[Filing Information](index=1&type=section&id=Filing%20Information) This section provides the basic filing details for Ryan Specialty Holdings, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2023, including its registration status, stock exchange listing, and outstanding common stock shares - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2023[2](index=2&type=chunk) - Ryan Specialty Holdings, Inc. (RYAN) Class A Common Stock is registered on The New York Stock Exchange (NYSE)[4](index=4&type=chunk) Outstanding Common Stock as of July 31, 2023 | Class | Shares Outstanding | | :------------------ | :------------------- | | Class A Common Stock | 116,453,014 | | Class B Common Stock | 143,764,420 | | **Total Common Stock** | **260,217,434** | [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the forward-looking statements contained in the Form 10-Q, emphasizing that they involve substantial risks and uncertainties, and cautions investors against undue reliance on these statements - Forward-looking statements relate to financial condition, results of operations, plans, objectives, future performance, and business, identifiable by words like 'anticipate,' 'estimate,' 'expect,' 'project,' 'plan,' 'intend,' 'believe,' 'may,' 'will,' 'should,' 'can have,' 'likely'[10](index=10&type=chunk) - Key risks include: * Failure to successfully execute succession plans or recruit and retain revenue producers * Impact of security breaches or improper disclosure of confidential data * Potential loss of relationships with insurance carriers or clients * Errors in underwriting models or damage to reputation * Failure to achieve the intended results of the ACCELERATE 2025 program * Cyclicality of markets, reduced insurer capacity, and significant competitive pressures * Decreases in premiums, commission rates, or supplemental/contingent commissions * Inability to maintain rapid growth and generate sufficient revenue to maintain profitability * Impact of MGA or MGU program terminations or changes * Unsatisfactory evaluation of potential acquisitions and integration of acquired businesses * Impact of governmental regulations, legal proceedings, and E&O claims * Risks related to outstanding debt and payments required by the Tax Receivable Agreement[11](index=11&type=chunk)[13](index=13&type=chunk) - The company undertakes no obligation to update or revise any forward-looking statement, except as required by law[15](index=15&type=chunk) [Commonly Used Defined Terms](index=6&type=section&id=Commonly%20Used%20Defined%20Terms) This section provides definitions for key terms used throughout the Quarterly Report on Form 10-Q, ensuring clarity and consistent understanding of company-specific and industry-specific terminology - Key terms defined include: * **Company/Ryan Specialty:** Refers to Ryan Specialty Holdings, Inc. and its subsidiaries * **Adjusted Term SOFR:** Interest rate based on SOFR plus a Credit Spread Adjustment * **Admitted:** Regulated insurance market where carriers are licensed to write business * **E&S:** Excess and surplus lines market, where carriers are licensed on a 'non-admitted' basis, offering more flexibility * **LLC:** Ryan Specialty, LLC, together with its parent New LLC, and their subsidiaries * **MGA/MGU:** Managing general agent/underwriter * **Organizational Transactions:** Series of transactions completed in connection with the IPO * **Specialty:** One of three primary distribution channels: Wholesale Brokerage, Binding Authority, and Underwriting Management * **TRA:** Tax Receivable Agreement[17](index=17&type=chunk)[18](index=18&type=chunk) [PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Ryan Specialty Holdings, Inc. for the three and six months ended June 30, 2023 and 2022, along with detailed notes explaining accounting policies and specific financial line items [Consolidated Statements of Income (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) The Consolidated Statements of Income show Ryan Specialty Holdings, Inc.'s financial performance for the three and six months ended June 30, 2023 and 2022, highlighting revenue, operating expenses, net income, and earnings per share Consolidated Statements of Income (Unaudited) - Key Figures | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Total revenue | $585,149 | $491,292 | $1,042,748 | $878,182 | | Total operating expenses | $462,309 | $385,764 | $849,821 | $729,267 | | Operating income | $122,840 | $105,528 | $192,927 | $148,915 | | Income before income taxes | $95,467 | $81,288 | $138,219 | $94,861 | | Net income | $83,817 | $70,120 | $120,274 | $88,196 | | Net income attributable to Ryan Specialty Holdings, Inc. | $30,078 | $24,501 | $43,238 | $31,412 | | Basic EPS (Class A Common Stock) | $0.27 | $0.23 | $0.39 | $0.30 | | Diluted EPS (Class A Common Stock) | $0.26 | $0.22 | $0.37 | $0.28 | - Key changes (YoY): * **Total Revenue:** Increased by **19.1%** for Q2 2023 and **18.7%** for H1 2023 * **Net Income:** Increased by **19.5%** for Q2 2023 and **36.4%** for H1 2023 * **Diluted EPS:** Increased by **18.2%** for Q2 2023 and **32.1%** for H1 2023[21](index=21&type=chunk) [Consolidated Statements of Comprehensive Income (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) The Consolidated Statements of Comprehensive Income detail the net income and other comprehensive income (loss) components, such as gains on interest rate caps and foreign currency translation adjustments, attributable to Ryan Specialty Holdings, Inc. for the reported periods Consolidated Statements of Comprehensive Income (Unaudited) - Key Figures | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net income attributable to Ryan Specialty Holdings, Inc. | $30,078 | $24,501 | $43,238 | $31,412 | | Total other comprehensive income (loss), net of tax | $4,242 | $(1,613) | $2,490 | $(2,973) | | Comprehensive income attributable to Ryan Specialty Holdings, Inc. | $34,320 | $22,888 | $45,728 | $28,439 | - Key changes (YoY): * **Total other comprehensive income (loss):** Swung from a loss of **$1,613 thousand** in Q2 2022 to a gain of **$4,242 thousand** in Q2 2023, primarily due to gains on interest rate cap and reclassification to earnings[23](index=23&type=chunk) [Consolidated Balance Sheets (Unaudited)](index=10&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) The Consolidated Balance Sheets provide a snapshot of Ryan Specialty Holdings, Inc.'s financial position as of June 30, 2023, and December 31, 2022, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (Unaudited) - Key Figures | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Total current assets | $4,659,370 | $3,894,067 | | Total non-current assets | $2,576,427 | $2,489,676 | | **TOTAL ASSETS** | **$7,235,797** | **$6,383,743** | | Total current liabilities | $3,827,499 | $3,134,369 | | Total non-current liabilities | $2,464,380 | $2,431,562 | | **TOTAL LIABILITIES** | **$6,291,879** | **$5,565,931** | | Total stockholders' equity attributable to Ryan Specialty Holdings, Inc. | $558,935 | $478,405 | | Non-controlling interests | $384,983 | $339,407 | | **TOTAL STOCKHOLDERS' EQUITY** | **$943,918** | **$817,812** | | **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | **$7,235,797** | **$6,383,743** | - Key changes (vs. Dec 31, 2022): * **Total Assets:** Increased by **$852,054 thousand (13.3%)** to **$7,235,797 thousand** * **Total Liabilities:** Increased by **$725,948 thousand (13.0%)** to **$6,291,879 thousand** * **Total Stockholders' Equity:** Increased by **$126,106 thousand (15.4%)** to **$943,918 thousand**[25](index=25&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) The Consolidated Statements of Cash Flows present the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022, showing the overall change in cash and cash equivalents Consolidated Statements of Cash Flows (Unaudited) - Key Figures | Metric | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Cash flows from operating activities | $144,836 | $164,711 | | Cash flows used for investing activities | $(109,274) | $(6,790) | | Cash flows provided by financing activities | $150,817 | $379,757 | | Net change in cash, cash equivalents, and cash held in a fiduciary capacity | $185,722 | $538,030 | | Cash, cash equivalents, and cash held in a fiduciary capacity—Ending balance | $1,953,107 | $1,677,691 | - Key changes (YoY): * **Cash flows from operating activities:** Decreased by **$19,875 thousand (12.1%)** to **$144,836 thousand** * **Cash flows used for investing activities:** Increased significantly by **$102,484 thousand** to **$(109,274) thousand**, primarily due to business combinations * **Cash flows provided by financing activities:** Decreased by **$228,940 thousand (60.3%)** to **$150,817 thousand**, mainly due to the absence of a bond issuance seen in the prior year[28](index=28&type=chunk) [Consolidated Statements of Stockholders' Equity (Unaudited)](index=13&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) The Consolidated Statements of Stockholders' Equity detail changes in equity components, including common stock, additional paid-in capital, retained earnings, and non-controlling interests, for the six months ended June 30, 2023 and 2022 Consolidated Statements of Stockholders' Equity (Unaudited) - Key Figures | Metric | Balance at January 1, 2023 (in thousands) | Balance at June 30, 2023 (in thousands) | | :------------------------------------------------ | :---------------------------------------- | :-------------------------------------- | | Total Stockholders' Equity | $817,812 | $943,918 | | Net income attributable to Ryan Specialty Holdings, Inc. | $53,988 (Retained Earnings) | $97,226 (Retained Earnings) | | Non-controlling interests | $339,407 | $384,983 | - Key changes (Jan 1, 2023 to June 30, 2023): * **Total Stockholders' Equity:** Increased by **$126,106 thousand (15.4%)** to **$943,918 thousand** * **Retained Earnings:** Increased by **$43,238 thousand** to **$97,226 thousand** * **Non-controlling interests:** Increased by **$45,576 thousand** to **$384,983 thousand**[30](index=30&type=chunk) [Notes to the Consolidated Financial Statements (Unaudited)](index=15&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering the company's nature of operations, accounting policies, revenue disaggregation, mergers and acquisitions, restructuring activities, debt, equity, and other financial instruments [1. Basis of Presentation](index=15&type=section&id=1.