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Ryan Specialty Reports First Quarter 2023 Results

- Total Revenue grew 18.3% year-over-year to $457.6 million -

- Organic Revenue Growth Rate of 12.9% year-over-year -

- Net Income of $36.5 million, or $0.11 per diluted share -

- Adjusted EBITDAC grew 16.5% year-over-year to $125.0 million -

- Adjusted Net Income increased 10.9% year over year to $71.8 million, or $0.26 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 first quarter ended March 31, 2023.

First Quarter 2023 Highlights

  • Revenue grew 18.3% year-over-year to $457.6 million, compared to $386.9 million in the prior-year period
  • Organic Revenue Growth Rate* was 12.9% for the quarter, compared to 20.1% in the prior-year period
  • Net Income grew 101.7% year-over-year to $36.5 million, compared to $18.1 million in the prior-year period. Diluted Earnings per Share was $0.11
  • Adjusted EBITDAC* increased 16.5% to $125.0 million, compared to $107.3 million in the prior-year period
  • Adjusted EBITDAC Margin* of 27.3%, compared to 27.7% in the prior-year period
  • Adjusted Net Income* increased 10.9% to $71.8 million, compared to $64.7 million in the prior-year period
  • Adjusted Diluted Earnings per Share* increased 8.3% to $0.26, compared to $0.24 in the prior-year period

“The first quarter represents a strong start to the year, generating another quarter of double-digit organic growth in the face of a persistently challenging macro environment and further validating the resilience of our differentiated business model and platform,” said Patrick G. Ryan, Founder, Chairman and Chief Executive Officer of Ryan Specialty. “Our performance was driven by broad-based growth across the portfolio, led by Property where we continue to deliver for our clients in a historically hard market. Looking ahead, I remain confident that 2023 will be another strong year for our firm. We continue to be well positioned to expand our capabilities while generating sustainable and profitable growth for our investors.”

Summary of First Quarter 2023 Results

 

 

Three Months Ended March 31,

 

 

Change

 

(in thousands, except percentages and per share data)

 

2023

 

 

2022

 

 

$

 

 

%

 

GAAP financial measures

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

457,599

 

 

$

386,890

 

 

$

70,709

 

 

 

18.3

%

Compensation and benefits

 

 

307,722

 

 

 

274,274

 

 

 

33,448

 

 

 

12.2

 

General and administrative

 

 

51,699

 

 

 

42,361

 

 

 

9,338

 

 

 

22.0

 

Total operating expenses

 

 

387,512

 

 

 

343,501

 

 

 

44,011

 

 

 

12.8

 

Operating income

 

 

70,087

 

 

 

43,389

 

 

 

26,698

 

 

 

61.5

 

Net income

 

 

36,457

 

 

 

18,076

 

 

 

18,381

 

 

 

101.7

 

Net income attributable to Ryan Specialty Holdings, Inc.

 

 

13,160

 

 

 

6,911

 

 

 

6,249

 

 

 

90.4

 

Compensation and benefits expense ratio (1)

 

 

67.2

%

 

 

70.9

%

 

 

 

 

 

 

General and administrative expense ratio (2)

 

 

11.3

%

 

 

10.9

%

 

 

 

 

 

 

Net income margin (3)

 

 

8.0

%

 

 

4.7

%

 

 

 

 

 

 

Earnings per share (4)

 

$

0.12

 

 

$

0.07

 

 

 

 

 

 

 

Diluted earnings per share (4)

 

$

0.11

 

 

$

0.06

 

 

 

 

 

 

 

Non-GAAP financial measures*

 

 

 

 

 

 

 

 

 

 

 

 

Organic revenue growth rate

 

 

12.9

%

 

 

20.1

%

 

 

 

 

 

 

Adjusted compensation and benefits expense

 

$

285,885

 

 

$

241,331

 

 

$

44,554

 

 

 

18.5

%

Adjusted compensation and benefits expense ratio

 

 

62.5

%

 

 

62.4

%

 

 

 

 

 

 

Adjusted general and administrative expense

 

$

46,699

 

 

$

38,296

 

 

$

8,403

 

 

