- Total Revenue grew 21.8% year-over-year to
$501.9 million -
- Organic Revenue Growth Rate of 14.7%
year-over-year -
- Net Income of $15.7 million, or $(0.04) per
diluted share 1 -
- Adjusted EBITDAC grew 25.8% year-over-year to
$147.0 million -
- Adjusted Net Income increased 30.2% year over
year to $86.6 million, or $0.32 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 third quarter ended September 30,
2023.
Third Quarter 2023 Highlights
- Revenue grew 21.8% year-over-year to $501.9 million, compared
to $412.0 million in the prior-year period
- Organic Revenue Growth Rate* was 14.7% for the quarter,
compared to 13.7% in the prior-year period
- Net Income decreased 46.4% year-over-year to $15.7 million,
compared to $29.3 million in the prior-year period. Diluted
Earnings (Loss) per Share was $(0.04) 1
- Adjusted EBITDAC* increased 25.8% to $147.0 million, compared
to $116.8 million in the prior-year period
- Adjusted EBITDAC Margin* of 29.3%, compared to 28.4% in the
prior-year period
- Adjusted Net Income* increased 30.2% to $86.6 million, compared
to $66.6 million in the prior-year period
- Adjusted Diluted Earnings per Share* increased 28.0% to $0.32,
compared to $0.25 in the prior-year period
“We delivered another quarter of strong double-digit organic
revenue growth, received valuable contributions from recent
acquisitions, and generated impressive adjusted EBITDAC growth. Our
performance demonstrates our consistent and proven ability to
deliver tailored and innovative solutions on behalf of our clients
and trading partners,” said Patrick G. Ryan, Founder, Chairman and
Chief Executive Officer of Ryan Specialty. “Throughout the quarter,
we executed across our business, generated broad-based growth
across our Specialties, welcomed the talented teams from three
acquisitions that closed in July, and expanded our ACCELERATE 2025
program. We were also pleased to have recently announced an
agreement to acquire AccuRisk, which will add breadth and depth to
our growing benefits practice. We are proud of our efforts
throughout the third quarter, and as we look toward the fourth
quarter and new year, we remain well-positioned with our
differentiated platform and world-class expertise to deliver
continued, sustainable, and profitable growth for our
investors.”
1
Subsequent to the acquisition of Socius, a
legal entity reorganization resulted in $20.7 million of Deferred
income tax expense being recorded at the public holding company
("RSHI") level. This expense generated a net loss for RSHI, or a
diluted loss per share of Class A common stock of $(0.04) in the
period. On a fully consolidated basis the Company produced $15.7
million of Net income and Adjusted diluted earnings per share of
$0.32 in the period. This reorganization was a discrete, non-cash
expense at RSHI and the Company's annual effective tax rate is
unaffected.
Summary of Third Quarter 2023 Results
Three Months Ended September
30,
Change
Nine Months Ended September
30,
Change
(in thousands, except percentages and per
share data)
2023
2022
$
%
2023
2022
$
%
GAAP financial measures
Total revenue
$
501,938
$
411,996
$
89,942
21.8
%
$
1,544,686
$
1,290,178
$
254,508
19.7
%
Compensation and benefits
329,212
274,108
55,104
20.1
989,294
858,439
130,855
15.2
General and administrative
69,288
48,991
20,297
41.4
202,595
139,851
62,744
44.9
Total operating expenses
432,121
350,652
81,469
23.2
1,281,942
1,079,919
202,023
18.7
Operating income
69,817
61,344
8,473
13.8
262,744
210,259
52,485
25.0
Net income
15,703
29,279
(13,576
)
(46.4
)
135,977
117,475
18,502
15.7
Net income (loss) attributable to Ryan
Specialty Holdings, Inc.