%20Basis%20of%20Presentation) Ryan Specialty Holdings, Inc. is a specialty insurance service provider, operating as a wholesale broker and managing underwriter, consolidating the financial results of its subsidiary, Ryan Specialty, LLC (LLC), where it holds a controlling equity interest and is the primary beneficiary, despite owning a minority economic interest - Ryan Specialty Holdings, Inc. is a service provider of specialty products and solutions for insurance brokers, agents, and carriers, founded by Patrick G. Ryan in 2010[34](index=34&type=chunk) - The Company consolidates the financial results of New LLC and the LLC, reporting non-controlling interests, as it is the sole managing member and primary beneficiary of the LLC[36](index=36&type=chunk)[40](index=40&type=chunk) - As of June 30, 2023, the Company owned **44.3%** of the outstanding LLC Common Units of New LLC, and New LLC owned **99.9%** of the outstanding LLC Common Units of the LLC[36](index=36&type=chunk) [2. Revenue from Contracts with Customers](index=16&type=section&id=2.%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates revenue by specialty, showing contributions from Wholesale Brokerage, Binding Authority, and Underwriting Management, and details contract balances related to commissions and deferred revenue Revenue from Contracts with Customers by Specialty (in thousands) | Specialty | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Wholesale Brokerage | $381,616 | $329,225 | $667,466 | $574,051 | | Binding Authority | $69,775 | $59,751 | $139,301 | $122,744 | | Underwriting Management | $121,629 | $101,251 | $213,766 | $180,113 | | **Total Net commissions and fees** | **$573,020** | **$490,227** | **$1,020,533** | **$876,908** | - Contract assets (volume-based commissions) decreased from **$13.0 million** at December 31, 2022, to **$3.9 million** at June 30, 2023[45](index=45&type=chunk) - Contract liabilities (deferred revenue) decreased from **$1.4 million** at December 31, 2022, to **$0.5 million** at June 30, 2023[45](index=45&type=chunk) [3. Mergers and Acquisitions](index=16&type=section&id=3.%20Mergers%20and%20Acquisitions) This note details the Company's acquisition activities, including the January 2023 acquisition of Griffin Underwriting Services and the accounting treatment of contingent consideration for various acquisitions - On January 3, 2023, the Company acquired certain assets of Griffin Underwriting Services for **$115.5 million**, recognizing **$51.4 million** in customer relationships and **$64.0 million** in goodwill[46](index=46&type=chunk) Contingent Consideration Recognized (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Change in contingent consideration | $1,796 | $(251) | $2,510 | $(1,260) | | Interest expense, net | $570 | $425 | $1,441 | $798 | | **Total** | **$2,366** | **$174** | **$3,951** | **$(462)** | - The maximum aggregate contingent consideration related to acquisitions was **$40.0 million** as of June 30, 2023[48](index=48&type=chunk) [4. Restructuring](index=17&type=section&id=4.%20Restructuring) This note outlines the ACCELERATE 2025 program, initiated in February 2023, detailing expected costs, anticipated annual savings, and the restructuring expenses incurred during the period - The ACCELERATE 2025 program, initiated in February 2023, aims for continued growth, innovation, and sustainable productivity improvements, with expected total restructuring costs of at least **$65.0 million** through December 31, 2024, and annual savings of at least **$35.0 million** in 2025[49](index=49&type=chunk) Restructuring Expense Incurred (in thousands) | Category | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | | :---------------------------------- | :--------------------------- | :--------------------------- | | Operations and technology optimization | $6,271 | $7,705 | | Compensation and benefits | $940 | $1,599 | | Asset impairment and other termination costs | $9,928 | $10,514 | | **Total** | **$17,139** | **$19,818** | - As of June 30, 2023, the total restructuring liability was **$13.1 million**, with **$12.4 million** in Accounts payable and accrued liabilities and **$0.7 million** in Current Accrued compensation[50](index=50&type=chunk) [5. Receivables and Other Current Assets](index=17&type=section&id=5.%20Receivables%20and%20Other%20Current%20Assets) This note provides details on the Company's commissions and fees receivable, including the allowance for credit losses, and a breakdown of other current assets Commissions and Fees Receivable – Net (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Commissions and fees receivable – net | $301,030 | $231,423 | | Allowance for credit losses (End of period) | $2,089 | $1,980 | | Increase in provision (6 months) | $1,010 | $499 | Major Classes of Other Current Assets (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Prepaid expenses | $17,680 | $21,062 | | Service receivables | $207 | $414 | | Other current receivables | $38,769 | $28,214 | | **Total Other current assets** | **$56,656** | **$49,690** | [6. Leases](index=18&type=section&id=6.%20Leases) This note details the Company's lease commitments, primarily for office space, and provides information on lease costs, cash paid for lease liabilities, weighted-average discount rates, and remaining lease terms Lease Costs – Net (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease costs | $9,246 | $9,283 | $17,652 | $15,610 | | Sublease income | $(74) | $(106) | $(246) | $(197) | | **Lease costs – net** | **$9,335** | **$9,271** | **$17,807** | **$15,714** | - Weighted average remaining operating lease term was **8.5 years** as of June 30, 2023, up from **7.4 years** as of June 30, 2022[54](index=54&type=chunk) - Weighted average operating lease discount rate was **5.1%** as of June 30, 2023, up from **4.5%** as of June 30, 2022[54](index=54&type=chunk) [7. Debt](index=19&type=section&id=7.%20Debt) This note provides a summary of the Company's outstanding debt, including term loans, senior secured notes, and revolving credit facilities, along with details on interest rates, maturities, and compliance with covenants Summary of Outstanding Debt (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Term debt | $1,567,739 | $1,571,818 | | Senior secured notes | $400,218 | $399,791 | | Revolving debt | $386 | $392 | | Premium financing notes | $6,084 | $5,718 | | Units subject to mandatory redemption | $4,946 | $4,711 | | **Total debt** | **$1,979,373** | **$1,982,487** | | Long-term debt | **$1,948,786** | **$1,951,900** | - The Term Loan principal outstanding was **$1,604.6 million** as of June 30, 2023, with an interest rate of Adjusted Term SOFR + **3.00%** (subject to a **75 basis point floor**) and matures September 1, 2027[56](index=56&type=chunk)[58](index=58&type=chunk)[245](index=245&type=chunk) - The Revolving Credit Facility has a borrowing capacity of **$600.0 million**, with no amounts drawn as of June 30, 2023, and matures July 26, 2026[57](index=57&type=chunk) - The **$400.0 million** Senior Secured Notes issued on February 3, 2022, have a **4.375%** interest rate and mature on February 1, 2030[59](index=59&type=chunk) [8. Stockholders' Equity](index=20&type=section&id=8.%20Stockholders'%20Equity) This note describes the Company's authorized capital stock, including Class A, Class B, Class X common stock, and preferred stock, and details the ownership structure with non-controlling interests in the LLC - The Company's certificate of incorporation authorizes **1,000,000,000** shares of Class A common stock, **1,000,000,000** shares of Class B common stock, **10,000,000** shares of Class X common stock, and **500,000,000** shares of preferred stock[60](index=60&type=chunk) - Class A common stock has **one vote per share**, while Class B common stock initially has **10 votes per share**, but no dividend or liquidation rights[62](index=62&type=chunk) - As of June 30, 2023, the Company owned **44.3%** of the economic interests in the LLC, with non-controlling interest holders owning the remaining **55.7%**[66](index=66&type=chunk) [9. Equity-Based Compensation](index=21&type=section&id=9.%20Equity-Based%20Compensation) This note details the various equity-based compensation awards granted under the Omnibus Plan, including Restricted Stock, RSUs, Stock Options, RLUs, and Class C Incentive Units, along with their vesting schedules and the recognized compensation expense - Equity-based compensation awards include: * **Restricted Stock/Common Units:** Vested pro rata over **5 years** * **Restricted Stock Units (RSUs):** IPO RSUs vest pro rata over **5 or 10 years**; Incentive RSUs vest **100%** over **3 or 5 years**, pro rata over **3 or 5 years**, or over **5 or 7 years** with specific annual vesting percentages * **Stock Options (Reload/Staking/Incentive):** Entitle future purchases of Class A common stock at specified prices, with vesting periods ranging from **3 to 10 years** * **Restricted LLC Units (RLUs):** IPO RLUs vest pro rata over **5 or 10 years**; Incentive RLUs vest pro rata over **3 or 5 years** or over **7 years** * **Class C Incentive Units (Reload/Staking/Incentive):** Profits interests exchangeable for LLC Common Units (then Class A common stock) when Class A common stock value exceeds a threshold, with vesting periods from **3 to 10 years**[72](index=72&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) Total Equity-Based Compensation Expense (in thousands) | Period | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2022 | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total equity-based compensation expense | $18,649 | $36,528 | $19,800 | $43,000 | - As of June 30, 2023, total unrecognized equity-based compensation expense was **$181.6 million**, with a weighted-average remaining expense period ranging from **0.5 to 5.7 years** across different award types[89](index=89&type=chunk) [10. Earnings Per Share](index=25&type=section&id=10.