 

21.9

%

Adjusted general and administrative expense ratio

 

 

10.2

%

 

 

9.9

%

 

 

 

 

 

 

Adjusted EBITDAC

 

$

125,015

 

 

$

107,263

 

 

$

17,752

 

 

 

16.5

%

Adjusted EBITDAC margin

 

 

27.3

%

 

 

27.7

%

 

 

 

 

 

 

Adjusted net income

 

$

71,785

 

 

$

64,732

 

 

$

7,053

 

 

 

10.9

%

Adjusted net income margin

 

 

15.7

%

 

 

16.7

%

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.26

 

 

$

0.24

 

 

 

 

 

 

 

* 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)

Net income margin is defined as Net income divided by Total revenue.

(4)

See “Note 10, Earnings Per Share” of the unaudited quarterly consolidated financial statements.

First Quarter 2023 Review*

Total revenue for the first quarter of 2023 was $457.6 million, an increase of 18.3% compared to $386.9 million in the prior-year period. This increase was primarily due to continued solid Organic revenue growth of 12.9%, driven by new client wins and expanded relationships with existing clients, coupled with continued expansion of the E&S market, revenue from acquisitions completed in the fourth quarter of 2022 and first quarter of 2023, and increased Fiduciary investment income.

Total operating expenses for the first quarter of 2023 were $387.5 million, a 12.8% 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, offset by a decline in Acquisition related long-term incentives as the final payments related to the All Risks LTIP plan were made in Q3 2022, and IPO related compensation as time passes and awards vest. 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 first quarter of 2023 increased 101.7% to $36.5 million, compared to $18.1 million in the prior-year period. The increase was mainly due to strong year-over-year revenue growth, lower IPO related charges, which were partially offset by higher Interest expense, net. Diluted earnings per share for the first quarter of 2023 was $0.11, compared to $0.06 in the prior-year period.

Adjusted EBITDAC grew 16.5% to $125.0 million from $107.3 million in the prior-year period. Adjusted EBITDAC margin for the quarter was 27.3%, compared to 27.7% in the prior-year period. The increase in Adjusted EBITDAC was driven primarily by solid revenue growth and higher Fiduciary investment income, partially offset by increased Adjusted compensation and benefits expense, as well as higher Adjusted general and administrative expense.

Adjusted net income for the first quarter of 2023 increased 10.9% to $71.8 million, compared to $64.7 million in the prior-year period. Adjusted net income margin was 15.7%, compared to 16.7% in the prior-year period. Adjusted diluted earnings per share for the first quarter of 2023 increased 8.3% to $0.26, compared to $0.24 in the prior-year period.

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

First Quarter 2023 Revenue by Specialty

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

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

(in thousands, except percentages)

 

2023

 

 

% of

total

 

 

2022

 

 

% of

total

 

 

Change

 

Wholesale Brokerage

 

$

285,850

 

 

 

63.9

%

 

$

244,827

 

 

 

63.3

%

 

$

41,023

 

 

 

16.8

%

Binding Authorities

 

 

69,526

 

 

 

15.5

 

 

 

62,993

 

 

 

16.3

 

 

 

6,533

 

 

 

10.4

 

Underwriting Management

 

 

92,137

 

 

 

20.6

 

 

 

78,861

 

 

 

20.4

 

 

 

13,276

 

 

 

16.8

 

Total Net commissions and fees

 

$

447,513

 

 

 

 

 

$

386,681

 

 

 

 

 

$

60,832

 

 

 

15.7

%

Liquidity and Financial Condition

As of March 31, 2023, the Company had Cash and cash equivalents of $704.7 million and outstanding debt principal of $2.0 billion.

Full Year 2023 Outlook*

The Company is updating its full year 2023 outlook for Organic Revenue Growth Rate and maintaining its full year 2023 outlook for Adjusted EBITDAC Margin as follows:

  • Organic Revenue Growth Rate guidance for full year 2023 to be between 10.5% – 13.0%, compared to the Company's prior guidance of 10.0% – 13.0%
  • Adjusted EBITDAC Margin guidance for full year 2023 to be between 29.0% – 30.0%

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.