(5,047
)
11,745
(16,792
)
(143.0
)
38,191
43,157
(4,966
)
(11.5
)
Compensation and benefits expense ratio
(1)
65.6
%
66.5
%
64.0
%
66.5
%
General and administrative expense ratio
(2)
13.8
%
11.9
%
13.1
%
10.8
%
Net income margin (3)
3.1
%
7.1
%
8.8
%
9.1
%
Earnings (loss) per share (4)
$
(0.04
)
$
0.11
$
0.34
$
0.40
Diluted earnings (loss) per share (4)
$
(0.04
)
$
0.09
$
0.34
$
0.37
Non-GAAP financial measures*
Organic revenue growth rate
14.7
%
13.7
%
14.7
%
18.7
%
Adjusted compensation and benefits
expense
$
296,400
$
247,095
$
49,305
20.0
%
$
911,925
$
769,253
$
142,672
18.5
%
Adjusted compensation and benefits expense
ratio
59.1
%
60.0
%
59.0
%
59.6
%
Adjusted general and administrative
expense
$
58,559
$
48,084
$
10,475
21.8
%
$
166,606
$
130,774
$
35,832
27.4
%
Adjusted general and administrative
expense ratio
11.7
%
11.7
%
10.8
%
10.1
%
Adjusted EBITDAC
$
146,979
$
116,817
$
30,162
25.8
%
$
466,155
$
390,151
$
76,004
19.5
%
Adjusted EBITDAC margin
29.3
%
28.4
%
30.2
%
30.2
%
Adjusted net income
$
86,632
$
66,560
$
20,072
30.2
%
$
282,144
$
237,774
$
44,370
18.7
%
Adjusted net income margin
17.3
%
16.2
%
18.3
%
18.4
%
Adjusted diluted earnings per share
$
0.32
$
0.25
$
1.04
$
0.88
*
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 (Loss) Per Share”
of the unaudited quarterly consolidated financial statements.
Third Quarter 2023 Review*
Total revenue for the third quarter of 2023 was $501.9 million,
an increase of 21.8% compared to $412.0 million in the prior-year
period. This increase was primarily due to continued solid Organic
revenue growth of 14.7%, driven by new client wins and expanded
relationships with existing clients, coupled with continued
expansion of the E&S market, revenue from acquisitions
completed within the trailing twelve months ended September 30,
2023, and increased Fiduciary investment income. The largest growth
factor in the quarter was the Company's property portfolio across
all three specialties, driven by an increase in the pricing for
property insurance as well as an increase in the flow of property
risks into the E&S market. The Company also experienced broad
based casualty growth across the majority of its lines.
Total operating expenses for the third quarter of 2023 were
$432.1 million, a 23.2% increase compared to the prior-year period.
This increase was primarily due to an increase in Compensation and
benefits expense compared to the prior year resulting from higher
compensation due to revenue growth and higher restructuring and
related expenses associated with ACCELERATE 2025, offset by a
decline in acquisition related long-term incentive compensation 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 due to an increase in professional services
in connection with revenue generating activities, higher
acquisition-related expenses, higher restructuring and related
expenses associated with ACCELERATE 2025, and continued
normalization of business travel and client entertainment.
Net income for the third quarter of 2023 decreased 46.4% to
$15.7 million, compared to $29.3 million in the prior-year period.
The decrease was mainly due to higher Income tax expenses during
the period related to the legal entity reorganization associated
with and subsequent to the Socius acquisition, partially offset by
stronger year-over-year revenue growth and lower IPO related
charges.
Adjusted EBITDAC grew 25.8% to $147.0 million from $116.8
million in the prior-year period. Adjusted EBITDAC margin for the
quarter was 29.3%, compared to 28.4% 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 third quarter of 2023 increased
30.2% to $86.6 million, compared to $66.6 million in the prior-year
period. Adjusted net income margin was 17.3%, compared to 16.2% in
the prior-year period. Adjusted diluted earnings per share for the
third quarter of 2023 increased 28.0% to $0.32, compared to $0.25
in the prior-year period.
*
For the definition of each of the non-GAAP
measures referred to above, as well as a reconciliation of such
non-GAAP measures to their most directly comparable GAAP measures,
see “Non-GAAP Financial Measures and Key Performance Indicators”
below.
Third Quarter 2023 Net Commissions and fees by
Specialty
Growth in Net commissions and fees in all specialties was
primarily driven by solid organic growth.