%20Earnings%20Per%20Share) This note provides the calculation of basic and diluted earnings per share for Class A common stock, including a reconciliation of the numerator and denominator, and lists potentially dilutive shares excluded from the diluted EPS calculation Earnings Per Share (Class A Common Stock) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.27 | $0.23 | $0.39 | $0.30 | | Diluted EPS | $0.26 | $0.22 | $0.37 | $0.28 | | Weighted-average shares of Class A common stock outstanding – basic | 112,915,557 | 108,054,437 | 111,980,226 | 107,327,462 | | Weighted-average shares of Class A common stock outstanding – diluted | 123,845,655 | 120,204,902 | 123,685,098 | 264,417,470 | - Potentially dilutive shares excluded from diluted EPS calculation due to antidilutive effect for Q2 2023 include **495,822** unvested Class C Incentive Units, **168,282** Incentive Options, **47,620** conversion of vested Class C Incentive Units, and **143,835,472** conversion of non-controlling interest LLC Common Units[91](index=91&type=chunk) [11. Derivatives](index=25&type=section&id=11.%20Derivatives) This note describes the Company's interest rate cap agreement, used to manage exposure to interest rate fluctuations on its Term Loan, detailing its notional amount, strike rate, fair value, and impact on comprehensive income and interest expense - The Company entered into an interest rate cap agreement on April 7, 2022, with a **$1,000.0 million** notional amount, **2.75%** strike, and termination on December 31, 2025, to manage Term Loan interest rate exposure[92](index=92&type=chunk) Interest Rate Cap Fair Value (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Fair value of interest rate cap | $47,000 | $45,900 | | Accumulated other comprehensive income related to interest rate cap | $26,300 | $22,200 | - For the three and six months ended June 30, 2023, **$5.6 million** and **$10.0 million**, respectively, related to payments received were reclassified from Other comprehensive income (loss) into earnings as an offset to interest expense[95](index=95&type=chunk) [12. Variable Interest Entities](index=26&type=section&id=12.%20Variable%20Interest%20Entities) This note clarifies that Ryan Specialty Holdings, Inc. consolidates the LLC as a Variable Interest Entity (VIE) under ASC 810, and that the Company's financial statements largely reflect the LLC's, with specific exceptions for cash, TRA liabilities, and deferred tax assets attributable solely to the parent company - The Company consolidates the LLC as a VIE, and its financial position, performance, and cash flows effectively represent those of the LLC[96](index=96&type=chunk) - Exceptions attributable solely to Ryan Specialty Holdings, Inc. as of June 30, 2023 (in thousands): * Cash and cash equivalents: **$47,000** * Tax Receivable Agreement liabilities: **$326,800** * Deferred tax assets: **$415,000**[96](index=96&type=chunk) [13. Fair Value Measurements](index=26&type=section&id=13.%20Fair%20Value%20Measurements) This note details the Company's fair value measurements, categorizing assets and liabilities into a three-tier hierarchy (Level 1, 2, 3) and providing specific valuation methodologies for derivative instruments (interest rate cap) and contingent consideration - The fair value of the interest rate cap is determined using Level 2 inputs, based on discounting future expected cash receipts derived from observable market interest rate curves and volatilities[100](index=100&type=chunk) - Contingent consideration obligations are Level 3 fair value measurements, based on the present value of future expected payments, estimated using Monte Carlo simulations of financial projections and discounted with risk-adjusted rates (**9.5%** as of June 30, 2023)[101](index=101&type=chunk)[102](index=102&type=chunk) Assets and Liabilities Measured at Fair Value (in thousands) | Item | June 30, 2023 (Level 2/3) | December 31, 2022 (Level 2/3) | | :---------------------- | :------------------------ | :-------------------------- | | Interest rate cap (Asset) | $47,029 (Level 2) | $45,860 (Level 2) | | Contingent consideration (Liability) | $25,290 (Level 3) | $29,251 (Level 3) | [14. Commitments and Contingencies](index=27&type=section&id=14.%20Commitments%20and%20Contingencies) This note discusses the Company's exposure to legal proceedings, particularly Errors and Omissions (E&O) claims, and details a specific unusual circumstance involving mis-underwritten policies and the associated loss contingencies and probable recoveries - The Company faces ordinary course E&O exposure, with insurance providing aggregate coverage up to **$100.0 million** in excess of a **$5.0 million** per claim retention amount (increased from **$2.5 million** as of June 1, 2023)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) Loss Contingencies and Recoveries (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Loss contingencies for outstanding matters | $9,800 | $26,100 | | Estimated loss contingency for mis-underwritten policies | $4,400 | $23,100 | | Loss recovery for mis-underwritten policies | $22,600 | $20,600 | - A specific unusual circumstance in 2022 involved mis-underwritten policies, leading to an estimated loss contingency of **$4.4 million** as of June 30, 2023, and a probable recovery of **$22.6 million** from E&O insurance carriers[109](index=109&type=chunk) [15. Related Parties](index=28&type=section&id=15.%20Related%20Parties) This note describes the Company's relationships with related parties, including Ryan Investment Holdings (RIH), Geneva Re, and executive jet leasing arrangements, detailing investment structures, service agreements, and associated revenues or expenses - The Company holds a **47%** interest in Ryan Investment Holdings (RIH), which in turn has a **50%** non-controlling interest in Geneva Re Partners, LLC (GRP), which wholly owns Geneva Re, Ltd[112](index=112&type=chunk) - Ryan Re, a subsidiary, provides underwriting and administrative services to Geneva Re, earning service fees equal to **115%** of administrative costs; Revenue from Geneva Re was **$0.4 million** for Q2 2023 and **$0.7 million** for H1 2023[115](index=115&type=chunk) - The Company charters executive jets from Executive Jet Management (EJM), with Mr. Ryan indirectly owning aircraft leased to EJM; The Company receives a discount when chartering Mr. Ryan's aircraft, incurring **$0.2 million** in Q2 2023 and **$0.7 million** in H1 2023 for business usage[117](index=117&type=chunk) [16. Income Taxes](index=29&type=section&id=16.%20Income%20Taxes) This note explains the Company's income tax structure, effective tax rates, deferred tax assets and liabilities, and the Tax Receivable Agreement (TRA) liabilities, including estimated future payments and tax savings Effective Tax Rates | Period | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Effective tax rate | 12.20% | 13.74% | 13.00% | 7.03% | Deferred Tax Assets and Liabilities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Deferred tax assets | $415,070 | $396,814 | | Deferred tax liabilities | $208 | $562 | - The Company has recorded Tax Receivable Agreement (TRA) liabilities of **$326.8 million** as of June 30, 2023, representing **85%** of estimated future tax savings from Exchange Tax Attributes, Pre-IPO M&A Tax Attributes, and TRA Payment Tax Attributes[123](index=123&type=chunk)[124](index=124&type=chunk)[248](index=248&type=chunk) [17. Supplemental Cash Flow Information](index=30&type=section&id=17.%20Supplemental%20Cash%20Flow%20Information) This note provides supplemental cash flow information, including cash paid for interest and income taxes, and non-cash investing and financing activities related to Tax Receivable Agreement liabilities Supplemental Cash Flow Information (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Cash paid for interest | $73,406 | $32,050 | | Cash paid for income taxes | $5,098 | $5,179 | | Non-cash investing and financing activities: Tax Receivable Agreement liabilities | $31,258 | $14,491 | [18. Subsequent Events](index=31&type=section&id=18.%20Subsequent%20Events) This note discloses significant events that occurred after the reporting period but before the filing date, including several acquisitions completed in July 2023 - On July 1, 2023, the Company acquired ACE Benefit Partners, Inc. and Point6 Healthcare, LLC for an aggregate cash consideration of **$46.8 million**[128](index=128&type=chunk) - On July 3, 2023, the Company acquired Socius Insurance Services for **$251.9 million** in cash consideration, plus **$2.7 million** in Class A common stock[129](index=129&type=chunk) - Valuation of contingent considerations and purchase price allocations for these July 2023 acquisitions have not yet been completed[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition, results of operations, liquidity, and cash flows for the three and six months ended June 30, 2023 and 2022, including an overview of the business, significant events, key performance drivers, and a detailed analysis of financial results and non-GAAP measures [Overview](index=32&type=section&id=Overview) Ryan Specialty Holdings, Inc. is a specialty insurance service provider founded in 2010, offering distribution, underwriting, product development, administration, and risk management services, primarily in the Excess & Surplus (E&S) market, to meet complex and hard-to-place risk needs - Ryan Specialty is a service provider of specialty products and solutions for insurance brokers, agents, and carriers, founded by Patrick G. Ryan in 2010[134](index=134&type=chunk) - The company primarily operates in the E&S market, which offers more flexibility in terms, conditions, and rates compared to the Admitted market, allowing for bespoke solutions[135](index=135&type=chunk) [Significant Events and Transactions](index=32&type=section&id=Significant%20Events%20and%20Transactions) This section highlights key corporate developments, including the Company's holding company structure, the ACCELERATE 2025 program aimed at cost reduction and efficiency, and recent acquisition agreements [Corporate Structure](index=32&type=section&id=Corporate%20Structure) Ryan Specialty Holdings, Inc. operates as a holding company, controlling and consolidating the financial results of Ryan Specialty, LLC (LLC) through an intermediate holding company, New LLC; The Company is subject to federal, state, and