Ryan Specialty Reports Second Quarter 2022 Results

- Total Revenue grew 26.0% year-over-year to $491.3 million -

- Organic Revenue Growth Rate of 22.3% year-over-year -

- Net Income of $70.1 million, or $0.22 per diluted share -

- Adjusted EBITDAC grew 18.2% year-over-year to $166.1 million -

- Adjusted Net Income grew 15.4% year-over-year to $106.4 million, or $0.39 per diluted share -

Ryan Specialty Holdings, Inc. (NYSE: RYAN) (“Ryan Specialty” or the “Company”), a leading international specialty insurance firm, today announced results for the second quarter ended June 30, 2022.

Second Quarter 2022 Highlights

  • Revenue grew 26.0% year-over-year to $491.3 million, compared to $390.0 million in the prior-year period
  • Organic Revenue Growth Rate* was 22.3% for the quarter, compared to 28.5% for the same quarter last year
  • Net Income increased 10.6% to $70.1 million, compared to $63.4 million in the prior-year period. Diluted Earnings per Share was $0.22
  • Adjusted EBITDAC* increased 18.2% to $166.1 million, compared to $140.5 million in the prior-year period
  • Adjusted EBITDAC Margin* of 33.8%, compared to 36.0% in the prior-year period
  • Adjusted Net Income* increased 15.4% to $106.4 million, compared to $92.3 million in the prior-year period
  • Adjusted Diluted Earnings per Share* for the second quarter of 2022 was $0.39

“Our second quarter performance once again demonstrated the strength and reliability of our differentiated business model. I am proud of our strong results, and we continue to have a long runway ahead of us,” said Patrick G. Ryan, Founder, Chairman and Chief Executive Officer of Ryan Specialty. “We delivered another quarter of outstanding revenue growth, led by an impressive 22.3% organic growth. Our teammates continue to outperform by innovating with new products and solutions and winning a substantial amount of new business. We remain confident that our proven ability to execute will enable us to continue to generate strong profitability over the long-term and outperform through various economic cycles.”

Summary of Second Quarter 2022 Results

 

 

Three Months Ended

June 30,

 

 

Change

 

 

Six Months Ended

June 30,

 

 

Change

 

(in thousands, except percentages and per share data)

 

2022

 

 

2021

 

 

$

 

 

%

 

 

2022

 

 

2021

 

 

$

 

 

%

 

GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

491,292

 

 

$

390,012

 

 

$

101,280

 

 

 

26.0

%

 

$

878,182

 

 

$

701,470

 

 

$

176,712

 

 

 

25.2

%

Compensation and benefits

 

 

310,058

 

 

 

236,801

 

 

 

73,257

 

 

 

30.9

 

 

 

584,331

 

 

 

451,287

 

 

 

133,044

 

 

 

29.5

 

General and administrative

 

 

48,495

 

 

 

30,685

 

 

 

17,810

 

 

 

58.0

 

 

 

90,860

 

 

 

58,230

 

 

 

32,630

 

 

 

56.0

 

Total operating expenses

 

 

385,764

 

 

 

297,750

 

 

 

88,014

 

 

 

29.6

 

 

 

729,267

 

 

 

569,365

 

 

 

159,902

 

 

 

28.1

 

Operating income

 

 

105,528

 

 

 

92,262

 

 

 

13,266

 

 

 

14.4

 

 

 

148,915

 

 

 

132,105

 

 

 

16,810

 

 

 

12.7

 

Net income

 

 

70,120

 

 

 

63,407

 

 

 

6,713

 

 

 

10.6

 

 

 

88,196

 

 

 

59,606

 

 

 

28,590

 

 

 

48.0

 

Net income attributable to Ryan Specialty Holdings, Inc.

 

 

24,501

 

 

 

63,407

 

 

 

(38,906

)

 

 

(61.4

)

 

 

31,412

 

 

 

57,156

 

 

 

(25,744

)

 

 

(45.0

)

Compensation and benefits expense ratio (1)

 

 

63.1

%

 

 

60.7

%

 

 

 

 

 

 

 

 

66.5

%

 

 

64.3

%

 

 

 

 

 

 

General and administrative expense ratio (2)

 

 

9.9

%

 

 

7.9

%

 

 

 

 

 

 

 

 

10.3

%

 

 

8.3

%

 

 

 

 

 

 

Net income margin

 

 

14.3

%

 

 

16.3

%

 

 

 

 

 

 

 

 

10.0

%

 

 

8.5

%

 

 

 

 

 

 

Earnings per share (3)

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

$

0.30

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share (3)

 

$

0.22

 

 

 

 

 

 

 

 

 

 

 

$

0.28

 

 

 

 

 

 

 

 

 

 

Non-GAAP financial measures*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Organic revenue growth rate

 

 

22.3

%

 

 

28.5

%

 

 

 

 

 

 

 

 

21.3

%

 

 

23.9

%

 

 

 

 

 

 

Adjusted compensation and benefits expense

 

$

280,827

 

 

$

220,495

 

 

$

60,332

 

 

 

27.4

%

 

$

522,157

 

 

$

412,862

 

 

$

109,295

 

 

 

26.5

%

Adjusted compensation and benefits expense ratio

 

 

57.2

%

 

 

56.5

%

 

 

 

 

 

 

 

 

59.5

%

 

 

58.9

%

 

 

 

 

 

 

Adjusted general and administrative expense

 

$

44,390

 

 

$

29,030

 

 

$

15,360

 

 

 

52.9

%

 

$

82,690

 

 

$

53,717

 

 

$

28,973

 

 

 

53.9

%

Adjusted general and administrative expense ratio

 

