
  
$
12,260
 
  
$
9,325
 
   
 
 
   
 
 
 
   
Cash paid for amounts included in the measurement of lease liabilities
          
Operating cash flows from operating leases
  $12,684   $7,643 
Operating cash flows from finance leases
   91    37 
Non-cash
related activities
          
Right-of-use
assets obtained in exchange for new operating lease liabilities
   1,847    4,734 
Right-of-use
assets obtained in exchange for new finance lease liabilities
   0      0   
Weighted average discount rate (percent)
          
Operating leases
   3.73    3.83 
Finance leases
   3.16    3.15 
Weighted average remaining lease term (years)
          
Operating leases
   6.1    6.2 
Finance leases
   2.4    2.9 
Supplemental balance sheet information related to Lease
right-of-use
assets:
   
 
June 30, 2021
 
   
December 31, 2020
 
Right-of-use
assets – operating leases – net
  $
 
 
 
 
 
 
 
86,412   $93,715 
Right-of-use
assets – finance leases – net
   153    226 
   
 
 
   
 
 
 
Total lease
right-of-use
assets – net
  
$
 
 
 
 
 
 
 
 
 
 
  
86,565
 
  
$
93,941
 
   
 
 
   
 
 
 
2
1
Supplemental balance sheet information related to lease liabilities:
   
 
June 30, 2021
 
   
December 31, 2020
 
Current lease liabilities
          
Operating
  $
 
 
 
 
 
 
 
 
 
19,909   $19,880 
Finance
   72    147 
Non-current
lease liabilities
          
Operating
   76,046    83,737 
Finance
   77    78 
   
 
 
   
 
 
 
Total Lease Liabilities
  
$
96,104
 
  
$
103,842
 
   
 
 
   
 
 
 
The estimated future minimum payments of operating and financing leases as of June 30, 2021 are as follows:
   
Finance Leases
   
Operating Leases
 
The remainder of 2021
  $
 
 
 
 
 
 
 
 
 
 
 
61    $10,598 
2022
   38    22,767 
2023
   34    17,826 
2024
   18    14,476 
2025
   4    10,951 
Thereafter
   0      31,606 
   
 
 
   
 
 
 
Total undiscounted future lease payments
  
$
155
 
  
$
108,224
 
   
 
 
   
 
 
 
Less imputed interest
   (6)    (12,269) 
   
 
 
   
 
 
 
Present value lease liabilities
  
$
149
 
  
$
95,955
 
   
 
 
   
 
 
 
Average annual sublease income for the next eight years is $0.3
 million
.
8.
Debt

Substantially all of the Company’s debt is carried at outstanding principal balance, less debt issuance costs and any unamortized discount or premium. To the extent that the Company modifies the debt arrangements, all unamortized costs from borrowings are deferred and amortized over the term of the new arrangement, where applicable.

discount. The following table is a summary of the Company’s outstanding debt:

 

 

September 30, 2023

 

December 31, 2022

 

Term debt

 

 

 

 

 

7-year term loan facility, periodic interest and quarterly principal payments, Adjusted Term SOFR + 3.00%, matures September 1, 2027

 

$

1,566,232

 

$

1,571,818

 

Senior secured notes

 

 

 

 

 

8-year senior secured notes, semi-annual interest payments, 4.38%, matures February 1, 2030

 

 

396,096

 

 

399,791

 

Revolving debt

 

 

 

 

 

5-year revolving loan facility, periodic interest payments, Adjusted Term SOFR + up to 3.00%, plus commitment fees of 0.25%-0.50%, matures July 26, 2026

 

 

390

 

 

392

 

Premium financing notes

 

 

 

 

 

Commercial notes, periodic interest and principal payments, 5.75%, expire May 1, 2024

 

 

3,909

 

 

—

 

Commercial notes, periodic interest and principal payments, 5.75%, expire June 1, 2024

 

 

989

 

 

—

 

Commercial notes, periodic interest and principal payments, 6.00%, expire June 19, 2024

 

 

4,121

 

 

—

 

Commercial notes, periodic interest and principal payments, 5.75%, expire June 21, 2024

 

 

4,252

 

 

—

 

Commercial notes, periodic interest and principal payments, 1.88%-2.49%, expired May 1, 2023

 

 

—

 

 

1,685

 

Commercial notes, periodic interest and principal payments, 2.49%, expired June 1, 2023

 

 

—

 

 

767

 

Commercial notes, periodic interest and principal payments, 2.74%, expired June 21, 2023

 

 

—

 

 

3,266

 

Finance lease obligation

 

 

—

 

 

57

 

Units subject to mandatory redemption

 

 

5,072

 

 

4,711

 

Total debt

 

$

1,981,061

 

$

1,982,487

 

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

 

 

(35,566

)

 

(30,587

)

Long-term debt

 

$

1,945,495

 

$

1,951,900

 

   
June 30, 2021
 
   
December 31, 2020
 
Term debt
          
7-year
term loan facility, periodic interest and quarterly principal payments, LIBOR + 3% as of June 30, 2021, LIBOR + 3.25% as of December 31, 2020, expires September 1, 2027
  $
 
 
 
1,582,761   $1,578,930 
Revolving debt
          
5-year
revolving loan facility, periodic interest payments, LIBOR + up to 3.25%, plus commitment fees up to 0.50%, expires September 1, 2025
   162    15 
Premium financing notes
          
Commercial notes, periodic interest and principal payments, 2.50%, expired June 1, 2021
   —      1,951 
Commercial notes, periodic interest and principal payments, 1.66%, expires June 1, 2022
   4,530    —   
Finance lease obligation
   149    225 
Unsecured promissory notes
   1,112    363 
Units subject to mandatory redemption
   4,060    3,866 
   
 
 
   
 
 
 
Total debt
  
$
 
 
1,592,774
 
  
$
1,585,350
 
   
 
 
   
 
 
 
Less current portion
   (22,547)    (19,158) 
   
 
 
   
 
 
 
Long term debt
  
$
 
 
 
 
 
 
  
1,570,227
 
  
$
1,566,192
 
   
 
 
   
 
 
 

Term Loan

In the first quarter of 2021, the Company closed on a repricing

The original principal of the 2020 credit facility in order to obtainTerm Loan was $1,650.0 million. As of September 30, 2023, $1,600.5 million of the principal was outstanding, $0.7 million of interest was accrued, and the related unamortized deferred issuance costs were $35.0 million. As of December 31, 2022, $1,612.9 million of the principal was outstanding, $0.7 million of interest was accrued, and the related unamortized deferred issuance costs were $41.7 million.

Revolving Credit Facility

The Revolving Credit Facility had a better interest rate, while no other terms changed. Several lenders opted toborrowing capacity of $600.0 million as of September 30, 2023 and December 31, 2022. As the Revolving Credit Facility had not participate inbeen drawn on as of September 30, 2023 or December 31, 2022, the repricing. The debtdeferred issuance costs related to the lenders that opted outfacility of $4.7 million and $6.4 million, respectively, were included in Other non-current assets on the repricing was considered extinguishedConsolidated Balance Sheets. The Company pays a commitment fee on undrawn amounts under the facility of 0.25% - 0.50%. As of September 30, 2023 and December 31, 2022, the Company accrued $0.4 million of unpaid commitment fees related to those lenders were written off asthe Revolving Credit Facility in Short-term debt and current portion of long-term debt on the endConsolidated Balance Sheets.

Senior Secured Notes due 2030

On February 3, 2022, the LLC issued $400.0 million of the first quarter. The amount of fees written off was $8.6

 million
.
2
2
Senior Secured Notes. As of JuneSeptember 30, 2021, the Company has drawn
$1,650.0
mi
llion2023 and December 31, 2022, accrued interest on the term loan with
notes was $1,637.6
mi
llion outstanding principal and
$0.2
2.9million accrued interest. Unamortizedand $7.3 million, respectively, and the related unamortized deferred issuance costs plus discount were $6.8 million and $7.5 million, respectively.

12

8.
Stockholders' Equity

Ryan Specialty's amended and restated certificate of incorporation authorizes the issuance of up to 1,000,000,000 shares of Class A common stock, 1,000,000,000 shares of Class B common stock, 10,000,000 shares of Class X common stock, and 500,000,000 shares of preferred stock, each having a par value of $0.001 per share.

The New LLC Operating Agreement requires that the Company and the LLC at all times maintain a one-to-one ratio between the number of shares of Class A common stock issued by the Company and the number of LLC Common Units owned by the Company, except as otherwise determined by the Company.

Class A and Class BCommon Stock

Each share of Class A common stock is entitled to one vote per share.Each share of Class B common stock is initially entitled to 10 votes per share but, upon the occurrence of certain events as set forth in the Company’s amended and restated certificate of incorporation, will be entitled to one vote per share in the future. All holders of Class A common stock and Class B common stock vote together as a single class except as otherwise required by applicable law or our amended and restated certificate of incorporation. Holders of Class B common stock do not have any right to receive dividends or distributions upon the liquidation or winding up of the Company.

In accordance with the New LLC Operating Agreement, the LLC Unitholders are entitled to exchange LLC Common Units for shares of Class A common stock, in accordance with the LLC Operating Agreement, or, at the Company's election, for cash from a substantially concurrent public offering or private sale (based on the term loan were

$55.0
million asprice of June 30, 2021.
9. Derivatives
Interest Rate Swap
our Class A common stock in such public offering or private sale). The Company’s long-term debt bears a floating r
a
te of interest. RSG uses interest rate derivatives, typically swaps with cancellation options,LLC Unitholders are also required to reduce exposuredeliver to the effectsCompany an equivalent number of interest rate fluctuations for up to five years into the future. All outstanding interest rate swaps were settled during 2020 and the Company currently has 0 interest rate swaps outstanding asshares of June 30, 2021.
Class B Preferred Embedded Derivatives
As a partcommon stock to effectuate such an exchange. Any shares of the Class B Preferredcommon stock so delivered will be canceled. Shares of Class B common stock are not issued for Class C Incentive Units issued and sold on June 1, 2018 and September 1, 2020that are exchanged for LLC Common Units as these LLC Common Units are immediately exchanged for Class A common stock as discussed in Note 10,
Redeemable Preferred Units
, there are various realization events, defined9, Equity-Based Compensation.

Class X Common Stock

There were no shares of Class X common stock outstanding as of September 30, 2023 or December 31, 2022. The Company issued shares of Class X common stock to Onex as part of the Organizational Transactions, which were immediately repurchased and canceled, as a Qualified Public Offeringmechanism for Onex to participate in the TRA. Shares of Class X common stock have no economic or a Sale Transaction, that require a Mandatory Redemption. If a Mandatory Redemption is required prior to the five year anniversaryvoting rights.

Preferred Stock

There were no shares of the issuance date, the redemption price would be subject to a make-whole provision set forth inpreferred stock outstanding as of September 30, 2023 or December 31, 2022. Under the terms of the agreement.amended and restated certificate of incorporation, the Board is authorized to direct the Company to issue shares of preferred stock in one or more series without stockholder approval. The Board has the discretion to determine the rights, preferences, privileges, and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred yield make-whole provisions represent embedded derivativesstock.

Non-controlling Interests

The Company is the sole managing member of the LLC. As a result, the Company consolidates the LLC in its consolidated financial statements, resulting in non-controlling interests related to the LLC Common Units not held by the Company. As of September 30, 2023 and December 31, 2022, the Company owned 45.4% and 43.3%, respectively, of the economic interests in the LLC, while the non-controlling interest holders owned the remaining 54.6% and 56.7%, respectively, of the economic interests in the LLC.

Weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to the Company and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage was 56.1% and 57.4% for the three months ended September 30, 2023 and 2022, respectively, and 56.5% and 57.7% for the nine months ended September 30, 2023 and 2022, respectively.

13

9.
Equity-Based Compensation

The Ryan Specialty Holdings, Inc., 2021 Omnibus Incentive Plan (the “Omnibus Plan”) governs, among other things, the types of awards the Company can grant to employees as equity-based compensation awards. The Omnibus Plan provides for potential grants of the following awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock awards, (iv) performance awards, (v) other stock-based awards, (vi) other cash-based awards, and (vii) analogous equity awards made in equity of the LLC.

IPO-Related Awards

As a result of the Organizational Transactions, pre-IPO holders of LLC Units that were granted as incentive awards, which had historically been classified as equity and vested pro rata over five years, were required to exchange their LLC Units for either Restricted Stock or Restricted Common Units. Additionally, Reload Options or Reload Class Incentive Units were issued to employees in order to protect against the dilution of their existing awards upon exchange to the new awards.

Separately, certain employees were granted one or more of the following new awards: (i) Restricted Stock Units (“RSUs”), (ii) Staking Options, (iii) Restricted LLC Units (“RLUs”), or (iv) Staking Class C Incentive Units. The terms of these awards are described below. All awards granted as part of the Organizational Transactions and the IPO are subject to non-linear transfer restrictions for at least the five-year period following the IPO.

Incentive Awards

As part of the Company’s annual compensation process, the Company issues certain employees and directors equity-based compensation awards (“Incentive Awards”). Additionally, the Company offers Incentive Awards to certain new hires. These Incentive Awards typically take the form of (i) RSUs, (ii) RLUs, (iii) Class C Incentive Units, and (iv) Stock Options. The terms of these awards are described below.

Restricted Stock and Restricted Common Units

As part of the Organizational Transactions, certain existing employee unitholders were granted Restricted Stock or Restricted Common Units in exchange for their LLC Units. The Restricted Stock and Restricted Common Units follow the vesting schedule of the LLC Units for which they were exchanged. LLC Units historically vested pro rata over 5 years.

 

 

Nine Months Ended September 30, 2023

 

 

 

Restricted Stock

 

 

Weighted Average Grant Date
Fair Value

 

 

Restricted
Common Units

 

 

Weighted Average Grant Date
Fair Value

 

Unvested at beginning of period

 

 

1,984,939

 

 

$

21.15

 

 

 

3,238,597

 

 

$

23.84

 

Granted

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Vested

 

 

(969,178

)

 

 

21.15

 

 

 

(1,999,365

)

 

 

23.84

 

Forfeited

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Unvested at end of period

 

 

1,015,761

 

 

$

21.15

 

 

 

1,239,232

 

 

$

23.84

 

Restricted Stock Units (RSUs)

IPO RSUs

Related to the IPO, the Company granted RSUs to certain employees. The IPO RSUs vest either pro rata over 5 years from the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Incentive RSUs

As part of the Company’s compensation process, the Company issues Incentive RSUs to certain employees. The Incentive RSUs vest either 100% 3 or 5 years from the grant date, pro rata over 3 or 5 years from the grant date, over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5, or over 7 years from the grant date, with 20% vesting in each of years 3 through 7.

14

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

 

 

Nine Months Ended September 30, 2023

 

 

 

IPO RSUs

 

 

Incentive RSUs

 

 

 

Restricted
Stock Units

 

 

Weighted Average Grant Date
Fair Value

 

 

Restricted
Stock Units

 

 

Weighted Average Grant Date
Fair Value

 

Unvested at beginning of period

 

 

3,771,624

 

 

$

23.00

 

 

 

984,439

 

 

$

34.64

 

Granted

 

 

—

 

 

 

—

 

 

 

871,823

 

 

 

41.19

 

Vested

 

 

(372,466

)

 

 

22.43

 

 

 

(68,325

)

 

 

34.77

 

Forfeited

 

 

(31,287

)

 

 

22.56

 

 

 

(11,628

)

 

 

34.39

 

Unvested at end of period

 

 

3,367,871

 

 

$

23.07

 

 

 

1,776,309

 

 

$

37.85

 

Stock Options

Reload and Staking Options

As part of the Organizational Transactions and IPO, certain employees were granted Reload Options or Staking Options that entitle the award holder to future purchases of Class A common stock, on a one-for-one basis, at the IPO price of $23.50. The Reload Options vest either 100% 3 years from the grant date or over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5. In general, vested Reload Options are exercisable up to the tenth anniversary of the grant date. The Staking Options vest over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10. In general, vested Staking Options are exercisable up to the eleventh anniversary of the grant date.

Incentive Options

As part of the Company’s compensation process, the Company may issue Incentive Options to certain employees that entitle the award holder to future purchases of Class A common stock, on a one-for-one basis, at the respective exercise prices. The Incentive Options vest over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5. In general, vested Incentive Options are exercisable up to the tenth anniversary of the grant date.

 

 

Nine Months Ended September 30, 2023

 

 

 

Reload Options1

 

 

Staking Options1

 

 

Incentive Options

 

 

Incentive Options
Weighted Average
Exercise Price

 

Outstanding at beginning of period

 

 

4,554,749

 

 

 

66,667

 

 

 

170,392

 

 

$

34.39

 

Granted

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Exercised

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Forfeited

 

 

(6,555

)

 

 

—

 

 

 

(2,293

)

 

 

34.39

 

Outstanding at end of period

 

 

4,548,194

 

 

 

66,667

 

 

 

168,099

 

 

$

34.39

 

1 As the Reload and Staking Options were one-time grants at the IPO, the weighted average exercise price for any movements in these awards will perpetually be $23.50. As such, the values are not presented in the table above.

Restricted LLC Units (RLUs)

IPO RLUs

Related to the IPO, the Company granted RLUs to certain employees that vest either pro rata over 5 years from the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Incentive RLUs

As part of the Company’s compensation process, the Company issues Incentive RLUs to certain employees. The Incentive RLUs vest pro rata over 3 or 5 years from the grant date or over 7 years from the grant date, with 20% vesting in each of years 3 through 7.

15

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

 

 

Nine Months Ended September 30, 2023

 

 

 

IPO RLUs

 

 

Incentive RLUs

 

 

 

Restricted
LLC Units

 

 

Weighted Average Grant Date
Fair Value

 

 

Restricted
LLC Units

 

 

Weighted Average Grant Date
Fair Value

 

Unvested at beginning of period

 

 

1,515,858

 

 

$

25.06

 

 

 

145,527

 

 

$

34.86

 

Granted

 

 

—

 

 

 

—

 

 

 

379,148

 

 

 

41.14

 

Vested

 

 

(67,731

)

 

 

24.41

 

 

 

(42,045

)

 

 

34.86

 

Forfeited

 

 

—

 

 

 

—

 

 

 

(301

)

 

 

34.85

 

Unvested at end of period

 

 

1,448,127

 

 

$

25.09

 

 

 

482,329

 

 

$

39.80

 

Class C Incentive Units

Reload and Staking Class C Incentive Units

As part of the Organizational Transactions and IPO, certain employees were granted Reload Class C Incentive Units or Staking Class C Incentive Units, which are profits interests. When the value of Class A common stock exceeds the IPO price of $23.50, vested profits interests may be exchanged for LLC Common Units of equal value. On exchange, the LLC Common Units are immediately redeemed on a one-to-one basis for Class A common stock. The Reload Class C Incentive Units vest either 100% 3 years from the grant date or over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5.The Staking Class C Incentive Units vest either pro rata over 5 years from the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Class C Incentive Units

As part of the Company’s compensation process, the Company issues Class C Incentive Units to certain employees, which are profits interests. When the value of the Class A common stock exceeds the participation threshold, vested profits interests may be exchanged for LLC Common Units of equal value. On exchange, the LLC Common Units are immediately redeemed on a one-to-one basis for Class A common stock. The Class C Incentive Units vest over 8 years from the grant date, with 15% vesting in each of years 3 through 7 and 25% vesting in year 8, or over 7 years from the grant date, with 20% vesting in each of years 3 through 7.

 

 

Nine Months Ended September 30, 2023

 

 

 

Reload Class C Incentive Units1

 

 

Staking Class C Incentive Units1

 

 

Class C
Incentive Units

 

 

Class C Incentive Units Weighted Average Participation Threshold

 

Unvested at beginning of period

 

 

3,911,490

 

 

 

1,996,668

 

 

 

300,000

 

 

$

34.39

 

Granted

 

 

—

 

 

 

—

 

 

 

195,822

 

 

 

40.90

 

Vested

 

 

—

 

 

 

(119,999

)

 

 

—

 

 

 

—

 

Forfeited

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Unvested at end of period

 

 

3,911,490

 

 

 

1,876,669

 

 

 

495,822

 

 

$

36.96

 

1 As the Reload and Staking Class C Incentive Units were one-time grants at the IPO, the weighted average participation threshold for any movements in these awards will perpetually be $23.50. As such, the values are not presented in the table above.

Non-Employee Director Stock Grants

The Company grants RSUs (“Director Stock Grants”) to non-employee directors serving as members of the Company's Board of Directors, with the exception of the one director appointed by Onex in accordance with Onex’s nomination rights who has agreed to forgo any compensation for his service to the Board. The Director Stock Grants are fully vested upon grant. The Company recognized $0.2 million of expense related to the Director Stock Grants during the three months ended September 30, 2023 and 2022, and $0.8 million and $1.8 million during the nine months ended September 30, 2023 and 2022, respectively.

16

Equity-Based Compensation Expense

As of September 30, 2023, the unrecognized equity-based compensation costs related to each type of equity-based compensation award described above and the related weighted-average remaining expense period were as follows:

 

 

Amount

 

Weighted Average
Remaining Expense
Period (years)

 

Restricted Stock

 

$

4,496

 

 

0.9

 

IPO RSUs

 

 

43,600

 

 

4.0

 

Incentive RSUs

 

 

48,295

 

 

2.7

 

Reload Options

 

 

3,092

 

 

1.4

 

Staking Options

 

 

335

 

 

5.6

 

Incentive Options

 

 

1,165

 

 

2.3

 

Restricted Common Units

 

 

3,034

 

 

0.5

 

IPO RLUs

 

 

23,079

 

 

5.1

 

Incentive RLUs

 

 

15,186

 

 

2.3

 

Reload Class C Incentive Units

 

 

3,492

 

 

1.5

 

Staking Class C Incentive Units

 

 

13,698

 

 

4.7

 

Class C Incentive Units

 

 

7,953

 

 

4.6

 

Total unrecognized equity-based compensation expense

 

$

167,425

 

 

 

The following table includes the equity-based compensation the Company recognized by award type from the view of expense related to pre-IPO and post-IPO awards. The table also presents the unrecognized equity-based compensation expense as of September 30, 2023 in the same view.

 

 

Recognized

 

Unrecognized

 

 

 

Three Months Ended

 

Nine Months Ended

 

As of

 

 

 

September 30, 2023

 

September 30, 2023

 

September 30, 2023

 

IPO awards

 

 

 

 

 

 

 

IPO RSUs and Staking Options

 

$

3,654

 

$

12,599

 

$

43,935

 

IPO RLUs and Staking Class C Incentive Units

 

 

2,738

 

 

8,866

 

 

36,777

 

Incremental Restricted Stock and Reload Options

 

 

1,156

 

 

3,723

 

 

5,340

 

Incremental Restricted Common Units and Reload Class C Incentive Units

 

 

1,779

 

 

5,779

 

 

5,616

 

Pre-IPO incentive awards

 

 

 

 

 

 

 

Restricted Stock

 

 

646

 

 

2,144

 

 

2,248

 

Restricted Common Units

 

 

308

 

 

1,224

 

 

910

 

Post-IPO incentive awards

 

 

 

 

 

 

 

Incentive RSUs

 

 

5,237

 

 

13,896

 

 

48,295

 

Incentive RLUs

 

 

1,214

 

 

3,329

 

 

15,186

 

Incentive Options

 

 

125

 

 

368

 

 

1,165

 

Class C Incentive Units

 

 

521

 

 

1,385

 

 

7,953

 

Other expense

 

 

 

 

 

 

 

Director Stock Grants

 

 

230

 

 

823

 

N/A

 

Total equity-based compensation expense

 

$

17,608

 

$

54,136

 

$

167,425

 

The Company recognized equity-based compensation expense of $18.1 million and $61.1 million for the three and nine months ended September 30, 2022, respectively.

17

10.
Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss)attributable to Ryan Specialty Holdings, Inc., by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share is computed giving effect to potentially dilutive shares, including LLC equity awards and the non-controlling interests’ LLC Common Units that are accounted for on a combined basis separatelyexchangeable into Class A common stock. As shares of Class B common stock do not share in earnings and are not participating securities, they are not included in the Company’s calculation.A reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings (loss) per share of Class A common stock is as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Net income

 

$

15,703

 

$

29,279

 

 

$

135,977

 

$

117,475

 

Less: Net income attributable to non-controlling interests

 

 

20,750

 

 

17,534

 

 

 

97,786

 

 

74,318

 

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

 

$

(5,047

)

$

11,745

 

 

$

38,191

 

$

43,157

 

Numerator:

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Class A common shareholders

 

$

(5,047

)

$

11,745

 

 

$

38,191

 

$

43,157

 

Add: Income (loss) attributed to substantively vested RSUs

 

 

(100

)

 

165

 

 

 

687

 

 

596

 

Net income (loss) attributable to Class A common shareholders – basic

 

$

(5,147

)

$

11,910

 

 

$

38,878

 

$

43,753

 

Add: Income attributed to dilutive shares

 

 

—

 

 

12,914

 

 

 

3,128

 

 

54,812

 

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

 

$

(5,147

)

$

24,824

 

 

$

42,006

 

$

98,565

 

Denominator:

 

 

 

 

 

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding – basic

 

 

115,872,327

 

 

109,428,073

 

 

 

113,291,850

 

 

108,035,360

 

Add: Dilutive shares

 

 

—

 

 

156,924,316

 

 

 

11,591,673

 

 

157,035,379

 

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

 

 

115,872,327

 

 

266,352,389

 

 

 

124,883,523

 

 

265,070,739

 

Earnings (loss) per Share:

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share of Class A common stock – basic

 

$

(0.04

)

$

0.11

 

 

$

0.34

 

$

0.40

 

Earnings (loss) per share of Class A common stock – diluted

 

$

(0.04

)

$

0.09

 

 

$

0.34

 

$

0.37

 

The following number of shares were excluded from the redeemable preferredcalculation of diluted earnings (loss) per share because the effect of including such potentially dilutive shares would have been antidilutive:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Conversion of non-controlling interest LLC Common Units1

 

 

141,689,681

 

 

—

 

 

 

142,974,016

 

 

—

 

Conversion of vested Class C Incentive Units1

 

 

98,699

 

 

—

 

 

 

65,028

 

 

—

 

Restricted Stock

 

 

1,015,761

 

 

—

 

 

 

—

 

 

—

 

IPO RSUs

 

 

3,229,891

 

 

—

 

 

 

—

 

 

—

 

Incentive RSUs

 

 

1,776,309

 

 

—

 

 

 

—

 

 

—

 

Reload Options

 

 

4,548,194

 

 

—

 

 

 

—

 

 

—

 

Staking Options

 

 

66,667

 

 

—

 

 

 

—

 

 

—

 

Incentive Options

 

 

168,099

 

 

170,392

 

 

 

168,099

 

 

170,392

 

Restricted Common Units

 

 

1,239,232

 

 

—

 

 

 

—

 

 

—

 

IPO RLUs

 

 

1,448,127

 

 

—

 

 

 

—

 

 

—

 

Incentive RLUs

 

 

482,329

 

 

—

 

 

 

—

 

 

—

 

Reload Class C Incentive Units

 

 

3,911,490

 

 

—

 

 

 

—

 

 

—

 

Staking Class C Incentive Units

 

 

1,876,669

 

 

—

 

 

 

—

 

 

—

 

Class C Incentive Units

 

 

495,822

 

 

300,000

 

 

 

495,822

 

 

300,000

 

1Weighted average units outstanding during the period.

18

11.
Derivatives

Interest Rate Cap

On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company’s Term Loan in the amount of $25.5 million. The interest rate cap has a $1,000.0 million notional amount, 2.75% strike, and reported at fair value.

terminates on December 31, 2025. The fair value of derivatives notthe interest rate cap was $46.8 million and $45.9 million as of September 30, 2023 and December 31, 2022, respectively, and was included in Other non-current assets on the Consolidated Balance Sheets. At inception, the Company formally designated the interest rate cap as hedging instruments are as follows:
 
Derivative Liabilities
 
 
Balance Sheet Location
  
June 30, 2021
  
December 31, 2020
 
Class B embedded derivative
s
Accounts payable and accrued liabilities  $(51,035)  $(30,423) 
          
Total derivatives
   
$
 
 
 
 
 
 
 
 
 
 
(51,035)
 
 
$
(30,423)
 
a cash flow hedge. As of September 30, 2023, the interest rate cap continued to be an effective hedge. As of September 30, 2023 and December 31, 2022, the balance of Accumulated other comprehensive income related to the interest rate cap was $27.7 million and $22.2 million, respectively.