local income taxes on its allocable share of the LLC's taxable income - Ryan Specialty Holdings, Inc. is a holding company that operates and controls the business and affairs of, and consolidates the financial results of, Ryan Specialty, LLC (LLC) through New LLC[137](index=137&type=chunk) - The Company is subject to U.S. federal, state, and local income taxes with respect to its allocable share of any taxable income of the LLC, which is taxed as a partnership[137](index=137&type=chunk) [ACCELERATE 2025 Program](index=32&type=section&id=ACCELERATE%202025%20Program) The ACCELERATE 2025 program, initiated in Q1 2023, aims to drive growth, innovation, and productivity, with expected cumulative one-time charges of at least **$65.0 million** through 2024 and anticipated annual savings of at least **$35.0 million** in 2025; Restructuring costs incurred for H1 2023 totaled **$19.8 million** - The ACCELERATE 2025 program, initiated in Q1 2023, is expected to incur at least **$65.0 million** in cumulative one-time charges through 2024 and generate annual savings of at least **$35.0 million** in 2025[138](index=138&type=chunk) Restructuring Costs Incurred (in millions) | Period | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | | :------------------- | :--------------------------- | :--------------------------- | | Restructuring costs | $17.1 | $19.8 | | General and administrative portion | $16.0 | $18.0 | | Workforce-related portion | $1.1 | $1.8 | [Acquisitions](index=33&type=section&id=Acquisitions) The Company announced and completed several acquisitions in July 2023, including Socius Insurance Services, Point6 Healthcare, LLC, and ACE Benefit Partners, Inc., expanding its wholesale insurance brokerage and medical stop loss capabilities - In May 2023, the Company announced the signing of a definitive agreement to acquire Socius Insurance Services, a national wholesale insurance broker, which was completed in July 2023[141](index=141&type=chunk) - In June 2023, the Company announced the signing of definitive agreements to acquire Point6 Healthcare, LLC and ACE Benefit Partners, Inc., both completed in July 2023, expanding medical stop loss insurance and claims management services[142](index=142&type=chunk)[143](index=143&type=chunk) [Key Factors Affecting Our Performance](index=33&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) The Company's performance is driven by strategic acquisitions, deepening client relationships, growing its Binding Authority Specialty, investing in operations and growth, generating commissions across market conditions, managing macroeconomic factors, and leveraging the growth of the E&S market - Key performance drivers include: * **Strategic Acquisitions:** Continuously evaluating and pursuing targeted acquisitions to enhance capabilities and expand geographic presence * **Client Relationships:** Deepening and broadening relationships with retail broker trading partners, with revenue from Top 100 firms growing faster than organic revenue in 2022 * **Binding Authority Specialty:** Substantial opportunity for growth due to nascent M&A and panel consolidation in the binding authority market * **Investment in Operations and Growth:** Enhancing product/service offerings and developing new solutions for the evolving specialty insurance industry * **Commission Generation:** Earning commissions and fees regardless of E&S market state, though changes in premium rates can impact profitability * **Macroeconomic Conditions:** Growth in project-based construction and M&A transactional liability insurance is sensitive to economic factors, with recent interest rate hikes causing delays * **E&S Market Growth:** Benefiting from the increasing complexity and demand for specialty solutions in the E&S market, leading to market share consolidation among capable firms[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [Components of Results of Operations](index=34&type=section&id=Components%20of%20Results%20of%20Operations) This section defines the key components of the Company's financial results, including revenue sources (net commissions and fees, fiduciary investment income) and expense categories (compensation and benefits, general and administrative, amortization, interest expense, other non-operating, and income tax expense), along with the treatment of non-controlling interests [Revenue](index=34&type=section&id=Revenue) Revenue is primarily derived from net commissions and fees across three specialties (Wholesale Brokerage, Binding Authority, Underwriting Management), calculated as a percentage of premium or fixed fees, and supplemented by contingent/volume-based commissions; Fiduciary investment income is earned on funds held in a fiduciary capacity - Net commissions and fees are the primary revenue source, derived from Wholesale Brokerage, Binding Authority, and Underwriting Management Specialties, and include supplemental or contingent commissions based on underwriting results, volume, growth, and/or retention[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - Fiduciary investment income is interest earned on insurance premiums and surplus lines taxes that are held in a fiduciary capacity[158](index=158&type=chunk) [Expenses](index=35&type=section&id=Expenses) Expenses include compensation and benefits (salaries, incentives, equity-based compensation), general and administrative costs (travel, office, professional fees), amortization of intangible assets, net interest expense (on debt, interest rate cap, contingent consideration), other non-operating items, and income tax expense, with non-controlling interests reflecting the portion of net income not attributable to the Company - Major expense categories: * **Compensation and Benefits:** Largest expense, includes salary, incentives, benefits, and equity-based compensation * **General and Administrative:** Includes travel and entertainment, office expenses, accounting, legal, insurance, and other professional fees * **Amortization:** Primarily related to intangible assets acquired in connection with acquisitions * **Interest Expense, Net:** Interest on indebtedness, amortization of interest rate cap, imputed interest on contingent consideration, offset by interest income * **Other Non-Operating Loss (Income):** Includes sublease income and TRA contractual interest, and in prior periods, charges related to TRA liability changes * **Income Tax Expense:** Taxes on the Company's allocable share of LLC's taxable income, foreign subsidiaries, and C-Corporations * **Non-Controlling Interests:** Net income and other comprehensive income attributed based on weighted average LLC Common Units outstanding[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the Company's financial performance, comparing the three and six months ended June 30, 2023, and 2022, across key revenue and expense categories, highlighting the principal drivers of changes [Comparison of the Three Months Ended June 30, 2023 and 2022](index=39&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202023%20and%202022) For the three months ended June 30, 2023, total revenue increased by **19.1%** to **$585.1 million**, driven by strong organic growth in net commissions and fees (**16.1%**); Operating income rose by **16.4%** to **$122.8 million**, and net income increased by **19.5%** to **$83.8 million**; Expenses saw significant increases in general and administrative (**68.3%**) due to restructuring costs, while amortization decreased Revenue Performance (3 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Net commissions and fees | $573,020 | $490,227 | $82,793 | 16.9% | | Fiduciary investment income | $12,129 | $1,065 | $11,064 | NM | | **Total revenue** | **$585,149** | **$491,292** | **$93,857** | **19.1%** | - Organic revenue growth contributed **$78.9 million (16.1%)** to the increase in Net commissions and fees, driven by a growing E&S market and new business, particularly in the property portfolio[178](index=178&type=chunk) Expense Performance (3 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Compensation and benefits | $352,360 | $310,058 | $42,302 | 13.6% | | General and administrative | $81,608 | $48,495 | $33,113 | 68.3% | | Amortization | $24,368 | $26,233 | $(1,865) | (7.1%) | | Interest expense, net | $28,881 | $24,846 | $4,035 | 16.2% | | **Net income** | **$83,817** | **$70,120** | **$13,697** | **19.5%** | - General and administrative expense increase was primarily due to **$14.0 million** of increased restructuring and related expense associated with the ACCELERATE 2025 program and **$7.5 million** of professional services[184](index=184&type=chunk) [Comparison of the Six Months Ended June 30, 2023 and 2022](index=41&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) For the six months ended June 30, 2023, total revenue increased by **18.7%** to **$1,042.7 million**, driven by **14.7%** organic revenue growth; Operating income grew by **29.6%** to **$192.9 million**, and net income increased by **36.4%** to **$120.3 million**; General and administrative expenses rose significantly (**46.7%**) due to restructuring and business growth, while interest expense increased due to higher rates and bond issuance Revenue Performance (6 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----------- | :------- | :--------- | :--------- | | Net commissions and fees | $1,020,533 | $876,908 | $143,625 | 16.4% | | Fiduciary investment income | $22,215 | $1,274 | $20,941 | NM | | **Total revenue** | **$1,042,748** | **$878,182** | **$164,566** | **18.7%** | - Organic revenue growth contributed **$128.7 million (14.7%)** to the increase in Net commissions and fees, driven by a growing E&S market and new business, particularly in the property portfolio[193](index=193&type=chunk) Expense Performance (6 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----------- | :------- | :--------- | :--------- | | Compensation and benefits | $660,082 | $584,331 | $75,751 | 13.0% | | General and administrative | $133,307 | $90,860 | $42,447 | 46.7% | | Amortization | $49,553 | $52,896 | $(3,343) | (6.3%) | | Interest expense, net | $58,349 | $46,598 | $11,751 | 25.2% | | **Net income** | **$120,274** | **$88,196** | **$32,078** | **36.4%** | - General and administrative