 

9.0

%

 

 

7.4

%

 

 

 

 

 

 

 

 

9.4

%

 

 

7.7

%

 

 

 

 

 

 

Adjusted EBITDAC

 

$

166,075

 

 

$

140,487

 

 

$

25,588

 

 

 

18.2

%

 

$

273,335

 

 

$

234,891

 

 

$

38,444

 

 

 

16.4

%

Adjusted EBITDAC margin

 

 

33.8

%

 

 

36.0

%

 

 

 

 

 

 

 

 

31.1

%

 

 

33.5

%

 

 

 

 

 

 

Adjusted net income

 

$

106,449

 

 

$

92,275

 

 

$

14,174

 

 

 

15.4

%

 

$

171,214

 

 

$

149,405

 

 

$

21,809

 

 

 

14.6

%

Adjusted net income margin

 

 

21.7

%

 

 

23.7

%

 

 

 

 

 

 

 

 

19.5

%

 

 

21.3

%

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

$

0.63

 

 

 

 

 

 

 

 

 

 

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

 

(1)

 

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

 

(2)

 

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

 

(3)

 

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

Second Quarter 2022 Review*

Total revenue for the second quarter of 2022 was $491.3 million, an increase of 26.0% compared to $390.0 million in the prior-year period. This increase was primarily due to continued strong Organic revenue growth of 22.3%, driven by new client wins, expanded relationships with existing clients, coupled with continued expansion of the E&S market, and revenue from acquisitions completed in the fourth quarter of 2021.

Total operating expenses for the second quarter of 2022 were $385.8 million, a 29.6% increase compared to the prior-year period. This was primarily due to an increase in Compensation and benefits expense, which is heavily correlated to revenue growth and an increase in public company costs over the comparable period. General and administrative expense also increased compared to the prior-year period to accommodate revenue growth, including continued normalization of business travel and client entertainment.

Net income for the second quarter of 2022 increased 10.6% to $70.1 million, compared to $63.4 million in the prior-year period. The increase was mainly due to strong year-over-year revenue growth, and the removal of non-operating loss related to the make-whole on our preferred equity that was retired at IPO, offset by higher interest and income tax expense. Diluted earnings per share for the second quarter of 2022 was $0.22.

Adjusted EBITDAC of $166.1 million grew 18.2% from $140.5 million in the prior-year period. Adjusted EBITDAC margin for the quarter was 33.8%, compared to 36.0% in the prior-year period. The increase in Adjusted EBITDAC was driven primarily by strong revenue growth, as well as the finalization of the Company’s 2020 restructuring plan, partially offset by increased Adjusted compensation and benefits expense, as well as higher Adjusted general and administrative expense. The restructuring plan, which the Company initiated in 2020, was completed and achieved a total of $29.4 million in run-rate savings, compared to the initial target of $25.0 million.

Adjusted net income for the second quarter of 2022 rose 15.4% to $106.4 million, compared to $92.3 million in the prior-year period. Adjusted net income margin was 21.7%, compared to 23.7% in the prior-year period. Adjusted diluted earnings per share for the second quarter of 2022 was $0.39.

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

Second Quarter 2022 Revenue by Specialty

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

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2022

 

 

% of

total

 

 

2021

 

 

% of

total

 

 

Change

 

Wholesale Brokerage

 

$

329,225

 

 

 

67.2

%

 

$

255,959

 

 

 

65.7

%

 

$

73,266

 

 

 

28.6

%

Binding Authorities

 

 

59,751

 

 

 

12.2

 

 

 

53,596

 

 

 

13.7

 

 

 

6,155

 

 

 

11.5

 

Underwriting Management

 

 

101,251

 

 

 

20.6

 

 

 

80,291

 

 

 

20.6

 

 

 

20,960

 

 

 

26.1

 

Total Net commissions and fees

 

$

490,227

 

 

 

 

 

$

389,846

 

 

 

 

 

$

100,381

 

 

 

25.7

%

Liquidity and Financial Condition

As of June 30, 2022, the Company had cash and cash equivalents of $866.7 million and outstanding debt principal of $2.0 billion.

Full Year 2022 Outlook*

The Company is raising its full year 2022 outlook for both Organic revenue growth rate and Adjusted EBITDAC margin as follows:

  • Organic revenue growth rate guidance range for the full year 2022 is now 16.5% – 18.0%, compared to the Company’s prior guidance range of 13.5% - 15.5%.
  • Adjusted EBITDAC margin guidance range for the full year 2022 is now 29.0% - 30.0%, compared to the Company’s prior guidance range of 28.5% - 30.0%.

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

Conference Call Information

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

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

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

About Ryan Specialty

Founded in 2010, Ryan Specialty (NYSE: RYAN) is a service provider of specialty products and solutions for insurance brokers, agents and carriers. Ryan Specialty provides distribution, underwriting, product development, administration and risk management services by acting as a wholesale broker and a managing underwriter 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. Learn more at ryansg.com.

Forward-Looking Statements

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

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

Non-GAAP Financial Measures and Key Performance Indicators

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

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

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

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

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

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

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

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

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

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

Adjusted diluted earnings per share: Adjusted diluted earnings per share is defined as Adjusted net income divided by diluted shares outstanding after adjusting for the effect of the exchange of 100% of the outstanding common units of New RS Holdings, LLC (together with the shares of Class B common stock) into shares of Class A common stock and the effect of unvested equity awards. The most directly comparable GAAP financial metric is Diluted earnings per share. The reconciliation of the above non-GAAP measures to their most directly comparable GAAP financial measure is set forth in the reconciliation table accompanying this release.