Three Months Ended September
30,
(in thousands, except percentages)
2023
% of total
2022
% of total
Change
Wholesale Brokerage
$
308,872
63.4
%
$
267,222
65.6
%
$
41,650
15.6
%
Binding Authorities
69,245
14.2
55,607
13.6
13,638
24.5
Underwriting Management
109,228
22.4
84,722
20.8
24,506
28.9
Total Net commissions and fees
$
487,345
$
407,551
$
79,794
19.6
%
Nine Months Ended September
30,
(in thousands, except percentages)
2023
% of total
2022
% of total
Change
Wholesale Brokerage
$
976,338
64.7
%
$
841,273
65.5
%
$
135,065
16.1
%
Binding Authorities
208,547
13.8
178,351
13.9
30,196
16.9
Underwriting Management
322,993
21.5
264,835
20.6
58,158
22.0
Total Net commissions and fees
$
1,507,878
$
1,284,459
$
223,419
17.4
%
Liquidity and Financial Condition
As of September 30, 2023, the Company had Cash and cash
equivalents of $754.4 million and outstanding debt principal of
$2.0 billion.
ACCELERATE 2025
The Company is updating the ACCELERATE 2025 restructuring
program as we have identified additional opportunities to drive
continued growth and innovation, deliver sustainable productivity
improvements over the long term, and accelerate margin improvement.
The updated program will result in approximately $90 million of
cumulative one-time charges through 2024, and we expect the program
to generate annual savings of approximately $50 million in
2025.
Full Year 2023 Outlook*
The Company is updating its full year 2023 outlook for Organic
Revenue Growth Rate and for Adjusted EBITDAC Margin as follows:
- Organic Revenue Growth Rate guidance for full year 2023 to be
between 13.5% – 14.5%, compared to the Company's prior guidance of
13.0% – 14.5%
- Adjusted EBITDAC Margin guidance for full year 2023 to be
between 29.5% – 30.0%, compared to the Company's prior guidance of
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, its plans, anticipated amount and timing of cost
savings relating to the ACCELERATE 2025 program, 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 impact of breaches in security that cause
significant system or network disruptions; the impact of improper
disclosure of confidential, personal or proprietary data; 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; the potential that the
Company’s underwriting models contain errors or are otherwise
ineffective; any damage to the Company’s reputation; the Company's
failure to achieve the intended results of our restructuring
program, ACCELERATE 2025; any failure to maintain the valuable
aspects of our Company’s culture; the Company's inability to
successfully recover upon experiencing a disaster or other business
continuity problem; the impact of third parties that perform key
functions of the Company's business operations acting in ways that
harm our business; the cyclicality of, and the economic conditions
in, the markets in which the Company operates; conditions that
result in reduced insurer capacity; 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; decreases in
current market share as a result of disintermediation within the
insurance industry; impairment of goodwill; the impact on our
operations and financial condition from the effects of a pandemic
or the outbreak of a contagious disease and resulting governmental
and societal responses; 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; 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;
the impact of being unable to refinance the Company’s indebtedness;
and risks relating to the Company's organizational structure that
could result in conflicts of interest between the holders of the
LLC units and the holders of our Class A common stock.
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 September 30, 2023, Other non-operating loss
(income) consisted of $0.2 million of sublease income offset by
$0.3 million of TRA contractual interest. For the three months
ended September 30, 2022 Other non-operating loss (income) included
$0.1 million of sublease income. For the nine months ended
September 30, 2023, Other non-operating loss (income) included $0.4
million of sublease income offset by $0.5 million of TRA
contractual interest. For the nine months ended September 30, 2022,
Other non-operating loss (income) included a $7.2 million charge
related to the change in the TRA liability caused by a change in
our blended state tax rates. Equity-based compensation reflects
non-cash equity-based expense. IPO related expenses include general
and administrative expense associated with the preparations for
Sarbanes-Oxley compliance, tax, and accounting advisory services
and compensation-related expense primarily related to the
revaluation of existing equity awards at IPO as well as expense for
new awards issued at IPO. Total revenue less Adjusted 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 (loss) 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 September