The gainsCompany elected to exclude the change in the time value of the interest rate cap from the assessment of hedge effectiveness and losses recognized in earnings for derivatives in Other

non-operating
income withinwill amortize the initial value of the premium over the life of the instrument through Interest expense, net on the Consolidated Statements of Income are as follows:
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2021
   
2020
   
2021
  
2020
 
Loss on interest rate contracts
  $0     $235   $0    $3,294 
Loss on Class B embedded derivatives
   8,007    0      20,612   0   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total derivatives not designated as hedging instruments
  
$
8,007
 
  
$
 
 
 
235
 
  
$
20,612
 
 
$
 
 
3,294
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Additionally, for(Loss) and Other comprehensive income (loss). Premium amortization of $1.7 million was recognized during the sixthree months ended JuneSeptember 30, 20212023 and 2020, RSG recognized an increase in cash flows of $20.6
2022 and $5.2million and
$3.3
2.9 million
, was recognized during the nine months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023 and 2022, the $(0.2) million and $21.9 million, respectively, from changes in current and

non-current
assets and liabilities within the operating section of the Consolidated Statements of Cash Flows.
10. Redeemable Preferred Units
RSG has 260,000,000 redeemable preferred units issued and outstanding as of June 30, 2021, which remains unchanged from December 31, 2020. In 2020, the Company issued 110,000,000 redeemable preferred units and 10,124,000 Class B
common units 
to Onex for an aggregate purchase price of $110.0
 million
. The redeemable preferred units of 150,000,000
issued in 2018 and
110,000,000
units issued in 2020
accrue dividends at a quarterly compounding rate of
8
% and
10
% per annum, respectively. All
260,000,000
outstanding redeemable preferred units have put and call redemption features. The redeemable preferred units have certain anti-dilution rights and are subject to certain restrictions and liquidation preferences per the Fifth Amended and Restated Limited Liability Company Agreement (“5
th
LLC Operating Agreement”). Limited voting rights are collective among the redeemable preferred units based on their economic rights in a liquidation.
2
3
RSG has the option, but not the requirement, to repurchase up to 100% of the 260,000,000 redeemable preferred units issued to Onex at any time. If the option is exercised before the fifth anniversary of each issuance, the redemption price would be subject to a make-whole provision set forth in the terms of the Onex Purchase Agreement. Onex has the right to cause the Company to repurchase up to 100
% of the redeemable preferred units after the tenth anniversary of each issuance for any unpaid preferred return and unreturned capital, or in the event that the Company completes a capital raise (“Capital Raise Transaction”) of at least $
100.0
million
from an independent third-party investor. Where Onex requires the Company to repurchase the redeemable preferred units prior to the fifth anniversary of each issuance as a result of a Capital Raise Transaction, the redemption price would be subject to a make-whole provision set forth in the terms of the Onex Purchase Agreement.
The Onex Purchase Agreement requires a redemption (“Mandatory Redemption”) of the redeemable preferred units upon the occurrence of a Realization Event, which is defined as a Qualified Public Offering or a Sale Transaction in the Company’s 5th LLC Operating Agreement. Where a Mandatory Redemption is required prior to the fifth anniversary of an issuance, the redemption price would be subject to a make-whole provision set forth in the terms of the Onex Purchase Agreement. In the event that the Company is required to repurchase the redeemable preferred units after the tenth anniversary of an issuance as a result of a Capital Raise Transaction, or as the result of a Mandatory Redemption, and the Company is unable to repurchase the redeemable preferred units within six months, various contingent preferred yield features will be triggered.
The Company determined that the Mandatory Redemption opti
o
n exercisable upon the occurrence of a Realization Event or completion of a Capital Raise Transaction must be accounted for separately from the redeemable preferred units as a derivative liability in accordance with ASC 815
Derivatives and Hedging
. These embedded derivatives, are accounted for on a combined basis separately from the redeemable preferred units and recorded at fair value.
Since the put option exercisable after the tenth anniversary of the issuance is at the option of the holder, but is not mandatorily redeemable, the redeemable preferred units are classified as mezzanine equity and were initially recognized at relative fair value. The fair value of the 2020 issuance was recorded asinterest rate cap were recognized in Other comprehensive income (loss). For the proceeds onnine months ended September 30, 2023 and 2022, the date of issuance, $110.0
$0.9million lessand $21.0 million, respectively, changes in the relative fair value allocated to the Class B common units
of
$10.7
m
illion
, issuance costs of $0.2
 million
, and $0.8
million
assigned to the embedded derivative liability at the date of issuance resulting in an adjusted initial value of $98.4
 million
. The fair value of the 2018 issuance was recorded asinterest rate cap were recognized in Other comprehensive income (loss). During the proceeds on the date of issuance, $175.0
 million
, less the relative fair value allocated to the Class B
common units of
$36.2
 million
, issuance costs of $0.1
 million
,three and $0.9
million
assigned to the embedded derivative liability at the date of issuance resulting in an adjusted initial value of $137.7
 million
.
The difference between the redemption value of the redeemable preferred units and the carrying value is being accreted over the period from the date of issuance through September 1, 2030 and June 1, 2028 for the 2020 and 2018 issuances, respectively, using the effective interest method. The accretion is treated as a deemed dividend and is recorded as a charge to retained earnings. The cumulative accretion as of June 30, 2021 and December 31, 2020 was $4.8
million
and $3.6
 million
, respectively, resulting in adjusted redeemable preferred unit carrying values of $240.8
million
and $239.6
 million
, respectively. Dividend payments on the redeemable preferred units may be accrued and deferred at the option of the Board of Directors. Unpaid preferred dividends of $14.5
million
and $9.5
mi
llion
were recorded in Accounts payable and accrued liabilities as of June 30, 2021 and December 31, 2020, respectively. RSG paid $7.0
million
and $6.4
million
of preferred dividends inclusive of state tax payments and distributions to Onex in the sixnine months ended JuneSeptember 30, 20212023, $6.3 million and the year ended December 31, 2020, respectively.
The fair value$16.4 million, respectively, related to payments received was reclassified out of the redeemable preferred unit yield make-whole provisions was $51.0
million
and $30.4
million
at June 30, 2021 and December 31, 2020, respectively. ReferOther comprehensive income (loss) into earnings as an offset to Note 13,
Fair Value Measurements.
11. Equity
RSG has issued equity to the Founder Group and other investors to raise funds for investments. The Company has separately issued equity and grants of unvested equity to the Company’s key employees and to the Company’s directorsinterest expense in order to attract and retain key talent. RSG has both preferred and common units.
In connection with the IPO but prior to June 30, 2021, as described in Note 17,
Subsequent Events
, the Board approved the repurchase of 74,990,000 Class B Preferred Units from the
Founder Group 
for $78.3
 million
, which reflects the par value of $75.0
million
plus unpaid accrued preferred dividends. As the repurchase did not occur until July 1, 2021, a liability for the full amount is included in Preferred units repurchase payableInterest expense, net on the Consolidated Statements of Financial Position, and the Class B Preferred Units remained outstanding asIncome (Loss). As of JuneSeptember 30, 2021.
2
4
The following table presents changes in the nu
m
ber of common and preferred units issued and repurchased:
   
Common Equity
  
Preferred Equity
 
   
Class A
  
Class B
   
Total
  
Class B
   
Total
 
December 31
, 20
20
  
 
693,876
 
 
 
75,478
 
  
 
769,354
 
 
 
74,990
 
  
 
74,990
 
Forfeitures
   (40)   0—   
 
(40
) 
  0—    0— 
Repurchases
   (41)
 
 		  0—   
 
(41
) 
  0—    0— 
          
 
 
 
        
March 31, 2021
  
 
693,795
 
 
 
75,478
 
 
  
 
769,273
 
 
 
74,990
 
  
 
74,990
 
Forfeitures
   (375)   0—   
 
(375
) 
  0—    0— 
Repurchases
   (666)   0—   
 
(666
)
 
 
  0—    0— 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
June 30, 2021
  
 
692,754
 
 
 
75,478
 
  
 
768,232
 
 
 
74,990
 
  
 
74,990
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
   
Common Equity
  
Preferred Equity
 
   
Class A
  
Class B
   
Total
  
Class B
   
Total
 
December 31
, 2019
  
 
655,386
 
 
 
65,354
  
 
720,740
 
 
 
—  
 
  
 
   
 
 
—  
 
Grants
   175   0—  
 
175
 
  —      —   
Forfeitures
   (375)   0—  
 
(375
)
 
 
 
  —      —   
Repurchases
   (8,036)   0—   
 
(8,036
) 
  —      —   
          
 
 
 
        
March 31, 2020
  
 
647,150
 
 
 
65,354
 
  
 
712,504
 
 
 
—  
 
  
 
—  
 
Repurchases
   (1,081)   0—   
 
(1,081
) 
  —      —   
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
June 30, 2020
  
 
646,069
 
 
 
65,354
 
  
 
711,423
 
 
 
—  
 
  
 
—  
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
12. Employee Benefit Plans, Prepaid and Long-Term Incentives
Defined Contribution Plan
The Company offers a defined contribution retirement benefit plan, the Ryan Specialty Group Employee Savings Plan (the “Plan”), to all eligible employees, based on a minimum number of service hours in a year. Under the Plan, eligible employees may contribute a percentage of their compensation, subject to certain limitations. Further, the Plan authorizes2023, the Company expects $26.0 million of unrealized gains from the interest rate cap to make a discretionary matching contribution, which has historically equaledbe reclassified into earnings over the next twelve months.

12.
Variable Interest Entities
50
%

As discussed in Note 1, Basis of each eligible employee’s contribution. The Company recognized expense related to discretionary matching contributions in the amount of $

3.6
million
and $
2.5
million
in the three months ended June 
30
,
2021
and June 
30
,
2020
, respectively, and $
7.1
million
and $
4.8
million
in the six months ended June 
30
,
2021
and
2020
, respectively. Starting in
2021
Presentation, the Company changedconsolidates the timingLLC as a VIE under ASC 810. The Company’s financial position, financial performance, and cash flows effectively represent those of discretionary matching contributions to being made throughout the yearLLC as opposed to makingof and for the contribution afternine months ended September 30, 2023, with the endexception of each year. RSG accrues for Company contributions in Current Accrued compensation withinCash and cash equivalents of $60.8 million, the entire balance of theTax Receivable Agreement liabilities of $359.1 million, and Deferred tax assets of $382.9 million on the Consolidated Statements of Financial Position. DueBalance Sheets, which are attributable solely to the change in timing of the discretionary matching contributions, there were no Company contributions accrued for as of June 
30
,
2021
.Ryan Specialty Holdings, Inc. As of December
31,
,
2020
, RSG accrued for $
10.4
million
2022, Cash and cash equivalents of Company contributions which were paid in$25.0 million, the first quarterentire balance of
2021
.
Long-term Incentive Compensation Agreements
RSG has entered into certain long-term incentive agreements whereby, at the endTax Receivable Agreement liabilities of a service period, employees are awarded cash, according to specified formulas following a period, typically associated with an acquisition. RSG recognizes expense within Compensation$295.3 million, and benefits inDeferred tax assets of $396.8 million on the Consolidated Statements of Income over the service period of these awards based on the estimated expected payout. RSG recognized compensation expense of $0.5
million
and $1.0
million
relatedBalance Sheet were attributable solely to these awards for the three and six months ended June 30, 2021, respectively. RSG recognized compensation expense of $0.5
million
and $1.0
million
related to these awards for the three and six months ended June 30, 2020,Ryan Specialty Holdings, Inc.

respectively. The aggregate amount of maximum obligation payable was $13.
6.9 
million and $
11.9 
million as of June 30, 2021 and December 31, 2020, respectively.
2
5
ARL Long-Term Incentive Plans
ARL had established various long-term incentive plans (“LTIPs”) throughout its history to incentivize certain executives, producers and key employees. ARL additionally established sales bonuses, implemented by the management of ARL, as compensation for past services performed in connection with executing the sale. Following the acquisition by RSG, the LTIP awards vest based on the achievement of various service conditions and are cash-settled. Cash settlement, including all cash payments due on close, will be made by RSG.
The total value of the sales bonuses and LTIP awards at the acquisition date was $24.3
million
and $303.7
 million
, respectively. The portion allocated to the
pre-combination
service period and accounted for as consideration transferred was $257.6
million
inclusive of sales bonuses. Of the expense related to post-combination services after forfeitures, $17.5
million
was expensed in the six months ended June 30, 2021 with the remaining expense of
$39.9
million
to be recognized over a 0.98 year weighted-average period. The liability for these awards is recognized in Current and
Non-current
Accrued compensation in the Consolidated Statements of Financial Position and the expense is recognized in Compensation and Benefits in the Consolidated Statements of Income ratably over the remaining service period of the participants while employed at RSG. As of June 30, 2021, the Current and
Non-current
portions of the ARL LTIP accrual were $97.5
million
and $73.6
 million
, respectively.
2
6
13. Fair Value Measurements

Accounting standards establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair values as follows:

Level

 1.
1:Observable inputs such as quoted prices for identical assets in active markets;

Level

 2.
2:Inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and

Level

 3.
3:Unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.

The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level of input that is significant to the fair value measure in its entirety.

The carrying amount of financial assets and liabilities reported in the Consolidated Statements of Financial PositionBalance Sheets for Cashcash and cash equivalents, Commissionscommissions and fees receivable—net, Otherother current assets, accounts payable, short-term debt, and Accounts payable andother accrued liabilities at Juneas of September 30, 20212023 and December 31, 2020,2022 approximate fair value because of the short-term duration of these instruments.

Derivative Instruments
The fair value of long-term debt, including the Term Loan, Senior Secured Notes, the units subject to mandatory redemption, and any current portion of such debt, was $1,958.7 million and $1,960.6 million as of September 30, 2023 and December 31, 2022, respectively. The fair value of the combined embedded derivatives on the redeemable preferred units is based on the likelihood of a mandatorily redeemable triggering event, a Realization EventTerm Loan and Senior Secured Notes would be classified as defined by the Onex Purchase Agreement, and the present value of any remaining unpaid dividends between the reporting period and the fifth anniversary of the issuance date, which is a Level 3 fair value measurement. In determining the fair value, the Company will first estimate the likelihood of a Realization Event based on discussions with management. The Company then estimated the present value of any remaining dividends using a 10.5% discount rate derived from a review of comparable issuances and benchmarking. The present value of the remaining dividends was then combined with the estimated likelihood of a Realization Event to arrive at the estimated fair value. Changes in the timing and likelihood of a Realization Event and/or the discount rates used would result in a change1 in the fair value hierarchy and the units subject to mandatory redemption would be classified as Level 3. See Note 7, Debt for the carrying values of recorded embedded derivative obligations.the Company’s debt.

Derivative Instrument

The Company uses an interest rate cap to manage its exposure to interest rate fluctuations related to the Company’s Term Loan. The fair value of the make-whole provisions asinterest rate cap is determined using the market standard methodology of June 30, 2021 was $51.0

 million.
Contingent Consideration
Any contingent consideration arising upon a business combination is initially recorded as a componentdiscounting the future expected cash receipts

19

that would occur if variable interest rates rise above the strike rate of the total considerationcap. The variable interest rates used in the calculation of that business combination atprojected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The inputs used in determining the fair value with an offsetting liability inof the opening balance sheet under Other

Non-current
liabilities in the Statements of Financial Position.
interest rate cap are considered Level 2 inputs.

Contingent Consideration

The fair value of these contingent consideration obligations is based on the present value of the future expected payments to be made to the sellers of thecertain acquired entitiesbusinesses in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. In determining fair value, the Company estimates cash payments based on management’s financial projections of the performance of each acquired business relative to the formula specified by each purchase agreement. The Company utilizes Monte Carlo simulations to evaluate financial projections of each acquired business. The Monte Carlo models consider forecasted revenue and EBITDA and market risk adjustedrisk-adjusted revenue and EBITDA, which are then run through a series of simulations. TheAs of September 30, 2023, the models used risk-free rates, and expected volatility, used inand a credit spread that ranged from 4.7% to 5.4%, 7.0% to 21.7%, and 3.6% to 4.2%, respectively. As of December 31, 2022, the models range from 0.05% to 0.10%used a risk-free rate, expected volatility, and 15% to 35%a credit spread of 4.6%, 22.5%, and 4.5%, respectively. The Company then discounts the expected payments created by the Monte Carlo model to present value using a risk-adjusted rate that takes into consideration the market-based rates of return that reflect the ability of the acquired entity to achieve its targets. TheseThe discount rates generallyrate range from 5.5%used to 12.1% forpresent value the acquisitions.

cash payments as of September 30, 2023 was 9.0% to 9.1%, and the discount rate used as of December 31, 2022 was 9.1%.

Each period, RSGthe Company revalues the contingent consideration obligations associated with certain prior acquisitions to their fair value and records subsequentthe changes toof the fair value of these estimated obligations in Change in contingent consideration within Operating income when incurred.

2
7
in the Consolidated Statements of Income (Loss). Changes in contingent consideration result from changes in the assumptions regarding probabilities of successful achievement of related EBITDA and percentagerevenue milestones, the estimated timing in which milestones are achieved, and the discount rate used to estimate the fair value of the liability. Contingent consideration may change significantly as the Company’s revenue growth rate and EBITDA estimates evolve and additional data is obtained, impacting the Company’s assumptions. The use of different assumptions and judgementsjudgments could result in a materially different estimate of fair value which may have a material impact on the results from operations and financial position.
As of June 30, 2021 See Note 3, Mergers and December 31, 2020, the current portion of the fair value ofAcquisitions, for further information on contingent consideration was $16.2
million
consideration.

Assets and $5.5Liabilities Measured at Fair Value on a Recurring Basis

 million
, respectively, recorded in Accounts payable and accrued liabilities. The
non-current
portion of the fair value of the contingent consideration was
$6.0
million
and $16.6
 million
, respectively, recorded in Other
non-current
liabilities in the Statement of Financial Position.

The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis by fair value hierarchy input level:

 

September 30, 2023

 

 

December 31, 2022

 

 

Level 1

 

Level 2

 

Level 3

 

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

$

—

 

$

46,845

 

$

—

 

 

$

—

 

$

45,860

 

$

—

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

—

 

 

—

 

 

36,018

 

 

 

—

 

 

—

 

 

29,251

 

Total assets and liabilities
 measured at fair value

$

—

 

$

46,845

 

$

36,018

 

 

$

—

 

$

45,860

 

$

29,251

 

Contingent consideration of $36.0 million and $21.8 million was recorded in Other non-current liabilities on the Consolidated Balance Sheets as of JuneSeptember 30, 20212023 and December 31, 2020.

   
June 30, 2021
   
December 31, 2020
 
   
Quoted prices in
active markets
for identical
assets
(Level 1)
   
Significant
other
observable
inputs
(Level 2)
   
Significant
unobservable
inputs
(Level 3)
   
Quoted prices in
active markets
for identical
assets
(Level 1)
   
Significant
other
observable
inputs
(Level 2)
   
Significant
unobservable
inputs
(Level 3)
 
Liabilities:
                              
Debt (1)
  $1,641,719   $—     $—     $1,648,997   $—     $—   
Contingent purchase consideration (2)
   —      —      22,135    —      —      22,096 
Make-whole provision on Class B
Preferred Units 
(3)
   —      —      51,035    —      —      30,423 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total liabilities measured at fair value
  
$
1,641,719
 
  
$
—  
 
  
$
73,170
 
  
$
1,648,997
 
  
$
—  
 
  
$
52,519
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
(1)
See Note 8,
Debt.
(2)
Contingent purchase considerations are listed in Accounts payable and accrued liabilities and Other
non-current
liabilities in the Statement2022, respectively. Contingent consideration of $7.5 million was recorded in Accounts payable and accrued liabilities on the Consolidated Balance Sheets as of Financial Position and in Change in contingent consideration in the Statements of Income.
(3)
Make-Whole Provisions are listed as Accounts payable and accrued liabilities in the Statements of Financial Position and in Other
non-operating
(loss) income in the Statement of Income.
There were no assets or liabilities that were transferred between fair value hierarchy levels during the six months ended June 30, 2021 and December 31, 2020.
2022.

Level 3 Liabilities Measured at Fair Value

The following is a reconciliation of the beginning and ending balances for the Level 3 liabilities measured at fair value:value, which consist of contingent consideration for both periods:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

 

2023

 

2022

 

Balance at beginning of period

 

$

25,290

 

$

26,357

 

 

$

29,251

 

$

42,053

 

Newly established liability due to acquisitions

 

 

8,091

 

 

—

 

 

 

8,091

 

 

—

 

Total losses included in earnings

 

 

2,637

 

 

1,000

 

 

 

6,588

 

 

538

 

Settlements

 

 

—

 

 

—

 

 

 

(7,912

)

 

(15,234

)

Balance at end of period

 

$

36,018

 

$

27,357

 

 

$

36,018

 

$

27,357

 

20

   
June 30, 2021
  
June 30, 2020
 
   
Make-Whole

provision
 
on
 
class B units
   
Contingent
consideration
  
Total
  
Make-Whole

provision on class
B units
   
Contingent
consideration
  
Total
 
Opening balance
  
$
30,423
 
  
$
22,096
 
 
$
52,519
 
 
$
891
 
  
$
 23,527
 
 
$
24,418
 
Total gains/losses included in earnings
   20,612    2,712   23,324   0—      1,619   1,619 
Settlements
   0—      (2,673)   (2,673)   0—      (497)   (497) 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Ending balance
  
$
 51,035
 
  
$
22,135
 
 
$
 73,170
 
 
$
 891
 
  
$
24,649
 
 
$
 25,540
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
During

For the sixnine months ended JuneSeptember 30, 20212023, $3.4 million and 2020, there were 0 purchases, issues, sales or transfers related to fair value measurements. The Company settled$4.5 million settlements of contingent consideration of $2.7

million
are presented in the operating and $0.5
million
during the six months ended June 30, 2021 and June 30, 2020, respectively. Additionally, 0 unrealized gains or losses were recorded infinancing sections, respectively, of the Consolidated Statements of Comprehensive Income for liabilities held duringCash Flows. For the period.
nine months ended September 30, 2022, $9.0 million and $6.2 million settlements of contingent consideration are presented in the operating and financing sections, respectively, of the Consolidated Statements of Cash Flows.

14.
2
8
14. Commitments and Contingencies

Legal – E&O and Other Considerations

As an excessE&S and surplus lines and admittedAdmitted markets broker, RSGintermediary, the Company faces ordinary course of business E&O exposure. The Company also has potential E&O risk if an insurance carrier with which RSGRyan Specialty placed coverage denies coverage for a claim or pays less than the insured believes is the full amount owed. As a result, RSG from time to timeThe Company seeks to resolve, early in the process, through a commercial accommodation,accommodations, certain matters to limit the economic exposure, and reputational risk, including potential legal fees, and reputational risk created by a disagreement between a carrier and the insured.

RSG purchasesinsured, as well as other E&O matters.

The Company utilizes insurance to provide protection from E&O claimsliabilities that may arise during the ordinary course of business. Since June 1, 2019, RSG’sRyan Specialty’s E&O insurance provides aggregate coverage for E&O losses up to $100.0

$100.0million
in excess of their retaineda per claim retention amount of $2.5
million
$5.0 million. The Company’s per claim. RSG has historically maintained self-insurance reserves for the Company’s portionclaim retention amount increased from $2.5 million to $5.0 million as of the E&O exposure that is not insured. RSGJune 1, 2023. The Company periodically determines a range of possible reserve levelsoutcomes using the best available information that rely heavilyrelies, in part, on projecting historical claim data into the future.
RSG’s reserve for these Loss contingencies of $5.9 million and other E&O claims and business accommodations in the Consolidated Statements of Financial Position is above the lower end of the most recently determined range. Reserves of $1.6
$26.1million
and $1.5
million
were heldrecorded for outstanding matters as of JuneSeptember 30, 20212023 and December 31, 2020,2022, respectively. Relatedly, RSGLoss contingencies exclude the impact of any loss recoveries. The Company recognized $0.7
million
the net impact of the loss contingencies and $1.1
any loss recoveries of $0.8million
and $1.2 million in General and administrative expense for the six months ended June 30, 2021 and 2020, respectively. RSG recognized $0.4
million
and $0.1
million
in General and administrativeE&O expense for the three months ended JuneSeptember 30, 20212023 and 2020, respectively.2022, respectively, and $5.5 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively, in General and administrative expense on the Consolidated Statements of Income (Loss). The historical claim and commercial accommodation data used to project the current reserve levelsestimates may not be indicative of future claim activity. Thus, the reserve levels, which may be based on corresponding actuarial ranges,estimates could change in the future as more information becomes known, which could materially impact the amounts reported and disclosed herein.

During 2022, the Company placed certain insurance policies through a trading partner with the understanding that the policies were underwritten by highly rated insurance capital. The policies were instead underwritten by an insurance carrier that was not considered satisfactory by the Company or the insureds. The Company committed to securing replacement coverage, to the extent commercially available, from highly rated insurance companies on terms substantially similar to the insurance coverage originally agreed upon. As a result of this unusual circumstance, the Company has and may continue to incur losses (“Replacement Costs”) arising from the original placements. The Company has determined that it is probable that it will be exposed to the Replacement Costs on policies placed with this trading partner. The Company recognized an estimated loss contingency of $0.2 million and $23.1 million as of September 30, 2023 and December 31, 2022, respectively, within Accounts payable and accrued liabilities on the Consolidated Balance Sheets. Relatedly, the Company has obtained sufficient evidence from its E&O insurance carriers to conclude that a recovery of the claim for the Replacement Costs, in excess of the $2.5 million retention, is probable. A loss recovery of $22.6 million and $20.6 million was recorded as of September 30, 2023 and December 31, 2022, respectively, in Other current assets on the Consolidated Balance Sheets. In the aggregate, the loss contingency and related loss recovery resulted in a $2.5 million expense recognized in 2022. No further expense was recognized during the three or nine months ended September 30, 2023.

It is at least reasonably possible that the estimate of Replacement Costs will change in the near term as policies are adjusted. Further, exposure to additional losses may arise from policies that had expired prior to, or shortly after, the discovery of this unusual circumstance, adjustable premiums arising from the addition or deletion of properties over the policy term, unpaid covered claims, or other damages for losses incurred by our customers. An estimate of these potential losses cannot be made at this time but could change in the future as more information becomes known.

15.
15. Related Parties
The Company is predominantly owned directly or indirectly by its CEO and Chairman Patrick G.

Ryan or his family trusts throughInvestment Holdings

Ryan Investment Holdings, LLC (“RIH”) was formed as an investment holding company designed to aggregate the investments described in Note 11,

Equity
.
funds of Ryan Specialty Group Risk
RSG has an arrangement to provide administrative services to Ryan Specialty Group Risk, LLC (“RSGR”), an entity wholly owned directly or indirectly by Patrick G. Ryan, which participated in the underwriting profits of certain Lloyd’s syndicates. RSG is reimbursed for these administrative services. Reimbursements for services provided in the six months ended June 30, 2021 and 2020 were immaterial. RSG does not have a variable interest in this entity.
Ryan Specialty Group Risk Innovators
On June 28, 2018, RSG entered into a services agreement with Ryan Specialty Group Risk Innovators, LLC (“RSGRI”), a new subsidiary of RSGR. It was established to incubate new opportunities providing insurance and reinsurance services to brokers and carriers. According to the terms of the agreement, RSG provides both administrative services to, as well disburses payments for costs directly incurred by, RSGRI. These direct costs include compensation expenses incurred by employees of RSGRI. RSG earns a markup on administrative services performed for and on behalf of RSGRI but not on payments related to business employees. RSG does not have a variable interest in this entity.
JEM Underwriting Managers, LLC
JEM Underwriting Managers, LLC, previously a wholly owned subsidiary of RSGRI, was designed in 2018 to incubate a new property insurance initiative. On January 1, 2020, RSG acquired the assets and liabilities of JEM from RSGRI. Total consideration transferred was
$4.0
million, net of cash acquired.
29
Ryan Re and Geneva Re
Ryan Re
Ryan Re, previously a wholly owned subsidiary of RSGRI, was designed in 2018 to incubate a new reinsurance underwriting service offering. On June 13, 2019, Ryan Re was ultimately contributed to Geneva Ryan Holdings, LLC (“GRH”) for investment in Geneva Re Partners, LLC (“GRP”). GRH was formed as an investment holding company designed to aggregate investment funds of Patrick G. Ryan and other affiliated investors. One affiliated investor is an LLC Unitholder and a director of the Company, and another is both an LLC Unitholder and employee of the Company. RSGRyan Specialty does not consolidate GRH as RSGthe Company does not have a direct investment in or variable interest in this entity.
On June 13, 2019, RSG acquired a controlling interest of 47% of the common units in Ryan Re from GRH with a $1 par value for $4.70 and was appointed the Managing Member of Ryan Re. GRH retained a 53% interest in this entity. As Ryan Re is under common control with the

The Company RSG recognized the assets and liabilities in Ryan Re upon initial consolidation at historical cost, inclusive of an accumulated deficit.