* For a definition of Organic revenue growth rate and Adjusted EBITDAC margin, see “Non-GAAP Financial Measures and Key Performance Indicators” below.

Conference Call Information

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

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

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

About Ryan Specialty

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

Forward-Looking Statements

All statements in this release and in the corresponding earnings call that are not historical are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve substantial risks and uncertainties. For example, all statements the Company makes relating to its estimated and projected costs, expenditures, cash flows, growth rates and financial results or its plans and objectives for future operations, growth initiatives, or strategies and the statements under the caption “Full Year 2023 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 our most recent annual report on Form 10-K filed with the SEC, 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 audited consolidated financial statements in our Annual Report on form 10-K filed with the SEC. Industry peers may provide similar supplemental information but may not define similarly-named metrics in the same way and may not make identical adjustments.

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

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

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

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

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

Adjusted EBITDAC: Adjusted EBITDAC is defined as Net income 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. 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 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 represent costs associated with the 2020 restructuring plan. Amortization and expense consists of charges related to discontinued prepaid incentive programs. For the three months ended March 31, 2023, Other non-operating loss (income) includes sublease income. For the three months ended March 31, 2022, Other non-operating loss (income) includes a 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 compensation and benefits expense and Adjusted general and administrative 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 below. The most directly comparable GAAP financial metric to Adjusted EBITDAC 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 defined as tax-effected earnings before amortization and certain items of income and expense, gains and losses, equity-based compensation, acquisition related long-term incentive compensation, acquisition-related expenses, costs associated with our Initial Public Offering (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 (together with its parent New Ryan Specialty, LLC and their subsidiaries, the “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 if 100% of the outstanding non-voting common interest units of New Ryan Specialty, LLC (“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 per share.

The reconciliation of the above non-GAAP measures to each of 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 2023 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 March 31,

 

(in thousands, except percentages and per share data)

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

Net commissions and fees

 

$

447,513

 

 

$

386,681

 

Fiduciary investment income

 

 

10,086

 

 

 

209

 

Total revenue

 

$

457,599

 

 

$

386,890

 

Expenses

 

 

 

 

 

 

Compensation and benefits

 

 

307,722

 

 

 

274,274

 

General and administrative

 

 

51,699

 

 

 

42,361

 

Amortization

 

 

25,185

 

 

 

26,663

 

Depreciation

 

 

2,192

 

 

 

1,211

 

Change in contingent consideration

 

 

714

 

 

 

(1,008

)

Total operating expenses

 

$

387,512

 

 

$

343,501

 

Operating income

 

$

70,087

 

 

$

43,389

 

Interest expense, net

 

 

29,468

 

 

 

21,752

 

Loss (income) from equity method investment in related party

 

 

(1,995

)

 

 

543

 

Other non-operating loss (income)

 

 

(138

)

 

 

7,521

 

Income before income taxes

 

$

42,752

 

 

$

13,573

 

Income tax expense (benefit)

 

 

6,295

 

 

 

(4,503

)

Net income

 

$

36,457

 

 

$

18,076

 

GAAP financial measures

 

 

 

 

 

 

Revenue

 

$

457,599

 

 

$

386,890

 

Compensation and benefits

 

 

307,722

 

 

 

274,274

 

General and administrative

 

 

51,699

 

 

 

42,361

 

Net income

 

$

36,457

 

 

$

18,076

 

Compensation and benefits expense ratio

 

 

67.2

%

 

 

70.9

%

General and administrative expense ratio

 

 

11.3

%

 

 

10.9

%

Net income margin

 

 

8.0

%

 

 

4.7

%

Earnings per share

 

$

0.12

 

 

$

0.07

 

Diluted earnings per share

 

$

0.11

 

 

$

0.06

 

 

Non-GAAP Financial Measures (Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands, except percentages and per share data)

 

2023

 

 

2022

 

Non-GAAP financial measures

 

 

 

 

 

 

Organic revenue growth rate

 

 

12.9

%

 

 

20.1

%

Adjusted compensation and benefits expense

 

$

285,885

 

 

$

241,331

 