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

Consolidated Statements of Income (Unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except percentages and per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Net commissions and fees

 

$

490,227

 

 

$

389,846

 

 

$

876,908

 

 

$

701,190

 

Fiduciary investment income

 

 

1,065

 

 

 

166

 

 

 

1,274

 

 

 

280

 

Total revenue

 

$

491,292

 

 

$

390,012

 

 

$

878,182

 

 

$

701,470

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

310,058

 

 

 

236,801

 

 

 

584,331

 

 

 

451,287

 

General and administrative

 

 

48,495

 

 

 

30,685

 

 

 

90,860

 

 

 

58,230

 

Amortization

 

 

26,233

 

 

 

27,319

 

 

 

52,896

 

 

 

55,113

 

Depreciation

 

 

1,229

 

 

 

1,222

 

 

 

2,440

 

 

 

2,422

 

Change in contingent consideration

 

 

(251

)

 

 

1,723

 

 

 

(1,260

)

 

 

2,313

 

Total operating expenses

 

$

385,764

 

 

$

297,750

 

 

$

729,267

 

 

$

569,365

 

Operating income

 

$

105,528

 

 

$

92,262

 

 

$

148,915

 

 

$

132,105

 

Interest expense, net

 

 

24,846

 

 

 

18,986

 

 

 

46,598

 

 

 

39,031

 

(Income) loss from equity method investment in related party

 

 

16

 

 

 

(353

)

 

 

558

 

 

 

(434

)

Other non-operating loss (income)

 

 

(622

)

 

 

7,890

 

 

 

6,898

 

 

 

29,336

 

Income before income taxes

 

$

81,288

 

 

$

65,739

 

 

$

94,861

 

 

$

64,172

 

Income tax expense

 

 

11,168

 

 

 

2,332

 

 

 

6,665

 

 

 

4,566

 

Net income

 

$

70,120

 

 

$

63,407

 

 

$

88,196

 

 

$

59,606

 

GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

491,292

 

 

$

390,012

 

 

$

878,182

 

 

$

701,470

 

Compensation and benefits

 

 

310,058

 

 

 

236,801

 

 

 

584,331

 

 

 

451,287

 

General and administrative

 

 

48,495

 

 

 

30,685

 

 

 

90,860

 

 

 

58,230

 

Net income

 

$

70,120

 

 

$

63,407

 

 

$

88,196

 

 

$

59,606

 

Compensation and benefits expense ratio

 

 

63.1

%

 

 

60.7

%

 

 

66.5

%

 

 

64.3

%

General and administrative expense ratio

 

 

9.9

%

 

 

7.9

%

 

 

10.3

%

 

 

8.3

%

Net income margin

 

 

14.3

%

 

 

16.3

%

 

 

10.0

%

 

 

8.5

%

Earnings per share

 

$

0.23

 

 

 

 

 

$

0.30

 

 

 

 

Diluted earnings per share

 

$

0.22

 

 

 

 

 

$

0.28

 

 

 

 

Non-GAAP Financial Measures (unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except percentages and per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Non-GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

Organic revenue growth rate

 

 

22.3

%

 

 

28.5

%

 

 

21.3

%

 

 

23.9

%

Adjusted compensation and benefits expense

 

$

280,827

 

 

$

220,495

 

 

$

522,157

 

 

$

412,862

 

Adjusted compensation and benefits expense ratio

 

 

57.2

%

 

 

56.5

%

 

 

59.5

%

 

 

58.9

%

Adjusted general and administrative expense

 

$

44,390

 

 

$

29,030

 

 

$

82,690

 

 

$

53,717

 

Adjusted general and administrative expense ratio

 

 

9.0

%

 

 

7.4

%

 

 

9.4

%

 

 

7.7

%

Adjusted EBITDAC

 

$

166,075

 

 

$

140,487

 

 

$

273,335

 

 

$

234,891

 

Adjusted EBITDAC margin

 

 

33.8

%

 

 

36.0

%

 

 

31.1

%

 

 

33.5

%

Adjusted net income

 

$

106,449

 

 

$

92,275

 

 

$

171,214

 

 

$

149,405

 

Adjusted net income margin

 

 

21.7

%

 

 

23.7

%

 

 

19.5

%

 

 

21.3

%

Adjusted diluted earnings per share

 

$

0.39

 

$

0.63

 

 

Consolidated Statements of Financial Position (Unaudited)

(in thousands, except unit and par value data)

 

June 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

866,669

 

 

$

386,962

 

Commissions and fees receivable – net

 

 

244,753

 

 

 

210,252

 

Fiduciary cash and receivables

 

 

2,817,798

 

 

 

2,390,185

 

Prepaid incentives – net

 

 

7,914

 

 

 

7,726

 

Other current assets

 

 

18,306

 

 

 

15,882

 

Total current assets

 

$

3,955,440

 

 

$

3,011,007

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Goodwill

 

 

1,313,366

 

 

 

1,309,267

 

Other intangible assets

 

 

524,808

 

 

 

573,930

 

Prepaid incentives – net

 

 

22,380

 

 

 

25,382

 

Equity method investment in related party

 

 

40,522

 

 

 

45,417

 

Property and equipment – net

 

 

16,039

 

 

 

15,290

 

Lease right-of-use assets

 

 

132,003

 

 

 

84,874

 

Deferred tax assets

 

 

404,235

 

 

 

382,753

 

Other non-current assets

 

 

33,624

 

 

 

10,788

 

Total non-current assets

 

$

2,486,977

 

 

$

2,447,701

 

TOTAL ASSETS

 

$

6,442,417

 

 

$

5,458,708

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

79,456

 