On March 31, 2021, GRH distributed a portion of its interest in Ryan Re to the two investors affiliated with RSG. RSG subsequently acquired the remaining 53% of the common units in Ryan Re from GRH and the two affiliated investors with a $1 par value for total consideration of $48.4
 million
. As a result of the transaction, RSG derecognized the noncontrolling interest of $3.7
million
and recognized a deemed distribution of $44.6
 million
, inclusive of a working capital
true-up
payment of $0.1
million
in the second quarter of 2021. The valuation of the outstanding interest in Ryan Re was determined by an unrelated third party. Upon RSG acquiring the remaining 53% of common units, Ryan Re became a wholly owned subsidiary of RSG. RSG will continue to include the financial results of Ryan Re in the Company’s Consolidated Financial Statements but will no longer present a noncontrolling interest related to Ryan Re on the Statement of Financial Position after the first quarter of 2021.
Ryan Investment Holdings
Ryan Investment Holdings, LLC (“RIH”) was formed as an investment holding company designed to aggregate the funds of RSG and GRH for investment in Geneva Re Partners, LLC (“GRP”). RSG holds a 47%47% interest in RIH and GRH holds a 53%53% interest in RIH. RIH has a 50%
non-controlling
interest in GRP, and the other 50% is owned by Nationwide Mutual Insurance Company (“Nationwide”). GRP wholly owns Geneva Re, Ltd (“Geneva

21

Re”), a Bermuda-regulated reinsurance company.company, and GR Bermuda SAC Ltd (the “Segregated Account Company”). The Segregated Account Company has one segregated account, which is beneficially owned by a third-party insurance company (the “Third-party Insurer”). RIH is considered a related party variable interest entity under common control with the Company. The Company is not most closely associated with the variable interest entity and therefore does not consolidate RIH. The assets of RIH are restricted to settling obligations of RIH, pursuant to Delaware limited liability company statutes.

The Company is not required to contribute any additional capital to RIH, and its maximum exposure to loss on the equity method investment is the total invested capital

of
$47.0
 million
. million. The Company may be exposed to losses arising from the equity method investment as a result of underwriting losses recognized at Geneva Re or losses on Geneva Re’s investment portfolio.
RIH has committed to contribute additional capital to GRP over the next several years. Patrick G. Ryan, through a trust of which he is the beneficiary and co-trustee, has committed to personally fund any such additional capital contributions. Any such additional capital contributions under this commitment will not affect the relative ownership of RIH’s common equity.

Geneva Re

As discussed above, Geneva Re is a wholly owned subsidiary of GRP. GRP was formed as a joint venture between Nationwide and RIH, with each retaining a 50% ownership interest in GRP in exchange for
a
$50.0
million
initial cash investment from each.

The Company through its investment in RIH and in connection with the GRP Subscription Agreement, has an agreement that outlines the terms of the Company’s investment in RIH, as well as the commitment of RIH’s unit holders to invest funds into GRP at the request of the GRP board, for a total investment of $47.0

 million
. On March 5, 2020, RSG contributed $23.5
million
of capital in satisfaction of the remaining capital commitment to Geneva Re.
In accordance with the Master Transaction Agreement, (“MTA”), Geneva Re is obligated to reimburse RSG for any transaction expenses incurred by RSG in connection with the formation of Geneva Re. RSG had $0.4
million
due from Geneva Re under this agreement as of December 31, 2020. On January 1, 2021 RSG entered into a service agreement with Geneva Re to provide both administrative services to, as well as disburse payments for costs directly incurred by, Geneva Re. These direct costs include compensation expenses incurred by employees of Geneva Re. RSGThe Company had $0.6
$0.1million
and $0.2 million due from Geneva Re under this agreement for a total outstanding balance of $1.0
million
as of JuneSeptember 30, 2021.
3
0
At the formation of RIH, Patrick G. 2023 and December 31, 2022, respectively.

Ryan and Diane M. Aigotti, former Executive Vice President and CFORe Services Agreements with Geneva Re

Ryan Re, a wholly owned subsidiary of the Company, were designatedis party to represent RSG’s interest on the board of GRP. In connection with the retirement of Diane M. Aigotti in the first quarter of 2021, Jeremiah R. Bickham, the current CFO of RSG, replaced Diane M. Aigotti on the board of GRP. One of the investors of GRH represents the interests of GRH, while another of its investors is on the Company’s Board of Directors, is Executive Chairman of Geneva Re, and acts in the capacity of Executive Director on the Board of GRP.

Ryan Re Services Agreement with Geneva Re and Nationwide
On June 13, 2019, Ryan Re entered into an underwriting agreement with Nationwide to provide reinsurance underwriting services to Nationwide and its affiliated insurance entities. Simultaneously through the MTA, Ryan Re entered into a services agreement with Geneva Re to provide, among other services, certain underwriting and administrative services to Geneva Re. Ryan Re receivedreceives a service fee equal to 2.5% of gross written premium derived from reinsurance and retrocession business assumed by Geneva Re from Nationwide through December 31, 2020. On January 1, 2021, the services agreement between Ryan Re and Geneva Re was amended to remove the 2.5% of gross premium written and was replaced with a service fee equal to 115%115% of the administrative costs incurred by Ryan Re in performing certain underwriting and administrativeproviding these services to Geneva Re. Revenue earned from Geneva Re, net of applicable constraints, was $0.9
million and
$0.9
0.4million for the sixthree months ended JuneSeptember 30, 20212023 and 2020,2022, and $1.1 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively. Receivables due from Geneva Re under this agreement, net of applicable constraints, was
were $3.3
1.1million and
$3.0
2.0million as of JuneSeptember 30, 20212023 and December 31, 2020,2022, respectively.

On April 2, 2023, Ryan Re entered into a services agreement with Geneva Re in accordance with which Ryan Re subcontracted certain services to Geneva Re that Ryan Re is required to provide to the segregated account of the Segregated Account Company on behalf of the Third-party Insurer. The Company incurred expense of $2.2 million and $5.4 million during the three and nine months ended September 30, 2023, respectively, and had prepaid expenses of $6.4 million as of September 30, 2023, related to this services agreement. The prepaid expenses are included in Other currents assets on the Consolidated Balance Sheets.

Company Leasing of Corporate Jets

In the ordinary course of its business, the Company charters executive jets for business purposes from a third-party service provider called Executive Jet Management (“EJM”)., a third-party service provider. Mr. Ryan indirectly owns aircraft that he leases to EJM for EJM’s charter operations which include EJM chartering to third parties, for which he receives remuneration from EJM. The Company pays market rates for chartering aircraft through EJM, unless the particular aircraft chartered is Mr. Ryan’s, in which case the Company receives a discount below market rates. Historically, the Company has usually been able to charter Mr. Ryan’s aircraft and make use of this discount. The Company recognized de minimis expenses related to business usage of the aircraft for the three months ended June 30, 2021 and 2020. The Company recognized an expense related to business usage of the aircraft

of $0.3
$0.2million
and $0.2
$0.3million
for the sixthree months ended JuneSeptember 30, 20212023 and 2020,2022, respectively, and $0.9 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively.

16.
Personal Guarantee
In April 2021, Mr. Ryan personally guaranteed up to $10.0 
million of the financial obligations of the Company under an agency agreement with certain insurance companies that are affiliated with National Indemnity Company. The Company did not pay Mr. Ryan any consideration for this guarantee. Mr. Ryan’s guarantee may be replaced by the Company with a letter of credit at any time, subject to the prior approval of the insurance companies. Following the completion of the IPO, Mr. Ryan will not personally guarantee any additional financial obligations of the Company or any of its subsidiaries.
16. Income Taxes

The Company is antaxed as a corporation for income tax purposes and is subject to federal, state, and local taxes with respect to its allocable share of any net taxable income from the LLC. The LLC treatedis a limited liability company taxed as a partnership for income tax reporting. As such,purposes, and its taxable income or loss is passed through to its members, are liable for federal,including the Company. The LLC is subject to income taxes on its taxable income in certain foreign countries, in certain state and local jurisdictions that impose income taxes based on their sharepartnerships, and on the taxable income of its U.S. corporate subsidiaries.

Common Control Reorganization (“CCR”)

Subsequent to the acquisition of Socius, which was purchased by a wholly owned subsidiary of Ryan Specialty Holdings, Inc., the Company converted Socius to an LLC (“Socius LLC”) and transferred Socius LLC to the LLC. This legal entity reorganization was considered a transaction between entities under common control. The CCR resulted in deferred tax liabilities of $64.5 million and non-cash deferred income tax expense of $20.7 million. Additionally, the difference between the carrying value and the fair value of the LLC’s taxable income. The Company owns several operating subsidiaries which are considered

C-Corporations
for U.S. federal, state and local income tax purposes. Taxable income or loss from these corporations is not passed throughinvestment transferred under common control resulted in an increase of $13.1 million to Non-controlling interests on the Company. Instead, it is taxed atConsolidated Statements of Stockholders’ Equity during the corporate level subject to the prevailing corporate tax rates.
three months ended September 30, 2023.

22

Effective Tax Rate

The Company’s effective tax rate from continuing operations was 3.55%61.26% and 3.08%10.44% for the three months ended JuneSeptember 30, 20212023 and 2020,2022, respectively, and 23.92% and 7.90% for the nine months ended September 30, 2023 and 2022, respectively. The Company’s effective tax rate from continuing operations was 7.12% and 4.77% for the sixthree and nine months ended JuneSeptember 30, 20212023 was higher than the 21% statutory rate primarily as a result of the $20.7 million non-cash deferred income tax expense from the CCR, which was recognized in Income tax expense in the Consolidated Statements of Income (Loss) for the three and 2020, respectively.nine months ended September 30, 2023. The quarterly effective tax rates are significantly differentrate for the three months ended September 30, 2022 was lower than the 21% statutory rate primarily as a result of the tax benefit from the 21% statutoryvesting of Staking RSUs and the income attributable to the non-controlling interests. The effective tax rate duefor the nine months ended September 30, 2022 was lower than the 21% statutory rate primarily as a result of the changes in state tax rates and the income attributable to the non-controlling interests.

The Company does not believe it has any significant uncertain tax positions and therefore has no unrecognized tax benefits as of September 30, 2023, that, if recognized, would affect the annual effective tax rate. The Company does not anticipate material changes in unrecognized tax benefits within the next twelve-month period. The Company’s 2021 tax year filings are open to examination by taxing authorities for U.S. federal and state income tax purposes.

Deferred Taxes

The Company reported Deferred tax assets, net of deferred tax liabilities where appropriate, of $383.1 million and $396.8 million as of September 30, 2023 and December 31, 2022, respectively, on the Consolidated Balance Sheets. The change in Deferred tax assets during the nine months ended September 30, 2023 was primarily a result of the deferred tax liabilities arising from the CCR offset by an increase in deferred tax assets related to exchanges of LLC Common Units.

As of September 30, 2023, the Company concluded that, based on the weight of all available positive and negative evidence, the Deferred tax assets with respect to the Company’s basis difference in its investment in the LLC are more likely than not to be realized. As such, no valuation allowance has been recognized against that basis difference.

Tax Receivable Agreement (TRA)

The Company is party to a TRA with current and certain former LLC Unitholders. The TRA provides for the payment by the Company to the current and certain former LLC Unitholders of 85% of the net cash savings, if any, in U.S. federal, state, and local income taxes that the Company realizes (or is deemed to realize in certain circumstances) as a result of (i) certain increases in the tax basis of the assets of the LLC resulting from purchases or exchanges of LLC Common Units (“Exchange Tax Attributes”), (ii) certain tax attributes of the LLC that existed prior to the IPO (“Pre-IPO M&A Tax Attributes”), (iii) certain favorable “remedial” partnership tax allocations to which the Company becomes entitled (if any), and (iv) certain other tax benefits related to the Company beingentering into the TRA, including certain tax benefits attributable to payments that the Company makes under the TRA (“TRA Payment Tax Attributes”). The Company recognizes a partnershipliability on the Consolidated Balance Sheets based on the undiscounted estimated future payments under the TRA. The amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future.

Based on current projections, the Company anticipates having sufficient taxable income to be able to realize the benefits and has recorded Tax Receivable Agreement liabilities of $359.1 million related to these benefits on the Consolidated Balance Sheets as of September 30, 2023. The following summarizes activity related to the Tax Receivable Agreement liabilities:

 

 

Exchange Tax Attributes

 

Pre-IPO M&A Tax Attributes

 

TRA Payment Tax Attributes

 

TRA Liabilities

 

Balance at December 31, 2022

 

$

150,311

 

$

85,016

 

$

60,020

 

$

295,347

 

Exchange of LLC Common Units

 

 

43,443

 

 

6,002

 

 

13,804

 

 

63,249

 

Accrued interest

 

 

—

 

 

—

 

 

478

 

 

478

 

Balance at September 30, 2023

 

$

193,754

 

$

91,018

 

$

74,302

 

$

359,074

 

During the nine months ended September 30, 2023 and 2022, the TRA liabilities increased $63.2 million and $23.1 million, respectively, due to exchanges of LLC Common Units for Class A common stock, which was recognized in Additional paid-in capital on the Consolidated Statements of Stockholders’ Equity. Additionally, during the nine months ended September 30, 2022, the Company remeasured the TRA liabilities due to changes in state tax rates resulting in a $7.2 million expense as the Company increased its estimated cash tax savings rate from 25.12% to 25.65%. The change was recognized in Other non-operating loss (income) on the Consolidated Statements of Income (Loss).

23

Other Comprehensive Income (Loss)

The tax expense (benefit) on the components of Other comprehensive income (loss) for the three and nine months ended September 30, 2023 were $(0.2) million and $(0.1) million, respectively, for Foreign currency translation adjustments, $(0.1) million and $0.1 million, respectively, for Change in share of equity method investment in related party other comprehensive income (loss), $0.9 million and $2.6 million, respectively, for Gain on interest rate cap, and $(0.7) million and $(1.9) million, respectively, for the (Gain) on interest rate cap reclassified to earnings. The tax reporting.expense (benefit) on the components of Other comprehensive income (loss) for the three and nine months ended September 30, 2022 were $(0.5) million and $(1.0) million, respectively, for Foreign currency translation adjustments, and $(0.2) million and $(0.7) million, respectively, for Change in share of equity method investment in related party other comprehensive income (loss), and $2.6 million and $2.7 million, respectively, for Gain on interest rate cap.

17.
Supplemental Cash Flow Information

The following represents the supplemental cash flow information of the Company:

 

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

Cash paid for:

 

 

 

 

 

Interest

 

$

116,620

 

$

62,796

 

Income taxes

 

 

9,812

 

 

8,089

 

Non-cash investing and financing activities:

 

 

 

 

 

Tax Receivable Agreement liabilities

 

$

63,249

 

$

23,089

 

318.
1
17. Subsequent Events

The Company has evaluated subsequent events through September 2, 2021November 3, 2023 and has concluded that no events have occurred that require disclosure other than the events listed below.

Initial Public Offering

On July 26, 2021, Ryan Specialty Group Holdings, Inc. completed its IPO of

56,918,278
shares,
65,456,020
shares after the underwriters fully exercised their option, of its Class A common stock, $
0.001
par value per share, at an offering price of $
23.50
per share. Ryan Specialty Group Holdings, Inc. received net proceeds from the IPO of approximately $
1.3
billion from the initial offering, approximately
$
1.5
billion after the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions and estimated offering expenses. Immediately following the completion of the IPO and related organizational transactions, the Ryan Specialty Group Holdings, Inc. held an approximately
41.7
%
interest in the Company.
Founder Group’s Preferred Units Repurchase
On July 1, 2021,October 29, 2023, the Company repurchasedentered into a definitive agreement to acquire AccuRisk Holdings, LLC, a medical stop loss MGU headquartered in Chicago, Illinois. This acquisition is expected to close during the Preferred Units held by the Founder Group. See Note 11,
Equity.
Revolving Credit Facility Upsize
In connection with closing of the IPO, which occurred on July 26, 2021, the Company executed an agreement with its lenders to increase the revolving credit facility commitments from
$300.0
million to
$600.0
million.
ARL Long Term Incentive Plan
On August 10, 2021, the Board of Directors of Ryan Specialty Group Holdings, Inc. elected to terminate the ARL long-term incentive plans. The decision to terminate the plans will not change the value of, or entitlements to, any benefits thereunder. The benefits accruing under these plans are required to be paid within twelve months of the termination date (i.e., by August 10, 2022). These awards remain subject to the achievement of service conditions. As a result of the termination of the plans, the non-current portion of the liability for these awards will be reclassified to Current Accrued compensation in the thirdfourth quarter of 2021.2023.

3
2

24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and cash flows of our companythe Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statementsConsolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form

10-Q
and our consolidated financial statements and the related notes in the IPO Prospectus.Annual Report on Form 10-K for the year ended December 31, 2022 which was filed with the SEC on March 1, 2023. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the IPO Prospectus,our Annual Report on Form 10-K, particularly in the sections entitled “Risk Factors” and “Forward-Looking Statements”
.
“Information Concerning Forward-Looking Statements.”

The following discussion provides commentary on the financial results derived from our unaudited financial statements for the three months and sixnine months ended JuneSeptember 30, 20212023 and 20202022 prepared in accordance with U.S. GAAP. In addition, we regularly review the following

Non-GAAP
measures when assessing performance: Organic Revenue Growth Rate,revenue growth rate, Adjusted Compensationcompensation and Benefits Expense,benefits expense, Adjusted Compensationcompensation and Benefits Expense Ratio,benefits expense ratio, Adjusted Generalgeneral and Administrative Expense,administrative expense, Adjusted Generalgeneral and Administrative Expense Ratio,administrative expense ratio, Adjusted EBITDAC, Adjusted EBITDAC Margin,margin, Adjusted Net Incomenet income, Adjusted net income margin and Adjusted Net Income Margin.diluted earnings per share. See “Non-GAAP Financial Measures and Key Performance Indicators” for further information.

Overview

Founded by Patrick G. Ryan in 2010, we are a rapidly growing service provider of specialty products and solutions for insurance brokers, agents, and carriers. We provide distribution, underwriting, product development, administration, and risk management services by acting as a wholesale broker and a managing underwriter.underwriter or a program administrator with delegated authority from insurance carriers. Our mission is to provide industry-leading innovative specialty insurance solutions for insurance brokers, agents, and carriers.

For retail insurance agents and brokers, we assist in the placement of complex or otherwise

hard-to-place
risks. For insurance carriers, we work with retail and wholesale insurance brokers to source, onboard, underwrite, and service these same types of risks. A significant majority of the premiums we place are bound in the E&S market, which includes Lloyd’s.Lloyd’s of London. There is often significantly more flexibility in terms, conditions, and rates in the E&S market relative to the Admitted or “standard” insurance market. We believe that the additional freedom to craft bespoke terms and conditions in the E&S market allows us to best meet the needs of our trading partners, provide unique solutions, and drive innovation. We believe our success has been achieved by providing
best-in-class
intellectual capital, leveraging our trusted and long-standing relationships, and developing differentiated solutions at a scale unmatched by many of our competitors.

Significant Events and Transactions

Effects of the Reorganization on Our

Corporate Structure

We were incorporated in March 2021 and formed for the purpose of the IPO.

We are a holding company and our sole material asset is the ownershipa controlling equity interest in HoldingsNew LLC, which is also a holding company and its sole material asset is a controlling equity interest in the LLC. AllThe Company operates and controls the business and affairs of, our business is conducted through Holdings LLC, and consolidates the financial results of, Holdingsthe LLC through New LLC. We conduct our business through the LLC. As the LLC is substantively the same as New LLC, for the purpose of this discussion, we will be included inrefer to both New LLC and the consolidated financial statements of Ryan Specialty Group Holdings, Inc.

Holdings LLC has been treatedas the “LLC.”

The LLC is a limited liability company taxed as a pass-through entitypartnership for U.S. federal and state income tax purposes, and accordingly has not beenits taxable income or loss is passed through to its members, including the Company. The LLC is subject to income taxes on its taxable income in certain foreign countries, in certain state and local jurisdictions that impose income taxes on partnerships, and on the taxable income of its U.S. federal or state income tax. After the IPO, Holdings LLC continues to be treated as a pass-through entity for U.S. federal and state income tax purposes.corporate subsidiaries. As a result of our ownership of LLC Common Units, in Holdings LLC, we are subject to U.S. federal, state, and local income taxes with respect to our allocable share of any taxable income of Holdingsthe LLC and are taxed at the prevailing corporate tax rates. In addition to tax expenses, we also will incur expenses related to our operations and we will be required to make payments under the Tax Receivable Agreement. Due to the uncertainty of various factors, we cannot

33
estimate the likely tax benefits we will realize as a result of LLC Unit exchanges, and the resulting amounts we are likely to pay out to LLC Unitholders and Onex pursuant to the Tax Receivable Agreement; however, we estimate that such tax benefits and the related TRA payments may be substantial. We intend to cause Holdingsthe LLC to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement.
Response to
COVID-19
An outbreak of a novel strain of See “Liquidity and Capital Resources - Tax Receivable Agreement” for additional information about the coronavirus,
COVID-19,
was recognized as a pandemic by the World Health Organization on March 11, 2020. Our leadership took decisive, timely steps to protect the health, safety and wellbeing of our employees, their families and trading partners by closing nearly all
in-office
operations, restricting business travel and transitioning to a remote work environment. The investments we made in our culture, trading partner relationships, business, technology and IT team members allowed for a seamless transition. We plan to continue to largely work remotely through at least September 2021 in order to best protect our RSG family. This remains subject to change as the pandemic continues to evolve. As a result of the success of our remote work operations during the pandemic, we are exploring ways in which to incorporate remote work flexibility into our post-pandemic operating model.
While the pandemic has had a significant detrimental effect on numerous segments of the global economy, it provided opportunities for many aspects of our Wholesale Brokerage, Binding Authority and Underwriting Management Specialties. We believe the pandemic resulted in an increased flow of submissions into the E&S market and a further hardening of E&S insurance rates (which had already been happening since 2019), thereby yielding higher premiums. As a result, many of our specialties experienced, and continue to experience, an increase in the number of accounts handled and higher premium rates, on average, thereby increasing our commissions.
Highlighting the resilience of our business, the dedication of our workforce, and the E&S market opportunities created by the pandemic, in 2020 we completed the All Risks Acquisition (the largest in our history), made substantial progress on our integration and the Restructuring Plan and realized 20.4% organic revenue growth, all in the midst of the pandemic. We managed to sustain this resilience in 2021 through the continued advancement of the integration and Restructuring Plan and realized 23.9% organic revenue growth for the six months ended June 30, 2021.
While we believe our business and operations have thus far performed at a high level of efficiency and achieved historic results throughout the pandemic, there are no comparable recent events which may provide guidance as to the ultimate effect of the spread of
COVID-19
and a global pandemic. As a result, the final impact of the pandemic or a similar health epidemic remains uncertain, particularly if variants of the virus develop, vaccines are not distributed at a suitable pace or prove less effective than anticipated, and/or the pandemic otherwise continues beyond current expectations. The effects could yet have a material impact on our results of operations. See “Risk Factors—Risks Related to Our Business and Industry” in our IPO Prospectus for a discussion of the risks related to the
COVID-19
pandemic.
2020 Restructuring Plan
TRA.

ACCELERATE 2025 Program

During the thirdfirst quarter of 2020 and in conjunction with the All Risks Acquisition,2023 we initiated the Restructuring PlanACCELERATE 2025 program that will enable continued growth, drive innovation, and deliver sustainable productivity improvements over the long term. The program in an effort to reduce costs and increase efficiencies, streamline management reporting structures, and centralize functions across the Company to improve operating margin. The Restructuring Plan is expected to generate annual savings of $25.0 million as the plan is fully actioned by June 30, 2022. Initial savings began to materializeits expanded scope will now result in 2020 with the full

run-rate
savings expected to be realized by June 30, 2023. Of the $25.0approximately $90.0 million of savings, approximately 90% relates to a reduction in workforce with the remaining 10% related to lease and contract terminations. The Restructuring Plan is expected to incur cumulative
one-time
charges of between $30.0 million and $35.0 million,through 2024, funded through operating cash flow. Restructuring costs will primarily be included in General and administrative expense, relating to third-party professional services, lease and contract

25

terminations costs, and other expenses. The remaining costs will be incurred through Compensation and Benefitsbenefits expense, withpredominately relating to third-party contractor and other workforce-related costs. We expect the remaining costsprogram in General and Administrative expense.its expanded scope to now generate annual savings of approximately $50.0 million in 2025. See Note“Note 4,

Restructuring
” of the unaudited quarterly consolidated financial statements for further discussion.
34

We began recognizing costs associated with the Restructuring Planrestructuring plan in the thirdfirst quarter of 2020.2023. For the three and six months ended JuneSeptember 30, 20212023, we incurred restructuring costs of $3.0 million and $10.0 million, respectively, and cumulative$16.5 million. For the nine months ended September 30, 2023, we incurred restructuring costs of $20.8$36.3 million, which represent cumulative costs since the inception of the plan. These costs are offset by realized respective savings of approximately $5.6 million and $10.4 million for the three months and six months ended June 30, 2021. Of the cumulative $20.8$36.3 million in costs, $18.5$22.9 million was workforce-relatedgeneral and administrative with the remaining balance being general and administrative costs.workforce-related. While the current results of the Restructuring PlanACCELERATE 2025 program are in line with expectations, changes to the total savings estimate and timing of the Restructuring PlanACCELERATE 2025 program may evolve as we continue to progress through the plan and evaluate other potential restructuring opportunities. The actual amounts and timing may vary significantly based on various factors.

Acquisitions

On July 1, 2023, the Company completed the acquisitions of certain assets of ACE Benefit Partners, Inc. (“ACE”), a medical stop loss general agent headquartered in Eagle, Idaho, and Point6 Healthcare, LLC (“Point6”), a distributor of medical stop loss insurance on behalf of retail brokers and third-party administrators headquartered in Plano, Texas.

On July 3, 2023, the Company completed the acquisition of Socius Insurance Services (“Socius”), a national wholesale insurance broker headquartered in Northern California.

On October 29, 2023, the Company entered into a definitive agreement to acquire AccuRisk Holdings, LLC (“AccuRisk”), a medical stop loss MGU headquartered in Chicago, Illinois. This acquisition is expected to close during the fourth quarter of 2023.

Key Factors Affecting Our Performance

Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to:

Pursue Strategic Acquisitions

We have successfully integrated businesses complementary to our own to increase both our distribution reach and our product and service capabilities. We continuously evaluate acquisitions and intend to further pursue targeted acquisitions that complement our product and service capabilities or provide us access to new markets. We have previously made, and intend to continue to make, acquisitions with the objective of enhancing our human capital and product and service capabilities, entering natural adjacencies, and expanding our geographic footprint.presence. Our ability to successfully pursue strategic acquisitions is dependent upon a number of factors, including sustained execution of a disciplined and selective acquisition strategy which requires acquisition targets to have a cultural and strategic fit, competition for these assets, purchase price multiples that we deem appropriate, and our ability to effectively integrate targeted companies or assets and grow our business. We do not have agreements or commitments for any significantmaterial acquisitions at this time.