expense increase was primarily due to **$13.9 million** of increased restructuring and related expense associated with the ACCELERATE 2025 program, **$8.1 million** of increased travel and entertainment expense, and **$7.9 million** of professional services[202](index=202&type=chunk) [Non-GAAP Financial Measures and Key Performance Indicators](index=44&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) This section defines and reconciles various non-GAAP financial measures, including Organic Revenue Growth Rate, Adjusted Compensation and Benefits Expense, Adjusted General and Administrative Expense, Adjusted EBITDAC, Adjusted Net Income, and Adjusted Diluted Earnings Per Share, to their most directly comparable GAAP measures, providing additional insights into the Company's operating performance [Organic Revenue Growth Rate](index=44&type=section&id=Organic%20Revenue%20Growth%20Rate) Organic revenue growth rate, a non-GAAP measure, adjusts total revenue growth for acquisitions, contingent commissions, fiduciary investment income, and foreign exchange rates, providing a clearer view of underlying business expansion Organic Revenue Growth Rate Reconciliation | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenue growth rate (GAAP) | 19.1% | 26.0% | 18.7% | 25.2% | | Less: Mergers and acquisitions | (1.2%) | (2.8%) | (1.4%) | (3.1%) | | Less: Change in other (contingent commissions, fiduciary investment income, FX) | (1.8%) | (0.9%) | (2.7%) | (0.8%) | | **Organic revenue growth rate (Non-GAAP)** | **16.1%** | **22.3%** | **14.6%** | **21.3%** | [Adjusted Compensation and Benefits Expense and Adjusted Compensation and Benefits Expense Ratio](index=45&type=section&id=Adjusted%20Compensation%20and%20Benefits%20Expense%20and%20Adjusted%20Compensation%20and%20Benefits%20Expense%20Ratio) Adjusted compensation and benefits expense is a non-GAAP measure that excludes equity-based compensation, acquisition and restructuring-related compensation, and other non-recurring items to provide a normalized view of compensation costs; The adjusted ratio is this expense as a percentage of total revenue Adjusted Compensation and Benefits Expense Reconciliation (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Compensation and benefits expense (GAAP) | $352,360 | $310,058 | $660,082 | $584,331 | | Adjustments (e.g., equity-based comp, acquisition/restructuring related) | $(22,719) | $(29,284) | $(42,556) | $(61,876) | | **Adjusted compensation and benefits expense (Non-GAAP)** | **$329,641** | **$280,827** | **$615,526** | **$522,157** | | Compensation and benefits expense ratio (GAAP) | 60.2% | 63.1% | 63.3% | 66.5% | | **Adjusted compensation and benefits expense ratio (Non-GAAP)** | **56.3%** | **57.2%** | **59.0%** | **59.5%** | [Adjusted General and Administrative Expense and Adjusted General and Administrative Expense Ratio](index=45&type=section&id=Adjusted%20General%20and%20Administrative%20Expense%20and%20Adjusted%20General%20and%20Administrative%20Expense%20Ratio) Adjusted general and administrative expense is a non-GAAP measure that excludes acquisition and restructuring-related general and administrative expenses and other non-recurring items to provide a normalized view of operational overhead; The adjusted ratio is this expense as a percentage of total revenue Adjusted General and Administrative Expense Reconciliation (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative expense (GAAP) | $81,608 | $48,495 | $133,307 | $90,860 | | Adjustments (e.g., acquisition/restructuring related) | $(20,261) | $(4,105) | $(25,261) | $(8,170) | | **Adjusted general and administrative expense (Non-GAAP)** | **$61,347** | **$44,390** | **$108,046** | **$82,690** | | General and administrative expense ratio (GAAP) | 13.9% | 9.9% | 12.8% | 10.3% | | **Adjusted general and administrative expense ratio (Non-GAAP)** | **10.5%** | **9.0%** | **10.4%** | **9.4%** | [Adjusted EBITDAC and Adjusted EBITDAC Margin](index=46&type=section&id=Adjusted%20EBITDAC%20and%20Adjusted%20EBITDAC%20Margin) Adjusted EBITDAC is a non-GAAP measure that adjusts Net income by adding back interest, taxes, depreciation, amortization, change in contingent consideration, and other non-recurring items like equity-based compensation and acquisition/restructuring expenses, providing a measure of operational profitability before these non-core items; The adjusted margin is this figure as a percentage of total revenue Adjusted EBITDAC Reconciliation (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (GAAP) | $83,817 | $70,120 | $120,274 | $88,196 | | Adjustments (e.g., Interest, Tax, D&A, Equity-based comp, Acquisition/Restructuring) | $110,344 | $95,955 | $198,902 | $185,139 | | **Adjusted EBITDAC (Non-GAAP)** | **$194,161** | **$166,075** | **$319,176** | **$273,335** | | Net income margin (GAAP) | 14.3% | 14.3% | 11.5% | 10.0% | | **Adjusted EBITDAC margin (Non-GAAP)** | **33.2%** | **33.8%** | **30.6%** | **31.1%** | [Adjusted Net Income and Adjusted Net Income Margin](index=47&type=section&id=Adjusted%20Net%20Income%20and%20Adjusted%20Net%20Income%20Margin) Adjusted net income is a non-GAAP measure that provides tax-effected earnings before amortization and certain non-recurring items, offering a normalized view of profitability; The adjusted net income margin is this figure as a percentage of total revenue, calculated as if the Company owned **100%** of the LLC Adjusted Net Income Reconciliation (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (GAAP) | $83,817 | $70,120 | $120,274 | $88,196 | | Adjustments (e.g., Amortization, Acquisition/Restructuring, Equity-based comp) | $82,327 | $73,053 | $142,264 | $142,085 | | Adjusted income before income taxes | $166,144 | $143,173 | $262,538 | $230,281 | | Adjusted tax expense | $(42,417) | $(36,724) | $(67,026) | $(59,067) | | **Adjusted net income (Non-GAAP)** | **$123,727** | **$106,449** | **$195,512** | **$171,214** | | Net income margin (GAAP) | 14.3% | 14.3% | 11.5% | 10.0% | | **Adjusted net income margin (Non-GAAP)** | **21.1%** | **21.7%** | **18.7%** | **19.5%** | [Adjusted Diluted Earnings Per Share](index=48&type=section&id=Adjusted%20Diluted%20Earnings%20Per%20Share) Adjusted diluted earnings per share is a non-GAAP measure that normalizes diluted EPS by accounting for the hypothetical exchange of all outstanding LLC Common Units into Class A common stock and the dilutive effect of unvested equity awards, providing a comprehensive view of per-share earnings Adjusted Diluted Earnings Per Share Reconciliation | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Diluted earnings per share (GAAP) | $0.26 | $0.22 | $0.37 | $0.28 | | Less: Net income attributed to dilutive shares and substantively vested RSUs | $(0.02) | $(0.02) | $(0.02) | $(0.16) | | Plus: Impact of all LLC Common Units Exchanged for Class A shares | $0.07 | $0.06 | $0.10 | $0.21 | | Plus: Adjustments to Adjusted net income | $0.15 | $0.14 | $0.28 | $0.32 | | Plus: Dilutive impact of unvested equity awards | $(0.01) | $(0.01) | $(0.01) | $(0.02) | | **Adjusted diluted earnings per share (Non-GAAP)** | **$0.45** | **$0.39** | **$0.72** | **$0.63** | | Adjusted diluted earnings per share diluted share count (in thousands) | 271,933 | 269,791 | 271,857 | 269,804 | [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's liquidity profile, primary sources and uses of cash, debt facilities, the Tax Receivable Agreement (TRA), and a comparison of cash flows, concluding with contractual obligations and commitments [Credit Facilities](index=50&type=section&id=Credit%20Facilities) The Company's credit facilities include a **$1,650.0 million** Term Loan and a **$600.0 million** Revolving Credit Facility, both transitioned to Adjusted Term SOFR; Additionally, **$400.0 million** in Senior Secured Notes were issued in February 2022; The Company was in compliance with all covenants as of June 30, 2023 - Credit facilities include: * **Term Loan:** Original principal of **$1,650.0 million**, **$1,604.6 million** outstanding as of June 30, 2023, interest at Adjusted Term SOFR + **3.00%** (**0.75%** floor), matures September 1, 2027 * **Revolving Credit Facility:** **$600.0 million** borrowing capacity, no amounts drawn as of June 30, 2023, matures July 26, 2026 * **Senior Secured Notes:** **$400.0 million** issued February 3, 2022, **4.375%** interest rate, matures February 1, 2030[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk) - The Company was in compliance with all covenants under its Credit Agreement as of June 30, 2023[245](index=245&type=chunk) [Tax Receivable Agreement](index=51&type=section&id=Tax%20Receivable%20Agreement) The Tax Receivable Agreement (TRA) obligates the Company to pay current and former LLC Unitholders **85%** of net cash savings from certain tax attributes; As of June 30, 2023, estimated future payments under the TRA are **$326.8 million**, with total estimated tax savings of **$384.5 million** - The TRA requires the Company to pay current and former LLC Unitholders **85%** of net cash savings from U.S. federal, state, and local income taxes resulting from Exchange Tax Attributes, Pre-IPO M&A Tax Attributes, favorable partnership tax allocations, and TRA Payment Tax Attributes[246](index=246&type=chunk) Tax Receivable Agreement Liabilities (in thousands) | Metric | June 30, 2023 | | :-------------------------- | :------------ | | TRA Liabilities | $326,821 | | Total estimated tax savings | $384,500 | | - Exchange Tax Attributes | $202,000 | | - Pre-IPO M&A Tax Attributes | $103,600 | | - TRA Payment Tax Attributes | $78,900 | [Comparison of Cash Flows for the Six Months Ended June 30, 2023 and 2022](index=51&type=section&id=Comparison%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) For the six months ended June 30, 2023, operating cash flows decreased by **$19.9 million** to **$144.8 million**, while investing activities used **$109.3 million** (up **$102.5 million** due to acquisitions); Financing activities provided **$150.8 million**, a decrease of **$228.9 million**, primarily due to the absence of a bond issuance seen in the prior year Cash Flow Comparison (6 Months Ended June 30, in thousands) | Activity | 2023 | 2022 | Change ($) | | :-------------------------- | :----------- | :----------- | :--------- | | Operating