 

 

99,403

 

Accrued compensation

 

 

394,804

 

 

 

386,301

 

Operating lease liabilities

 

 

18,355

 

 

 

18,783

 

Tax Receivable Agreement liabilities

 

 

7,977

 

 

 

 

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

 

 

28,949

 

 

 

23,469

 

Fiduciary liabilities

 

 

2,817,798

 

 

 

2,390,185

 

Total current liabilities

 

$

3,347,339

 

 

$

2,918,141

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

Accrued compensation

 

 

6,619

 

 

 

4,371

 

Operating lease liabilities

 

 

125,249

 

 

 

74,386

 

Long-term debt

 

 

1,955,027

 

 

 

1,566,627

 

Deferred tax liabilities

 

 

666

 

 

 

631

 

Tax Receivable Agreement liabilities

 

 

285,787

 

 

 

272,100

 

Other non-current liabilities

 

 

20,216

 

 

 

27,675

 

Total non-current liabilities

 

$

2,393,564

 

 

$

1,945,790

 

TOTAL LIABILITIES

 

$

5,740,903

 

 

$

4,863,931

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Class A common stock ($0.001 par value; 1,000,000,000 shares authorized, 111,206,112 and 109,894,548 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)

 

 

111

 

 

 

110

 

Class B common stock ($0.001 par value; 1,000,000,000 shares authorized, 147,990,243 and 149,162,107 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)

 

 

148

 

 

 

149

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

Additional paid-in capital

 

 

385,908

 

 

 

348,865

 

Retained earnings (accumulated deficit)

 

 

24,348

 

 

 

(7,064

)

Accumulated other comprehensive income (loss)

 

 

(1,259

)

 

 

1,714

 

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

 

$

409,256

 

 

$

343,774

 

Non-controlling interests

 

 

292,258

 

 

 

251,003

 

Total stockholders' equity

 

 

701,514

 

 

 

594,777

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

6,442,417

 

 

$

5,458,708

Consolidated Statements of Cash Flows (Unaudited)

 

 

Six Months Ended June 30,

 

(in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

88,196

 

 

$

59,606

 

Adjustments to reconcile net income to cash flows provided by (used for) operating activities:

 

 

 

 

 

 

Loss (gain) from equity method investment

 

 

558

 

 

 

(434

)

Amortization

 

 

52,896

 

 

 

55,113

 

Depreciation

 

 

2,440

 

 

 

2,422

 

Prepaid and deferred compensation expense

 

 

18,341

 

 

 

23,035

 

Non-cash equity-based compensation

 

 

43,028

 

 

 

7,595

 

Amortization of deferred debt issuance costs

 

 

5,984

 

 

 

4,748

 

Deferred income tax benefit

 

 

(6,866

)

 

 

(40

)

Loss on Tax Receivable Agreement

 

 

7,173

 

 

 

 

Change (net of acquisitions) in:

 

 

 

 

 

 

Commissions and fees receivable – net

 

 

(33,755

)

 

 

(29,089

)

Accrued interest liability

 

 

7,456

 

 

 

333

 

Other current assets and accrued liabilities

 

 

(5,565

)

 

 

(11,932

)

Other non-current assets and accrued liabilities

 

 

(16,334

)

 

 

(3,642

)

Total cash flows provided by operating activities

 

$

164,711

 

 

$

107,715

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Prepaid incentives – repayments

 

 

7

 

 

 

3,786

 

Capital expenditures

 

 

(6,797

)

 

 

(3,941

)

Total cash flows used for investing activities

 

$

(6,790

)

 

$

(155

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from senior secured notes

 

 

394,000

 

 

 

 

Payment of interest rate cap premium

 

 

(25,500

)

 

 

 

Repayment of term debt

 

 

(8,250

)

 

 

(8,250

)

Deferred offering costs paid

 

 

 

 

 

(4,191

)

Debt issuance costs paid

 

 

(2,369

)

 

 

(1,289

)

Finance lease and other costs paid

 

 

(18

)

 

 

(75

)

Payment of contingent consideration

 

 

(6,241

)

 

 

 

Purchase of remaining interest in RyanRe

 

 

 

 

 

(48,368

)

Equity repurchases from pre-IPO unitholders

 

 

 

 

 

(3,880

)

Cash distribution to LLC unitholders

 

 

(26,222

)

 

 

(47,039

)

Receipt of taxes related to net share settlement of equity awards

 

 

1,062

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(1,062

)

 

 

 

Net change in fiduciary liabilities

 

 

54,357

 

 

 

93,671

 

Total cash flows provided by (used in) financing activities

 

$

379,757

 

 

$

(19,421

)

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

capacity

 

$

352

 

 

 

(537

)

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

 

$

538,030

 

 

$

87,602

 

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

 

$

1,139,661

 

 

$

895,704

 

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

 

$

1,677,691

 

 

$

983,306

 

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

 

$

1,677,691

 

 

$

983,306

Net Commissions and Fees

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2022

 

 

% of

total

 

 

2021

 

 

% of

total

 

 

Change

 

Wholesale Brokerage

 

$

329,225

 

 

 

67.2

%

 

$

255,959

 

 

 

65.7

%

 

$

73,266

 

 

 

28.6

%

Binding Authorities

 

 

59,751

 

 

 

12.2

 

 

 

53,596

 

 

 

13.7

 

 

 

6,155

 

 

 

11.5

 

Underwriting Management

 

 

101,251

 

 

 

20.6

 

 

 

80,291

 

 

 

20.6

 

 

 

20,960

 

 

 

26.1

 

Total Net commissions and fees

 

$

490,227

 