Deepen and Broaden our Relationships with Retail Broker Trading Partners

We have deep engagement with our retail broker trading partners. Wepartners, and we believe we have the ability to transact in even greater volume with nearly all of our existing retail brokerage trading partners.them. For example, in 2020,2022, our revenue derived from the Top 100 firms (as ranked by Business Insurance) expanded faster than our overallOrganic revenue growth rate of 20%16.4%. Our ability to deepen and broaden relationships with our retail broker trading partners and increase sales is dependent upon a number of factors, including client satisfaction with our distribution reach and our product capabilities, retail brokers continuing to require or desire our services, competition, pricing, economic conditions, and spending on our product offerings.

Build ourOur National Binding Authority Business

Specialty

We believe there is substantial opportunity to continue to grow our binding authority business,Binding Authority Specialty, as we believe that both M&A consolidation and panel consolidation are in nascent stages in the binding authority market. Our ability to grow our binding authority businessBinding Authority Specialty is dependent upon a number of factors, including a continuing ability to secure sufficient capital support from insurers, the quality of our services and product offerings, marketing and sales efforts to drive new business prospects and execution, new product offerings, the pricing and quality of our competitors’ offerings, and the growth in demand offor the insurance products.

26

Invest in Operation and Growth

We have invested heavily invested in building a durable business that is able to adapt to the continuously evolving E&S market and intend to continue to do so. We are focused on enhancing the breadth of our product and service offerings as well as developing and launching new solutions to address the evolving needs of the specialty insurance industry.industry and markets. Our future success is dependent onupon a number of factors, including our ability to successfully develop, market, and sell existing and new products and services to both new and existing trading partners.

35

Generate Commission Regardless of the State of the Specialty InsuranceE&S Market

We generateearn commissions, which are calculated as a percentage of the total insurance policy premium, and fees. A softening ofChanges in the insurance market or specialty lines that are our focus, characterized by a period of decliningincreasing (or declining) premium rates, could negativelypositively (or negatively) impact our profitability.

Managing Changing Macroeconomic Conditions

Growth in certain lines of business, such as project-based construction and M&A transactional liability insurance, is partially dependent on a variety of macroeconomic factors inasmuch as binding the underlying insurance coverage is subject to the underlying activity occurring. In periods of economic growth and liquid credit markets, this underlying activity can accelerate and provide tailwinds to our growth. In periods of economic decline and tight credit markets, this underlying activity can slow or be delayed and provide headwinds to our growth. As interest rates have rapidly risen, leading to friction in debt markets, we have observed some delays to both construction projects and M&A activity which, in turn, pauses the binding of construction and M&A transactional liability insurance policies. We believe over time these lines of business will continue to grow as the economy steadies and again grows.

Leverage the Growth of the E&S Market

The growing relevance of the E&S market has been driven by the rapid emergence of large, complex, high-hazard, and

high-hazard
otherwise hard-to-place risks across many lines of insurance. This trend continued in 2020 and the first two quarters of 2021,2022, with a record 3014 named storms – including Hurricane Ian with estimated losses of $50 to $65 billion during the 20202022 Atlantic hurricane season – following 21 named storms totaling over 10.3 million acres burned through wildfires$70 billion in estimated losses during the United States,2021 Atlantic hurricane season, escalating jury verdicts and social inflation, a proliferation of cyber threats, novel health risks, and the transformation of the economy to a “digital first” mode of doing business. We believe that as the complexity of the E&S market continues to escalate, wholesale brokers and managing underwriters that do not have sufficient scale, or the financial and intellectual capital to invest in the required specialty capabilities, will struggle to compete effectively. This will further the trend of market share consolidation among the wholesale firms whothat do have these capabilities. We will continue to invest in our intellectual capital to innovate and offer custom solutions and products to better address changingthese evolving market fundamentals.
Address Costs

Although we believe this growth will continue, we recognize that the growth of beingthe E&S market might not be linear as risks can and do shift between the E&S and non-E&S markets as market factors change and evolve. For example, we benefited from a Public Company

As we begin to operate as arapid increase in both the rate and flow of public company we will be required to continue to implement changesD&O policies into the wholesale channel in certain aspects of our business2020 and develop, manage2021. Throughout 2022 and train management level and other employees to comply with ongoing2023 as the public company requirements. We will also incurD&O insurance markets stabilized, IPO markets have slowed, and new expenses as ainsurance capital that previously entered the market has impacted the public company includingD&O space, public reporting obligations, increased professional feescompany D&O rate decreases have accelerated. We believe these factors have also created opportunities for accounting, proxy statements, shareholder meetings, stock exchange fees, transfer agent fees, SEC and FINRA filing fees, legal fees and offering expenses.
Summaryretailers to place some of Financial Performance Highlights
   
Three months ended

June 30,
  
Change
  
Six months ended

June 30,
  
Change
 
(in thousands, except percentages)
  
2021
  
2020
  
$
   
%
  
2021
  
2020
  
$
  
%
 
GAAP financial measures
          
Total revenue
  $ 390,012  $ 246,324  $ 143,688    58.3%  $ 701,470  $ 454,516  $ 246,954   54.3% 
Compensation and benefits
   236,801   156,811   79,990    51.0   451,287   298,113   153,174   51.4 
General and administrative
   30,685   21,868   8,817    40.3   58,230   50,385   7,845   15.6 
Total operating expenses
   297,750   188,648   109,102    57.8   569,365   370,308   199,057   53.8 
Operating income
   92,262   57,676   34,586    60.0   132,105   84,208   47,897   56.9 
Net income
   63,407   49,887   13,520    27.1   59,606   63,205   (3,599)   (5.7) 
Net income attributable to members
   63,407   49,941   13,466    27.0   57,156   62,259   (5,103)   (8.2) 
Compensation and Benefits Expense Ratio
   60.7%   63.7%      64.3%   65.6%   
General and Administrative Expense Ratio
   7.9%   8.9%      8.3%   11.1%   
Net Income Margin
   16.3%   20.3%      8.5%   13.9%   
Non-GAAP
financial measures*
          
Organic Revenue Growth Rate
   28.5%   18.5%      23.9%   23.4%   
Adjusted Compensation and Benefits Expense
  $220,495  $150,412  $70,083    46.6%  $412,862  $285,151  $127,711   44.8% 
Adjusted Compensation and Benefits Expense Ratio
   56.5%   61.1%      58.9%   62.7%   
Adjusted General and Administrative Expense
  $29,030  $17,581  $11,449    65.1%  $53,717  $44,973  $8,744   19.4% 
Adjusted General and Administrative Expense Ratio
   7.4%   7.1%      7.7%   9.9%   
Adjusted EBITDAC
  $140,487  $78,331  $62,156    79.4%  $234,891  $124,392  $110,499   88.8% 
Adjusted EBITDAC Margin
   36.0%   31.8%      33.5%   27.4%   
Adjusted Net Income
  $92,275  $53,181  $39,094    73.5%  $149,405  $81,015  $68,390   84.4% 
Adjusted Net Income Margin
   23.7%   21.6%      21.3%   17.8%   
36
*
For a definition and a reconciliation of Organic Revenue Growth Rate, Adjusted Compensation and Benefits, Adjusted Compensation and Benefits Expense Ratio, Adjusted General and Administrative Expense, Adjusted General and Administrative Expense Ratio, Adjusted EBITDAC, Adjusted EBITDAC Margin, Adjusted Net Income, and Adjusted Net Income Margin, to the most comparable GAAP measure, see
“Non-GAAP
Financial Measures and Key Performance Indicators.”
Comparison of the Three Months Ended June 30, 2021 and 2020
Revenue increased $143.7 million or 58.3% period-over-period to $390.0 million.
Compensation and benefits expense increased $80.0 million, or 51.0%, and the Compensation and Benefits Expense Ratio decreased 3.0% from 63.7% to 60.7% period-over-period.
General and administrative expense increased $8.8 million, or 40.3%, and the General and Administrative Expense Ratio decreased 1.0% from 8.9% to 7.9% period-over-period.
Operating expenses increased $109.1 million or 57.8% period-over-period to $297.8 million.
Operating income increased 60.0% period-over-period to $92.3 million.
Net Income increased by 27.1% to $63.4, or $13.5 million period-over-period.
Net Income Margin was 16.3% for the quarter, compared to 20.3% in the same quarter last year.
Organic Revenue Growth Rate for the quarter was 28.5%, compared to 18.5% in the same quarter last year—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted Compensation and Benefits Expense increased $70.1 million, or 46.6%, and the Adjusted Compensation and Benefits Expense Ratio decreased 4.6% from 61.1% to 56.5% period-over-period – see “Non-GAAP Financial Measures and Key Performance Indicators” for further information.
Adjusted General and Administrative Expense increased $11.4 million, or 65.1%, and the Adjusted General and Administrative Expense Ratio increased 0.3% from 7.1% to 7.4% period-over-period – see “Non-GAAP Financial Measures and Key Performance Indicators” for further information.
Adjusted EBITDAC, increased 79.4% to $140.5 million—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted EBITDAC Margin increased to 36.0% from 31.8% period-over-period—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted Net Income and Adjusted Net Income Margin increased to $92.3 million and 23.7%, respectively, from $53.2 million and 21.6% period-over-period—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
37
Comparison of the Six Months Ended June 30, 2021 and 2020
Revenue increased $247.0 million or 54.3% year-over-year to $701.5 million.
Compensation and benefits expense increased $153.2 million, or 51.4%, and the Compensation and Benefits Expense Ratio decreased 1.3% from 65.6% to 64.3% period-over-period.
General and administrative expense increased $7.8 million, or 15.6%, and the General and Administrative Expense Ratio decreased 2.8% from 11.1% to 8.3% period-over-period.
Operating expenses increased $199.1 million or 53.8% year-over-year to $569.4 million.
Operating income increased 56.9% year-over-year to $132.1 million.
Net Income decreased by 5.7% to $59.6 million compared to the six months ended June 30, 2020.
Net Income Margin was 8.5% for the six months, compared to 13.9% for the same period in the prior year.
Organic Revenue Growth Rate was 23.9% for the six months ended June 30, 2021, compared to 23.4% for the same period in the prior year—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted Compensation and Benefits Expense increased $127.7 million, or 44.8% and the adjusted Compensation and Benefits Expense Ratio decreased 3.8% from 62.7% to 58.9% period-over-period – see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted General and Administrative Expense increased $8.7 million, or 19.4%, and the Adjusted General and Administrative Expense Ratio decreased 2.2% from 9.9% to 7.7% period-over-period – see “Non-GAAP Financial Measures and Key Performance Indicators” for further information.
Adjusted EBITDAC increased 88.8% year-over-year to $234.9 million—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted EBITDAC Margin increased to 33.5% from 27.4% year-over-year—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
Adjusted Net Income and Adjusted Net Income Margin increased to $149.4 million and 21.3%, respectively, from $81.0 million and 17.8% for the six months ended June 30, 2021 compared to the same period in 2020—see
“Non-GAAP
Financial Measures and Key Performance Indicators” for further information.
38
that coverage directly.

Components of Results of Operations

Revenue

Net Commissions and Fees

Net commissions and fees are derived primarily by commissions from our three Specialties whichand are calculated as a percentage of the total insurance policy premium. We are paid commissions for our role as an intermediary in facilitating the placement of coverage in the insurance distribution chain. In our Wholesale Brokerage and Binding Authority Specialties, we generally work with retail insurance brokers to secure insurance coverage for their clients, who are the ultimate insured party. In our Underwriting Management Specialty, we generally work with retail insurance brokers and often other wholesale brokers to secure insurance coverage for the ultimate insured party. OurNet commissions and policy fees are usuallygenerally calculated as a percentage of the total insurance policy premium paid byplaced, although fees can often be a fixed amount irrespective of the insured and generally dependpremium, but we also receive supplemental commissions based on the typevolume placed or profitability of insurance, the carriers involved and the naturea book of the services we provide in a given transaction.business. We share a portion of these net commissions and policy fees with the retail insurance broker and recognize revenue on a net basis. Additionally, carriers may also pay us a contingent commission or volume-based commission, both of which represent forms of contingent or supplemental consideration associated with the placement of coverage and are based primarily on underwriting results, but may also contain considerations for only volume, growth, and/or retention. Although we have compensation arrangements called contingent commissions in all three Specialties that are based in whole or in part on the underwriting performance, we do not take any direct

27

insurance risk other than through our equity method investment in Geneva Re through Ryan Investment Holdings, LLC. We also receive loss mitigation and other fees, thatsome of which are not dependent on the placement of a risk.

In our Wholesale Brokerage and Binding Authority Specialties, we generally work with retail insurance brokers to secure insurance coverage for their clients, who are the ultimate insured party. Our Wholesale Brokerage and Binding Authority Specialties generate revenues through commissions and fees from clients, as well as through supplemental commissions, which may be contingent commissions or volume-based commissions from carriers. Commission rates and fees vary depending upon several factors, which may include the amount of premium, the type of insurance coverage provided, the particular services provided to a client or carrier, and the capacity in which we act. Payment terms are consistent with current industry practice.

In our Underwriting Management Specialty, we generally work with retail insurance brokers and often other wholesale brokers to secure insurance coverage for the ultimate insured party. Our Underwriting Management Specialty generates revenues through commissions and fees from clients and through contingent commissions from carriers. Commission rates and fees vary depending upon several factors including the premium, the type of coverage, and additional services provided to the client. Payment terms are consistent with current industry practice.

Fiduciary Investment Income

Fiduciary investment income consists of interest earned on insurance premiums and surplus lines taxes that are held in a fiduciary capacity, in cash and cash equivalents, until disbursed.

Expenses

Compensation and Benefits Expense

Compensation and benefits is our largest expense. It consists of (i) salary, incentives, and benefits paid and payable to employees, and commissions paid and payable to our producers;producers and (ii) equity-based compensation associated with the grants of profits interest awards to employees, executive officers, and executives.directors. We operate in competitive markets for human capital and we need to maintain competitive compensation levels as we expand geographicallyin order to maintain and create new products and services.

39
grow our talent base.

General and Administrative Expense

General and administrative expense includes travel and entertainment expenses, office expenses, accounting, legal, insurance and other professional fees, and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.

Amortization Expense

Amortization expense consists primarily of amortization related to intangible assets we acquired in connection with our acquisitions. Intangible assets consist of customer relationships, trade names, and internally developed software.

Interest Expense,

Net

Interest expense, net consists of interest payable on indebtedness, amortization of the Company's interest rate cap, imputed interest on finance leases and contingent consideration, and amortization of deferred debt issuance costs.

Other
Non-Operating
(Loss) Income
Other
non-operating
(loss)costs, offset by interest income includeson the Company's Cash and cash equivalents balances and payments received in relation to the interest rate cap.

Other Non-Operating Loss (Income)

For the nine months ended September 30, 2023, Other non-operating loss (income) included sublease income offset by TRA contractual interest. For the nine months ended September 30, 2022, Other non-operating loss (income) included a charge related to the change in fair value of the embedded derivatives on the redeemable Class B Preferred Units. ThisTRA liability caused by a change in fair value is due to the increased likelihood of a Realization Event, which is defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement. It also includes the change in fair value of interest rate swaps which were extinguished in 2020 and the expense associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt in the first quarter of 2021.

blended state tax rates.

Income Tax Expense

Income tax expense includes tax on the Company's allocable share of any net taxable income from the LLC, from certain state and local jurisdictions that impose taxes on partnerships, as well as earnings from our foreign subsidiaries and

C-Corps
C-Corporations subject to entity level taxation.

28

Non-Controlling

Interest
Our historical Interests

Net income and Other comprehensive income (loss) are attributed to the non-controlling interests based on the weighted average LLC Common Units outstanding during the period and is presented on the Consolidated Statements of Income (Loss). Refer to “Note 8, Stockholders' Equity” of the unaudited quarterly consolidated financial statements include the

non-controlling
interest related to the net income attributable to Ryan Re.
40
for more information.

29

Results of Operations

Below is a summary table of the financial results and

Non-GAAP
measures that we find relevant to our business operations:
   
Three months ended

June 30,
  
Change
  
Six months ended

June 30,
  
Change
 
(in thousands, except percentages)
  
2021
  
2020
  
$
  
%
  
2021
  
2020
  
$
  
%
 
Revenue
         
Net commissions and fees
  $ 389,846  $ 246,065  $ 143,781   58.4%  $ 701,190  $ 453,150  $ 248,040   54.7% 
Fiduciary investment income
   166   259   (93)   (35.9)   280   1,366   (1,086)   (79.5) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenue
  
$
390,012
 
 
$
246,324
 
 
$
143,688
 
 
 
58.3 
% 
 
$
701,470
 
 
$
454,516
 
 
$
246,954
 
 
 
54.3
% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Expenses
         
Compensation and benefits
   236,801   156,811   79,990   51.0   451,287   298,113   153,174   51.4 
General and administrative
   30,685   21,868   8,817   40.3   58,230   50,385   7,845   15.6 
Amortization
   27,319   9,118   18,201   199.6   55,113   19,149   35,964   187.8 
Depreciation
   1,222   851   371   43.6   2,422   1,629   793   48.7 
Change in contingent consideration
   1,723   —     1,723   NM   2,313   1,032   1,281   124.1 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
  
$
297,750
 
 
$
188,648
 
 
$
109,102
 
 
 
57.8 
% 
 
$
569,365
 
 
$
370,308
 
 
$
199,057
 
 
 
53.8
% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating income
  
$
92,262
 
 
$
57,676
 
 
$
34,586
 
 
 
60.0 
% 
 
$
132,105
 
 
$
84,208
 
 
$
47,897
 
 
 
56.9
% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Interest expense
   18,986   6,759   12,227   180.9   39,031   15,436   23,595   152.9 
Income from equity method investment in related party
   353   —     353   NM   434   87   347   NM 
Other
non-operating
(loss) income
   (7,890)   555   (8,445)   NM   (29,336)   (2,492)   (26,844)   NM 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income before income taxes
  
$
65,739
 
 
$
51,472
 
 
$
14,267
 
 
 
27.7
% 
 
$
64,172
 
 
$
66,367
 
 
$
(2,195
) 
 
 
(3.3
)% 
Income tax expense
   2,332   1,585   747   41.7   4,566   3,162   1,404   44.4 
Net income
  
$
63,407
 
 
$
49,887
 
 
$
13,520
 
 
 
27.1
% 
 
$
59,606
 
 
$
63,205
 
 
$
(3,599
) 
 
 
(5.7
)% 
Net income (loss) attributable to
non-controlling
interests, net of tax
   —   (54)   54   NM   2,450   946   1,504   159.0 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income attributable to members
  
$
63,407
 
 
$
49,941
 
 
$
13,466
 
 
 
27.0
% 
 
$
57,156
 
 
$
62,259
 
 
$
(5,103
) 
 
 
(8.2
)% 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
GAAP financial measures
         
Revenue
  $390,012  $246,324  $143,688   58.3%  $701,470  $454,516  $246,954   54.3% 
Compensation and benefits
   236,801   156,811   79,990   51.0   451,287   298,113   153,174   51.4 
General and administrative
   30,685   21,868   8,817   40.3   58,230   50,385   7,845   15.6 
Net Income
  $63,407  $49,887  $13,520   27.1%  $59,606  $63,205  $(3,599)   (5.7)% 
Compensation and Benefits Expense Ratio
   60.7%   63.7%     64.3%   65.6%   
General and Administrative Expense Ratio
   7.9%   8.9%     8.3%   11.1%   
Net Income Margin
   16.3%   20.3%     8.5%   13.9%   
Non-GAAP
financial measures*
         
Organic Revenue Growth Rate
   28.5%   18.5%     23.9%   23.4%   
Adjusted Compensation and Benefits Expense
  $220,495  $150,412  $70,083   46.6%  $412,862  $285,151  $127,711   44.8% 
41

 

 

Three Months Ended September 30,

 

 

Change

 

 

Nine Months Ended September 30,

 

 

Change

 

(in thousands, except percentages and per share data)

 

2023

 

 

2022

 

 

$

 

 

%

 

 

2023

 

 

2022

 

 

$

 

 

%

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net commissions and fees

 

$

487,345

 

 

$

407,551

 

 

$

79,794

 

 

 

19.6

%

 

$

1,507,878

 

 

$

1,284,459

 

 

$

223,419

 

 

 

17.4

%

Fiduciary investment income

 

 

14,593

 

 

 

4,445

 

 

 

10,148

 

 

NM

 

 

 

36,808

 

 

 

5,719

 

 

 

31,089

 

 

NM

 

Total revenue

 

$

501,938

 

 

$

411,996

 

 

$

89,942

 

 

 

21.8

%

 

$

1,544,686

 

 

$

1,290,178

 

 

$

254,508

 

 

 

19.7

%

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

329,212

 

 

 

274,108

 

 

 

55,104

 

 

 

20.1

 

 

 

989,294

 

 

 

858,439

 

 

 

130,855

 

 

 

15.2

 

General and administrative

 

 

69,288

 

 

 

48,991

 

 

 

20,297

 

 

 

41.4

 

 

 

202,595

 

 

 

139,851

 

 

 

62,744

 

 

 

44.9

 

Amortization

 

 

29,572

 

 

 

25,667

 

 

 

3,905

 

 

 

15.2

 

 

 

79,125

 

 

 

78,563

 

 

 

562

 

 

 

0.7

 

Depreciation

 

 

2,201

 

 

 

1,463

 

 

 

738

 

 

 

50.4

 

 

 

6,570

 

 

 

3,903

 

 

 

2,667

 

 

 

68.3

 

Change in contingent consideration

 

 

1,848

 

 

 

423

 

 

 

1,425

 

 

NM

 

 

 

4,358

 

 

 

(837

)

 

 

5,195

 

 

NM

 

Total operating expenses

 

$

432,121

 

 

$

350,652

 

 

$

81,469

 

 

 

23.2

%

 

$

1,281,942

 

 

$

1,079,919

 

 

$

202,023

 

 

 

18.7

%

Operating income

 

$

69,817

 

 

$

61,344

 

 

$

8,473

 

 

 

13.8

%

 

$

262,744

 

 

$

210,259

 

 

$

52,485

 

 

 

25.0

%

Interest expense, net

 

 

31,491

 

 

 

28,864

 

 

 

2,627

 

 

 

9.1

 

 

 

89,840

 

 

 

75,462

 

 

 

14,378

 

 

 

19.1

 

Loss (income) from equity method investment in related party

 

 

(2,271

)

 

 

(144

)

 

 

(2,127

)

 

NM

 

 

 

(5,882

)

 

 

414

 

 

 

(6,296

)

 

NM

 

Other non-operating loss (income)

 

 

67

 

 

 

(66

)

 

 

133

 

 

NM

 

 

 

37

 

 

 

6,832

 

 

 

(6,795

)

 

NM

 

Income before income taxes

 

$

40,530

 

 

$

32,690

 

 

$

7,840

 

 

 

24.0

%

 

$

178,749

 

 

$

127,551

 

 

$

51,198

 

 

 

40.1

%

Income tax expense

 

 

24,827

 

 

 

3,411

 

 

 

21,416

 

 

NM

 

 

 

42,772

 

 

 

10,076

 

 

 

32,696

 

 

NM

 

Net income

 

$

15,703

 

 

$

29,279

 

 

$

(13,576

)

 

 

(46.4

)%

 

$

135,977

 

 

$

117,475

 

 

$

18,502

 

 

 

15.7

%

GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

501,938

 

 

$

411,996

 

 

$

89,942

 

 

 

21.8

%

 

$

1,544,686

 

 

$

1,290,178

 

 

$

254,508

 

 

 

19.7

%

Compensation and benefits

 

 

329,212

 

 

 

274,108

 

 

 

55,104

 

 

 

20.1

 

 

 

989,294

 

 

 

858,439

 

 

 

130,855

 

 

 

15.2

 

General and administrative

 

 

69,288

 

 

 

48,991

 

 

 

20,297

 

 

 

41.4

 

 

 

202,595

 

 

 

139,851

 

 

 

62,744

 

 

 

44.9

 

Net income

 

 

15,703

 

 

 

29,279

 

 

 

(13,576

)

 

 

(46.4

)

 

 

135,977

 

 

 

117,475

 

 

 

18,502

 

 

 

15.7

 

Compensation and benefits expense ratio (1)

 

 

65.6

%

 

 

66.5

%

 

 

 

 

 

 

 

 

64.0

%

 

 

66.5

%

 

 

 

 

 

 

General and administrative expense ratio (2)

 

 

13.8

%

 

 

11.9

%

 

 

 

 

 

 

 

 

13.1

%

 

 

10.8

%

 

 

 

 

 

 

Net income margin (3)

 

 

3.1

%

 

 

7.1

%

 

 

 

 

 

 

 

 

8.8

%

 

 

9.1

%

 

 

 

 

 

 

Earnings (loss) per share (4)

 

$

(0.04

)

 

$

0.11

 

 

 

 

 

 

 

 

$

0.34

 

 

$

0.40

 

 

 

 

 

 

 

Diluted earnings (loss) per share (4)

 

$

(0.04

)

 

$

0.09

 

 

 

 

 

 

 

 

$

0.34

 

 

$

0.37

 

 

 

 

 

 

 

Non-GAAP financial measures*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organic revenue growth rate

 

 

14.7

%

 

 

13.7

%

 

 

 

 

 

 

 

 

14.7

%

 

 

18.7

%

 

 

 

 

 

 

Adjusted compensation and benefits expense

 

$

296,400

 

 

$

247,095

 

 

$

49,305

 

 

 

20.0

%

 

$

911,925

 

 

$

769,253

 

 

$

142,672

 

 

 

18.5

%

Adjusted compensation and benefits expense ratio

 

 

59.1

%

 

 

60.0

%

 

 

 

 

 

 

 

 

59.0

%

 

 

59.6

%

 

 

 

 

 

 

Adjusted general and administrative expense

 

$

58,559

 

 

$

48,084

 

 

$

10,475

 

 

 

21.8

%

 

$

166,606

 

 

$

130,774

 

 

$

35,832

 

 

 

27.4

%

Adjusted general and administrative expense ratio

 

 

11.7

%

 

 

11.7

%

 

 

 

 

 

 

 

 

10.8

%

 

 

10.1

%

 

 

 

 

 

 

Adjusted EBITDAC

 

$

146,979

 

 

$

116,817

 

 

$

30,162

 

 

 

25.8

%

 

$

466,155

 

 

$

390,151

 

 

$

76,004

 

 

 

19.5

%

Adjusted EBITDAC margin

 

 

29.3

%

 

 

28.4

%

 

 

 

 

 

 

 

 

30.2

%

 

 

30.2

%

 

 

 

 

 

 

Adjusted net income

 

$

86,632

 

 

$

66,560

 

 

$

20,072

 

 

 

30.2

%

 

$

282,144

 

 

$

237,774

 

 

$

44,370

 

 

 

18.7

%

Adjusted net income margin

 

 

17.3

%

 

 

16.2

%

 

 

 

 

 

 

 

 

18.3

%

 

 

18.4

%

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.32

 

 

$

0.25

 

 

 

 

 

 

 

 

$

1.04

 

 

$

0.88

 

 

 

 

 

 

 

NM represents “Not Meaningful”.

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

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

(3) Net income margin is defined as Net income divided by Total revenue.

(4) See “Note 10, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements for further discussion of how these metrics are calculated.

* These measures are Non-GAAP. Please refer to the section entitled “Non-GAAP Financial Measures and Key Performance Indicators” below for definitions and reconciliations to the most directly comparable GAAP measure.