Adjusted compensation and benefits expense ratio

 

 

62.5

%

 

 

62.4

%

Adjusted general and administrative expense

 

$

46,699

 

 

$

38,296

 

Adjusted general and administrative expense ratio

 

 

10.2

%

 

 

9.9

%

Adjusted EBITDAC

 

$

125,015

 

 

$

107,263

 

Adjusted EBITDAC margin

 

 

27.3

%

 

 

27.7

%

Adjusted net income

 

$

71,785

 

 

$

64,732

 

Adjusted net income margin

 

 

15.7

%

 

 

16.7

%

Adjusted diluted earnings per share

$

0.26

 

 

$

0.24

 

Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

March 31, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

704,746

 

 

$

992,723

 

Commissions and fees receivable – net

 

 

234,557

 

 

 

231,423

 

Fiduciary cash and receivables

 

 

2,475,185

 

 

 

2,611,647

 

Prepaid incentives – net

 

 

8,348

 

 

 

8,584

 

Other current assets

 

 

46,086

 

 

 

49,690

 

Total current assets

 

$

3,468,922

 

 

$

3,894,067

 

NON-CURRENT ASSETS

 

 

 

 

 

 

Goodwill

 

 

1,379,202

 

 

 

1,314,984

 

Other intangible assets

 

 

514,568

 

 

 

486,444

 

Prepaid incentives – net

 

 

19,425

 

 

 

20,792

 

Equity method investment in related party

 

 

41,166

 

 

 

38,514

 

Property and equipment – net

 

 

31,832

 

 

 

31,271

 

Lease right-of-use assets

 

 

141,619

 

 

 

143,870

 

Deferred tax assets

 

 

402,476

 

 

 

396,814

 

Other non-current assets

 

 

47,750

 

 

 

56,987

 

Total non-current assets

 

$

2,578,038

 

 

$

2,489,676

 

TOTAL ASSETS

 

$

6,046,960

 

 

$

6,383,743

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

73,976

 

 

 

119,022

 

Accrued compensation

 

 

158,017

 

 

 

350,369

 

Operating lease liabilities

 

 

20,447

 

 

 

22,744

 

Tax Receivable Agreement liabilities

 

 

16,516

 

 

 

 

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

 

 

22,459

 

 

 

30,587

 

Fiduciary liabilities

 

 

2,475,185

 

 

 

2,611,647

 

Total current liabilities

 

$

2,766,600

 

 

$

3,134,369

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

Accrued compensation

 

 

16,325

 

 

 

10,048

 

Operating lease liabilities

 

 

151,406

 

 

 

151,944

 

Long-term debt

 

 

1,950,329

 

 

 

1,951,900

 

Deferred tax liabilities

 

 

618

 

 

 

562

 

Tax Receivable Agreement liabilities

 

 

287,113

 

 

 

295,347

 

Other non-current liabilities

 

 

22,971

 

 

 

21,761

 

Total non-current liabilities

 

$

2,428,762

 

 

$

2,431,562

 

TOTAL LIABILITIES

 

$

5,195,362

 

 

$

5,565,931

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Class A common stock ($0.001 par value; 1,000,000,000 shares authorized, 113,233,651 and 112,437,825 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)

 

 

113

 

 

 

112

 

Class B common stock ($0.001 par value; 1,000,000,000 shares authorized, 146,421,917 and 147,214,275 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)

 

 

146

 

 

 

147

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

Additional paid-in capital

 

 

436,898

 

 

 

418,123

 

Retained earnings

 

 

67,148

 

 

 

53,988

 

Accumulated other comprehensive income

 

 

4,283

 

 

 

6,035

 

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

 

$

508,588

 

 

$

478,405

 

Non-controlling interests

 

 

343,010

 

 

 

339,407

 

Total stockholders' equity

 

$

851,598

 

 

$

817,812

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

6,046,960

 

 

$

6,383,743

 

 

Consolidated Statements of Cash Flows (Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

36,457

 

 

$

18,076

 

Adjustments to reconcile net income to cash flows used for operating activities:

 

 

 

 

 

 

Loss (gain) from equity method investment in related party

 

 