 

 

 

 

$

389,846

 

 

 

 

 

$

100,381

 

 

 

25.7

%

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2022

 

 

% of

total

 

 

2021

 

 

% of

total

 

 

Change

 

Wholesale Brokerage

 

$

574,051

 

 

 

65.5

%

 

$

447,083

 

 

 

63.8

%

 

$

126,968

 

 

 

28.4

%

Binding Authorities

 

 

122,744

 

 

 

14.0

 

 

 

108,641

 

 

 

15.5

 

 

 

14,103

 

 

 

13.0

 

Underwriting Management

 

 

180,113

 

 

 

20.5

 

 

 

145,466

 

 

 

20.7

 

 

 

34,647

 

 

 

23.8

 

Total Net commissions and fees

 

$

876,908

 

 

 

 

 

$

701,190

 

 

 

 

 

$

175,718

 

 

 

25.1

%

Reconciliation of Organic Revenue Growth Rate to Total Revenue Growth Rate

 

 

Three Months Ended June 30,

 

 

 

2022

 

 

2021

 

Total revenue growth rate (GAAP) (1)

 

 

26.0

%

 

 

58.3

%

Less: Mergers and acquisitions (2)

 

 

(2.8

)

 

 

(30.3

)

Change in other (3)

 

 

(0.9

)

 

 

0.5

 

Organic revenue growth rate (Non-GAAP)

 

 

22.3

%

 

 

28.5

%

(1)

 

June 30, 2022 revenue of $491.3 million less June 30, 2021 revenue of $390.0 million is a $101.3 million period-over-period change. The change, $101.3 million, divided by the June 30, 2021 revenue of $390.0 million is a total revenue change of 26.0%. 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%. Refer to “Comparison of the Three Months Ended June 30, 2022 and 2021” in the 10-Q for further discussion.

 

(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, 2022 and three months ended June 30, 2021 was $11.0 million and $74.7 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, 2022 and three months ended June 30, 2021 was $(3.7) million and $1.3 million, respectively.

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Total revenue growth rate (GAAP) (1)

 

 

25.2

%

 

 

54.3

%

Less: Mergers and acquisitions (2)

 

 

(3.1

)

 

 

(30.8

)

Change in other (3)

 

 

(0.8

)

 

 

0.4

 

Organic revenue growth rate (Non-GAAP)

 

 

21.3

%

 

 

23.9

%

(1)

 

June 30, 2022 revenue of $878.2 million less June 30, 2021 revenue of $701.5 million is a $176.7 million period-over-period change. The change, $176.7 million, divided by the June 30, 2021 revenue of $701.5 million is a total revenue change of 25.2%. June 30, 2021 revenue of $701.5 million less June 30, 2020 revenue of $454.5 million is a $247.0 million period-over-period 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%. Refer to “Comparison of the Six Months Ended June 30, 2022 and 2021” in the 10-Q for further discussion.

     

(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, 2022 and six months ended June 30, 2021 was $21.6 million and $140.0 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 six months ended June 30, 2022 and six months ended June 30, 2021 was $(6.0) million and $1.5 million, respectively.

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

 

 

Three Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

491,292

 

 

$

390,012

 

Compensation and benefits expense

 

$

310,058

 

 

$

236,801

 

Acquisition-related expense

 

 

(43

)

 

 

 

Acquisition related long-term incentive compensation

 

 

(7,101

)

 

 

(9,082

)

Restructuring and related expense

 

 

(547

)

 

 

(2,162

)

Amortization and expense related to discontinued prepaid incentives

 

 

(1,760

)

 

 

(1,604

)

Equity-based compensation

 

 

(5,676

)

 

 

(3,458

)

Initial public offering related expense

 

 

(14,104

)

 

 

 

Adjusted compensation and benefits expense (1)

 

$

280,827

 

 

$

220,495

 

Compensation and benefits expense ratio

 

 

63.1

%

 

 

60.7

%

Adjusted compensation and benefits expense ratio

 

 

57.2

%

 

 

56.5

%

(1)

 

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

 

 

Six Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

878,182

 

 

$

701,470

 

Compensation and benefits expense

 

$

584,331

 

 

$

451,287

 

Acquisition-related expense

 

 

(101

)

 

 

 

Acquisition related long-term incentive compensation

 

 

(14,798

)

 

 

(18,504

)

Restructuring and related expense

 

 

(705

)

 

 

(8,351

)

Amortization and expense related to discontinued prepaid incentives

 

 

(3,542

)

 

 

(3,682

)

Equity-based compensation

 

 

(12,480

)

 

 

(7,888

)

Initial public offering related expense

 

 

(30,548

)

 

 

 

Adjusted compensation and benefits expense (1)

 

$

522,157

 

 

$

412,862

 

Compensation and benefits expense ratio

 

 

66.5

%

 

 

64.3

%

Adjusted compensation and benefits expense ratio

 

 

59.5

%

 

 

58.9

%

(1)

 

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

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

 

 

Three Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

491,292

 

 

$

390,012

 

General and administrative expense

 

$

48,495

 

 

$

30,685

 

Acquisition-related expense

 

 

(1,600

)

 

 

(308

)

Restructuring and related expense

 

 

(2,027

)

 

 

(1,012

)

Other non-recurring expense

 

 

 

 

 

(19

)

Initial public offering related expense

 

 

(478

)

 

 

(316

)

Adjusted general and administrative expense (1)

 

$

44,390

 

 

$

29,030

 

General and administrative expense ratio

 

 

9.9

%

 

 

7.9

%

Adjusted general and administrative expense ratio

 

 

9.0

%

 

 

7.4

%

(1)