30

   
Three months ended

June 30,
  
Change
  
Six months ended

June 30,
  
Change
 
(in thousands, except percentages)
  
2021
  
2020
  
$
   
%
  
2021
  
2020
  
$
   
%
 
Adjusted Compensation and Benefits Expense Ratio
   56.5%   61.1%      58.9%   62.7%    
Adjusted General and Administrative Expense
  $29,030  $17,581  $11,449    65.1%  $53,717  $44,973  $8,744    19.4% 
Adjusted General and Administrative Expense Ratio
   7.4%   7.1%      7.7%   9.9%    
Adjusted EBITDAC
  $ 140,487  $ 78,331  $ 62,156    79.4%  $ 234,891  $ 124,392  $ 110,499    88.8% 
Adjusted EBITDAC Margin
   36.0%   31.8%      33.5%   27.4%    
Adjusted Net Income
  $92,275  $53,181  $39,094    73.5%  $149,405  $81,015  $68,390    84.4% 
Adjusted Net Income Margin
   23.7%   21.6%      21.3%   17.8%    
*
These measures are
Non-GAAP.
Please refer to the section entitled
“Non-GAAP
Financial Measures and Key Performance Indicators” below for definitions and reconciliations to the nearest GAAP measure.
42

Comparison of the Three Months Ended JuneSeptember 30, 20212023 and 2020

2022

Revenue

Net Commissions and Fees

Net commissions and fees increased by $143.8$79.7 million, or 58.4%19.6%, from $246.1$407.6 million to $389.8$487.3 million for the three months ended JuneSeptember 30, 20212023 as compared to the same period in the prior year. The two mainfollowing were the principal drivers of the increase:

•
$60.6 million, or 14.9%, of the period-over-period change in Net commissions and fees was due to organic revenue growth. Organic revenue growth represents growth in Net commissions and fees, adjusted to eliminate revenue attributable to acquisitions which were completed within 12 months of the end of the third quarter of 2023, and other items such as the change in contingent commissions and the impact of changes in foreign exchange rates. In aggregate, our net commission rates were consistent period-over-period. Also, we grew our client relationships, in aggregate, within each of our three Specialties. The growth of these relationships is due to the combination of a growing E&S market and winning new business from competitors. The largest growth factor in the quarter was our property portfolio across our three Specialties, driven by an increase are 30.3%in the pricing for property insurance as well as an increase in the flow of property risks into the E&S market. We also experienced growth across the majority of our casualty lines. This growth was partially offset by a number of factors, none of which were individually significant such as (i) a decline in Net commissions and fees generated from the All Risks Acquisitionplacement of public company D&O insurance policies, related to a slow-down in IPO activity and 28.5%an associated rapid premium rate decrease and (ii) a decrease in Net commissions and fees generated from large commercial construction projects and M&A activity related to a slow-down in underlying activity during the quarter;
•
$17.8 million, or 4.4%, of organic revenue growth.the period-over-period change in our Net commissions and fees was due to the acquisition of Griffin Underwriting Services (”Griffin”), Centurion Liability Insurance Services, LLC (”Centurion”), Socius, Point6, and ACE, all of which were completed within 12 months of September 30, 2023; and
•
$1.4 million, or 0.3%, of the period-over-period change in Net commissions and fees was due to changes in contingent commissions and the impact of foreign exchange rates on our Net commissions and fees.
   
Three months ended June 30,
        
(in thousands, except percentages)
  
2021
   
% of

total
  
2020
   
% of

total
  
Change
 
Wholesale Brokerage
  $ 255,959    65.7%  $ 172,118    70.0%  $83,841    48.7% 
Binding Authorities
   53,596    13.7   31,561    12.8   22,035    69.8 
Underwriting Management
   80,291    20.6   42,386    17.2   37,905    89.4 
  
 
 
    
 
 
    
 
 
   
 
 
 
Total Net commissions and fees
  
$
389,846
 
   
$
246,065
 
   
$
 143,781
 
  
 
58.4 
% 
  
 
 
    
 
 
    
 
 
   
 
 
 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2023

 

 

% of
total

 

 

2022

 

 

% of
total

 

 

Change

 

Wholesale Brokerage

 

$

308,872

 

 

 

63.4

%

 

$

267,222

 

 

 

65.6

%

 

$

41,650

 

 

 

15.6

%

Binding Authorities

 

 

69,245

 

 

 

14.2

 

 

 

55,607

 

 

 

13.6

 

 

 

13,638

 

 

 

24.5

 

Underwriting Management

 

 

109,228

 

 

 

22.4

 

 

 

84,722

 

 

 

20.8

 

 

 

24,506

 

 

 

28.9

 

Total net commissions and fees

 

$

487,345

 

 

 

 

 

$

407,551

 

 

 

 

 

$

79,794

 

 

 

19.6

%

Wholesale Brokerage net commissions and fees increased by $83.8$41.7 million, or 48.7% period-over-period, primarily due to strong organic growth within this specialty as well as contributions from the All Risks Acquisition.

Binding Authority net commissions and fees increased by $22.0 million or 69.8%15.6%, period-over-period, primarily due to strong organic growth within the specialty andSpecialty for the quarter as well as contributions from the All Risks Acquisition.
Underwriting ManagementGriffin, Centurion, and Socius acquisitions.

Binding Authority net commissions and fees increased by $37.9$13.6 million, or 89.4%24.5%, period-over-period, primarily due to strong organic growth within the specialty andSpecialty for the quarter as well as contributions from the All Risks Acquisition.

Griffin acquisition.

Underwriting Management net commissions and fees increased by $24.5 million, or 28.9%, period-over-period, primarily due to strong organic growth within the Specialty for the quarter as well as contributions from the ACE and Point6 acquisitions.

The following table sets forth our revenue by type of commission and fees:

   
Three months ended June 30,
       
(in thousands, except percentages)
  
2021
   
% of

total
  
2020
   
% of

total
  
Change
 
Net commissions and policy fees
  $ 378,120    97.0%  $ 236,184    96.0%  $ 141,936   60.1% 
Supplemental and contingent commissions
   6,146    1.6   6,937    2.8   (791)   (11.4) 
Loss mitigation and other fees
   5,580    1.4   2,944    1.2   2,636   89.5 
  
 
 
    
 
 
    
 
 
  
 
 
 
Total Net commissions and fees
  
$
389,846
 
   
$
246,065
 
   
$
143,781
 
 
 
58.4 
% 
  
 
 
    
 
 
    
 
 
  
 
 
 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2023

 

 

% of
total

 

 

2022

 

 

% of
total

 

 

Change

 

Net commissions and policy fees

 

$

470,085

 

 

 

96.4

%

 

$

394,934

 

 

 

96.9

%

 

$

75,151

 

 

 

19.0

%

Supplemental and contingent commissions

 

 

8,592

 

 

 

1.8

 

 

 

5,289

 

 

 

1.3

 

 

 

3,303

 

 

 

62.5

 

Loss mitigation and other fees

 

 

8,668

 

 

 

1.8

 

 

 

7,328

 

 

 

1.8

 

 

 

1,340

 

 

 

18.3

 

Total net commissions and fees

 

$

487,345

 

 

 

 

 

$

407,551

 

 

 

 

 

$

79,794

 

 

 

19.6

%

31

Net commissions and policy fees grew 60.1% just ahead of19.0%, in line with the overall net commissions and fee revenue growth of 58.4%19.6%, for the three months ended JuneSeptember 30, 20212023 as compared to the same period in the prior year. The main drivers of this growth continue to be the acquisition of new business and expansion of ongoing client relationships in response to the increasing demand for new, complex E&S products as well as the inflow of risks from the admittedAdmitted market into the E&S market.market and an increase in the premium rate for risks placed. In aggregate, we experienced marginal but not material increases instable commission rates. Net commissions and policy fees continue to represent more than 90% of total net commissions and feesrates period-over-period.

Supplemental and contingent commissions decreased 11.4%increased 62.5% period-over-period driven by the performance of risks placed on eligible business partially offset by the addition to the supplemental and contingent commissions contributed by the All Risks Acquisition. Supplemental and contingent commissions continue to represent less than 10% of total commissions and fees period-over-period.

earning profit-based or volume-based commissions.

Loss mitigation and other fees grew 89.5%increased 18.3% period-over-period primarily due to increased capital markets activitycaptive management and other risk management service fees from the placement of alternative risk insurance solutions as well as certain fees related to the ACE and Point6 acquisitions completed in 2021. These fees continue to represent less than 2%the third quarter of total net commissions and fees period-over-period.

43
2023.

Expenses

Compensation and Benefits Expense

Compensation and benefits expense increased by $80.0$55.1 million, or 51.0%20.1%, from $156.8$274.1 million to $236.8$329.2 million for the three months ended JuneSeptember 30, 20212023 compared to the same period in 2020.2022. The following were the principal drivers of this increase:

•
Commissions increased $18.7 million, or 14.9%, period-over-period, driven by the 19.6% increase in Net commissions and fees;
•
An increase of $11.5 million was driven by Restructuring and related expense associated with the ACCELERATE 2025 program.
•
HeadcountAn increase of $34.9 million was driven by (i) the addition of 496 employees compared to the same period in the prior year, and (ii) growth in the business. Overall headcount increased to 3,3754,294 full-time employees as of JuneSeptember 30, 20212023 from 2,4823,798 as of JuneSeptember 30, 2020, or 36.0%, primarily as2022;
•
These increases were partially offset by a result$6.8 million decrease compared to the prior year in Acquisition related long-term incentive compensation related to the payoff of the All Risks Acquisition;
Commissions increased $45.4LTIP plan in 2022 and a $3.2 million or 61.1% period-over-period, driven bydecrease compared to the 58.4% increaseprior year in total Net Commissions and Fees discussed above; and
An $8.6 million impact from acquisitionIPO related long-term incentive compensation, reflecting our assumption of obligations in the All Risks Acquisition. All Risks had previously established various performance and service based long-term incentive plans for executives, producers and key employees which provided that upon a change of control event, the aggregate amount payable under each plan would be calculated and fixed upon close of the change of control event. We expect to recognize acquisition related long-term incentive compensation expense, which reflects charges associated with both the revaluation of approximately $33.0 million forexisting equity grants at the twelve months ended 2021 and an aggregatetime of approximately $25.0 million thereafter.
Thisour IPO as well as expense increase was partially offset by $3.2 million of net savings related to the Restructuring Plan representing approximately $5.4 millionnew awards issued in connection with the IPO. The expense associated with both the revaluation of work-forceexisting awards as well as the issuance of new equity awards both relate directly to the Organizational Transactions and IPO, however, amounts related savings less
one-time
work-force related expense of $2.2 million forto each will continue to be expensed over future periods as the three months ended June 30, 2021 (see “Significant Events and Transactions—2020 Restructuring Plan” for further information).underlying awards vest.

The net impact of revenue growth and the factors above resulted in a Compensation and Benefits Expense Ratio improvementbenefits expense ratio decrease of 3.0%0.9% from 63.7%66.5% to 60.7%65.6% period-over-period.

We

In general, we expect to continue to experienceexperiencing a general rise in commissions, salaries, incentives, and benefits expense commensurate with our expected growth in business volume, revenue, and headcount.

General and Administrative Expense

General and administrative expense includes travel and entertainment expenses, office expenses, accounting, legal and other professional fees, and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.

General and administrative expense increased by $8.8$20.3 million, or 40.3%41.4%, from $21.9$49.0 million to $30.7$69.3 million for the three months ended JuneSeptember 30, 20212023 as compared to the same period in the prior year. A main driverThe following were the principal drivers of this increase was $2.9increase:

•
$5.1 million of increased acquisition-related expense associated with recent and prospective acquisitions;
•
$4.9 million of increased restructuring and related expense associated with the ACCELERATE 2025 program;
•
$4.3 million of professional services mostly related to service arrangements in connection with revenue generating activities within our Ryan Re and Keystone operations;
•
$4.1 million of increased travel and entertainment expense as travel restrictions associated with the pandemic began to lift compared to the same period in 2020. 2022, which was the result of business travel returning to a normalized level;
•
The remaining increase of $1.9 million was driven by growth in the business. Such expenses incurred to accommodate both organic and inorganic revenue expansion and the All Risks Acquisition, such asgrowth include IT, professional services, occupancy, and insurance, partially offset by a $3.1 million decrease in acquisition-related expense.insurance.

32

The net impact of revenue growth and the factors listed above resulted in a General and Administrative Expense Ratio improvementadministrative expense ratio increase of 1.0%1.9% from 8.9%11.9% to 7.9%13.8% period-over-period.

Amortization Expense

Amortization expense increased by $18.2$3.9 million, or 199.6%15.2%, from $9.1$25.7 million to $27.3$29.6 million for the three months ended JuneSeptember 30, 20212023 compared to the same period in the prior year. The main driver for the increase was approximately $19.2 millionthe amortization of amortizationintangible assets from acquired intangibles from the All Risks Acquisition.recent acquisitions. Our intangible assets increased by $401.7$90.6 million when comparing the balance as of JuneSeptember 30, 20212023 to the balance as compared to Juneof September 30, 2020.

44
2022.

Interest Expense,

Net

Interest expense, net increased $12.2$2.6 million, or 180.9%9.1%, from $6.8$28.9 million to $19.0$31.5 million for the three months ended JuneSeptember 30, 20212023 compared to the same period in the prior year. The main driver of the change in interestInterest expense, net for the three months ended JuneSeptember 30, 20212023 was driven by the $890.2 millionan increase in total debt, whichthe floating rate applied to our Term Loan on account of the rising interest rate environment. On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company’s Term Loan for an upfront cost of $25.5 million. The interest rate cap has a $1,000.0 million notional amount, 2.75% strike, and terminates on December 31, 2025. For the twelve months ended December 31, 2023 we expect to incur approximately $7.0 million of interest expense related to the cap. For the three months ended September 30, 2023, the net reduction to Interest expense, net related to the cap was undertaken in connection with the All Risks Acquisition completed in September 2020.

$4.6 million.

Other

Non-Operating
(Loss) Income
Loss (Income)

Other

non-operating
(loss) income loss (income) decreased by $8.4$0.2 million to a loss of $7.9$0.1 million for the three months ended JuneSeptember 30, 20212023 as compared to income of $0.5$0.1 million in the same period in the prior year. The main driverFor the three months ended September 30, 2023, Other non-operating loss (income) consisted of $0.2 million of sublease income offset by $0.3 million of TRA contractual interest. For the loss was the $8.0three months ended September 30, 2022, Other non-operating income included $0.1 million change in the fair value of the embedded derivatives of our redeemable Class B Preferred Units. This embedded derivative is a make whole penalty payable if the redeemable Class B Preferred Units are redeemed in less than five years from the anniversary of the issuance date. We issued 150,000 of redeemable Class B Preferred Units containing this make whole penalty in 2018 and 110,000 of redeemable Class B Preferred Units containing this make whole penalty in 2020. The resulting loss recorded as of June 30, 2021 is primarily related to the recognition of a charge that represents the present value of a probability weighted expense for the make whole penalty of both issuances of redeemable Class B Preferred Units.
sublease income.

Income beforeBefore Income Taxes

Due to the factors above,

Income (loss) before income taxes increased $14.3$7.8 million or 27.7% from a profit of $51.5$32.7 million to a profit of $65.7$40.5 million for the three months ended JuneSeptember 30, 2021 compared to the same period in the prior year.

Income Tax Expense
Income tax expense increased $0.7 million or 41.7% from $1.6 million to $2.3 million for the three months ended June 30, 2021 as compared to the same period in the prior year as a result of increased earnings in our foreign subsidiaries subject to entity level taxation.
Net Income
Net income increased $13.5 million or 27.1% from a profit of $49.9 million to a profit of $63.4 million for the three months ended June 30, 20212023 compared to the same period in the prior year as a result of the factors described above.

Income Tax Expense

Income tax expense increased $21.4 million from $3.4 million to $24.8 million for the three months ended September 30, 2023 compared to the same period in the prior year primarily due to $20.7 million of Deferred income tax expense recognized as a result of the Common Control Reorganization (“CCR”) subsequent to the Socius acquisition in the third quarter of 2023. This CCR was a discrete, non-cash expense incurred at Ryan Specialty Holdings, Inc. and the Company’s annual effective tax rate is unaffected.

Net Income

Net income decreased $13.6 million from $29.3 million to $15.7 million for the three months ended September 30, 2023 compared to the same period in the prior year as a result of the factors described above.

Comparison of the SixNine Months Ended JuneSeptember 30, 20212023 and 2020

2022

Revenue

Net Commissions and Fees

Net commissions and fees increased by $248.0$223.4 million, or 54.7%17.4%, from $453.2$1,284.5 million to $701.2$1,507.9 million for the nine months ended September 30, 2023 as compared to the same period in 2021 period-over-period.the prior year. The two mainfollowing were the principal drivers of the increase:

•
$189.6 million, or 14.8%, of the period-over-period change in Net commissions and fees was due to organic revenue growth. Organic revenue growth represents growth in Net commissions and fees, adjusted to eliminate revenue attributable to acquisitions which were completed within 12 months of the end of the third quarter of 2023, and other items such as the change in contingent commissions and the impact of changes in foreign exchange rates. In aggregate, our net commission rates were consistent period-over-period. Also, we grew our client relationships, in aggregate, within each of our three Specialties. The growth of these relationships is due to the combination of a growing E&S market and winning new business from competitors. The largest growth factor in the period was our property portfolio across our

33

three Specialties, driven by an increase are 30.8%in the pricing for property insurance as well as an increase in the flow of property risks into the E&S market. We also experienced growth across the majority of our casualty lines. This growth was partially offset by a number of factors, none of which were individually significant such as (i) a decline in Net commissions and fees generated from the All Risks Acquisitionplacement of public company D&O insurance policies, related to a slow-down in IPO activity and 23.9%an associated rapid premium rate decrease and (ii) a decrease in Net commissions and fees generated from large commercial construction projects and M&A activity related to a slow-down in underlying activity during the quarter;
•
$29.9 million, or 2.3%, of organic revenue growth.the period-over-period change in our Net commissions and fees was due to the acquisitions of Griffin, Centurion, Socius, Point6, and ACE, all of which were completed within 12 months of September 30, 2023; and
•
$3.9 million, or 0.3%, of the period-over-period change in Net commissions and fees was due to changes in contingent commissions and the impact of foreign exchange rates on our Net commissions and fees.
45
   
Six months ended June 30,
        
(in thousands, except percentages)
  
2021
   
% of

total
  
2020
   
% of

total
  
Change
 
Wholesale Brokerage
  $447,083    63.8%  $306,222    67.6%  $140,861    46.0% 
Binding Authorities
   108,641    15.5  65,707    14.5  42,934    65.3
Underwriting Management
   145,466    20.7  81,221    17.9  64,245    79.1
  
 
 
    
 
 
    
��
 
   
 
 
 
Total Net commissions and fees
  
$
 701,190
 
   
$
 453,150
 
   
$
 248,040
 
  
 
54.7
% 
  
 
 
    
 
 
    
 
 
   
 
 
 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2023

 

 

% of
total

 

 

2022

 

 

% of
total

 

 

Change

 

Wholesale Brokerage

 

$

976,338

 

 

 

64.7

%

 

$

841,273

 

 

 

65.5

%

 

$

135,065

 

 

 

16.1

%

Binding Authorities

 

 

208,547

 

 

 

13.8

 

 

 

178,351

 

 

 

13.9

 

 

 

30,196

 

 

 

16.9

 

Underwriting Management

 

 

322,993

 

 

 

21.5

 

 

 

264,835

 

 

 

20.6

 

 

 

58,158

 

 

 

22.0

 

Total Net commissions and fees

 

$

1,507,878

 

 

 

 

 

$

1,284,459

 

 

 

 

 

$

223,419

 

 

 

17.4

%

Wholesale Brokerage net commissions and fees increased by $140.9$135.1 million, or 46.0%16.1%, period-over-period, primarily due to strong organic growth within this specialtythe Specialty for the quarter as well as contributions from the All Risks Acquisition.

Griffin, Centurion, and Socius acquisitions.

Binding Authority net commissions and fees increased by $42.9$30.2 million, or 65.3%16.9%, period-over-period, primarily due to strong organic growth within this specialtythe Specialty for the quarter as well as contributions from the All Risks Acquisition.

Griffin acquisition.

Underwriting Management net commissions and fees increased by $64.3$58.2 million, or 79.1% in 2021 as compared to 2020,22.0%, period-over-period, primarily due to strong organic growth within the specialty,Specialty for the quarter as well as the contributions from the All Risks Acquisition.    ACE and Point6 acquisitions.

The following table sets forth our revenue by type of commission and fees:

   
Six months ended June 30,
        
(in thousands, except percentages)
  
2021
   
% of

total
  
2020
   
% of

total
  
Change
 
Net commissions and policy fees
  $668,661    95.3%  $426,447    94.1%  $242,214    56.8% 
Supplemental and contingent commissions
   21,536    3.1  20,502    4.5  1,034    5.0
Loss mitigation and other fees
   10,993    1.6  6,201    1.4  4,792    77.3
  
 
 
    
 
 
    
 
 
   
 
 
 
Total Net commissions and fees
  
$
 701,190
 
   
$
 453,150
 
   
$
 248,040
 
  
 
54.7
% 
  
 
 
    
 
 
    
 
 
   
 
 
 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2023

 

 

% of
total

 

 

2022

 

 

% of
total

 

 

Change

 

Net commissions and policy fees

 

$

1,437,239

 

 

 

95.3

%

 

$

1,226,396

 

 

 

95.5

%

 

$

210,843

 

 

 

17.2

%

Supplemental and contingent commissions

 

 

46,281

 

 

 

3.1

 

 

 

39,339

 

 

 

3.1

 

 

 

6,942

 

 

 

17.6

 

Loss mitigation and other fees

 

 

24,358

 

 

 

1.6

 

 

 

18,723

 

 

 

1.4

 

 

 

5,635

 

 

 

30.1

 

Total net commissions and fees

 

$

1,507,878

 

 

 

 

 

$

1,284,459

 

 

 

 

 

$

223,419

 

 

 

17.4

%

Net commissions and policy fees increased 56.8% just ahead ofgrew 17.2%, in line with the overall total net commissions and feesfee revenue growth of 54.7% period-over-period. This17.4%, for the nine months ended September 30, 2023 as compared to the same period in the prior year. The main drivers of this growth was driven by increased volume from bothcontinue to be the acquisition of new business and existing clientsexpansion of ongoing client relationships in response to the increasing demand for new, complex E&S products. Multiple classesproducts as well as the inflow of risk experienced year-over-yearrisks from the Admitted market into the E&S market and an increase in the premium rate increases, which drives commission revenue growth that is typically calculated as a percentage of total insurance policy premium.for risks placed. In aggregate, we experienced marginal but not material increases instable commission rates. Net commissions and policy fees continue to represent more than 90.0% of total net commissions and feesrates period-over-period.

Supplemental and contingent commissions increased 5.0%17.6% period-over-period driven by the performance of risks placed on eligible business and the additional supplemental and contingent commissions contributed by the All Risks Acquisition. Supplemental and contingent commissions continue to represent less than 10.0% of total commissions and fees period-over-period.

earning profit-based or volume-based commissions.

Loss mitigation and other fees grew 77.3%30.1% period-over-period primarily due to increased capital markets activitycaptive management and other risk management service fees from the placement of alternative risk insurance solutions as well as certain fees related to the ACE and Point6 acquisitions completed in 2021. These fees continue to represent less than 2.0%the third quarter of total net commissions and fees period-over-period.

2023.

Expenses

34

Compensation and Benefits Expense

Compensation and benefits expense increased by $153.2$130.9 million, or 51.4%15.2%, from $298.1$858.4 million to $451.3$989.3 million for the sixnine months ended JuneSeptember 30, 2021 as2023 compared to the same period in 2020.2022. The following were the principal drivers of this increase:

•
Commissions increased $65.3 million, or 16.5%, period-over-period, driven by the 17.4% increase in Net commissions and fees;
•
An increase of $12.7 million was driven by Restructuring and related expense associated with the ACCELERATE 2025 program.
•
HeadcountAn increase of $85.4 million was driven by (i) the addition of 496 employees compared to the same period in the prior year, and (ii) growth in the business. Overall headcount increased to 3,3754,294 full-time employees as of JuneSeptember 30, 20212023 from 2,4823,798 as of JuneSeptember 30, 2020, or 36.0%, primarily as2022;
•
These increases were partially offset by a result$20.5 million decrease compared to the prior year in Acquisition related long-term incentive compensation related to the payoff of the All Risks Acquisition;
46
Commissions increased $78.8LTIP plan in 2022 and an $12.0 million or 59.4% between periods, driven bydecrease compared to the 54.7% increaseprior year in total net commissions and fees discussed above; and
$17.5 million impact from acquisitionIPO related long-term incentive compensation, reflecting our assumption of obligations in the All Risks Acquisition. All Risks had previously established various performance and service based long-term incentive plans for executives, producers and key employees which provided that upon a change of control event, the aggregate amount payable under each plan would be calculated and fixed upon close of the change of control event. We expect to recognize acquisition related long-term incentive compensation expense, which reflects charges associated with both the revaluation of approximately $33.0 million in 2021,existing equity grants at the time of which $17.5 million has been recognized for the six months ended June 30, 2021, with approximately $25.0 million to be recognized thereafter.
Thisour IPO as well as expense increase was partially offset by a $1.7 million of net savings related to the Restructuring Plan representing approximately $10.1 millionnew awards issued in connection with the IPO. The expense associated with both the revaluation of work-forceexisting awards as well as the issuance of new equity awards both relate directly to the Organizational Transactions and IPO, however, amounts related savings less
one-time
work-force related expense of $8.4 million forto each will continue to be expensed over future periods as the six months ended June 30, 2021 (see “Significant Events and Transactions—2020 Restructuring Plan” for further information).underlying awards vest.

The net impact of revenue growth and the factors above resulted in a Compensation and Benefits Expense Ratio improvementbenefits expense ratio decrease of 1.3%2.5% from 65.6%66.5% to 64.3%64.0% period-over-period. We

In general, we expect to continue to experienceexperiencing a general rise in commissions, salaries, incentives, and benefits expense commensurate with our expected growth in business volume, revenue, and headcount.

General and Administrative Expense

General and administrative expense includes travel and entertainment expenses, office expenses, accounting, legal and other professional fees, and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.

General and administrative expense increased by $7.8$62.7 million, or 15.6% period-over-period44.9%, from $50.4$139.9 million to $58.2$202.6 million for the nine months ended September 30, 2023 as acompared to the same period in the prior year. The following were the principal drivers of this increase:

•
$18.8 million of increased restructuring and related expense associated with the ACCELERATE 2025 program;
•
$12.2 million of increased travel and entertainment expense compared to the same period in 2022 which was the result of business travel returning to a normalized level;
•
$12.2 million of professional services mostly related to service arrangements in connection with revenue expansiongenerating activities within our Ryan Re and Keystone operations;
•
$9.4 million of increased acquisition-related expense associated with recent and prospective acquisitions;
•
The remaining increase of $10.1 million was driven by growth in the All Risks Acquisition.business. Such expenses incurred to accommodate both organic and inorganic revenue growth include IT, occupancy, insurance and professional services.insurance.
While there is an overall increase in general and administrative expense, travel and entertainment expense decreased $2.1 million period-over-period due to travel restrictions from the COVID-19 pandemic. As travel restrictions are lifted we do not expect to maintain the same level of reduced travel and entertainment as discussed above in the results for the three months ended June 30, 2021 compared to three months ended June 30, 2020.

The net impact of revenue growth and the factors listed above resulted in a General and Administrative Expense Ratio improvementadministrative expense ratio increase of 2.8%2.3% from 11.1%10.8% to 8.3%13.1% period-over-period.

Amortization Expense

Amortization expense increased by $36.0$0.5 million, or 187.8%0.7%, from $19.1$78.6 million to $55.1$79.1 million for the sixnine months ended JuneSeptember 30, 2021 as2023 compared to the same period in 2020.the prior year. The main driver for the increase was approximately $38.4 millionthe amortization of amortizationintangible assets from acquired intangibles from the All Risks Acquisition.recent acquisitions. Our intangible assets increased by $401.7$90.6 million when comparing the balance as of JuneSeptember 30, 2021 as compared2023 to the balance as of JuneSeptember 30, 2020.

2022.

Interest Expense,

Net

Interest expense, net increased $23.6$14.3 million, or 152.9%19.1%, from $15.4$75.5 million to $39.0 million period-over-period. The main driver of the change in interest expense for the six months ended June 30, 2021 was driven by the $890.2 million increase in total debt, which was undertaken in connection with the All Risks Acquisition completed in September 2020.

47
Other
Non-Operating
(Loss) Income
Other
non-operating
(loss) income increased by $26.8 million to a loss of $29.3 million from a loss of $2.5$89.8 million for the sixnine months ended JuneSeptember 30, 20212023 compared to the same period in 2020.the prior year. The main driverdrivers of the change in Interest expense, net for the nine months ended September 30, 2023 were the issuance of $400.0 million of Senior Secured Notes on February 3, 2022 and an increase in the floating

35

rate applied to our Term Loan on account of the rising interest rate environment. On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company’s Term Loan for an upfront cost of $25.5 million. The interest rate cap has a $1,000.0 million notional amount, 2.75% strike, and terminates on December 31, 2025. For the twelve months ended December 31, 2023 we expect to incur approximately $7.0 million of interest expense related to the cap. For the nine months ended September 30, 2023, the net reduction to Interest expense, net related to the cap was $11.2 million.