(1,995

)

 

 

543

 

Amortization

 

 

25,185

 

 

 

26,663

 

Depreciation

 

 

2,192

 

 

 

1,211

 

Prepaid and deferred compensation expense

 

 

2,212

 

 

 

9,684

 

Non-cash equity-based compensation

 

 

17,879

 

 

 

23,248

 

Amortization of deferred debt issuance costs

 

 

3,039

 

 

 

2,811

 

Amortization of interest rate cap premium

 

 

1,739

 

 

 

 

Deferred income tax expense (benefit)

 

 

2,875

 

 

 

(8,251

)

Loss on Tax Receivable Agreement

 

 

 

 

 

7,718

 

Change (net of acquisitions) in:

 

 

 

 

 

 

Commissions and fees receivable – net

 

 

(1,212

)

 

 

20,543

 

Accrued interest liability

 

 

(4,743

)

 

 

2,877

 

Other current assets and accrued liabilities

 

 

(250,299

)

 

 

(164,924

)

Other non-current assets and accrued liabilities

 

 

7,460

 

 

 

(5,669

)

Total cash flows used for operating activities

 

$

(159,211

)

 

$

(65,470

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures

 

 

(2,793

)

 

 

(2,224

)

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

 

 

(102,059

)

 

 

 

Prepaid incentives issued – net of repayments

 

 

 

 

 

(497

)

Total cash flows used for investing activities

 

$

(104,852

)

 

$

(2,721

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from senior secured notes

 

 

 

 

 

394,000

 

Repayment of term debt

 

 

(4,125

)

 

 

(4,125

)

Debt issuance costs paid

 

 

 

 

 

(1,803

)

Finance lease and other costs paid

 

 

 

 

 

(6

)

Payment of contingent consideration

 

 

(4,477

)

 

 

 

Tax distributions to LLC Unitholders

 

 

(264

)

 

 

(187

)

Receipt of taxes related to net share settlement of equity awards

 

 

404

 

 

 

105

 

Taxes paid related to net share settlement of equity awards

 

 

(404

)

 

 

(105

)

Net change in fiduciary liabilities

 

 

(20,754

)

 

 

(79,148

)

Total cash flows (used for) provided by financing activities

 

$

(29,620

)

 

$

308,731

 

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

 

 

85

 

 

 

816

 

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

 

$

(293,598

)

 

$

241,356

 

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

 

$

1,473,787

 

 

$

1,381,017

 

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

 

 

 

 

 

 

Cash and cash equivalents

 

 

704,746

 

 

 

706,370

 

Cash held in a fiduciary capacity

 

 

769,041

 

 

 

674,647

 

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

 

$

1,473,787

 

 

$

1,381,017

 

 

 

Reconciliation of Organic Revenue Growth Rate to Total Revenue Growth Rate

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Total revenue growth rate (GAAP) (1)

 

 

18.3

%

 

 

24.2

%

Less: Mergers and acquisitions (2)

 

 

(1.6

)

 

 

(3.4

)

Change in other (3)

 

 

(3.8

)

 

 

(0.7

)

Organic revenue growth rate (Non-GAAP)

 

 

12.9

%

 

 

20.1

%

(1) 

March 31, 2023 revenue of $457.6 million less March 31, 2022 revenue of $386.9 million is a $70.7 million period-over-period change. The change, $70.7 million, divided by the March 31, 2022 revenue of $386.9 million, is a total revenue change of 18.3%. March 31, 2022 revenue of $386.9 million less March 31, 2021 revenue of $311.5 million is a $75.4 million period-over-period change. The change, $75.4 million, divided by the March 31, 2021 revenue of $311.5 million, is a total revenue change of 24.2%.

(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 March 31, 2023 and 2022 was $6.1 million and $10.6 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 March 31, 2023 and 2022 was $14.8 million and $2.2 million, respectively.