activities | $144,836 | $164,711 | $(19,875) | | Investing activities | $(109,274) | $(6,790) | $(102,484) | | Financing activities | $150,817 | $379,757 | $(228,940) | - Investing cash flows increased significantly due to **$103.9 million** for business combinations (Griffin acquisition) in H1 2023[250](index=250&type=chunk) - Financing cash flows decreased primarily because of the **$394.0 million** bond issuance in H1 2022 that did not recur in H1 2023[251](index=251&type=chunk) [Contractual Obligations and Commitments](index=52&type=section&id=Contractual%20Obligations%20and%20Commitments) The Company's principal commitments include long-term incentive compensation agreements and contingent consideration arrangements; As of June 30, 2023, total projected future cash outflows for long-term incentive compensation are **$7.0 million**, and for contingent consideration, **$29.8 million**, primarily due in 2025 Projected Future Cash Outflows for Long-term Incentive Compensation (in thousands) | Year | Amount | | :--- | :----- | | 2026 | $6,672 | | Thereafter | $290 | | **Total** | **$6,962** | Projected Future Cash Outflows for Contingent Consideration (in thousands) | Year | Amount | | :--- | :----- | | 2025 | $29,795 | | **Total** | **$29,795** | [Critical Accounting Policies and Estimates](index=53&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies the Company's critical accounting policies and estimates, which involve significant judgment and assumptions, including revenue recognition, business combinations, goodwill and intangibles, income taxes, and tax receivable agreement liabilities, noting that changes in these estimates could materially impact financial results - Critical accounting policies and estimates include: * Revenue recognition * Business combinations * Goodwill and intangibles * Income taxes * Tax receivable agreement liabilities[262](index=262&type=chunk) [Recent Accounting Pronouncements](index=53&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 1, Basis of Presentation, for details on recently adopted and recently issued accounting pronouncements - Information on recently adopted and recently issued accounting standards not yet adopted is provided in Note 1, Basis of Presentation[265](index=265&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section discusses the Company's exposure to market risks, specifically foreign currency risk and interest rate risk, and the strategies employed to manage them [Foreign Currency Risk](index=53&type=section&id=Foreign%20Currency%20Risk) The Company's foreign currency risk is considered immaterial, with approximately **2%** of revenues generated from activities in the United Kingdom, Europe, and Canada for the six months ended June 30, 2023 - Approximately **2%** of revenues for the six months ended June 30, 2023, were generated from activities in the United Kingdom, Europe, and Canada[268](index=268&type=chunk) - The exposure to foreign currency risk from potential changes between the USD and other currencies (Canadian Dollar, British Pound, Euro, Swedish Krona, Danish Krone, etc.) is considered immaterial[268](index=268&type=chunk) [Interest Rate Risk](index=53&type=section&id=Interest%20Rate%20Risk) The Company is exposed to interest rate risk primarily through its floating-rate Term Loan and fiduciary investment income; An interest rate cap agreement with a **$1,000.0 million** notional amount and **2.75%** strike is in place to manage Term Loan exposure - The Company had **$1,604.6 million** of outstanding principal on its Term Loan borrowings as of June 30, 2023, which bears interest on a floating rate (Adjusted Term SOFR + **3.00%**, subject to a **0.75%** floor)[270](index=270&type=chunk) - An interest rate cap agreement, entered on April 7, 2022, with a **$1,000.0 million** notional amount and **2.75%** strike, terminates on December 31, 2025, to manage Term Loan interest rate fluctuations[271](index=271&type=chunk) - Fiduciary investment income is also affected by changes in international and domestic short-term interest rates[270](index=270&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as of June 30, 2023, and states that there have been no material changes in internal control over financial reporting during the quarter; It also acknowledges the inherent limitations of any internal control system [Evaluation of Disclosure Controls and Procedures](index=54&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The principal executive and financial officers concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023, designed to ensure timely and accurate reporting under the Exchange Act - As of June 30, 2023, the Company's disclosure controls and procedures were effective at the reasonable assurance level[274](index=274&type=chunk) - Disclosure controls and procedures are designed to provide reasonable assurance that information required for Exchange Act reports is recorded, processed, summarized, and reported timely[274](index=274&type=chunk) [Changes in Internal Control](index=54&type=section&id=Changes%20in%20Internal%20Control) There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2023 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[276](index=276&type=ch

[General Information](index=1&type=section&id=General%20Information) This section provides foundational details about the company's filing, forward-looking statements, and key defined terms [Filing Information](index=1&type=section&id=Filing%20Information) This section provides the basic filing details for the Quarterly Report on Form 10-Q for Ryan Specialty Holdings, Inc., for the period ended March 31, 2023, including its registration status and outstanding common stock - The registrant, **Ryan Specialty Holdings, Inc.**, filed a Quarterly Report on Form 10-Q for the period ended March 31, 2023[2](index=2&type=chunk) Filing Details | Metric | Value | | :----- | :---- | | Commission File Number | 001-40645 | | Trading Symbol | RYAN | | Exchange | The New York Stock Exchange (NYSE) | | Filer Status | Large accelerated filer | | Class A Common Stock Outstanding (May 1, 2023) | 113,542,115 shares | | Class B Common Stock Outstanding (May 1, 2023) | 146,238,655 shares | [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the company's forward-looking statements, emphasizing that they involve substantial risks and uncertainties that could cause actual results to differ materially from expectations - All statements in the report, other than historical facts, are forward-looking and subject to **substantial risks and uncertainties**[10](index=10&type=chunk) - Risks include failure to execute succession plans or retain revenue producers, security breaches, improper data disclosure, loss of relationships with insurance carriers or clients, and errors in underwriting models[11](index=11&type=chunk) - Other risks involve the cyclicality of markets, competitive pressures, decreases in premiums or commission rates, inability to collect receivables, and impacts of MGA/MGU program changes[13](index=13&type=chunk) - Financial risks include impairment of goodwill, inability to maintain rapid growth, and the impact of outstanding debt on financial flexibility[13](index=13&type=chunk) [Commonly Used Defined Terms](index=6&type=section&id=Commonly%20Used%20Defined%20Terms) This section provides a glossary of commonly used terms within the Quarterly Report on Form 10-Q, defining key operational, financial, and structural terms relevant to Ryan Specialty Holdings, Inc.'s business and reporting - The report defines key terms such as **'Admitted'** (regulated insurance market), **'E&S'** (Excess and surplus lines, less regulated), **'LLC'** (Ryan Specialty, LLC), **'MGA'** (Managing general agent), **'MGU'** (Managing general underwriter), **'Wholesale Brokerage'**, and **'Underwriting Management'** to clarify the company's operational context[17](index=17&type=chunk)[18](index=18&type=chunk) [PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Ryan Specialty Holdings, Inc., including statements of income, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [Consolidated Statements of Income (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) This statement provides a detailed breakdown of the company's revenues, expenses, and net income for the three months ended March 31 Consolidated Statements of Income (Unaudited) - Three Months Ended March 31 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Net commissions and fees | $447,513 | $386,681 | +15.7% | | Fiduciary investment income | $10,086 | $209 | +4725.8% | | **Total revenue** | **$457,599** | **$386,890** | **+18.3%** | | Compensation and benefits | $307,722 | $274,274 | +12.2% | | General and administrative | $51,699 | $42,361 | +22.0% | | Amortization | $25,185 | $26,663 | -5.5% | | Depreciation | $2,192 | $1,211 | +81.0% | | Change in contingent consideration | $714 | $(1,008) | -170.8% | | **Total operating expenses** | **$387,512** | **$343,501** | **+12.8%** | | **Operating income** | **$70,087** | **$43,389** | **+61.5%** | | Interest expense, net | $29,468 | $21,752 | +35.5% | | Income before income taxes | $42,752 | $13,573 | +215.0% | | Income tax expense (benefit) | $6,295 | $(4,503) | -239.8% | | **NET INCOME** | **$36,457** | **$18,076** | **+101.7%** | | Net income attributable to Ryan Specialty Holdings, Inc. | $13,160 | $6,911 | +90.4% | | Basic EPS | $0.12 | $0.07 | +71.4% | | Diluted EPS | $0.11 | $0.06 | +83.3% | [Consolidated Statements of Comprehensive Income (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) This statement presents the company's net income and other comprehensive income components, leading to total comprehensive income Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31 | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------------ | :------------------ | :------------------ | | NET INCOME | $36,457 | $18,076 | | Net income attributable to Ryan Specialty Holdings, Inc. | $13,160 | $6,911 | | Other comprehensive loss, net of tax | $(1,752) | $(1,360) | | **COMPREHENSIVE INCOME ATTRIBUTABLE TO RYAN SPECIALTY HOLDINGS, INC.