Other Non-Operating Loss (Income)

Other non-operating loss was(income) decreased by $6.8 million to a de minimis loss for the nine months ended September 30, 2023 as compared to a loss of $6.8 million in the same period in the prior year. For the nine months ended September 30, 2023, Other non-operating loss (income) included $0.4 million of sublease income offset by $0.5 million of TRA contractual interest. For the nine months ended September 30, 2022, Other non-operating loss (income) included a $7.2 million charge related to the change in the fair value of the embedded derivatives of our redeemable Class B Preferred Units of $20.6 million. This embedded derivative is a make whole penalty payable if the redeemable Class B Preferred Units are redeemed in less than five years. We issued 150,000 of redeemable Class B Preferred Units containing this make whole penalty in 2018 and 110,000 of redeemable Class B Preferred Units containing this make whole penalty in 2020. The second driver of this increase is $8.6 million of debt issuance costs written off due to the extinguishment of a portion of the term debt due to the repricing in the first quarter of 2021 which is partially offsetTRA liability caused by a loss on the interest rates swaps for the six months ended June 30, 2020, which were settled during 2020.

change in our blended state tax rates.

Income beforeBefore Income Taxes

Due to the factors above, Income before income taxes decreased $2.2increased $51.1 million or 3.3% from $66.4$127.6 million to $64.2$178.7 million for the sixnine months ended JuneSeptember 30, 2021 as2023 compared to the same period in 2020.

the prior year.

Income Tax Expense

Income tax expense increased $1.4$32.7 million or 44.4% from $3.2$10.1 million to $4.6$42.8 million period-over-periodfor the nine months ended September 30, 2023 compared to the same period in the prior year primarily due to $20.7 million of Deferred income tax expense recognized as a result of increased earnings from our foreign subsidiaries subjectthe Common Control Reorganization (“CCR”) subsequent to entity level taxation.

the Socius acquisition in the third quarter of 2023. This CCR was a discrete, non-cash expense incurred at Ryan Specialty Holdings, Inc. and the Company’s annual effective tax rate is unaffected.

Net Income

Net income decreased $3.6increased $18.5 million or 5.7% from $63.2$117.5 million to $59.6$136.0 million period-over-periodfor the nine months ended September 30, 2023 compared to the same period in the prior year as a result of the factors described above.

Non-GAAP

Financial Measures and Key Performance Indicators
We consider a variety of financial measures in

In assessing the performance of our business, we use non-GAAP financial measures that are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP. We consider 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 we believe are not representative of our core business. We regularly reviewuse the following

Non-GAAP
non-GAAP measures when assessing performance: Organic Revenue Growth Rate, Adjusted Compensationfor business planning purposes, in measuring our performance relative to that of our competitors, to help investors to understand the nature of our growth, and Benefits Expense, Adjusted Compensation and Benefits Expense Ratio, Adjusted General and Administrative Expense, Adjusted General and Administrative Expense Ratio, Adjusted EBITDAC, Adjusted EBITDAC Margin, Adjusted Net Income, and Adjusted Net Income Margin. Our useto enable investors to evaluate the run-rate performance of
Non-GAAP
financial measures may vary from the use of similar terms by other companies in our industry and accordingly may not be comparable to similarly titled measures used by other companies. As a result,
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 consolidated financial statements.
Industry peers may provide similar supplemental information but may not define similarly-named metrics in the same way we do and may not make identical adjustments.

Organic Revenue Growth Rate

Organic Revenue Growth Rate is a

Non-GAAP
measure that we use to help management and investors understand and evaluate therevenue growth of our business without the impacts of acquisitions, which affects the comparability of results from period to period. The Organic Revenue Growth Raterate represents the percentage change in Total revenue, as compared to the same period for the year prior, adjusted for revenue attributable to recent acquisitions during the first 12 months of RSG’sRyan Specialty’s ownership, and other adjustments such as contingent commissions, fiduciary investment income, and the impact of changes in foreign exchange rates.
This supplemental information related to the Organic Revenue Growth Rate represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, the consolidated financial statements. Industry peers provide similar supplemental information about their revenue performance, although they may not make identical adjustments.
48

36

A reconciliation of Organic Revenue Growth Raterevenue growth rate to Total Revenue Growth Rate,revenue growth rate, the most directly comparable GAAP measure, for each of the periods indicated is as follows (in percentages):

   
Three months ended

June 30,
 
   
2021
  
2020
 
Total Revenue Growth Rate (GAAP) (1)
  
 
58.3 
% 
 
 
21.9 
% 
Less: Mergers and Acquisitions (2)
   (30.3)%   (4.1)% 
Change in Other (3)
   0.5%   0.7% 
  
 
 
  
 
 
 
Organic Revenue Growth Rate
(Non-GAAP)
  
 
28.5 
% 
 
 
18.5 
% 
  
 
 
  
 
 
 
(1)
June 30, 2021 revenue of $390.0 million less June 30, 2020 revenue of $246.3 million is a $143.7 million period-over-period change. The change, $143.7 million, divided by the June 30, 2020 revenue of $246.3 million is a total revenue change of 58.3%. June 30, 2020 revenue of $246.3 million less June 30, 2019 revenue of $202.1 million is a $42.2 million period-over-period change. The change, $42.2 million, divided by the June 30, 2019 revenue of $202.1 million is a total revenue change of 21.9%. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further details.
(2)
The mergers and 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 June 30, 2021 and three months ended June 30, 2020 was $74.7 million and $8.2 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 June 30, 2021 and three months ended June 30, 2020 was $1.3 million and $1.5 million, respectively.
   
Six months ended

June 30,
 
   
2021
  
2020
 
Total Revenue Growth Rate (GAAP) (1)
  
 
54.3
% 
 
 
29.2
% 
Less: Mergers and Acquisitions (2)
   (30.8)%   (6.2)% 
Change in Other (3)
   0.4%   0.4% 
  
 
 
  
 
 
 
Organic Revenue Growth Rate
(Non-GAAP)
  
 
23.9
% 
 
 
23.4
% 
  
 
 
  
 
 
 
(1)
June 30, 2021 revenue of $701.5 million less June 30, 2020 revenue of $454.5 million is a $247.0 million year-over-year change. The change, $247.0 million, divided by the June 30, 2020 revenue of $454.5 million is a total revenue change of 54.3%. June 30, 2020 revenue of $454.5 million less June 30, 2019 revenue of $351.8 million is a $102.7 million year-over-year change. The change, $102.7 million, divided by the June 30, 2019 revenue of $351.8 million is a total revenue change of 29.2%. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further details.
(2)
The mergers and acquisitions adjustment excludes net commission and fees revenue generated during the first 12 months following an acquisition. The total adjustment for the six months ended June 30, 2021 and six months ended June 30, 2020 was $140.0 million and $21.7 million, respectively.
(3)
The other adjustments exclude the year-over-year change in contingent commissions, fiduciary investment income, and foreign exchange rates. The total adjustment for the six months ended June 30, 2021 and 2020 was $1.6 million and $1.5 million, respectively.
49

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total revenue growth rate (GAAP) (1)

 

 

21.8

%

 

 

16.8

%

 

 

19.7

%

 

 

22.4

%

Less: Mergers and acquisitions (2)

 

 

(4.3

)

 

 

(2.8

)

 

 

(2.3

)

 

 

(3.0

)

Change in other (3)

 

 

(2.8

)

 

 

(0.3

)

 

 

(2.7

)

 

 

(0.7

)

Organic revenue growth rate (Non-GAAP)

 

 

14.7

%

 

 

13.7

%

 

 

14.7

%

 

 

18.7

%

(1) For the three months ended September 30, 2023, September 30, 2023 revenue of $501.9 million less September 30, 2022 revenue of $412.0 million is a $89.9 million period-over-period change. The change, $89.9 million, divided by the September 30, 2022 revenue of $412.0 million, is a total revenue change of 21.8%. For the three months ended September 30, 2022, 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%. For the nine months ended September 30, 2023, September 30, 2023 revenue of $1,544.7 million less September 30, 2022 revenue of $1,290.2 million is a $254.5 million period-over-period change. The change, $254.5 million, divided by the September 30, 2022 revenue of $1,290.2 million, is a total revenue change of 19.7%. For the nine months ended September 30, 2022, September 30, 2022 revenue of $1,290.2 million less September 30, 2021 revenue of $1,054.2 million is a $236.0 million period-over-period change. The change, $236.0 million, divided by the September 30, 2021 revenue of $1,054.2 million, is a total revenue change of 22.4%. See “Comparison of the Three Months Ended September 30, 2023 and 2022” and “Comparison of the Nine Months Ended September 30, 2023 and 2022” 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, 2023 and 2022 was $17.8 million and $9.9 million, respectively. The total adjustment for the nine months ended September 30, 2023 and 2022 was $29.9 million and $31.5 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, 2023 and 2022 was $11.6 million and $0.9 million, respectively. The total adjustment for the nine months ended September 30, 2023 and 2022 was $35.0 million and $7.0 million, respectively.

Adjusted Compensation and Benefits Expense and Adjusted Compensation and Benefits Expense Ratio

We believedefine Adjusted Compensation and Benefits

Expense and Adjusted Compensation and Benefits Expense Ratio provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by management because it provides a clear representation of our core compensation and benefits and general and administrative expenses as well as improves comparability between periods, and eliminates the impact of the items that do not relate to the ongoing operations of the business.
We define Adjusted Compensation and Benefits
Expenseexpense as Compensation and benefits expense adjusted to reflect items such as (i) equity-based compensation, (ii) acquisition and restructuring related compensation expense, and (iii) other exceptional or
non-recurring
items, as applicable. The most comparable GAAP financial metric is Compensation and Benefits Expense.
benefits expense. Adjusted Compensationcompensation and Benefits Expense Ratiobenefits expense ratio is defined as Adjusted Compensationcompensation and Benefits Expensebenefits expense as a percentage of totalTotal revenue. The most comparable GAAP financial metric is Compensation and Benefits Expense Ratio.
benefits expense ratio.

37

A reconciliation of Adjusted Compensationcompensation and Benefits Expensebenefits expense and Adjusted Compensationcompensation and Benefits Expense Ratiobenefits expense ratio to Compensation and Benefits Expensebenefits expense and Compensation and Benefits Expense Ratio,benefits expense ratio, the most directly comparable GAAP measures, for each of the periods indicated, is as follows:

   
Three months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
390,012
 
 
$
246,324
 
Compensation and Benefits Expense
  
$
236,801
 
 
$
156,811
 
Acquisition-related expense
   —     (1,270) 
Acquisition related long-term incentive compensation
   (9,082)   (532) 
Restructuring and related expense
   (2,162)   —   
Amortization and expense related to discontinued prepaid incentives
   (1,604)   (2,481) 
Equity-based compensation
   (3,458)   (1,624) 
Discontinued programs expense
   —     (492) 
  
 
 
  
 
 
 
Adjusted Compensation and Benefits Expense (1)
  
$
220,495
 
 
$
150,412
 
  
 
 
  
 
 
 
Compensation and Benefits Expense Ratio (2)
  
 
60.7
% 
 
 
63.7
% 
Adjusted Compensation and Benefits Expense Ratio (3)
  
 
56.5
% 
 
 
61.1
% 
(1)
Adjustments to Compensation and Benefits Expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net Income in “Adjusted EBITDAC and Adjusted EBITDAC Margin”.
(2)
Compensation and Benefits Expense Ratio is Compensation and Benefits Expense as a percentage of total revenue.
(3)
Adjusted Compensation and Benefits Expense Ratio is Adjusted Compensation and Benefits Expense as a percentage of total revenue.
   
Six months ended
June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
701,470
 
 
$
454,516
 
Compensation and Benefits Expense
  
$
451,287
 
 
$
298,113
 
Acquisition-related expense
   —     (1,612) 
Acquisition related long-term incentive compensation
   (18,504)   (1,064) 
Restructuring and related expense
   (8,351)   —   
Amortization and expense related to discontinued prepaid incentives
   (3,682)   (5,063) 
Equity-based compensation
   (7,888)   (4,731) 
Discontinued programs expense
   —     (492) 
Other
non-recurring
expense
   —     —   
  
 
 
  
 
 
 
Adjusted Compensation and Benefits Expense (1)
  
$
412,862
 
 
$
285,151
 
  
 
 
  
 
 
 
Compensation and Benefits Expense Ratio (2)
  
 
64.3
% 
 
 
65.6
% 
Adjusted Compensation and Benefits Expense Ratio (3)
  
 
58.9
% 
 
 
62.7
% 
(1)
Adjustments to Compensation and Benefits Expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net Income in “Adjusted EBITDAC and Adjusted EBITDAC Margin”.
(2)
Compensation and Benefits Expense Ratio is Compensation and Benefits Expense as a percentage of total revenue.
(3)
Adjusted Compensation and Benefits Expense Ratio is Adjusted Compensation and Benefits Expense as a percentage of total revenue.
50

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total revenue

 

$

501,938

 

 

$

411,996

 

 

$

1,544,686

 

 

$

1,290,178

 

Compensation and benefits expense

 

$

329,212

 

 

$

274,108

 

 

$

989,294

 

 

$

858,439

 

Acquisition-related expense

 

 

(1,546

)

 

 

(21

)

 

 

(3,331

)

 

 

(122

)

Acquisition related long-term incentive compensation

 

 

(550

)

 

 

(7,383

)

 

 

(1,702

)

 

 

(22,181

)

Restructuring and related expense

 

 

(11,538

)

 

 

(19

)

 

 

(13,407

)

 

 

(724

)

Amortization and expense related to discontinued prepaid incentives

 

 

(1,570

)

 

 

(1,533

)

 

 

(4,793

)

 

 

(5,075

)

Equity-based compensation

 

 

(8,281

)

 

 

(5,530

)

 

 

(23,107

)

 

 

(18,009

)

Initial public offering related expense

 

 

(9,327

)

 

 

(12,527

)

 

 

(31,029

)

 

 

(43,075

)

Adjusted compensation and benefits expense (1)

 

$

296,400

 

 

$

247,095

 

 

$

911,925

 

 

$

769,253

 

Compensation and benefits expense ratio

 

 

65.6

%

 

 

66.5

%

 

 

64.0

%

 

 

66.5

%

Adjusted compensation and benefits expense ratio

 

 

59.1

%

 

 

60.0

%

 

 

59.0

%

 

 

59.6

%

(1) Adjustments to Compensation and benefits expense are described in the definition of Adjusted EBITDAC to Net income in “Adjusted EBITDAC and Adjusted EBITDAC Margin.”

Adjusted General and Administrative Expense and Adjusted General and Administrative Expense Ratio

We believedefine Adjusted General and Administrative Expense and Adjusted General and Administrative Expense Ratio provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by management because it provides a clear representation of our core general and administrative expenses as well as improves comparability between periods, and eliminates the impact of the items that do not relate to the ongoing operations of the business.

We define Adjusted General and Administrative Expenseexpense as General and Administrativeadministrative expense adjusted to reflect items such as (i) acquisition and restructuring general and administrative related expense, and (ii) other exceptional or non-recurring items, as applicable. The most comparable GAAP financial metric is General and Administrative Expense.
administrative expense. Adjusted Generalgeneral and Administrative Expense Ratioadministrative expense ratio is defined as Adjusted Generalgeneral and Administrative Expenseadministrative expense as a percentage of totalTotal revenue. The most comparable GAAP financial metric is General and Administrative Expense Ratio.
administrative expense ratio.

A reconciliation of Adjusted Generalgeneral and Administrative Expenseadministrative expense and Adjusted Generalgeneral and Administrative Expense Ratioadministrative expense ratio to General and Administrative Expenseadministrative expense and General and Administrative Expense Ratio,administrative expense ratio, the most directly comparable GAAP measures, for each of the periods indicated is as follows:

   
Three months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
390,012
 
 
$
246,324
 
General and Administrative Expense
  
$
30,685
 
 
$
21,868
 
Acquisition-related expense
   (308)   (3,448) 
Restructuring and related expense
   (1,012)   (936) 
Discontinued programs expense
   —     140 
Other non-recurring expense
   (19)   (43) 
IPO related expenses
   (316)   —   
  
 
 
  
 
 
 
Adjusted General and Administrative Expense (1)
  
$
29,030
 
 
$
17,581
 
  
 
 
  
 
 
 
General and Administrative Expense Ratio (2)
  
 
7.9
% 
 
 
8.9
% 
Adjusted General and Administrative Expense Ratio (3)
  
 
7.4
% 
 
 
7.1
% 
(1)
Adjustments to General and Administrative Expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net Income in “Adjusted EBITDAC and Adjusted EBITDAC Margin”.
(2)
General and Administrative Expense Ratio is General and Administrative Expense as a percentage of total revenue.
(3)
Adjusted General and Administrative Expense Ratio is Adjusted General and Administrative Expense as a percentage of total revenue.
   
Six months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
701,470
 
 
$
454,516
 
General and Administrative Expense
  
$
58,230
 
 
$
50,385
 
Acquisition-related expense
   (2,022)   (3,991) 
Restructuring and related expense
   (1,821)   (1,425) 
Discontinued programs expense
   —     97 
Other
non-recurring
expense
   (354)   (93) 
IPO related expenses
   (316)   —   
  
 
 
  
 
 
 
Adjusted General and Administrative Expense (1)
  
$
53,717
 
 
$
44,973
 
  
 
 
  
 
 
 
General and Administrative Expense Ratio (2)
  
 
8.3
% 
 
 
11.1
% 
Adjusted General and Administrative Expense Ratio (3)
  
 
7.7
% 
 
 
9.9
% 
(1)
Adjustments to General and Administrative Expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net Income in “Adjusted EBITDAC and Adjusted EBITDAC Margin”.
(2)
General and Administrative Expense Ratio is General and Administrative Expense as a percentage of total revenue.
(3)
Adjusted General and Administrative Expense Ratio is Adjusted General and Administrative Expense as a percentage of total revenue.
51

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total revenue

 

$

501,938

 

 

$

411,996

 

 

$

1,544,686

 

 

$

1,290,178

 

General and administrative expense

 

$

69,288

 

 

$

48,991

 

 

$

202,595

 

 

$

139,851

 

Acquisition-related expense

 

 

(5,790

)

 

 

(716

)

 

 

(12,196

)

 

 

(2,767

)

Restructuring and related expense

 

 

(4,939

)

 

 

—

 

 

 

(23,793

)

 

 

(4,993

)

Initial public offering related expense

 

 

—

 

 

 

(191

)

 

 

—

 

 

 

(1,317

)

Adjusted general and administrative expense (1)

 

$

58,559

 

 

$

48,084

 

 

$

166,606

 

 

$

130,774

 

General and administrative expense ratio

 

 

13.8

%

 

 

11.9

%

 

 

13.1

%

 

 

10.8

%

Adjusted general and administrative expense ratio

 

 

11.7

%

 

 

11.7

%

 

 

10.8

%

 

 

10.1

%

(1) Adjustments to General and administrative expense are described in the definition of Adjusted EBITDAC to Net income in “Adjusted EBITDAC and Adjusted EBITDAC Margin.”

Adjusted EBITDAC and Adjusted EBITDAC Margin

We believe that Adjusted EBITDAC and Adjusted EBITDAC Margin provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by management because it provides a clear representation of our operating performance and the profitability of our business on a
run-rate
basis, improves comparability between periods, and eliminates the impact of the items that do not relate to the ongoing operating performance of the business.

We define Adjusted EBITDAC as Net Incomeincome before interestInterest expense, incomenet, Income tax expense depreciation, amortization,(benefit), Depreciation, Amortization, and changeChange in contingent consideration, adjusted to reflect items such as (i) equity-based compensation, (ii) acquisition and restructuring related expenses, and (iii) other exceptional or

non-recurring
items, as applicable.

Acquisition-related expense includes one-time diligence, transaction-related, and integration costs. Acquisition-related long-term incentive compensation arises from long-term incentive plans associated with acquisitions. In 2023, Restructuring and related expense

38

consists of compensation and benefits, occupancy, contractors, professional services, and license fees related to the ACCELERATE 2025 program.The compensation and benefits expense included severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 4, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion of ACCELERATE 2025. The remaining costs that preceded the restructuring plan were associated with professional services costs related to program design and licensing costs. In 2022, Restructuring and related expense represented costs associated with the 2020 restructuring plan. Amortization and expense consists of charges related to discontinued prepaid incentive programs. For the three months ended September 30, 2023, Other non-operating loss (income) consisted of $0.2 million of sublease income offset by $0.3 million of TRA contractual interest. For the three months ended September 30, 2022, Other non-operating loss (income) included $0.1 million of sublease income. For the nine months ended September 30, 2023, Other non-operating loss (income) included $0.4 million of sublease income offset by $0.5 million of TRA contractual interest. For the nine months ended September 30, 2022, Other non-operating loss (income) included a $7.2 million charge related to the change in the TRA liability caused by a change in our blended state tax rates. Equity-based compensation reflects non-cash equity-based expense. IPO related expenses include general and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services and compensation-related expense primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

Total revenue less Adjusted Compensationcompensation and Benefits Expensebenefits expense and Adjusted Generalgeneral and Administrative Expenseadministrative expense is equivalent to Adjusted EBITDAC. For a breakout of compensation and general and administrative costs for each addback, refer to the Adjusted compensation and benefits expense and Adjusted general and administrative expense tables above. The most directly comparable GAAP financial metric to Adjusted EBITDAC is Net Income.income. Adjusted EBITDAC Marginmargin is defined as Adjusted EBITDAC as a percentage of totalTotal revenue. The most comparable GAAP financial metric is Net Income Margin.

Adjusted EBITDAC and Adjusted EBITDAC Margin may be useful to an investor in evaluating our operating performance and efficiency because these measures are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending upon acquisition activity and capital structure, These measures also eliminate the impact of expenses that do not relate to core business performance, among other factors. Further, these measures are used by our leadership and Board of Directors for assessing financial performance, strategic planning, and forecasting.
Adjusted EBITDAC and Adjusted EBITDAC Margin have limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. These measures also do not deduct earnings related to the non-controlling interest in Ryan Re for the period of time prior to March 31, 2021 when we did not own 100% of the business.
income margin.

A reconciliation of Adjusted EBITDAC and Adjusted EBITDAC Marginmargin to Net Incomeincome and Net Income Margin,income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows:

   
Three months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
390,012
 
 
$
246,324
 
Net Income
  
$
63,407
 
 
$
49,887
 
Interest expense
   18,986   6,759 
Income tax expense
   2,332   1,585 
Depreciation
   1,222   851 
Amortization
   27,319   9,118 
Change in contingent consideration
   1,723   —   
  
 
 
  
 
 
 
EBITDAC
  
$
114,989
 
 
$
68,200
 
Acquisition-related expense (1)
   308   4,718 
Acquisition related long-term incentive compensation (2)
   9,082   532 
Restructuring and related expense (3)
   3,174   936 
Amortization and expense related to discontinued prepaid incentives (4)
   1,604   2,481 
Other
non-operating
loss (income) (5)
   7,890   (555) 
Equity-based compensation (6)
   3,458   1,624 
Discontinued programs expense (7)
   —    352 
Other
non-recurring
expense (8)
   19   43 
IPO related expenses (9)
   316   —   
(Income) from equity method investments in related party
   (353)   —   
  
 
 
  
 
 
 
Adjusted EBITDAC (10)
  
$
140,487
 
 
$
78,331
 
  
 
 
  
 
 
 
Net Income Margin (11)
  
 
16.3
% 
 
 
20.3
% 
Adjusted EBITDAC Margin (12)
  
 
36.0
% 
 
 
31.8
% 
(1)
Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $1.3 million for the three months ended June 30, 2020, while General and administrative expenses contributed to $0.3 million and $3.4 million of the acquisition-related expense for the three months ended June 30, 2021 and 2020, respectively.
(2)
Acquisition related long-term incentive compensation arises from long-term incentive plans associated with acquisitions.
52
(3)
Restructuring and related expense consists of compensation and benefits of $2.2 million for the three months ended June 30, 2021, and General and administrative costs including occupancy and professional services fees of $1.0 million and $0.9 million for the three months ended June 30, 2021 and 2020, 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 4,
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 12.
Employee Benefit Plans, Prepaid and Long-Term Incentives
of the unaudited quarterly consolidated financial statements for further discussion.
(5)
Other
non-operating
loss (income) includes the change in fair value of the embedded derivatives on the redeemable Class B Preferred Units. This change in fair value is due to the increased likelihood of a Realization Event, which is defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement. See Note 10,
Redeemable Preferred Units
of the unaudited quarterly consolidated financial statements for further discussion. For the three months ended June 30, 2020,
non-operating
loss (income) includes the change in fair value of interest rate swaps which were discontinued in 2020.
(6)
Equity-based compensation reflects
non-cash
equity-based expense.
(7)
Discontinued programs expense includes $0.2 million of General and administrative expense for the three months ended June 30, 2020. Compensation and benefits expense was $0.5 million for the three months ended June 30, 2020. These costs were associated with concluding specific programs that are no longer core to our business. Revenue associated with these programs of $(0.3) million is also reflected in this adjustment for the three months ended June 30, 2020.
(8)
Other
non-recurring
items include
one-time
professional services costs associated with term debt repricing, and
one-time
non-income
tax charges and tax and accounting consultancy costs associated with potential structure changes.
(9)
IPO related expenses includes $0.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance.
(10)
Consolidated Adjusted EBITDAC does not reflect a deduction for the Adjusted EBITDAC associated with the
non-controlling
interest in Ryan Re.
(11)
Net Income Margin is Net Income as a percentage of total revenue.
(12)
Adjusted EBITDAC margin is Adjusted EBITDAC as a percentage of total revenue.
   
Six months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
701,470
 
 
$
454,516
 
Net Income
  
$
59,606
 
 
$
63,205
 
Interest expense
   39,031   15,436 
Income tax expense
   4,566   3,162 
Depreciation
   2,422   1,629 
Amortization
   55,113   19,149 
Change in contingent consideration
   2,313   1,032 
  
 
 
  
 
 
 
EBITDAC
  
$
163,051
 
 
$
103,613
 
Acquisition-related expense (1)
   2,022   5,603 
Acquisition related long-term incentive compensation (2)
   18,504   1,064 
Restructuring and related expense (3)
   10,172   1,425 
Amortization and expense related to discontinued prepaid incentives (4)
   3,682   5,063 
Other
non-operating
loss (income) (5)
   29,336   2,492 
Equity-based compensation (6)
   7,888   4,731 
Discontinued programs expense (7)
   —     395 
Other
non-recurring
expense (8)
   354   93 
IPO related expenses (9)
   316   —   
(Income) from equity method investments in related party
   (434)   (87) 
  
 
 
  
 
 
 
Adjusted EBITDAC (10)
  
$
234,891
 
 
$
124,392
 
  
 
 
  
 
 
 
Net Income Margin (11)
  
 
8.5
% 
 
 
13.9
% 
Adjusted EBITDAC Margin (12)
  
 
33.5
% 
 
 
27.4
% 
(1)
Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $1.6 million for the six months ended June 30, 2020, while General and administrative expenses contributed to $2.0 million and $4.0 million of the acquisition-related expense for the six months ended June 30, 2021 and 2020, 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 $8.4 million for the six months ended June 30, 2021, and General and administrative costs including occupancy and professional services fees of $1.8 million and $1.4 million for the six months ended June 30, 2021 and 2020, 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 4,
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.
53
(4)
Amortization and expense related to discontinued prepaid incentive programs – See Note 12,
Employee Benefit Plans, Prepaid and Long-Term Incentives
of the unaudited quarterly consolidated financial statements for further discussion.
(5)
Other
non-operating
loss (income) includes the change in fair value of the embedded derivatives on the redeemable Class B Preferred Units. This change in fair value is due to the increased likelihood of a Realization Event, which is defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement. See Note 10,
Redeemable Preferred Units
of the unaudited quarterly consolidated financial statements for further discussion. For the six months ended June 30, 2021,
non-operating
loss (income) includes costs associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt. For the six months ended June 30, 2020,
non-operating
loss (income) includes the change in fair value of interest rate swaps which were discontinued in 2020.
(6)
Equity-based compensation reflects
non-cash
equity-based expense.
(7)
Discontinued programs expense includes $0.2 million of General and administrative expense for the six months ended June 30, 2020. Compensation and benefits expense was $0.5 million for the six months ended June 30, 2020. These costs were associated with concluding specific programs that are no longer core to our business. Revenue associated with these programs of $(0.3) million is also reflected in this adjustment for the six months ended June 30, 2020
(8)
Other
non-recurring
items include
one-time
professional services costs associated with term debt repricing, and
one-time
non-income
tax charges and tax and accounting consultancy costs associated with potential structure changes.
(9)
IPO related expenses includes $0.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance.
(10)
Consolidated Adjusted EBITDAC does not reflect a deduction for the Adjusted EBITDAC associated with the
non-controlling
interest in Ryan Re.
(11)
Net Income Margin is Net Income as a percentage of total revenue.
(12)
Adjusted EBITDAC margin is Adjusted EBITDAC as a percentage of total revenue.