 

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

 

 

Three Months Ended March 31,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

Total revenue

 

$

457,599

 

 

$

386,890

 

Compensation and benefits expense

 

$

307,722

 

 

$

274,274

 

Acquisition-related expense

 

 

(1,016

)

 

 

(58

)

Acquisition related long-term incentive compensation

 

 

(578

)

 

 

(7,697

)

Restructuring and related expense

 

 

(730

)

 

 

(158

)

Amortization and expense related to discontinued prepaid incentives

 

 

(1,634

)

 

 

(1,782

)

Equity-based compensation

 

 

(6,635

)

 

 

(6,804

)

Initial public offering related expense

 

 

(11,244

)

 

 

(16,444

)

Adjusted compensation and benefits expense (1)

 

$

285,885

 

 

$

241,331

 

Compensation and benefits expense ratio

 

 

67.2

%

 

 

70.9

%

Adjusted compensation and benefits expense ratio

 

 

62.5

%

 

 

62.4

%

(1) 

Adjustments made to Compensation and benefits expense are described in the definition of Adjusted EBITDAC in “Non-GAAP Financial Measures and Key Performance Indicators.”

 

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

 

 

Three Months Ended March 31,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

Total revenue

 

$

457,599

 

 

$

386,890

 

General and administrative expense

 

$

51,699

 

 

$

42,361

 

Acquisition-related expense

 

 

(2,174

)

 

 

(451

)

Restructuring and related expense

 

 

(2,826

)

 

 

(2,966

)

Initial public offering related expense

 

 

 

 

 

(648

)

Adjusted general and administrative expense (1)

 

$

46,699

 

 

$

38,296

 

General and administrative expense ratio

 

 

11.3

%

 

 

10.9

%

Adjusted general and administrative expense ratio

 

 

10.2

%

 

 

9.9

%

(1) 

Adjustments made to General and administrative expense are described in definition of Adjusted EBITDAC in “Non-GAAP Financial Measures and Key Performance Indicators.”

 

Reconciliation of Adjusted EBITDAC to Net Income

 

 

Three Months Ended March 31,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

Total revenue

 

$

457,599

 

 

$

386,890

 

Net income

 

$

36,457

 

 

$

18,076

 

Interest expense, net

 

 

29,468

 

 

 

21,752

 

Income tax expense (benefit)

 

 

6,295

 

 

 

(4,503

)

Depreciation

 

 

2,192

 

 

 

1,211

 

Amortization

 

 

25,185

 

 

 

26,663

 

Change in contingent consideration

 

 

714

 

 

 

(1,008

)

EBITDAC

 

$

100,311

 

 

$

62,191

 

Acquisition-related expense

 

 

3,190

 

 

 

509

 

Acquisition related long-term incentive compensation

 

 

578

 

 

 

7,697

 

Restructuring and related expense

 

 

3,556

 

 

 

3,124

 

Amortization and expense related to discontinued prepaid incentives

 

 

1,634

 

 

 

1,782

 

Other non-operating loss (income)

 

 

(138

)

 

 

7,521

 

Equity-based compensation

 

 

6,635

 

 

 

6,804

 

IPO related expenses

 

 

11,244

 

 

 

17,092

 

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

 

 

(1,995

)

 

 

543

 

Adjusted EBITDAC (1)

 

$

125,015

 

 

$

107,263

 

Net income margin

 

 

8.0

%

 

 

4.7

%

Adjusted EBITDAC margin

 

 

27.3

%

 

 

27.7

%

(1) 

Adjustments made to Net income are described in definition of Adjusted EBITDAC in “Non-GAAP Financial Measures and Key Performance Indicators.”

 

Reconciliation of Adjusted Net Income to Net Income

 

 

Three Months Ended March 31,

 

(in thousands, except percentages)

 

2023

 

 

2022

 

Total revenue

 

$

457,599

 

 

$

386,890

 

Net income

 

$

36,457

 

 

$

18,076

 

Income tax expense (benefit)

 

 

6,295

 

 

 

(4,503

)

Amortization

 

 

25,185

 

 

 

26,663

 

Amortization of deferred debt issuance costs (1)

 

 

3,039

 

 

 

2,811

 

Change in contingent consideration

 

 

714

 

 

 

(1,008

)

Acquisition-related expense

 

 

3,190

 

 

 

509

 

Acquisition related long-term incentive compensation

 