 

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

 

 

Six Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

878,182

 

 

$

701,470

 

General and administrative expense

 

$

90,860

 

 

$

58,230

 

Acquisition-related expense

 

 

(2,051

)

 

 

(2,022

)

Restructuring and related expense

 

 

(4,993

)

 

 

(1,821

)

Other non-recurring expense

 

 

 

 

 

(354

)

Initial public offering related expense

 

 

(1,126

)

 

 

(316

)

Adjusted general and administrative expense (1)

 

$

82,690

 

 

$

53,717

 

General and administrative expense ratio

 

 

10.3

%

 

 

8.3

%

Adjusted general and administrative expense ratio

 

 

9.4

%

 

 

7.7

%

(1)

 

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

Reconciliation of Adjusted EBITDAC to Net Income

 

 

Three Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

491,292

 

 

$

390,012

 

Net income

 

$

70,120

 

 

$

63,407

 

Interest expense, net

 

 

24,846

 

 

 

18,986

 

Income tax expense

 

 

11,168

 

 

 

2,332

 

Depreciation

 

 

1,229

 

 

 

1,222

 

Amortization

 

 

26,233

 

 

 

27,319

 

Change in contingent consideration

 

 

(251

)

 

 

1,723

 

EBITDAC

 

$

133,345

 

 

$

114,989

 

Acquisition-related expense (1)

 

 

1,643

 

 

 

308

 

Acquisition related long-term incentive compensation (2)

 

 

7,101

 

 

 

9,082

 

Restructuring and related expense (3)

 

 

2,574

 

 

 

3,174

 

Amortization and expense related to discontinued prepaid incentives (4)

 

 

1,760

 

 

 

1,604

 

Other non-operating loss (income) (5)

 

 

(622

)

 

 

7,890

 

Equity-based compensation (6)

 

 

5,676

 

 

 

3,458

 

Other non-recurring expense (7)

 

 

 

 

 

19

 

IPO related expenses (8)

 

 

14,582

 

 

 

316

 

(Income) from equity method investments in related party

 

 

16

 

 

 

(353

)

Adjusted EBITDAC (9)

 

$

166,075

 

 

$

140,487

 

Net income margin (10)

 

 

14.3

%

 

 

16.3

%

Adjusted EBITDAC margin

 

 

33.8

%

 

 

36.0

%

(1)

 

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were de minimis for the three months ended June 30, 2022, while General and administrative expenses contributed to $1.6 million and $0.3 million of the acquisition-related expense for three months ended June 30, 2022 and 2021, respectively.

 

 

(2)

 

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

 

 

(3)

 

Restructuring and related expense consists of compensation and benefits of $0.5 million and $2.2 million for three months ended June 30, 2022 and 2021, respectively, and General and administrative costs including occupancy and professional services fees of $2.0 million and $1.0 million for three months ended June 30, 2022 and 2021, respectively, related to the Restructuring Plan. The compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

 

 

(4)

 

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

 

 

(5)

 

For the three months ended June 30, 2022, Other non-operating loss (income) includes a $(0.5) million change in the TRA liability caused by an update in our blended state tax rates. For the three months ended June 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $8.0 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined  in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction.

 

 

(6)

 

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

 

 

(7)

 

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

 

 

(8)

 

Initial public offering related expenses include $0.5 million and $0.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the three months ended June 30, 2022 and 2021, respectively, and Compensation-related expense of $14.1 million for the three months ended June 30, 2022 primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

 

 

(9)

 

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

 

 

(10)

 

Net income margin is Net income as a percentage of Total revenue.

 

 

Six Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

878,182

 

 

$

701,470

 

Net income

 

$

88,196

 

 

$

59,606

 

Interest expense, net

 

 

46,598

 

 

 

39,031

 

Income tax expense (benefit)

 

 

6,665

 

 

 

4,566

 

Depreciation

 

 

2,440

 

 

 

2,422

 

Amortization

 

 

52,896

 

 

 

55,113

 

Change in contingent consideration

 

 

(1,260

)

 

 

2,313

 

EBITDAC

 

$

195,535

 

 

$

163,051

 

Acquisition-related expense (1)

 

 

2,152

 

 

 

2,022

 

Acquisition related long-term incentive compensation (2)

 

 

14,798

 

 

 

18,504

 

Restructuring and related expense (3)

 

 

5,698

 

 

 

10,172

 

Amortization and expense related to discontinued prepaid incentives (4)

 

 

3,542

 

 

 

3,682

 

Other non-operating loss (income) (5)

 

 

6,898

 

 

 

29,336

 

Equity-based compensation (6)

 

 

12,480

 

 

 

7,888

 

Other non-recurring expense (7)

 

 

 

 

 

354

 

IPO related expenses (8)

 

 

31,674

 

 

 

316

 

(Income) from equity method investments in related party

 

 

558

 

 

 

(434

)

Adjusted EBITDAC (9)

 

$

273,335

 

 

$

234,891

 

Net income margin (10)

 

 

10.0

%

 

 

8.5

%

Adjusted EBITDAC margin

 

 

31.1

%

 

 

33.5

%

(1)

 

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $0.1 million for the six months ended June 30, 2022, while General and administrative expenses contributed to $2.1 million and $2.0 million of the acquisition-related expense for the six months ended June 30, 2022 and 2021, respectively.