30,
Nine Months Ended September
30,
(in thousands, except percentages and per
share data)
2023
2022
2023
2022
Revenue
Net commissions and fees
$
487,345
$
407,551
$
1,507,878
$
1,284,459
Fiduciary investment income
14,593
4,445
36,808
5,719
Total revenue
$
501,938
$
411,996
$
1,544,686
$
1,290,178
Expenses
Compensation and benefits
329,212
274,108
989,294
858,439
General and administrative
69,288
48,991
202,595
139,851
Amortization
29,572
25,667
79,125
78,563
Depreciation
2,201
1,463
6,570
3,903
Change in contingent consideration
1,848
423
4,358
(837
)
Total operating expenses
$
432,121
$
350,652
$
1,281,942
$
1,079,919
Operating income
$
69,817
$
61,344
$
262,744
$
210,259
Interest expense, net
31,491
28,864
89,840
75,462
Loss (income) from equity method
investment in related party
(2,271
)
(144
)
(5,882
)
414
Other non-operating loss (income)
67
(66
)
37
6,832
Income before income taxes
$
40,530
$
32,690
$
178,749
$
127,551
Income tax expense
24,827
3,411
42,772
10,076
Net income
$
15,703
$
29,279
$
135,977
$
117,475
GAAP financial measures
Revenue
$
501,938
$
411,996
$
1,544,686
$
1,290,178
Compensation and benefits
329,212
274,108
989,294
858,439
General and administrative
69,288
48,991
202,595
139,851
Net income
15,703
29,279
135,977
117,475
Compensation and benefits expense
ratio
65.6
%
66.5
%
64.0
%
66.5
%
General and administrative expense
ratio
13.8
%
11.9
%
13.1
%
10.8
%
Net income margin
3.1
%
7.1
%
8.8
%
9.1
%
Earnings (loss) per share
$
(0.04
)
$
0.11
$
0.34
$
0.40
Diluted earnings (loss) per share
$
(0.04
)
$
0.09
$
0.34
$
0.37
Non-GAAP Financial Measures (Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
(in thousands, except percentages and per
share data)
2023
2022
2023
2022
Non-GAAP financial measures
Organic revenue growth rate
14.7
%
13.7
%
14.7
%
18.7
%
Adjusted compensation and benefits
expense
$
296,400
$
247,095
$
911,925
$
769,253
Adjusted compensation and benefits expense
ratio
59.1
%
60.0
%
59.0
%
59.6
%
Adjusted general and administrative
expense
$
58,559
$
48,084
$
166,606
$
130,774
Adjusted general and administrative
expense ratio
11.7
%
11.7
%
10.8
%
10.1
%
Adjusted EBITDAC
$
146,979
$
116,817
$
466,155
$
390,151
Adjusted EBITDAC margin
29.3
%
28.4
%
30.2
%
30.2
%
Adjusted net income
$
86,632
$
66,560
$
282,144
$
237,774
Adjusted net income margin
17.3
%
16.2
%
18.3
%
18.4
%
Adjusted diluted earnings per share
$
0.32
$
0.25
$
1.04
$
0.88
Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share
data)
September 30, 2023
December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
754,370
$
992,723
Commissions and fees receivable – net
238,827
231,423
Fiduciary cash and receivables
2,521,021
2,611,647
Prepaid incentives – net
9,577
8,584
Other current assets
62,629
49,690
Total current assets
$
3,586,424
$
3,894,067
NON-CURRENT ASSETS
Goodwill
1,581,759
1,314,984
Other intangible assets
591,879
486,444
Prepaid incentives – net
16,585
20,792
Equity method investment in related
party
45,272
38,514
Property and equipment – net
32,208
31,271
Lease right-of-use assets
131,833
143,870
Deferred tax assets
383,094
396,814
Other non-current assets
56,808
56,987
Total non-current assets
$
2,839,438
$
2,489,676
TOTAL ASSETS
$
6,425,862
$
6,383,743
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities
114,952
119,022
Accrued compensation
273,417
350,369
Operating lease liabilities
19,922
22,744
Tax Receivable Agreement liabilities
16,959
—
Short-term debt and current portion of
long-term debt
35,566
30,587
Fiduciary liabilities
2,521,021
2,611,647
Total current liabilities
$
2,981,837
$
3,134,369
NON-CURRENT LIABILITIES
Accrued compensation
21,999
10,048
Operating lease liabilities
156,983
151,944
Long-term debt
1,945,495
1,951,900
Deferred tax liabilities
126
562
Tax Receivable Agreement liabilities
342,115
295,347
Other non-current liabilities
36,066
21,761
Total non-current liabilities
$
2,502,784
$
2,431,562
TOTAL LIABILITIES
$
5,484,621
$
5,565,931
STOCKHOLDERS' EQUITY
Class A common stock ($0.001 par value;
1,000,000,000 shares authorized, 118,222,528 and 112,437,825 shares
issued and outstanding at September 30, 2023 and December 31, 2022,
respectively)
118
112
Class B common stock ($0.001 par value;
1,000,000,000 shares authorized, 142,026,335 and 147,214,275 shares
issued and outstanding at September 30, 2023 and December 31, 2022,
respectively)
141
147
Class X common stock ($0.001 par value;
10,000,000 shares authorized, 640,784 shares issued and 0
outstanding at September 30, 2023 and December 31, 2022)
—
—
Preferred stock ($0.001 par value;
500,000,000 shares authorized, 0 shares issued and outstanding at
September 30, 2023 and December 31, 2022)
—
—
Additional paid-in capital
442,304
418,123
Retained earnings
92,179
53,988
Accumulated other comprehensive income
8,236
6,035
Total stockholders' equity attributable
to Ryan Specialty Holdings, Inc.