** | **$11,408** | **$5,551** | - Other comprehensive loss, net of tax, increased from **$(1,360) thousand** in Q1 2022 to **$(1,752) thousand** in Q1 2023, primarily due to losses on interest rate caps[23](index=23&type=chunk) - Comprehensive income attributable to Ryan Specialty Holdings, Inc. increased by **105.5% YoY**, from **$5,551 thousand** in Q1 2022 to **$11,408 thousand** in Q1 2023[23](index=23&type=chunk) [Consolidated Balance Sheets (Unaudited)](index=10&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) This statement provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheets (Unaudited) - As of March 31, 2023 vs. December 31, 2022 | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change | | :----------------------------------- | :---------------------------- | :----------------------------- | :----- | | Cash and cash equivalents | $704,746 | $992,723 | $(287,977) | | Fiduciary cash and receivables | $2,475,185 | $2,611,647 | $(136,462) | | Total current assets | $3,468,922 | $3,894,067 | $(425,145) | | Goodwill | $1,379,202 | $1,314,984 | +$64,218 | | Other intangible assets | $514,568 | $486,444 | +$28,124 | | Total non-current assets | $2,578,038 | $2,489,676 | +$88,362 | | **TOTAL ASSETS** | **$6,046,960** | **$6,383,743** | **$(336,783)** | | Fiduciary liabilities | $2,475,185 | $2,611,647 | $(136,462) | | Total current liabilities | $2,766,600 | $3,134,369 | $(367,769) | | Long-term debt | $1,950,329 | $1,951,900 | $(1,571) | | Tax Receivable Agreement liabilities (non-current) | $287,113 | $295,347 | $(8,234) | | Total non-current liabilities | $2,428,762 | $2,431,562 | $(2,800) | | **TOTAL LIABILITIES** | **$5,195,362** | **$5,565,931** | **$(370,569)** | | Total stockholders' equity attributable to Ryan Specialty Holdings, Inc. | $508,588 | $478,405 | +$30,183 | | Non-controlling interests | $343,010 | $339,407 | +$3,603 | | **TOTAL STOCKHOLDERS' EQUITY** | **$851,598** | **$817,812** | **+$33,786** | [Consolidated Statements of Cash Flows (Unaudited)](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This statement details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31 Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31 | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :------------------------------------------------ | :------------------ | :------------------ | :----------- | | Net cash used for operating activities | $(159,211) | $(65,470) | $(93,741) | | Net cash used for investing activities | $(104,852) | $(2,721) | $(102,131) | | Net cash (used for) provided by financing activities | $(29,620) | $308,731 | $(338,351) | | Effect of changes in foreign exchange rates | $85 | $816 | $(731) | | **NET CHANGE IN CASH, CASH EQUIVALENTS, AND FIDUCIARY CASH** | **$(293,598)** | **$241,356** | **$(534,954)** | | Ending balance of cash, cash equivalents, and fiduciary cash | $1,473,787 | $1,381,017 | +$92,770 | - Operating cash flows significantly decreased, moving from **$(65.5) million** used in Q1 2022 to **$(159.2) million** used in Q1 2023, primarily due to payment of accrued commissions and bonuses[28](index=28&type=chunk)[222](index=222&type=chunk) - Investing cash flows increased substantially from **$(2.7) million** used in Q1 2022 to **$(104.9) million** used in Q1 2023, driven by the Griffin acquisition[28](index=28&type=chunk)[223](index=223&type=chunk) - Financing cash flows shifted from **$308.7 million** provided in Q1 2022 to **$(29.6) million** used in Q1 2023, mainly due to the absence of a bond issuance seen in the prior year and net change in fiduciary liabilities[28](index=28&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk) [Consolidated Statements of Stockholders' Equity (Unaudited)](index=13&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) This statement outlines changes in the company's equity components, including net income, additional paid-in capital, and non-controlling interests Consolidated Statements of Stockholders' Equity (Unaudited) - As of March 31, 2023 | Metric | December 31, 2022 (in thousands) | March 31, 2023 (in thousands) | | :------------------------------------------------ | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $817,812 | $851,598 | | Net income attributable to Ryan Specialty Holdings, Inc. | N/A | $13,160 | | Additional Paid-in Capital | $418,123 | $436,898 | | Retained Earnings | $53,988 | $67,148 | | Non-controlling Interests | $339,407 | $343,010 | - Total stockholders' equity increased by **$33.8 million** from December 31, 2022, to March 31, 2023, reaching **$851.6 million**[30](index=30&type=chunk) - Additional paid-in capital increased by **$18.8 million**, primarily due to equity-based compensation and exchange of LLC equity for common stock[30](index=30&type=chunk) - Retained earnings increased by **$13.2 million**, reflecting the net income attributable to Ryan Specialty Holdings, Inc. for the period[30](index=30&type=chunk) [Notes to the Consolidated Financial Statements (Unaudited)](index=14&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies and specific financial line items [Note 1. Basis of Presentation](index=14&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes Ryan Specialty Holdings, Inc.'s nature of operations as a specialty insurance service provider, its corporate structure as a holding company consolidating Ryan Specialty, LLC, and the accounting principles used for its unaudited interim financial statements - Ryan Specialty Holdings, Inc. is a service provider of specialty products and solutions for insurance brokers, agents, and carriers, operating through **one segment**, Ryan Specialty, without taking on underwriting risk except for an equity method investment[32](index=32&type=chunk) - The Company is a holding company that consolidates the financial results of New LLC and Ryan Specialty, LLC (referred to as 'LLC'), where it holds a **43.6% economic interest** as of March 31, 2023, and is considered the primary beneficiary of the LLC as a Variable Interest Entity (VIE)[34](index=34&type=chunk)[38](index=38&type=chunk) - The unaudited consolidated interim financial statements are prepared in accordance with **U.S. GAAP**, and management's estimates and assumptions are used, with no material changes in significant accounting policies from the prior annual report[35](index=35&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) [Note 2. Revenue from Contracts with Customers](index=15&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates the company's net commissions and fees revenue by its three Specialties: Wholesale Brokerage, Binding Authority, and Underwriting Management, and provides details on contract balances Revenue from Contracts with Customers by Specialty - Three Months Ended March 31 | Specialty | 2023 (in thousands) | 2022 (in thousands) | | :---------------------- | :------------------ | :------------------ | | Wholesale Brokerage | $285,850 | $244,827 | | Binding Authority | $69,526 | $62,993 | | Underwriting Management | $92,137 | $78,861 | | **Total Net commissions and fees** | **$447,513** | **$386,681** | - Contract assets, primarily from volume-based commissions, decreased from **$13.0 million** at December 31, 2022, to **$9.6 million** at March 31, 2023[43](index=43&type=chunk) - Contract liabilities related to deferred revenue remained stable at **$1.3 million** as of March 31, 2023, compared to **$1.4 million** at December 31, 2022[43](index=43&type=chunk) [Note 3. Mergers and Acquisitions](index=15&type=section&id=Note%203.%20Mergers%20and%20Acquisitions) This note details the company's acquisition of Griffin Underwriting Services in January 2023 and provides an update on the fair value measurement and changes in contingent consideration liabilities related to past acquisitions - On January 3, 2023, Ryan Specialty acquired certain assets of Griffin Underwriting Services for **$115.5 million**, recognizing **$51.4 million** in customer relationships (intangible assets) and **$64.0 million** in goodwill[44](index=44&type=chunk) Changes in Contingent Consideration - Three Months Ended March 31 | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Change in contingent consideration | $714 | $(1,008) | | Interest expense | $871 | $372 | | **Total** | **$1,585** | **$(636)** | | Non-current portion of fair value (March 31, 2023) | $22,900 | | Maximum contingent consideration obligation (March 31, 2023) | $40,000 | [Note 4. Restructuring](index=16&type=section&id=Note%204.%20Restructuring) This note outlines the ACCELERATE 2025 program initiated in February 2023, detailing its objectives, expected costs, and anticipated annual savings, along with the restructuring expenses incurred during the first quarter of 2023 - In February 2023, the company launched the **ACCELERATE 2025 program** to drive growth, innovation, and productivity, with expected cumulative costs of approximately **$65.0 million** through December 31, 2024, and annual savings of **$35.0 million** in 2025[48](index=48&type=chunk) Restructuring Expense Incurred - Three Months Ended March 31, 2023 | Category | Amount (in thousands) | | :-------------------------------- | :------------------ | | Operations and technology optimization | $1,434 | | Compensation and benefits | $659 | | Asset impairment and other termination costs | $586 | | **Total** | **$2,679** | - The restructuring liability balance as of March 31, 2023, was **$2.16 million**, reflecting accrued costs of **$2.68 million** offset by payments and non-cash adjustments[50](index=50&type=chunk) [Note 5. Receivables and Other Current Assets](index=16&type=section&id=Note%205.%20Receivables%20and%20Other%20Current%20Assets) This note provides details on the company's commissions and fees receivable, including the allowance for credit losses, and a breakdown of other current assets Receivables and Allowance for Credit Losses | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :---------------------------- | :----------------------------- | | Commissions and fees receivable – net | $234,557 | $231,423 | | Allowance for expected credit losses (end of period) | $2,086 | $1,980 | Major Classes of Other Current Assets | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------- | :---------------------------- | :----------------------------- | | Prepaid expenses | $14,607 | $21,062 | | Service receivables | $275 | $414 | | Other current receivables | $31,204 | $28,214 | | **Total Other current assets** | **$46,086** | **$49,690** | [Note 6. Leases](index=17&type=section&id=Note%206.