 

578

 

 

 

7,697

 

Restructuring and related expense

 

 

3,556

 

 

 

3,124

 

Amortization and expense related to discontinued prepaid incentives

 

 

1,634

 

 

 

1,782

 

Other non-operating loss (income)

 

 

(138

)

 

 

7,521

 

Equity-based compensation

 

 

6,635

 

 

 

6,804

 

IPO related expenses

 

 

11,244

 

 

 

17,092

 

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

 

 

(1,995

)

 

 

543

 

Adjusted income before income taxes (2)

 

$

96,394

 

 

$

87,111

 

Adjusted tax expense (3)

 

 

(24,609

)

 

 

(22,379

)

Adjusted net income

 

$

71,785

 

 

$

64,732

 

Net income margin

 

 

8.0

%

 

 

4.7

%

Adjusted net income margin

 

 

15.7

%

 

 

16.7

%

(1)

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

(2)

Adjustments made to Net income are described in definition of Adjusted EBITDAC in “Non-GAAP Financial Measures and Key Performance Indicators.”

(3)

The Company is 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 the LLC. For the three months ended March 31, 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 adjusted income before income taxes as if the Company owned 100% of the LLC. For the three months ended March 31, 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 4.69% on 100% of adjusted income before income taxes as if the Company owned 100% of the LLC.

 

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

 

 

Three months ended March 31,

 

 

 

2023

 

 

2022

 

Earnings per share of Class A common stock – diluted

 

$

0.11

 

 

$

0.06

 

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

 

 

(0.06

)

 

 

(0.03

)

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

 

 

0.09

 

 

 

0.04

 

Plus: Adjustments to Adjusted net income (3)

 

 

0.13

 

 

 

0.18

 

Plus: Dilutive impact of unvested equity awards (4)

 

 

(0.01

)

 

 

(0.01

)

Adjusted diluted earnings per share

 

$

0.26

 

 

$

0.24

 

 

 

 

 

 

 

 

(Share count in '000)

 

 

 

 

 

 

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

 

 

266,978

 

 

 

264,121

 

Plus: Dilutive impact of unvested equity awards (4)

 

 

4,670

 

 

 

5,632

 

Adjusted diluted earnings per share diluted share count

 

 

271,648

 

 

 

269,753

 

(1)

Adjustment removes the impact of Net income attributed to dilutive awards and substantively vested RSUs to arrive at Net income attributable to Ryan Specialty Holdings, Inc. For the three months ended March 31, 2023 and 2022 this removes $17.4 million and $8.3 million of Net income, respectively, on 267.0 million and 264.1 million weighted-average shares of Class A common stock outstanding - diluted, respectively. See “Note 10, 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. For the three months ended March 31, 2023 and 2022 this includes $23.3 million and $11.2 million of Net income, respectively, on 267.0 million and 264.1 million weighted-average shares of Class A common stock outstanding - diluted, respectively. For the three months ended March 31, 2023, 143.4 million weighted average outstanding LLC Common Units were considered dilutive and included in the 267.0 million Weighted-average shares outstanding within Diluted EPS. For the three months ended March 31, 2022, 143.4 million weighted average outstanding LLC Common Units were considered dilutive and included in the 264.1 million Weighted-average shares outstanding within Diluted EPS. See “Note 10, 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 (loss) in “Adjusted Net Income and Adjusted Net Income Margin” on 267.0 million and 264.1 million weighted-average shares of Class A common stock outstanding - diluted for the three months ended March 31, 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 earnings per share calculation disclosed in “Note 10, Earnings Per Share” of the unaudited quarterly consolidated financial statements. For the three months ended March 31, 2023 and 2022 4.7 million and 5.6 million shares were added to the calculation, respectively.

 

Contacts

Investor Relations

Noah Angeletti

SVP, Head of Investor Relations & Treasurer

Ryan Specialty

IR@ryanspecialty.com

Phone: (312) 784-6152

Media Relations

Alice Phillips Topping

SVP, Chief Marketing & Communications Officer

Ryan Specialty

Alice.Topping@ryansg.com

Phone: (312) 635-5976

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