$
542,978
$
478,405
Non-controlling interests
398,263
339,407
Total stockholders' equity
$
941,241
$
817,812
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$
6,425,862
$
6,383,743
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September
30,
(in thousands)
2023
2022
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income
$
135,977
$
117,475
Adjustments to reconcile net income to
cash flows provided by operating activities:
Loss (income) from equity method
investment in related party
(5,882
)
414
Amortization
79,125
78,563
Depreciation
6,570
3,903
Prepaid and deferred compensation
expense
8,882
27,256
Non-cash equity-based compensation
54,136
61,084
Amortization of deferred debt issuance
costs
9,125
9,017
Amortization of interest rate cap
premium
5,216
2,898
Deferred income tax expense
11,745
4,597
Deferred income tax expense from
reorganization
20,679
—
Loss on Tax Receivable Agreement
478
7,173
Change (net of acquisitions) in:
Commissions and fees receivable – net
3,875
24,341
Accrued interest liability
(4,293
)
3,016
Other current assets and accrued
liabilities
(98,213
)
(192,752
)
Other non-current assets and accrued
liabilities
22,915
3,999
Total cash flows provided by operating
activities
$
250,335
$
150,984
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures
(16,013
)
(12,026
)
Business combinations – net of cash
acquired and cash held in a fiduciary capacity
(366,149
)
—
Repayments of prepaid incentives
228
337
Total cash flows used for investing
activities
$
(381,934
)
$
(11,689
)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from senior secured notes
—
394,000
Payment of interest rate cap premium
—
(25,500
)
Repayment of term debt
(12,375
)
(12,375
)
Debt issuance costs paid
—
(2,369
)
Finance lease and other costs paid
—
(27
)
Payment of contingent consideration
(4,477
)
(6,241
)
Tax distributions to LLC Unitholders
(52,633
)
(32,678
)
Receipt of taxes related to net share
settlement of equity awards
7,786
7,132
Taxes paid related to net share settlement
of equity awards
(7,091
)
(6,832
)
Net change in fiduciary liabilities
36,832
(54,775
)
Total cash flows (used for) provided by
financing activities
$
(31,958
)
$
260,335
Effect of changes in foreign exchange
rates on cash, cash equivalents, and cash held in a fiduciary
capacity
(828
)
(1,274
)
NET CHANGE IN CASH, CASH EQUIVALENTS,
AND CASH HELD IN A FIDUCIARY CAPACITY
$
(164,385
)
$
398,356
CASH, CASH EQUIVALENTS, AND CASH HELD
IN A FIDUCIARY CAPACITY—Beginning balance
1,767,385
1,139,661
CASH, CASH EQUIVALENTS, AND CASH HELD
IN A FIDUCIARY CAPACITY—Ending balance
$
1,603,000
$
1,538,017
Reconciliation of cash, cash
equivalents, and cash held in a fiduciary capacity
Cash and cash equivalents
754,370
833,135
Cash held in a fiduciary capacity
848,630
704,882
Total cash, cash equivalents, and cash
held in a fiduciary capacity
$
1,603,000
$
1,538,017
Reconciliation of Organic Revenue Growth Rate to Total
Revenue Growth Rate
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Total revenue growth rate (GAAP)
(1)
21.8
%
16.8
%
19.7
%
22.4
%
Less: Mergers and acquisitions (2)
(4.3
)
(2.8
)
(2.3
)
(3.0
)
Change in other (3)
(2.8
)
(0.3
)
(2.7
)
(0.7
)
Organic revenue growth rate
(Non-GAAP)
14.7
%
13.7
%
14.7
%
18.7
%
(1)
For the three months ended September 30,
2023, September 30, 2023 revenue of $501.9 million less September
30, 2022 revenue of $412.0 million is a $89.9 million
period-over-period change. The change, $89.9 million, divided by