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total revenue

 

$

501,938

 

 

$

411,996

 

 

$

1,544,686

 

 

$

1,290,178

 

Net income

 

$

15,703

 

 

$

29,279

 

 

$

135,977

 

 

$

117,475

 

Interest expense, net

 

 

31,491

 

 

 

28,864

 

 

 

89,840

 

 

 

75,462

 

Income tax expense

 

 

24,827

 

 

 

3,411

 

 

 

42,772

 

 

 

10,076

 

Depreciation

 

 

2,201

 

 

 

1,463

 

 

 

6,570

 

 

 

3,903

 

Amortization

 

 

29,572

 

 

 

25,667

 

 

 

79,125

 

 

 

78,563

 

Change in contingent consideration

 

 

1,848

 

 

 

423

 

 

 

4,358

 

 

 

(837

)

EBITDAC

 

$

105,642

 

 

$

89,107

 

 

$

358,642

 

 

$

284,642

 

Acquisition-related expense

 

 

7,336

 

 

 

737

 

 

 

15,527

 

 

 

2,889

 

Acquisition related long-term incentive compensation

 

 

550

 

 

 

7,383

 

 

 

1,702

 

 

 

22,181

 

Restructuring and related expense

 

 

16,477

 

 

 

19

 

 

 

37,200

 

 

 

5,717

 

Amortization and expense related to discontinued prepaid incentives

 

 

1,570

 

 

 

1,533

 

 

 

4,793

 

 

 

5,075

 

Other non-operating loss (income)

 

 

67

 

 

 

(66

)

 

 

37

 

 

 

6,832

 

Equity-based compensation

 

 

8,281

 

 

 

5,530

 

 

 

23,107

 

 

 

18,009

 

IPO related expenses

 

 

9,327

 

 

 

12,718

 

 

 

31,029

 

 

 

44,392

 

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

 

 

(2,271

)

 

 

(144

)

 

 

(5,882

)

 

 

414

 

Adjusted EBITDAC

 

$

146,979

 

 

$

116,817

 

 

$

466,155

 

 

$

390,151

 

Net income margin

 

 

3.1

%

 

 

7.1

%

 

 

8.8

%

 

 

9.1

%

Adjusted EBITDAC margin

 

 

29.3

%

 

 

28.4

%

 

 

30.2

%

 

 

30.2

%

Adjusted Net Income and Adjusted Net Income Margin

We define Adjusted Net Incomenet income 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 most comparable GAAP financial metric is Net Income. income.

39

Adjusted Net Income Marginnet income margin is calculated as Adjusted Net Incomenet income as a percentage of totalTotal revenue. The most comparable GAAP financial metric is Net Income Margin.

income margin.

Following the IPO, the Company will beis 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 Holdingsthe LLC. For comparability purposes, this calculation incorporates the impact of federal and state statutory tax rates on 100% of our adjusted

pre-tax
income as if the Company owned 100% of Holdingsthe LLC.
Adjusted Net Income and Adjusted Net Income Margin, together with related margins may be useful to an investor in evaluating our operating performance, efficiency and liquidity because these measures are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending upon acquisition activity and capital structure. These measures also eliminate the impact of expenses that do not relate to core business performance, among other factors. Further, these measures are used by our leadership and Board of Directors for assessing financial performance, strategic planning, and forecasting.
These
Non-GAAP
measures have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. These measures also do not deduct earnings related to the
non-controlling
interest in Ryan Re for the period of time prior to March 31, 2021 when we did not own 100% of the business.
54

A reconciliation of Adjusted Net Incomenet income and Adjusted Net Income Marginnet income margin to Net Incomeincome and Net Income Margin,income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows:

   
Three months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
390,012
 
 
$
246,324
 
Net Income
  
$
63,407
 
 
$
49,887
 
Income tax expense
   2,332   1,585 
Amortization
   27,319   9,118 
Amortization of deferred issuance costs (1)
   2,754   188 
Change in contingent consideration
   1,723   —   
Acquisition-related expense (2)
   308   4,718 
Acquisition related long-term incentive compensation (3)
   9,082   532 
Restructuring expense (4)
   3,174   936 
Amortization and expense related to discontinued prepaid incentives (5)
   1,604   2,481 
Other
non-operating
loss (income) (6)
   7,890   (555) 
Equity-based compensation (7)
   3,458   1,624 
Discontinued programs expense (8)
   —     352 
Other
non-recurring
expense (9)
   19   43 
IPO related expenses (10)
   316   —   
(Income) / loss from equity method investments in related party
   (353)   —   
  
 
 
  
 
 
 
Adjusted Income before Income Taxes
  
$
123,033
 
 
$
70,909
 
Adjusted tax expense (11)
   (30,758)   (17,728) 
  
 
 
  
 
 
 
Adjusted Net Income (12)
  
$
92,275
 
 
$
53,181
 
  
 
 
  
 
 
 
Net Income Margin (13)
  
 
16.3
% 
 
 
20.3
% 
Adjusted Net Income Margin (14)
  
 
23.7
% 
 
 
21.6
% 
(1)
Interest Expense includes amortization of deferred issuance costs.
(2)
Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $1.3 million for the three months ended June 30, 2020, while General and administrative expenses contributed to $0.3 million and $3.4 million of the acquisition-related expense for the three months ended June 30, 2021 and 2020, 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 $2.2 million for the three months ended June 30, 2021, and General and administrative costs including occupancy and professional services fees of $1.0 million and $0.9 million for the three months ended June 30, 2021 and 2020, 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 4,
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 12,
Employee Benefit Plans, Prepaid and Long-Term Incentives
of the unaudited quarterly consolidated financial statements for further discussion.
(6)
Other
non-operating
loss (income) includes the change in fair value of the embedded derivatives on the redeemable Class B Preferred Units. This change in fair value is due to the increased likelihood of a Realization Event, which is defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement. See Note 10,
Redeemable Preferred Units
of the unaudited quarterly consolidated financial statements for further discussion. For the three months ended June 30, 2020,
non-operating
loss (income) includes the change in fair value of interest rate swaps which were discontinued in 2020.
55

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total revenue

 

$

501,938

 

 

$

411,996

 

 

$

1,544,686

 

 

$

1,290,178

 

Net income

 

$

15,703

 

 

$

29,279

 

 

$

135,977

 

 

$

117,475

 

Income tax expense

 

 

24,827

 

 

 

3,411

 

 

 

42,772

 

 

 

10,076

 

Amortization

 

 

29,572

 

 

 

25,667

 

 

 

79,125

 

 

 

78,563

 

Amortization of deferred debt issuance costs (1)

 

 

3,045

 

 

 

3,033

 

 

 

9,125

 

 

 

9,017

 

Change in contingent consideration

 

 

1,848

 

 

 

423

 

 

 

4,358

 

 

 

(837

)

Acquisition-related expense

 

 

7,336

 

 

 

737

 

 

 

15,527

 

 

 

2,889

 

Acquisition related long-term incentive compensation

 

 

550

 

 

 

7,383

 

 

 

1,702

 

 

 

22,181

 

Restructuring and related expense

 

 

16,477

 

 

 

19

 

 

 

37,200

 

 

 

5,717

 

Amortization and expense related to discontinued prepaid incentives

 

 

1,570

 

 

 

1,533

 

 

 

4,793

 

 

 

5,075

 

Other non-operating loss (income)

 

 

67

 

 

 

(66

)

 

 

37

 

 

 

6,832

 

Equity-based compensation

 

 

8,281

 

 

 

5,530

 

 

 

23,107

 

 

 

18,009

 

IPO related expenses

 

 

9,327

 

 

 

12,718

 

 

 

31,029

 

 

 

44,392

 

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

 

 

(2,271

)

 

 

(144

)

 

 

(5,882

)

 

 

414

 

Adjusted income before income taxes (2)

 

$

116,332

 

 

$

89,523

 

 

$

378,870

 

 

$

319,803

 

Adjusted tax expense (3)

 

 

(29,700

)

 

 

(22,963

)

 

 

(96,726

)

 

 

(82,029

)

Adjusted net income

 

$

86,632

 

 

$

66,560

 

 

$

282,144

 

 

$

237,774

 

Net income margin

 

 

3.1

%

 

 

7.1

%

 

 

8.8

%

 

 

9.1

%

Adjusted net income margin

 

 

17.3

%

 

 

16.2

%

 

 

18.3

%

 

 

18.4

%

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

(2) Adjustments to Net income are described in the definition of Adjusted EBITDAC to Net income in “Adjusted EBITDAC and Adjusted EBITDAC Margin.”

(3) 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 and nine months ended September 30, 2023, 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 4.53% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC. For the three and 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.

Adjusted Diluted Earnings Per Share

We define Adjusted diluted earnings per share as Adjusted net income divided by diluted shares outstanding after adjusting for the effect if 100% of the outstanding LLC Common Units (together with the shares of Class B common stock) were exchanged 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.

40

(7)
Equity-based compensation reflects
non-cash
equity-based expense.
(8)
Discontinued programs expense includes $0.2 million of General and administrative expense for the three months ended June 30, 2020. Compensation and benefits expense was $0.5 million for the three months ended June 30, 2020. These costs were associated with concluding specific programs that are no longer core to our business. Revenue associated with these programs of $(0.3) million is also reflected in this adjustment for the three months ended June 30, 2020.
(9)
Other
non-recurring
items include
one-time
professional services costs associated with term debt repricing, and
one-time
non-income
tax charges and tax and accounting consultancy costs associated with potential structure changes.
(10)
IPO related expenses includes $0.3 million of General and administrative expense associated with the preparations for Sarbanes Oxley compliance and
post-IPO
long-term incentive arrangements.
(11)
Ryan Specialty Group Holdings, Inc. will be 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 Ryan Specialty Group, LLC. For comparability purposes, this calculation of adjusted tax expense incorporates the impact of federal and state statutory tax rates on 100% of our adjusted pre-tax income as if the Company owned 100% of Ryan Specialty Group, LLC.
(12)
Consolidated Adjusted Net Income does not reflect a deduction for the Adjusted Net Income associated with the
non-controlling
interest in Ryan Re.
(13)
Net Income Margin is Net Income as a percentage of total revenue.
(14)
Adjusted Net Income Margin is Adjusted Net Income as a percentage of total revenue.
   
Six months ended

June 30,
 
(in thousands, except percentages)
  
2021
  
2020
 
Total Revenue
  
$
701,470
 
 
$
454,516
 
Net Income
  
$
59,606
 
 
$
63,205
 
Income tax expense
   4,566   3,162 
Amortization
   55,113   19,149 
Amortization of deferred issuance costs (1)
   5,769   693 
Change in contingent consideration
   2,313   1,032 
Acquisition-related expense (2)
   2,022   5,603 
Acquisition related long-term incentive compensation (3)
   18,504   1,064 
Restructuring expense (4)
   10,172   1,425 
Amortization and expense related to discontinued prepaid incentives (5)
   3,682   5,063 
Other
non-operating
loss (income) (6)
   29,336   2,492 
Equity-based compensation (7)
   7,888   4,731 
Discontinued programs expense (8)
   —     395 
Other
non-recurring
items (9)
   354   93 
IPO related expenses (10)
   316   —   
(Income) / loss from equity method investments in related party
   (434)   (87) 
  
 
 
  
 
 
 
Adjusted Income before Income Taxes
  
$
199,207
 
 
$
108,020
 
Adjusted tax expense (11)
   (49,802)   (27,005) 
  
 
 
  
 
 
 
Adjusted Net Income (12)
  
$
149,405
 
 
$
81,015
 
  
 
 
  
 
 
 
Net Income Margin (13)
  
 
8.5
% 
 
 
13.9
% 
Adjusted Net Income Margin (14)
  
 
21.3
% 
 
 
17.8
% 
(1)
Interest Expense includes amortization of deferred issuance costs.
(2)
Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $1.6 million for the six months ended June 30, 2020, while General and administrative expenses contributed to $2.0 million and $4.0 million of the acquisition-related expense for the years ended June 30, 2021 and 2020, respectively.
56
(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 $8.4 million for the six months ended June 30, 2021, and General and administrative costs including occupancy and professional services fees of $1.8 million and $1.4 million for the six months ended June 30, 2021 and 2020, 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 4,
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 12,
Employee Benefit Plans, Prepaid and Long-Term Incentives
of the unaudited quarterly consolidated financial statements for further discussion.
(6)
Other
non-operating
loss (income) includes the change in fair value of the embedded derivatives on the redeemable Class B Preferred Units. This change in fair value is due to the increased likelihood of a Realization Event, which is defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement. See Note 10,
Redeemable Preferred Units
of the unaudited quarterly consolidated financial statements for further discussion. Also, in the six months ended June 30, 2021,
non-operating
loss (income) includes costs associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt. This
non-operating
loss (income) for the six months ended June 30, 2020 includes the change in fair value of interest rate swaps which were discontinued in 2020.    
(7)
Equity-based compensation reflects
non-cash
equity-based expense.
(8)
Discontinued programs expense includes $0.2 million of General and administrative expense for the six months ended June 30, 2020. Compensation and benefits expense was $0.5 million for the six months ended June 30, 2020. These costs were associated with concluding specific programs that are no longer core to our business. Revenue associated with these programs of $(0.3) million is also reflected in this adjustment for the six months ended June 30, 2020.
(9)
Other
non-recurring
items include
one-time
professional services costs associated with term debt repricing, and
one-time
non-income
tax charges and tax and accounting consultancy costs associated with potential structure changes.
(10)
IPO related expenses includes $0.3 million of General and administrative expense for the six months ended June 30, 2021 associated with the preparations for Sarbanes Oxley compliance and
post-IPO
long-term incentive arrangements.
(11)
Ryan Specialty Group Holdings, Inc. will be 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 Ryan Specialty Group, LLC. For comparability purposes, this calculation of adjusted tax expense incorporates the impact of federal and state statutory tax rates on 100% of our adjusted pre-tax income as if the Company owned 100% of Ryan Specialty Group, LLC.
(12)
Consolidated Adjusted Net Income does not reflect a deduction for the Adjusted Net Income associated with the
non-controlling
interest in Ryan Re.
(13)
Net Income Margin is Net Income as a percentage of total revenue.
(14)
Adjusted Net Income Margin is Adjusted Net Income as a percentage of total revenue.

A reconciliation of Adjusted diluted earnings per share to Diluted earnings (loss) per share, the most directly comparable GAAP measure, for each of the periods indicated is as follows:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Earnings (loss) per share of Class A common stock – diluted

 

$

(0.04

)

 

$

0.09

 

 

$

0.34

 

 

$

0.37

 

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

 

 

—

 

 

 

(0.05

)

 

 

(0.03

)

 

 

(0.21

)

Plus: Impact of all LLC Common Units Exchanged for Class A shares (2)

 

 

0.10

 

 

 

0.07

 

 

 

0.20

 

 

 

0.28

 

Plus: Adjustments to Adjusted net income (3)

 

 

0.28

 

 

 

0.14

 

 

 

0.54

 

 

 

0.46

 

Plus: Dilutive impact of unvested equity awards (4)

 

 

(0.02

)

 

 

—

 

 

 

(0.01

)

 

 

(0.02

)

Adjusted diluted earnings per share

 

$

0.32

 

 

$

0.25

 

 

$

1.04

 

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Share count in '000)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

115,872

 

 

 

266,352

 

 

 

124,884

 

 

 

265,071

 

Plus: Impact of all LLC Common Units Exchanged for Class A shares (2)

 

 

141,690

 

 

 

—

 

 

 

142,974

 

 

 

—

 

Plus: Dilutive impact of unvested equity awards (4)

 

 

15,115

 

 

 

4,153

 

 

 

4,390

 

 

 

5,011

 

Adjusted diluted earnings per share diluted share count

 

 

272,677

 

 

 

270,505

 

 

 

272,248

 

 

 

270,082

 

(1) Adjustment removes the impact of Net income attributed to dilutive awards and substantively vested RSUs to arrive at Net income (loss) attributable to Ryan Specialty Holdings, Inc. For the three months ended September 30, 2023 and 2022, this removes $0.1 million and $13.1 million of Net income, respectively, on 115.9 million and 266.4 million Weighted-average shares of Class A common stock outstanding - diluted, respectively. For the nine months ended September 30, 2023 and 2022, this removes $3.8 million and $55.4 million of Net income, respectively, on 124.9 million and 265.1 million Weighted-average shares of Class A common stock outstanding - diluted, respectively. See “Note 10, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements.

(2) For comparability purposes, this calculation incorporates the Net income 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. For the three months ended September 30, 2023 and 2022, this includes $20.8 million and $17.5 million of Net income, respectively, on 257.6 million and 266.4 million Weighted-average shares of Class A common stock outstanding - diluted, respectively. For the nine months ended September 30, 2023 and 2022, this includes $97.8 million and $74.3 million of Net income, respectively, on 267.9 million and 265.1 million Weighted-average shares of Class A common stock outstanding - diluted, respectively. For the three months ended September 30, 2022, 144.1 million weighted average outstanding LLC Common Units were considered dilutive and included in the 266.4 million Weighted-average shares of Class A common stock outstanding - diluted within Diluted EPS. For the nine months ended September 30, 2022, 144.0 million weighted average outstanding LLC Common Units were considered dilutive and included in the 265.1 million Weighted-average shares of Class A common stock outstanding - diluted within Diluted EPS. See “Note 10, 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” on 257.6 million and 266.4 million Weighted-average shares of Class A common stock outstanding - diluted for the three months ended September 30, 2023 and 2022, respectively, and on 267.9 million and 265.1 million shares of Weighted-average shares of Class A common stock outstanding - diluted for the nine months ended September 30, 2023 and 2022, respectively.

(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 EPS calculation disclosed in “Note 10, Earnings (Loss) Per Share” of the unaudited quarterly consolidated financial statements. For the three months ended September 30, 2023 and 2022, 15.1 million and 4.2 million shares were added to the calculation, respectively, and for the nine months ended September 30, 2023 and 2022, 4.4 million and 5.0 million shares were added to the calculation, respectively.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. We believe that the balance sheet and strong cash flow profile of theour business provides adequate liquidity. The primary sources of liquidity are cashCash and cash equivalents on the balance sheet,Consolidated Balance Sheets, cash flows provided by operations, and debt capacity

41

available under our credit facilities.Revolving Credit Facility, Term Loan, and Senior Secured Notes. The primary uses of liquidity are operating expenses, seasonal working capital needs, business combinations, capital expenditures, obligations under the TRA, taxes, and distributions to members.LLC Unitholders. We believe that Cash and cash equivalents, cash flows from operations, and amounts available credit facilitiesunder our Revolving Credit Facility will be sufficient to meet the liquidity needs, including principal and interest payments on debt obligations, capital expenditures, and anticipated working capital requirements, for the next 12 months and beyond.

Cash on the balance sheet includes funds available for general corporate purposes. We will recognize fiduciary amounts due to others as fiduciary liabilities and fiduciary amounts collectible and held on behalf of others, including insurance policyholders, clients, other insurance intermediaries, and insurance carriers, as fiduciary assets in the Consolidated Statements of Financial Position. Fiduciary assets cannot be used for general corporate purposes. Insurance premiums and claims are held in a fiduciary capacity and the obligation to remit these funds is recorded as Fiduciary liabilities in the Consolidated Statements of Financial Position.
57
In our capacity as an insurance broker or agent, we collect premiums from insureds and, after deducting our commission, remits the premiums to the respective insurance markets and carriers. We also collect claims prefunding or refunds from carriers on behalf of insureds, which are then returned to the insureds. Insurance premiums and claim funds are held in a fiduciary capacity. The levels of fiduciary assets and liabilities can fluctuate significantly depending on when we collect the premiums, claims prefunding, and refunds, make payments to markets, carriers, and insureds, and collect funds from clients and make payments on their behalf, and upon the impact of foreign currency movements. Fiduciary assets, because of their nature, are generally invested in very liquid securities with a focus on preservation of principal. To minimize investment risk, we and our subsidiaries maintain cash holdings pursuant to an investment policy approved by our Board of Directors. The policy requires broad diversification of holdings across a variety of counterparties utilizing limits set by our Board of Directors, primarily based on credit rating and type of investment. Fiduciary assets included cash of $675.8 million and $583.1 million at June 30, 2021 and December 31, 2020, respectively, and fiduciary receivables of $1,617.6 million and $1,395.1 million at June 30, 2021 and December 31, 2020, respectively. While we earn investment income on fiduciary assets held in cash and investments, the cash and investments cannot be used for general corporate purposes. Of the $307.5 million of Cash and cash equivalents on the Consolidated Statements of Financial Position as of June 30, 2021, $120.1 million is held in fiduciary accounts and is available for general corporate purposes.
Comparison of Cash Flows for the Six Months Ended June 30, 2021 and 2020
Cash and cash equivalents increased $200.2 million from $107.3 million at June 30, 2020 to $307.5 million at June 30, 2021. A summary of our cash flows provided by and used for continuing operations from operating, investing, and financing activities is as follows:
Cash Flows from Operating Activities
Net cash provided by operating activities during the six months ended June 30, 2021 increased $39.4 million, or 57.6%, from the six months ended June 30, 2020 to $107.7 million. This amount represents net income reported, as adjusted for amortization and depreciation, prepaid and deferred equity compensation expense, as well as the change in commission and fees receivable, accrued compensation and other current and noncurrent assets and liabilities. Strong organic revenue growth and the All Risks Acquisition drove operating cash flow performance period-over-period. While Net income decreased $3.6 million during the six months ended June 30, 2021, the increase in the
non-cash
adjustments for the amortization of intangibles and debt issuance costs, as well as the timing of payments for long-term incentive plans associated with the All Risks Acquisition which will occur in the third and fourth quarters of 2021, increased operating cash flows.
Cash Flows from Investing Activities
Cash flows used for investing activities during the six months ended June 30, 2021 were $0.2 million, a decrease of $40.7 million compared to the six months ended June 30, 2020. The main driver of the cash flows used for investing activities in the six months ended June 30, 2020 was the final remaining capital commitment on the equity method investment in a Bermuda based reinsurance company, Geneva Re, a joint venture between Nationwide Mutual Insurance Company and Ryan Investment Holdings, LLC an entity under common control – See Note 15,
Related Parties
in the unaudited quarterly consolidated financial statements, in addition to other smaller acquisitions and funding of prepaid incentives of $4.3 million as compared to the repayment of prepaid incentives in the six months ended June 30, 2021 of $3.8 million.
Cash Flows from Financing Activities
Cash flows used in financing activities during the six months ended June 30, 2021 were $113.1 million, an increase of $143.0 million compared to cash flows provided by financing activities of $29.9 million during the six months ended June 30, 2020. The main drivers of cash flows used in financing activities were $48.4 million in cash paid for the remaining 53%
non-controlling
common equity interest in Ryan Re, $47.0 million of cash distributions paid to members, $8.3 million repayment of term debt, $4.2 million of costs paid associated with the prospective offering, and $3.9 million of equity repurchases, which compares to $145.9 million of term loan borrowings net of repayments, offset by repayments net of borrowings of $43.2 million on the revolving credit facility, $20.0 million repayment of subordinated notes, $39.2 million of equity repurchases and $13.6 million of cash distributions to members for the six months ended June 30, 2020.
58
Other Liquidity Matters
General
In connection with the IPO but prior to June 30, 2021, the Board approved the repurchase of 74,990 of Class B Preferred Units from the Founder Group for $78.3 million, which reflects the par value of $75.0 million plus unpaid accrued preferred dividends. As the repurchase did not occur until July 1, 2021, a liability for the full amount is included in Preferred units repurchase payable on the Consolidated Statements of Financial Position, and the Class B Preferred Units remained outstanding as of June 30, 2021.
On July 26, 2021, we closed our IPO through which we issued and sold 65,456,020 shares of Class A common stock at a price per share of $23.50. We received approximately $1,449.7 million in net proceeds after deducting underwriting discounts and commissions of $76.9 million and offering expenses of $11.6 million. Upon closing of the IPO, we paid (i) $119.9 million to acquire 5,887,570 newly issued LLC Units in Holdings LLC, (ii) $343.5 million to acquire the equity of an entity through which Onex held its preferred unit interest in Holdings LLC (with the 260,000,000 Class B Preferred Units of Holdings LLC owned by the entity converted through a series of transactions to 15,387,026 LLC Units immediately thereafter), (iii) $795.7 million to acquire 35,641,682 outstanding LLC Units from certain existing holders of LLC Units at a purchase price per LLC Unit equal to $23.50, the IPO price per share of Class A common stock in our IPO, (iv) $76.2 million to purchase an additional 3,415,097 newly issued LLC Units in Holdings LLC, and (v) $114.4 million to repurchase and retire 5,122,645 shares of Class A common stock held by Onex. In turn, Holdings LLC applied the balance of the net proceeds it received on account of the newly issued LLC Units to pay $72.9 million of TRA Alternative Payments arising from the Organizational Transactions. The remaining $123.2 million of net proceeds are reserved for general corporate purposes.
On August 10, 2021, the Board of Ryan Specialty Group Holdings, Inc. elected to terminate the All Risks long-term incentive plans. The decision to terminate the plans will not change the value of, or entitlements to, any benefits thereunder. The benefits accruing under these plans are required to be paid within twelve months of the termination date (i.e., by August 10, 2022). These awards remain subject to the achievement of service conditions. We expect to make payments related to these long-term incentive plans of $97.8 million in 2021 and $113.2 million in 2022.
We believe our cash and cash equivalents (including proceeds from the IPO), our Credit Facilities and cash from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors including continuance of historical working capital levels and capital expenditure needs, investment in de novo offerings, and the flow of deals in our merger and acquisition program.

We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations, this could reduce our ability to compete successfully and harm ourthe results of our operations.

Cash and cash equivalents on the Consolidated Balance Sheets include funds available for general corporate purposes. Fiduciary cash and receivables cannot be used for general corporate purposes. Insurance premiums, claims funds, and surplus lines taxes are held in a fiduciary capacity and the obligation to remit these funds are recorded as Fiduciary liabilities on the Consolidated Balance Sheets. We recognize fiduciary amounts due to others as Fiduciary liabilities and fiduciary amounts collectible and held on behalf of others, including insurance carriers, other insurance intermediaries, surplus lines taxing authorities, clients, and insurance policy holders, as Fiduciary cash and receivables on the Consolidated Balance Sheets.

In our capacity as an insurance broker or agent, we collect premiums from insureds and, after deducting our commission, remit the premiums to the respective insurance markets and carriers. We also collect claims prefunding or refunds from carriers on behalf of insureds, which are then returned to the insureds, and surplus lines taxes, which are then remitted to surplus lines taxing authorities. Insurance premiums, claim funds, and surplus lines taxes are held in a fiduciary capacity. The levels of Fiduciary cash and receivables and Fiduciary liabilities can fluctuate significantly depending on when we collect the premiums, claims prefunding, and refunds, make payments to markets, carriers, surplus lines taxing authorities, and insureds, and collect funds from clients and make payments on their behalf, and upon the impact of foreign currency movements. Fiduciary cash, because of its nature, is generally invested in very liquid securities with a focus on preservation of principal. To minimize investment risk, we maintain cash holdings pursuant to an investment policy which contemplates all relevant rules established by states with regard to fiduciary cash and is approved by our Board of Directors. The policy requires broad diversification of holdings across a variety of counterparties utilizing limits set by our Board of Directors, primarily based on credit rating and type of investment. Fiduciary cash and receivables included cash of $848.6 million and $704.9 million as of September 30, 2023 and 2022, respectively, and fiduciary receivables of $1,672.4 million and $1,442.0 million as of September 30, 2023 and 2022, respectively. While we may earn interest income on fiduciary cash held in cash and investments, the fiduciary cash may not be used for general corporate purposes. Of the $754.4 million of Cash and cash equivalents on the Consolidated Balance Sheet as of September 30, 2023, $88.0 million was held in fiduciary accounts representing collected revenue and was available to be transferred to operating accounts and used for general corporate purposes.