 

   

(2)

 

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

 

   

(3)

 

Restructuring and related expense consists of compensation and benefits of $0.7 million and $8.4 million for the six months ended June 30, 2022 and 2021, respectively, and General and administrative costs including occupancy and professional services fees of $5.0 million and $1.8 million for the six months ended June 30, 2022 and 2021, respectively, related to the Restructuring Plan. The compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

 

   

(4)

 

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

 

   

(5)

 

For the six months ended June 30, 2022, Other non-operating loss (income) includes a $7.2 million charge related to the change in the TRA liability caused by a change in our blended state tax rates. For the six months ended June 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $20.6 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined  in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction. For the six months ended June 30, 2021, Other non-operating loss (income) also includes expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt.

 

   

(6)

 

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

 

   

(7)

 

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

 

   

(8)

 

Initial public offering related expenses include $1.1 million and $0.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the six months ended June 30, 2022 and 2021, respectively, and Compensation-related expense of $30.5 million for the six months ended June 30, 2022 primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

 

   

(9)

 

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

 

   

(10)

 

Net income margin is Net income as a percentage of Total revenue.

Reconciliation of Adjusted Net Income to Net Income

 

 

Three Months Ended June 30,

 

(in thousands, except percentages)

 

2022

 

 

2021

 

Total revenue

 

$

491,292

 

 

$

390,012

 

Net income

 

$

70,120

 

 

$

63,407

 

Income tax expense

 

 

11,168

 

 

 

2,332

 

Amortization

 

 

26,233

 

 

 

27,319

 

Amortization of deferred debt issuance costs (1)

 

 

3,173

 

 

 

2,754

 

Change in contingent consideration

 

 

(251

)

 

 

1,723

 

Acquisition-related expense (2)

 

 

1,643

 

 

 

308

 

Acquisition related long-term incentive compensation (3)

 

 

7,101

 

 

 

9,082

 

Restructuring and related expense (4)

 

 

2,574

 

 

 

3,174

 

Amortization and expense related to discontinued prepaid incentives (5)

 

 

1,760

 

 

 

1,604

 

Other non-operating loss (income) (6)

 

 

(622

)

 

 

7,890

 

Equity-based compensation (7)

 

 

5,676

 

 

 

3,458

 

Other non-recurring expense (8)

 

 

 

 

 

19

 

IPO related expenses (9)

 

 

14,582

 

 

 

316

 

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

 

 

16

 

 

 

(353

)

Adjusted income before income taxes

 

$

143,173

 

 

$

123,033

 

Adjusted tax expense (10)

 

 

(36,724

)

 

 

(30,758

)

Adjusted net income (11)

 

$

106,449

 

 

$

92,275

 

Net income margin (12)

 

 

14.3

%

 

 

16.3

%

Adjusted net income margin

 

 

21.7

%

 

 

23.7

%

(1)

 

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

 

 

(2)

 

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were de minimis for the three months ended June 30, 2022, while General and administrative expenses contributed to $1.6 million and $0.3 million of the acquisition-related expense for three months ended June 30, 2022 and 2021, respectively.

 

 

(3)

 

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

 

 

(4)

 

Restructuring and related expense consists of compensation and benefits of $0.5 million and $2.2 million for three months ended June 30, 2022 and 2021, respectively, and General and administrative costs including occupancy and professional services fees of $2.0 million and $1.0 million for three months ended June 30, 2022 and 2021, respectively, related to the Restructuring Plan. The compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

 

 

(5)

 

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

 

 

(6)

 

For the three months ended June 30, 2022, Other non-operating loss (income) includes a $(0.5) million change in the TRA liability caused by an update in our blended state tax rates. For the three months ended June 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $8.0 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined as a Qualified Public Offering or a Sale Transaction in the Onex Purchase Agreement.

 

 

(7)

 

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

 

 

(8)

 

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

 

 

(9)

 

Initial public offering related expenses include $0.5 million and $0.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the three months ended June 30, 2022 and 2021, respectively, and Compensation-related expense of $14.1 million for the three months ended June 30, 2022 primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

 

 

(10)

 

The Company is subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of RS LLC. For the three months ended June 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 RS LLC. For the three months ended June 30, 2021, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 4.00% on 100% of our adjusted income before income taxes as if the Company owned 100% of RS LLC.

 

 

(11)

 

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

 

 

(12)

 

Net income margin is Net income as a percentage of Total revenue.

 

 

Six Months Ended June 30,

 

(in thousands, except percentages)

 

2022 

 

 

 2021

 

Total revenue

 

$

878,182

 

 

$

701,470

 

Net income

 

$

88,196

 

 

$

59,606

 

Income tax expense

 

 

6,665

 

 

 

4,566

 

Amortization

 

 

52,896

 

 

 

55,113

 

Amortization of deferred debt issuance costs (1)

 

 

5,984

 

 

 

5,769

 

Change in contingent consideration

 

 

(1,260

)

 

 

2,313

 

Acquisition-related expense (2)

 

 

2,152

 

 

 

2,022

 

Acquisition related long-term incentive compensation (3)

 

 

14,798

 

 

 

18,504

 

Restructuring and related expense (4)

 

 

5,698

 

 

 

10,172

 

Amortization and expense related to discontinued prepaid incentives (5)

 

 

3,542

 

 

 

3,682

 

Other non-operating loss (income) (6)

 

 

6,898

 

 

 

29,336

 

Equity-based compensation (7)

 

 

12,480

 

 

 

7,888

 

Other non-recurring items (8)

 

 

 

 

 

354

 

IPO related expenses (9)

 

 

31,674

 

 

 

316

 

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

 

 

558

 

 

 

(434

)

Adjusted income before income taxes

 

$

230,281

 

 

$

199,207

 

Adjusted tax expense (10)

 

 

(59,067

)

 

 

(49,802

)

Adjusted net income (11)

 

$

171,214

 

 

$

149,405

 

Net income margin (12)

 

 

10.0

%

 

 

8.5

%

Adjusted net income margin

 

 

19.5

%

 

 

21.3

%

(1)

 

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

 

 

 

(2)

 

Acquisition-related expense includes diligence, transaction-related, and integration costs. Compensation and benefits expenses were $0.1 million for the six months ended June 30, 2022, while General and administrative expenses contributed to $2.1 million and $2.0 million of the acquisition-related expense for the six months ended June 30, 2022 and 2021, respectively.