the September 30, 2022 revenue of $412.0 million, is a total
revenue change of 21.8%. For the three months ended September 30,
2022, September 30, 2022 revenue of $412.0 million less September
30, 2021 revenue of $352.8 million is a $59.2 million
period-over-period change. The change, $59.2 million, divided by
the September 30, 2021 revenue of $352.8 million, is a total
revenue change of 16.8%. For the nine months ended September 30,
2023, September 30, 2023 revenue of $1,544.7 million less September
30, 2022 revenue of $1,290.2 million is a $254.5 million
period-over-period change. The change, $254.5 million, divided by
September 30, 2022 revenue of $1,290.2 million, is a total revenue
change of 19.7%. For the nine months ended September 30, 2022,
September 30, 2022 revenue of $1,290.2 million less September 30,
2021 revenue of $1,054.2 million is a $236.0 million
period-over-period change. The change, 236.0 million, divided by
the September 30, 2021 revenue of $1,054.2 million, is a total
revenue change of 22.4%.
(2)
The acquisitions adjustment excludes net
commission and fees revenue generated during the first 12 months
following an acquisition. The total adjustment for the three months
ended September 30, 2023 and 2022 was $17.8 million and $9.9
million, respectively. The total adjustment for the nine months
ended September 30, 2023 and 2022 was $29.9 million and $31.5
million, respectively.
(3)
The other adjustments exclude the
period-over-period change in contingent commissions, fiduciary
investment income, and foreign exchange rates. The total adjustment
for the three months ended September 30, 2023 and 2022 was $11.6
million and $0.9 million, respectively. The total adjustment for
the nine months ended September 30, 2023 and 2022 was $35.0 million
and $7.0 million, respectively.
Reconciliation of Adjusted Compensation and Benefits Expense
to Compensation and Benefits Expense
Three Months Ended September
30,
Nine Months Ended September
30,
(in thousands, except percentages)
2023
2022
2023
2022
Total revenue
$
501,938
$
411,996
$
1,544,686
$
1,290,178
Compensation and benefits
expense
$
329,212
$
274,108
$
989,294
$
858,439
Acquisition-related expense
(1,546
)
(21
)
(3,331
)
(122
)
Acquisition related long-term incentive
compensation
(550
)
(7,383
)
(1,702
)
(22,181
)
Restructuring and related expense
(11,538
)
(19
)
(13,407
)
(724
)
Amortization and expense related to
discontinued prepaid incentives
(1,570
)
(1,533
)
(4,793
)
(5,075
)
Equity-based compensation
(8,281
)
(5,530
)
(23,107
)
(18,009
)
Initial public offering related
expense
(9,327
)
(12,527
)
(31,029
)
(43,075
)
Adjusted compensation and benefits
expense (1)
$
296,400
$
247,095
$
911,925
$
769,253
Compensation and benefits expense
ratio
65.6
%
66.5
%
64.0
%
66.5
%
Adjusted compensation and benefits
expense ratio
59.1
%
60.0
%
59.0
%
59.6
%
(1)
Adjustments 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 September
30,
Nine Months Ended September
30,
(in thousands, except percentages)
2023
2022
2023
2022
Total revenue
$
501,938
$
411,996
$
1,544,686
$
1,290,178
General and administrative
expense
$
69,288
$
48,991
$
202,595
$
139,851
Acquisition-related expense
(5,790
)
(716
)
(12,196
)
(2,767
)
Restructuring and related expense
(4,939
)
—
(23,793
)
(4,993
)
Initial public offering related
expense
—
(191
)
—
(1,317
)
Adjusted general and administrative
expense (1)
$
58,559
$
48,084
$
166,606
$
130,774
General and administrative expense