Credit Facilities

We expect to have sufficient financial resources to meet our business requirements infor the next 12 months. Although cash from operations is expected to be sufficient to service our activities, including servicing our debt and contractual obligations, and financefinancing capital expenditures, we have the ability to borrow under our credit facilitiesRevolving Credit Facility to accommodate any timing differences in cash flows. Additionally, under current market conditions, we believe that we could access capital markets to obtain debt financing for longer-term funding, if needed.

On September 1, 2020, we entered into the Credit Agreement with leading institutions, including JPMorgan Chase Bank, N.A., the Administrative Agent, for term loanTerm Loan borrowings totaling $1,650.0 million and a revolving credit facilityRevolving Credit Facility totaling $300.0 million, in connection with financing the All Risks Acquisition. Borrowings under our revolving credit facilityRevolving Credit Facility are permitted to be drawn for our working capital and other general corporate financing purposes and those of certain of our subsidiaries. Borrowings under our credit agreementCredit Agreement are unconditionally guaranteed by certain of ourvarious subsidiaries and are secured by a lien and security interest in substantially all of our assets. See Note 8,

Debt
in the notes to our unaudited quarterly consolidated financial statements for further information regarding our debt arrangements.
59
As of December 31, 2020, the interest rate on our term loan was LIBOR, subject to a 75 basis point floor, plus 3.25%.
As of December 31, 2020, we were in compliance with all of the covenants under our credit agreement and there were no events of default for the year ended December 31, 2020.
In March 2021, we completed a repricing of our outstanding term loan borrowings. As of March 31, 2021, the interest rate on the term loan was LIBOR, plus 3.00%, subject to a 75 basis point floor. All other terms remain substantially unchanged.
As of June 30, 2021, we were in compliance with all of the covenants under our credit agreement and there were no events of default for the six months ended June 30, 2021.

On July 26, 2021, we entered into an amendment to our credit agreement,Credit Agreement, which provided for an increase in the size of our revolving credit facilityRevolving Credit Facility from $300$300.0 million to $600$600.0 million. Interest on the upsized revolving credit facility bearsRevolving Credit Facility bore interest at LIBORthe Eurocurrency Rate (LIBOR) plus a margin that rangesranged from 2.50% to 3.00%, based on the first lien net leverage ratio defined in our credit agreement.Credit Agreement. No other significant terms under our credit agreement governing the revolving credit facilityRevolving Credit Facility were changed in connection with such amendment.

On February 3, 2022, the LLC issued $400.0 million of Senior Secured Notes. The notes have a 4.375% interest rate and will mature on February 1, 2030.

42

On April 29, 2022, the Company entered into the Fourth Amendment to the Credit Agreement on its Term Loan and Revolving Credit Facility to transition its LIBOR rate to a Benchmark Replacement of Adjusted Term SOFR plus a Credit Spread Adjustment of 10 basis points, 15 basis points, or 25 basis points for the one-month, three-month, or six-month borrowing periods, respectively.

As of September 30, 2023, the interest rate on the Term Loan was 3.00% plus Adjusted Term SOFR, subject to a 75 basis point floor.

As of September 30, 2023, we were in compliance with all of the covenants under our Credit Agreement and there were no events of default for the nine months ended September 30, 2023.

Tax Receivable Agreement

As

The Company is party to a result of its ownership ofTRA with current and certain former LLC Units in Holdings LLC,Unitholders. The TRA provides for the payment by the Company, is now subject to current and certain former LLC Unitholders, of 85% of the net cash savings, if any, in U.S. federal, state, and local income taxes with respectthat the Company realizes (or is deemed to its allocable sharerealize in certain circumstances) as a result of any taxable income(i) certain increases in the tax basis of Holdingsthe 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 to (if any), and is taxed at the prevailing corporate(iv) certain other tax rates. In addition to tax expenses, we also will incur expensesbenefits related to our operations and we will be requiredthe Company entering into the TRA, including tax benefits attributable to makepayments that the Company makes under the TRA (“TRA Payment Tax Attributes”). The Company recognizes a liability on the Consolidated Balance Sheets based on the undiscounted estimated future payments under the Tax Receivable Agreement. TRA.

Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of the LLC Common Unit exchanges and the resulting amounts we are likely to pay out to current and certain former LLC Unitholders and Onex pursuant to the Tax Receivable Agreement;TRA; however, we estimate that such tax benefits and the related TRA payments may be substantial. AssumingAs set forth in the table below, and assuming no changes in the relevant tax law and that we earn sufficient taxable income to realize all cash tax savings that are subject to the Tax Receivable Agreement,TRA, we expect future payments under the Tax Receivable Agreement relating to the purchase by Ryan Specialty Holdings, Inc.TRA as a result of LLC Units in connection with the IPOtransactions as of September 30, 2023 will be approximately $309.8$359.1 million over the next 15 years from approximately $15.0 million to $20.0 million per year and decline thereafter. As a result, we expect that aggregate payments under the Tax Receivable Agreement over this

15-year
period will be approximately $300.0 million.in aggregate. Future payments in respect ofto subsequent exchanges or financings would be in addition to these amounts and are expected to be substantial. The foregoing numbersamounts are merely estimates and the actual payments could differ materially. In the highly unlikely event of an early termination of the TRA (e.g., a default by the Company 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. The Company has not made, and is not likely to make, an election for an early termination. We expect to fund thesefuture TRA payments usingwith tax distributions from the LLC that come from cash on hand and cash generated from operations.

(in thousands)

 

Exchange Tax Attributes

 

 

Pre-IPO M&A Tax Attributes

 

 

TRA Payment Tax Attributes

 

 

TRA Liabilities

 

Balance at December 31, 2022

 

$

150,311

 

 

$

85,016

 

 

$

60,020

 

 

$

295,347

 

Exchange of LLC Common Units

 

 

43,443

 

 

 

6,002

 

 

 

13,804

 

 

 

63,249

 

Accrued interest

 

 

—

 

 

 

—

 

 

 

478

 

 

 

478

 

Balance at September 30, 2023

 

$

193,754

 

 

$

91,018

 

 

$

74,302

 

 

$

359,074

 

Total expected estimated tax savings from each of the tax attributes associated with the TRA as of September 30, 2023 were $422.4 million consisting of (i) Exchange Tax Attributes of $227.9 million, (ii) Pre-IPO M&A Tax Attributes of $107.1 million, and (iii) TRA Payment Tax Attributes of $87.4 million. The Company will retain the benefit of 15% of these cash savings.

Comparison of Cash Flows for the Nine Months Ended September 30, 2023 and 2022

Cash and cash equivalents decreased $78.7 million from $833.1 million at September 30, 2022 to $754.4 million at September 30, 2023. A summary of the Company’s cash flows provided by and used for continuing operations from operating, investing, and financing activities is as follows:

Cash Flows From Operating Activities

Cash flows from operating activities for the nine months ended September 30, 2023 were $250.3 million, an increase of $99.4 million compared to the nine months ended September 30, 2022. This increase was driven by an increase in Net income of $18.5 million and the change in Other current assets and accrued liabilities together with Other non-current assets and accrued liabilities increase of $113.5 million. The change in Other current assets and accrued liabilities together with Other non-current assets and accrued liabilities was primarily driven by the final All Risks LTIP payments made in 2022. This increase in cash flows from operating activities was

43

offset by the change in Commissions and fees receivable of $20.5 million. The increased change to Commissions and fees receivable was generated by revenue growth.

Cash Flows From Investing Activities

Cash flows used for investing activities during the nine months ended September 30, 2023 were $381.9 million, an increase of $370.2 million compared to the $11.7 million of cash flows used for investing activities during the nine months ended September 30, 2022. The main driver of the cash flows used for investing activities in the nine months ended September 30, 2023 was $366.1 million for Business combinations - net of cash acquired and cash held in a fiduciary capacity related to the Griffin, Socius, ACE, and Point6 acquisitions and $16.0 million of Capital expenditures, compared to $12.0 million of Capital expenditures for the nine months ended September 30, 2022.

Cash Flows From Financing Activities

Cash flows used for financing activities during the nine months ended September 30, 2023 were $32.0 million, a decrease of $292.3 million compared to cash flows provided by financing activities of $260.3 million during the nine months ended September 30, 2022. The main drivers of cash flows used for financing activities during the nine months ended September 30, 2023 were Tax distributions to LLC Unitholders of $52.6 million, Repayment of term debt of $12.4 million, and Payment of contingent consideration of $4.5 million offset by Net change in fiduciary liabilities of $36.8 million. The main drivers of cash flows provided by financing activities during the nine months ended September 30, 2022 were the Bond issuance of $394.0 million offset by Net change in fiduciary liabilities of $54.8 million, Tax distributions to LLC Unitholders of $32.7 million, Payment of interest rate cap premium of $25.5 million, Repayment of term debt of $12.4 million, Payment of contingent consideration of $6.2 million, and Debt issuance costs paid of $2.4 million.

Contractual Obligations and Commitments

Our principal commitments consist of contractual obligations in connection with investing and operating activities. In “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in our IPO Prospectus, we disclosed our total contractual obligations as of December 31, 2020. These obligations are further described within Note“Note 7

Leases
and Note 8,
Debt
, Debt”in the notes to our unaudited consolidated financial statements. See notes to our unaudited consolidated financial statements forand provide further description on provisions that create, increase, or accelerate obligations, or other pertinent data to the extent necessary for an understanding of the timing and amount of the specified contractual obligations. Outside

Within Current accrued compensation and Non-current accrued compensation we have various long-term incentive compensation agreements accrued for. These agreements are typically associated with an acquisition. Below we have outlined the liabilities accrued as of September 30, 2023, the aboveprojected future expense, and routine transactions made the projected timing of future cash outflows associated with these arrangements.

Long-term Incentive Compensation Agreements

 

(in thousands)

 

September 30, 2023

 

Current accrued compensation

 

$

—

 

Non-current accrued compensation

 

 

1,785

 

Total liability

 

$

1,785

 

Projected future expense

 

 

5,144

 

Total projected future cash outflows

 

$

6,928

 

 

 

 

 

Projected Future Cash Outflows

 

(in thousands)

 

 

 

2023

 

$

—

 

2024

 

 

—

 

2025

 

 

—

 

2026

 

 

6,666

 

Thereafter

 

$

263

 

Within “Note 3, Mergers and Acquisitions” in the ordinary coursenotes to our unaudited consolidated financial statements we discuss various contingent consideration arrangements and their impact. Below we have outlined the liabilities accrued as of business, there have been no material changes toSeptember 30, 2023, the contractual obligations as disclosed in our IPO Prospectus.

60
Off-Balance
Sheet Arrangements
Asprojected future expense, and the projected timing of June 30, 2021, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K.
future cash outflows associated with these contingent consideration agreements.

44

Contingent Consideration

 

(in thousands)

 

September 30, 2023

 

Current accounts payable and accrued liabilities

 

$

—

 

Other non-current liabilities

 

 

36,018

 

Total liability

 

$

36,018

 

Projected future expense

 

 

5,432

 

Total projected future cash outflows

 

$

41,450

 

 

 

 

 

Projected Future Cash Outflows

 

(in thousands)

 

 

 

2023

 

$

—

 

2024

 

 

—

 

2025

 

 

38,537

 

2026

 

 

2,913

 

Thereafter

 

$

—

 

Critical Accounting Policies and Estimates

The methods, assumptions, and estimates that we use in applying the accounting policies may require us to apply judgments regarding matters that are inherently uncertain. We consider an accounting policy to be a critical estimate if:if (i) the Company must make assumptions that were uncertain when the judgment was made, and (ii) changes in the estimate assumptions, or selection of a different estimate methodology, could have a significant impact on our financial position and the results that ourwe will report in the consolidated financial statements. While we believe that the estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. The accounting policies that we believe reflect our more significant estimates, judgments, and assumptions that are most critical to understanding and evaluating our reported financial results are: revenue recognition, fair value, andbusiness combinations, goodwill and intangibles.

intangibles, income taxes, and tax receivable agreement liabilities.

Our critical accounting policies are described under the heading “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our IPO Prospectus. There have been no materialthe Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023. Additionally, the changes, if any, to our critical accounting policies and estimates disclosed in our IPO Prospectus. For more information, refer to Notethe Annual Report on Form 10-K for the year ended December 31, 2022 are included in “Note 1

, Basis of Presentation,
in the notes” to our unaudited consolidated financial statements.
statements.

Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted (if any), see Note“Note 1,

Basis of Presentation
Presentation”in the notes to our unaudited consolidated financial statements.
Emerging Growth Company
We qualify as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory
“say-on-pay”
votes on executive compensation and shareholder advisory votes on golden parachute compensation.
The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a large accelerated filer (this means the market value of common stock that is held by non-affiliates exceeds $700.0 million as of the end of the second quarter of that fiscal year), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We expect to cease to qualify as an “emerging growth company” after the completion of our 2021 fiscal year.
61

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to various market risks in the

day-to-day
operations. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest and foreign currency exchange rates.

Foreign Currency Risk

For the sixnine months ended JuneSeptember 30, 2021,2023, approximately 3%2% of revenues were generated from activities in the United Kingdom, Europe, and Europe.Canada. We are exposed to currency risk from the potential changes between the exchange rates of the US Dollar, Canadian Dollar, British Pound, Euro, Swedish Krona, Danish Krone, and other European currencies. The exposure to foreign currency risk from the potential changes between the exchange rates between the USD and other currencies is immaterial.

Interest Rate Risk

Fiduciary investment income is affected by changes in international and domestic short-term interest rates.

As of JuneSeptember 30, 2021,2023, we had $1,637.6$1,600.5 million of outstanding principal on our term loanTerm Loan borrowings, which bears interest on a floating rate, subject to a 0.75% floor. We are subject to LIBORAdjusted Term SOFR interest rate changes, and exposure in excess of the

45

floor. The fair value of the term loanTerm Loan approximates the carrying amount as of JuneSeptember 30, 2021,2023 and December 31, 2020,2022, as determined based upon information available. Historically in 2020, in we used

On April 7, 2022, the Company entered into an interest rate derivatives, typically swaps with cancellation options,cap agreement to reducemanage its exposure to the effects of interest rate fluctuations related to the Company's Term Loan for up to five years into the future.

an upfront cost of $25.5 million. The interest rate cap has a $1,000.0 million notional amount, 2.75% strike, and terminates on December 31, 2025.

Other financial instruments consist of Cash and cash equivalents, Commissions and fees receivable—receivable – net, Other current assets, and Accounts payable and accrued liabilities. The carrying amounts of Cash and cash equivalents, Commissions and fees receivable -– net, and Accounts payable and accrued liabilities approximate fair value because of the short-term nature of the instruments.

62

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of JuneSeptember 30, 2021,2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control

There have been no changes in internal control over financial reporting during the quarter ended JuneSeptember 30, 20212023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

63

Inherent Limitations of Internal Control Over Financial Reporting


Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.

PART II — OTHER INFORMATION

From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” ofin our IPO Prospectus.

64
annual report on Form 10-K for the year ended December 31, 2022 and in our Form 10-Q for the quarter ended March 31, 2023 which were filed with the SEC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS,

Use AND ISSUER PURCHASES OF EQUITY SECURITIES

Sale of Proceeds from Initial Public OfferingUnregistered Securities

46

In connection with the acquisition of Class A Common Stock

On July 26, 2021, we closed our IPO in which we sold 65,456,020Socius Insurance Services, the Company issued 60,021 shares of the Company's Class A common stock including 8,537,742 shareson July 3, 2023 to the owners of the acquired business at a price of $37.85 per share which represented a 10% discount to the volume weighted average of the closing price of the Class A common stock pursuantfor the 30 trading days prior to May 22, 2023. The issuance was made in reliance on the underwriters’ fully exercising their
30-day
option, at a public offering price of $23.50 per share. The offer and sale of allexemption from the registration requirements of the sharesSecurities Act of 1933, as amended (the “Securities Act”) set forth in the IPO were registeredRegulation D promulgated under the Securities Act pursuant to our IPO Prospectus, which was declared effective by the SEC on July 21, 2021. The representatives of the several underwriters of the IPO were J.P. Morgan Securities LLC, Barclays Capital Inc., Goldman Sachs & Co. LLC and Wells Fargo Securities, LLC. The offering commenced on July 21, 2021 and terminated after the sale of all securities registered pursuant to the Registration Statement.
We received approximately $1,449.7 million in net proceeds after deducting underwriting discounts and commissions of $77.0 million and offering expenses of $11.6 million. In connection with the IPO, we paid (i) $119.9 million to acquire 5,887,570 newly issued LLC Units in Holdings LLC, (ii) $343.5 million to acquire the equity of an entity through which an affiliate of Onex held its preferred unit interest in Holdings LLC (with the 260,000,000 Class B Preferred Units of Holdings LLC owned by the entity converted through a series of transactions to 15,387,026 LLC Units immediately thereafter), (iii) $795.7 million to acquire 35,641,682 outstanding LLC Units from certain existing holders of LLC Units at a purchase price per LLC Unit equal to $23.50, the IPO price per share of Class A common stock in our IPO, (iv) $76.2 million to purchase an additional 3,415,097 newly issued LLC Units in Holdings LLC, and (iv) $114.4 million to repurchase and retire 5,122,645 shares of Class A common stock held by Onex.
In turn, Holdings LLC applied the balance of the net proceeds it received from us on account of the newly issued LLC Units to pay $72.9 million of TRA Alternative Payments as arising out of the Organizational Transactions. The remaining $123.2 million of net proceeds are reserved for general corporate purposes. There were no material changes in the expected use of the net proceeds from our IPO as described in the IPO Prospectus.
Repurchases of Equity Securities
In connection with the IPO, we redeemed 5,122,645 shares of our Class A common stock from Onex in connection with the underwriters’ exercise of their option to purchase additional shares in our IPO for $23.50 per share, less the per share amounts associated with underwriting discounts and commissions in our IPO, as set forth in the Use of Proceeds described in our IPO Prospectus.
65
Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

As

Item 2.05 Costs Associated with Exit or Disposal Activities

On October 30, 2023, the board of directors of the Company approved an update to our disclosure concerning the mid-April 2021 cyber phishing event as set forth under the heading of “ - Risks Related to Our Intellectual Property and Cybersecurity – We rely on the efficient, uninterrupted, and secure operation of complex information technology systems and networks to operate our business. Any significant system or network disruption due to a breachCompany’s restructuring program (the “Program”), which commenced in the securityfirst quarter of 2023. The Program is designed to facilitate continued growth, drive innovation, and deliver sustainable productivity improvements over the long term. The updated Program is expected to generate approximately $50 million of annual cost savings in 2025. The Program includes (i) Operations and Technology Optimization, (ii) Compensation and Benefits, and (iii) Asset Impairment and Other Termination Costs. These actions are expected to be completed by the end of 2024.

The Company currently estimates that the updated Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $90 million which are expected to be recorded as exit and disposal activities and are broken down as follows:

Program Activity

Charges

  Operations and Technology Optimization

$

50 million

  Compensation and Benefits

25 million

  Asset Impairment and Other Termination Costs

15 million

Total

$

90 million

The Company currently estimates that approximately 95% of the cumulative pre-tax charges relating to the Program will result in future cash expenditures.

Program charges are recognized as the costs are incurred over time in accordance with GAAP. The Company treats charges related to the Program as special items impacting comparability of results in its earnings disclosures.

The amounts and timing of all estimates are subject to change until finalized. The actual amounts and timing may vary materially based on various factors. See “Cautionary Note Regarding Forward-Looking Statements” above.

Insider Trading Arrangements and Policies

During the quarter ended September 30, 2023, none of our information technology systems could have a negative impact on our reputation, regulatory compliance status, operations, sales and operating results,” we first became aware on April 17, 2021 that the Company might have been the victim of this event and thereafter confirmed through an investigation that unauthorized access was gained to the email accounts of five of our employees. In response to this event, the Company took immediate action to secure the compromised email accounts and to prevent the unauthorized person(s) from continuing to have access,directors or gaining future access, to the Company’s accounts or related information. Additionally, the Company implemented additional employee training to more effectively identify phishing attacks and to better understand the Company’s security applications.

Although the Company does not believe that the security event is material or that it had or will have a material impact on the Company’s business, operating results or financial condition, our investigation is complete and we believe that this event resultedofficers (as defined in the personal identifiable information of fewer than 2,000 individuals having been potentially accessible without authorization within the email accounts. We believe we have complied with applicable laws in notifying these individuals, either directly or through substitute notice, offering information, resources and up to two years of credit monitoring, as well as providing proper notice to various governmental departments and agencies and state regulators, including departments of insurance and other such departments or agencies with oversight over regulated insurance entities. If we failed to make such notifications within the timelines required under applicable laws it could result in violations, fines, penalties, litigation, proceedings or enforcement action. In addition, it is possible that state regulators may initiate investigationsSection 16 of the CompanySecurities Exchange Act of 1934, as amended), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in connection with the incident, that the Company could be subject to civil penalties, resolution agreements, monitoring or similar agreements, or third-party claims against the Company, including class-action lawsuits. Moreover, future incidentsItem 408 of this nature that could occur with respect to our systems or the systems of our third-party service providers, as well as any other security incident or other misuse or disclosure of our participant or other data could lead to improper use or disclosure of Company information, including personally identifiable information obtained from our participants, and information from employees. Any such incident or misuse of data could harm our reputation, lead to legal exposure, divert management attention and resources, increase our operating expenses due to the employment of consultants and third-party experts and the purchase of additional security infrastructure, and/or subject us to liability, resulting in increased costs and loss of revenue. In addition, any remediation efforts we undertake may not be successful. The perception that we do not adequately protect the privacy of information of our employees or clients could inhibit our growth and damage our reputation.
66
Regulation S-K).

47

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:

Exhibit

Number
Description
3.1

Exhibit

Number

Description

3.1

Amended and Restated Certificate of Incorporation of the Ryan Specialty Group Holdings, Inc., dated July 21, 2021 (incorporated by reference to Exhibit 3.1 to the Company’sRegistrant’s Form 8-K filed on July 27, 2021).

3.2

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Ryan Specialty Holdings, Inc., dated June 3, 2022 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on June 8, 2022).

3.3

Amended and Restated Bylaws of Ryan Specialty Group Holdings, Inc., dated July 21, 2021 (incorporated by reference to Exhibit 3.2 to the Company’sRegistrant’s Form 8-K filed on July 27, 2021)June 8, 2022).

4.1

Registration Rights Agreement, dated July 26, 2021, by and among Ryan Specialty Group Holdings, Inc., and the other signatories party thereto (incorporated by reference to Exhibit 4.1 to the Company’sRegistrant’s Form 8-K filed on July 27, 2021).

10.1

4.2

Indenture, dated as of February 3, 2022, by and among Ryan Specialty, LLC, the guarantors party thereto and U.S. Bank National Association as trustee and as notes collateral agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on February 7, 2022).

4.3

Form of 4.375% Senior Secured Notes due 2030 (incorporated by reference to Exhibit A to Exhibit 4.1 to the Registrant’s Form 8-K filed on February 7, 2022).

10.1

Amended and Restated Tax Receivable Agreement, dated as of July 26, 2021,August 9, 2022, by and among Ryan Specialty Group Holdings, Inc., and the other signatories party thereto (incorporated by reference to Exhibit 10.1 to the Company’sRegistrant’s Quarterly Report on Form 8-K10-Q filed on July 27, 2021)August 12, 2022).

10.2

SixthEighth Amended and Restated Limited Liability Company Agreement of Ryan Specialty, Group, LLC, dated as of July 26, 2021,5, 2023, by and among Ryan Specialty, Group,LLC, and the other signatories party thereto, filed herewith.

10.3

First Amendment to the Seventh Amended and Restated Limited Liability Company Agreement of Ryan Specialty, LLC, dated as of February 17, 2022, by and among Ryan Specialty, LLC, and the other signatories party thereto (incorporated by reference to Exhibit 10.210.3 to the Company’sRegistrant’s Quarterly Report on Form 8-K10-Q filed on July 27, 2021)May 13, 2022).

10.3

10.4

Form of Director and Officer Indemnification Agreement, by and among Ryan Specialty Group Holdings, Inc., and the other signatories party thereto (incorporated by reference to Exhibit 10.4 to Ryan Specialty Group Holdings, Inc.’sthe Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021).

10.4

10.5

Indemnification Agreement, by and among Ryan Specialty Group Holdings, Inc., and Patrick G. Ryan, dated as of July 26, 2021 (incorporated by reference to Exhibit 10.4 to the Company’sRegistrant’s Form 8-K filed on July 27, 2021).

10.5

10.6

Director Nomination Agreement, dated as of July 26, 2021, by and among Ryan Specialty Group Holdings, Inc., and the other signatories party thereto (incorporated by reference to Exhibit 10.5 to the Company’sRegistrant’s Form 8-K filed on July 27, 2021).

10.6

10.7

Ryan Specialty Group Holdings, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.110.7 to the Registrant’s Quarterly Report on Form 10-Q filed on August 12, 2022).

10.8

First Amendment to the Ryan Specialty Group Holdings, Inc.’s 2021 Omnibus Incentive Plan, (incorporated by reference to Exhibit 10.8 to the Registrant’s Form 10-K filed on March 1, 2023).

10.9

Ryan Specialty Holdings, Inc., Form of Nonqualified Stock Option Agreement (Stacking Option) (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 26,23, 2021).

10.10

Ryan Specialty Holdings, Inc., Form of Nonqualified Stock Option Agreement (Reload Option) (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

10.11

Ryan Specialty Holdings, Inc., Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

10.12

Ryan Specialty Holdings, Inc., Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

10.13

Ryan Specialty Holdings, Inc., Form of Class C Common Incentive Unit Grant Agreement (Staking Unit) (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

10.14

Ryan Specialty Holdings, Inc., Form of Class C Common Incentive Unit Grant Agreement (Reload Unit) (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

48

10.7

10.15

Ryan Specialty Holdings, Inc., Form of Common Unit Grant Agreement (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

10.16

Ryan Specialty Holdings, Inc., Form of Restricted LLC Unit Agreement (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-8 filed on July 23, 2021).

10.17

Ryan Specialty Holdings, Inc., Form of Restricted Stock Unit Agreement (Non-Employee Directors) (incorporated by reference to Exhibit 10.15 to the Registrant’s Form 10-K filed on March 16, 2022).

10.18

Ryan Specialty Holdings, Inc., Form of Restricted LLC Unit Agreement (2022) (incorporated by reference to Exhibit 10.17 to the Registrant’s Quarterly Report on Form 10-Q filed on May 13, 2022).

10.19

Fourth Amendment to the Credit Agreement, dated July 26, 2021,April 29, 2022, including Exhibit A, a conformed copy of the Credit Agreement, dated as of September 1, 2020, among Ryan Specialty, Group, LLC, and JPMorgan Chase Bank, N.A., as administrative agent and the other lenders party thereto, as amended March 30, 2021, July 26, 2021, August 13, 2021 and April 29, 2022 (incorporated by reference to Exhibit 10.510.18 to the Company’sRegistrant’s Quarterly Report on Form 8-K10-Q filed on July 27, 2021)May 13, 2022).

10.8

10.20

Amendment to the CreditThird Amended and Restated Limited Liability Company Operating Agreement dated August 13, 2021, amongof New Ryan Specialty, Group, LLC, dated as of July 5, 2023, by and JPMorgan Chase Bank, N.A., as administrative agentamong New Ryan Specialty, LLC, and the other lenderssignatories party thereto, filed herewith.

31.1

Certification of the Chief Executive Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2

Certification of the Chief Financial Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, filed herewith.

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32.2*

32.2*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, filed herewith.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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*
The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on
Form 10-Q
and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RYAN SPECIALTY GROUP HOLDINGS, INC. (Registrant)

RYAN SPECIALTY HOLDINGS, INC. (Registrant)

Date: SeptemberNovember 2, 20212023

By:

By:

/s/ Jeremiah R. Bickham

Jeremiah R. Bickham

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

69