 

 

 

(3)

 

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

 

 

 

(4)

 

Restructuring and related expense consists of compensation and benefits of $0.7 million and $8.4 million for the six months ended June 30, 2022 and 2021, respectively, and General and administrative costs including occupancy and professional services fees of $5.0 million and $1.8 million for the six months ended June 30, 2022 and 2021, respectively, related to the Restructuring Plan. The compensation and benefits expense includes severance as well as employment costs related to services rendered between the notification and termination dates. See “Note 5, Restructuring” of the unaudited quarterly consolidated financial statements for further discussion. The remaining costs that preceded the Restructuring Plan were associated with organizational design, other severance, and non-recurring lease costs.

 

 

 

(5)

 

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

 

 

 

(6)

 

For the six months ended June 30, 2022, Other non-operating loss (income) includes a $7.2 million charge related to the change in the TRA liability caused by a change in our blended state tax rates. For the six months ended June 30, 2021, Other non-operating loss (income) includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units. This change in fair value of $20.6 million was due to the occurrence of a Realization Event in the third quarter of 2021, which is defined  in the Onex Purchase Agreement as a Qualified Public Offering or a Sale Transaction. For the six months ended June 30, 2021, Other non-operating loss (income) also includes expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt.

 

 

 

(7)

 

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

 

 

 

(8)

 

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

 

 

 

(9)

 

Initial public offering related expenses include $1.1 million and $0.3 million of General and administrative expense associated with the preparations for Sarbanes-Oxley compliance, tax, and accounting advisory services on IPO-related structure changes for the six months ended June 30, 2022 and 2021, respectively, and Compensation-related expense of $30.5 million for the six months ended June 30, 2022 primarily related to the revaluation of existing equity awards at IPO as well as expense for new awards issued at IPO.

 

 

 

(10)

 

The Company is subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of RS LLC. For the six months ended June 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 RS LLC. For the six months ended June 30, 2021, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 4.00% on 100% of our adjusted income before income taxes as if the Company owned 100% of RS LLC.

 

 

 

(11)

 

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

 

 

 

(12)

 

Net income margin is Net income as a percentage of Total revenue.

   

 

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

 

 

Three Months Ended June 30, 2022

 

 

 

 

 

Adjustments

 

 

 

 

 

 

U.S. GAAP

 

 

Less: Net income

attributed to

dilutive awards

and

substantively

vested shares (1)

 

 

Plus: Impact of

all LLC Common

Units exchanged

for Class A shares

(2)

 

 

Plus:

Adjustments

to Adjusted

net income

(3)

 

 

Plus: Dilutive

impact of

unvested

equity awards

(4)

 

 

Adjusted

diluted

earnings

per share

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Class A common shareholders- diluted

 

$

26,432

 

 

$

(1,931

)

 

$

45,619

 

 

$

36,329

 

 

$

 

 

$

106,449

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

120,205

 

 

 

 

 

 

144,495

 

 

 

 

 

 

5,090

 

 

 

269,791

 

Net income per share of Class A common stock- diluted

 

$

0.22

 

 

$

(0.02

)

 

$

0.06

 

 

$

0.14

 

 

$

(0.01

)

 

$

0.39

 

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

 

(2)

 

For comparability purposes, this calculation incorporates the Net income and weighted average shares of Class A common stock that would be outstanding if all LLC Common Units (together with shares of Class B common stock) were exchanged for shares of Class A common stock. See “Note 12, Earnings 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 in “Adjusted Net Income and Adjusted Net Income Margin.”

 

(4)

 

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

 

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 U.S. GAAP

 

 

 Less: Net income

attributed to

dilutive awards

and

substantively

vested shares (1)

 

 

Plus: Net income

attributed to

non-controlling

interests

(2)
 

 

 

Plus:

Adjustments

to Adjusted

net income

(3)
 

 

 

Plus: Dilutive

impact of

unvested

equity awards

(4)
 

 

 

Adjusted

Diluted

Earnings

per Share
 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

73,726

 

 

$

(42,314

)

 

$

56,784

 

 

$

83,018

 

 

$

 

 

$

171,214

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

264,417

 

 

 

 

 

 

 

 

 

 

 

 

5,386

 

 

 

269,804

 

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

 

$

0.28

 

 

$

(0.16

)

 

$

0.21

 

 

$

0.32

 

 

$

(0.02

)

 

$

0.63

 

(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. See “Note 12, Earnings 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. The 143,962 weighted average outstanding LLC Common Units were considered dilutive for the six months ended June 30, 2022 and included in the 264,417 of Weighted-average shares outstanding within Diluted EPS. See “Note 12, Earnings 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 in “Adjusted Net Income and Adjusted Net Income Margin.”

 

(4)

 

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

 

Contacts

Investor Relations

Noah Angeletti

SVP, Head of Investor Relations & Treasurer

Ryan Specialty

IR@ryansg.com

Phone: (312) 784-6152

Media Relations

Alice Phillips Topping

SVP, Chief Marketing & Communications Officer

Ryan Specialty

Alice.Topping@ryansg.com

Phone: (312) 635-5976

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