ratio
13.8
%
11.9
%
13.1
%
10.8
%
Adjusted general and administrative
expense ratio
11.7
%
11.7
%
10.8
%
10.1
%
(1)
Adjustments 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 September
30,
Nine Months Ended September
30,
(in thousands, except percentages)
2023
2022
2023
2022
Total revenue
$
501,938
$
411,996
$
1,544,686
$
1,290,178
Net income
$
15,703
$
29,279
$
135,977
$
117,475
Interest expense, net
31,491
28,864
89,840
75,462
Income tax expense
24,827
3,411
42,772
10,076
Depreciation
2,201
1,463
6,570
3,903
Amortization
29,572
25,667
79,125
78,563
Change in contingent consideration
1,848
423
4,358
(837
)
EBITDAC
$
105,642
$
89,107
$
358,642
$
284,642
Acquisition-related expense
7,336
737
15,527
2,889
Acquisition related long-term incentive
compensation
550
7,383
1,702
22,181
Restructuring and related expense
16,477
19
37,200
5,717
Amortization and expense related to
discontinued prepaid incentives
1,570
1,533
4,793
5,075
Other non-operating loss (income)
67
(66
)
37
6,832
Equity-based compensation
8,281
5,530
23,107
18,009
IPO related expenses
9,327
12,718
31,029
44,392
(Income) / loss from equity method
investments in related party
(2,271
)
(144
)
(5,882
)
414
Adjusted EBITDAC (1)
$
146,979
$
116,817
$
466,155
$
390,151
Net income margin
3.1
%
7.1
%
8.8
%
9.1
%
Adjusted EBITDAC margin
29.3
%
28.4
%
30.2
%
30.2
%
(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 September
30,
Nine Months Ended September
30,
(in thousands, except percentages)
2023
2022
2023
2022
Total revenue
$
501,938
$
411,996
$
1,544,686
$
1,290,178
Net income
$
15,703
$
29,279
$
135,977
$
117,475
Income tax expense
24,827
3,411
42,772
10,076
Amortization
29,572
25,667
79,125
78,563
Amortization of deferred debt issuance
costs (1)
3,045
3,033
9,125
9,017
Change in contingent consideration
1,848
423
4,358
(837
)
Acquisition-related expense
7,336
737
15,527
2,889
Acquisition related long-term incentive
compensation
550
7,383
1,702
22,181
Restructuring and related expense
16,477
19
37,200
5,717
Amortization and expense related to
discontinued prepaid incentives
1,570
1,533
4,793
5,075
Other non-operating loss (income)
67
(66
)
37
6,832
Equity-based compensation
8,281
5,530
23,107
18,009
IPO related expenses
9,327
12,718
31,029
44,392
(Income) / loss from equity method
investments in related party
(2,271
)
(144
)
(5,882
)
414
Adjusted income before income taxes
(2)
$
116,332
$
89,523
$
378,870
$
319,803
Adjusted tax expense (3)
(29,700
)
(22,963
)
(96,726
)
(82,029
)
Adjusted net income
$
86,632
$
66,560
$
282,144
$
237,774
Net income margin
3.1
%
7.1
%
8.8
%
9.1
%
Adjusted net income margin
17.3
%
16.2
%
18.3
%
18.4
%
(1)
Interest expense, net includes
amortization of deferred debt issuance costs.
(2)
Adjustments 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 our allocable share of any net taxable
income of the LLC. For the three and nine months ended September
30, 2023, this calculation of adjusted tax expense is based on a
federal statutory rate of 21% and a combined state income tax rate
net of federal benefits of 4.53% on 100% of our adjusted income
before income taxes as if the Company owned 100% of the LLC. For
the three and nine months ended September 30, 2022, this
calculation of adjusted tax expense is based on a federal statutory
rate of 21% and a combined state income tax rate net of federal
benefits of 4.65% on 100% of our adjusted income before income
taxes as if the Company owned 100% of the LLC.
Reconciliation of Adjusted Diluted Earnings per Share to
Diluted Earnings (Loss) per Share
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Earnings (loss) per share of Class A
common stock – diluted
$
(0.04
)
$
0.09
$
0.34
$
0.37
Less: Net income attributed to dilutive
shares and substantively vested RSUs (1)
—
(0.05
)
(0.03
)
(0.21
)
Plus: Impact of all LLC Common Units
Exchanged for Class A shares (2)
0.10
0.07
0.20
0.28
Plus: Adjustments to Adjusted net income
(3)
0.28
0.14
0.54
0.46
Plus: Dilutive impact of unvested equity
awards (4)
(0.02
)
—
(0.01
)
(0.02
)
Adjusted diluted earnings per
share
$
0.32
$
0.25
$
1.04
$
0.88
(Share count in '000)
Weighted-average shares of Class A common
stock outstanding – diluted
115,872
266,352
124,884
265,071
Plus: Impact of all LLC Common Units
Exchanged for Class A shares (2)
141,690
—
142,974
—
Plus: Dilutive impact of unvested equity
awards (4)
15,115
4,153
4,390
5,011
Adjusted diluted earnings per share
diluted share count
272,677
270,505
272,248
270,082
(1)
Adjustment removes the impact of Net
income attributed to dilutive awards and substantively vested RSUs
to arrive at Net income (loss) attributable to Ryan Specialty
Holdings, Inc. For the three months ended September 30, 2023 and
2022, this removes $0.1 million and $13.1 million of Net income,
respectively, on 115.9 million and 266.4 million Weighted-average
shares of Class A common stock outstanding - diluted, respectively.
For the nine months ended September 30, 2023 and 2022, this removes
$3.8 million and $55.4 million of Net income, respectively, on
124.9 million and 265.1 million Weighted-average shares of Class A
common stock outstanding - diluted, respectively. See “Note 10,
Earnings (Loss) Per Share” of the unaudited quarterly consolidated
financial statements.
(2)
For comparability purposes, this
calculation incorporates the Net income that would be outstanding
if all LLC Common Units (together with shares of Class B common
stock) were exchanged for shares of Class A common stock. For the
three months ended September 30, 2023 and 2022, this includes $20.8
million and $17.5 million of Net income, respectively, on 257.6
million and 266.4 million Weighted-average shares of Class A common
stock outstanding - diluted, respectively. For the nine months
ended September 30, 2023 and 2022, this includes $97.8 million and
$74.3 million of Net income, respectively, on 267.9 million and
265.1 million Weighted-average shares of Class A common stock
outstanding - diluted, respectively. For the three months ended
September 30, 2022, 144.1 million weighted average outstanding LLC
Common Units were considered dilutive and included in the 266.4
million Weighted-average shares of Class A common stock outstanding
- diluted within Diluted EPS. For the nine months ended September
30, 2022, 144.0 million weighted average outstanding LLC Common
Units were considered dilutive and included in the 265.1 million
Weighted-average shares of Class A common stock outstanding -
diluted within Diluted EPS. See “Note 10, Earnings (Loss) Per
Share” of the unaudited quarterly consolidated financial
statements.
(3)
Adjustments to Adjusted net income are
described in the footnotes of the reconciliation of Adjusted net
income to Net income (loss) in “Adjusted Net Income and Adjusted
Net Income Margin” on 257.6 million and 266.4 million
Weighted-average shares of Class A common stock outstanding -
diluted for the three months ended September 30, 2023 and 2022,
respectively, and on 267.9 million and 265.1 million shares of
Weighted-average shares of Class A common stock outstanding -
diluted for the nine months ended September 30, 2023 and 2022,
respectively.
(4)
For comparability purposes and to be
consistent with the treatment of the adjustments to arrive at
Adjusted net income, the dilutive effect of unvested equity awards
is calculated using the treasury stock method as if the weighted
average unrecognized cost associated with the awards was $0 over
the period, less any unvested equity awards determined to be
dilutive within the Diluted EPS calculation disclosed in “Note 10,
Earnings (Loss) Per Share” of the unaudited quarterly consolidated
financial statements. For the three months ended September 30, 2023
and 2022, 15.1 million and 4.2 million shares were added to the
calculation, respectively, and for the nine months ended September
30, 2023 and 2022, 4.4 million and 5.0 million shares were added to
the calculation, respectively.
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Investor Relations Nicholas Mezick Director, Investor
Relations Ryan Specialty IR@ryanspecialty.com Phone: (312)
784-6152
Media Relations Alice Phillips Topping SVP, Chief
Marketing & Communications Officer Ryan Specialty
Alice.Topping@ryanspecialty.com Phone: (312) 635-5976
Ryan Specialty (NYSE:RYAN)
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