%20Leases) This note provides information on the company's operating and finance leases, including lease costs, cash flows from operating leases, and key lease metrics such as weighted average discount rates and remaining lease terms Lease Costs - Three Months Ended March 31 | Lease Cost Category | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Operating lease costs | $8,406 | $6,327 | | Finance lease costs | $0 | $9 | | Short-term lease costs (Operating) | $238 | $196 | | Sublease income | $(172) | $(91) | | **Lease costs – net** | **$8,472** | **$6,443** | - Cash paid for operating leases increased from **$6.39 million** in Q1 2022 to **$7.16 million** in Q1 2023[54](index=54&type=chunk) - Right-of-use assets obtained in exchange for new operating lease liabilities decreased significantly from **$15.92 million** in Q1 2022 to **$3.40 million** in Q1 2023[54](index=54&type=chunk) - The weighted average discount rate for operating leases increased from **3.99%** in Q1 2022 to **4.83%** in Q1 2023, and the weighted average remaining lease term for operating leases increased from **6.5 years** to **8.4 years**[54](index=54&type=chunk) [Note 7. Debt](index=18&type=section&id=Note%207.%20Debt) This note summarizes the company's outstanding debt, including the Term Loan, Senior Secured Notes, and Revolving Credit Facility, detailing their terms, interest rates, and the transition from LIBOR to SOFR Summary of Outstanding Debt (in thousands) | Debt Type | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Term debt (Term Loan) | $1,569,617 | $1,571,818 | | Senior secured notes (4.38% due 2030) | $395,592 | $399,791 | | Revolving debt | $384 | $392 | | Premium financing notes | $2,369 | $5,718 | | Units subject to mandatory redemption | $4,826 | $4,711 | | **Total debt** | **$1,972,788** | **$1,982,487** | | Less: Short-term debt and current portion of long-term debt | $(22,459) | $(30,587) | | **Long-term debt** | **$1,950,329** | **$1,951,900** | - The Term Loan principal outstanding was **$1,608.8 million** as of March 31, 2023, with an interest rate of **Adjusted Term SOFR + 3.00%** (subject to a **75 basis point floor**)[56](index=56&type=chunk) - The Revolving Credit Facility has a borrowing capacity of **$600.0 million**, which was undrawn as of March 31, 2023[57](index=57&type=chunk) - The company transitioned its Term Loan and Revolving Credit Facility from LIBOR to **Adjusted Term SOFR** in Q2 2022 and was in compliance with all debt covenants as of March 31, 2023[58](index=58&type=chunk)[59](index=59&type=chunk)[217](index=217&type=chunk) [Note 8. Stockholders' Equity](index=19&type=section&id=Note%208.%20Stockholders'%20Equity) This note details the company's authorized and outstanding common stock classes (Class A, Class B, Class X) and preferred stock, their voting rights, exchange mechanisms for LLC Common Units, and the composition of non-controlling interests - The company's certificate of incorporation authorizes **1,000,000,000 shares** each of Class A and Class B common stock, **10,000,000 shares** of Class X common stock, and **500,000,000 shares** of preferred stock, all with a **$0.001 par value**[60](index=60&type=chunk) - Class A common stock has **one vote per share**, while Class B common stock initially has **10 votes per share**, both voting as a single class[62](index=62&type=chunk) - LLC Unitholders can exchange LLC Common Units for Class A common stock, with an equivalent number of Class B shares canceled upon exchange[63](index=63&type=chunk) - As of March 31, 2023, Ryan Specialty Holdings, Inc. owned **43.6%** of the economic interests in the LLC, with non-controlling interest holders owning the remaining **56.4%**[68](index=68&type=chunk) [Note 9. Equity-Based Compensation](index=20&type=section&id=Note%209.%20Equity-Based%20Compensation) This note describes the company's equity-based compensation plans, including IPO-related awards and annual Incentive Awards (RSUs, Stock Options, RLUs, Class C Incentive Units), their vesting schedules, and the recognized and unrecognized compensation expenses - The **Ryan Specialty Holdings, Inc. 2021 Omnibus Incentive Plan** governs various equity awards, including stock options, RSUs, and Class C Incentive Units[70](index=70&type=chunk) - Awards include IPO-related grants (Restricted Stock, Reload/Staking Options, RSUs, RLUs, Class C Incentive Units) and annual Incentive Awards with diverse vesting schedules (e.g., pro rata over **3-10 years**, cliff vesting)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[91](index=91&type=chunk) - Non-employee directors receive fully vested Director Stock Grants[74](index=74&type=chunk) Equity-Based Compensation Expense - Three Months Ended March 31 | Category | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------------ | :------------------ | :------------------ | | IPO awards | $11,178 | $26,445 | | Pre-IPO incentive awards | $1,302 | $2,296 | | Post-IPO incentive awards | $5,059 | $505 | | Other expense (Director Stock Grants, Profit Sharing) | $336 | $4,002 | | **Total equity-based compensation expense** | **$17,879** | **$23,248** | | Total unrecognized equity-based compensation expense (March 31, 2023) | $198,648 | N/A | [Note 10. Earnings Per Share](index=24&type=section&id=Note%2010.%20Earnings%20Per%20Share) This note provides the calculation of basic and diluted earnings per share for Class A common stock, including a reconciliation of the numerator and denominator, and lists potentially dilutive shares excluded due to their antidilutive effect Earnings Per Share - Three Months Ended March 31 | Metric | 2023 | 2022 | | :------------------------------------------------ | :--- | :--- | | Net income attributable to Ryan Specialty Holdings, Inc. (in thousands) | $13,160 | $6,911 | | Weighted-average shares of Class A common stock outstanding – basic | 111,034,503 | 106,592,836 | | Weighted-average shares of Class A common stock outstanding – diluted | 266,978,224 | 264,121,066 | | **Earnings per share of Class A common stock – basic** | **$0.12** | **$0.07** | | **Earnings per share of Class A common stock – diluted** | **$0.11** | **$0.06** | - Basic EPS increased by **71.4% YoY**, from **$0.07** in Q1 2022 to **$0.12** in Q1 2023[95](index=95&type=chunk) - Diluted EPS increased by **83.3% YoY**, from **$0.06** in Q1 2022 to **$0.11** in Q1 2023[95](index=95&type=chunk) - Potentially dilutive shares excluded from diluted EPS calculation due to antidilutive effect in Q1 2023 included **5,405 Incentive RSUs**, **495,822 Class C Incentive Units**, and **168,282 Incentive Options**[95](index=95&type=chunk) [Note 11. Derivatives](index=24&type=section&id=Note%2011.%20Derivatives) This note details the company's interest rate cap agreement, used to manage exposure to interest rate fluctuations on its Term Loan, including its fair value, hedge effectiveness, and the impact on comprehensive income and earnings - The company holds an interest rate cap agreement with a **$1,000.0 million notional amount** and a **2.75% strike**, terminating on December 31, 2025, to hedge its Term Loan interest rate exposure[96](index=96&type=chunk) Interest Rate Cap Fair Value and Impact (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------- | :---------------- | | Fair value of interest rate cap | $37,200 | $45,900 | | Balance of Accumulated other comprehensive income related to interest rate cap | $16,100 | $22,200 | | Decrease in fair value (Q1 2023) | $8,700 | N/A | | Premium amortization (Q1 2023) | $1,700 | N/A | | Payments reclassified to earnings (Q1 2023) | $4,400 | N/A | [Note 12. Variable Interest Entities](index=25&type=section&id=Note%2012.%20Variable%20Interest%20Entities) This note clarifies that Ryan Specialty Holdings, Inc. consolidates Ryan Specialty, LLC as a Variable Interest Entity (VIE), meaning the company's financial statements largely reflect the LLC's performance, with specific exceptions for certain assets and liabilities attributable solely to the holding company - Ryan Specialty Holdings, Inc. consolidates the LLC as a **VIE** because it is the primary beneficiary, having control over its activities and the obligation to absorb losses and receive benefits[38](index=38&type=chunk)[98](index=98&type=chunk) - The company's financial position, performance, and cash flows effectively represent those of the LLC[98](index=98&type=chunk) - Exceptions attributable solely to Ryan Specialty Holdings, Inc. include specific amounts of Cash and cash equivalents, Accounts payable and accrued liabilities, Tax Receivable Agreement liabilities, and Deferred tax assets[98](index=98&type=chunk) [Note 13. Fair Value Measurements](index=25&type=section&id=Note%2013.%20Fair%20Value%20Measurements) This note describes the company's fair value measurements, categorizing assets and liabilities into a three-tier hierarchy (Level 1, 2, 3) and detailing the valuation methodologies for derivative instruments like interest rate caps and contingent consideration obligations - The company uses a **three-tier fair value hierarchy**: Level 1 for quoted prices in active markets, Level 2 for observable inputs other than quoted prices, and Level 3 for unobservable inputs requiring significant judgment[99](index=99&type=chunk)[100](index=100&type=chunk) - The fair value of the interest rate cap is determined using **Level 2 inputs**, based on discounting future expected cash receipts derived from observable market interest rate curves and volatilities[102](index=102&type=chunk) - Contingent consideration obligations are classified as **Level 3**, valued using Monte Carlo simulations based on management's financial projections, risk-free rates, expected volatility, credit spread, and a risk-adjusted discount rate (**9.87%** as of March 31, 2023)[103](index=103&type=chunk) Assets and Liabilities Measured at Fair Value on a Recurring Basis (in thousands) | Metric | Level 1 | Level 2 | Level 3 | Total (March 31, 2023) | | :------------------------ | :------ | :------ | :------ | :--------------------- | | Interest rate cap (Assets) | $0 | $37,209 | $0 | $37,209 | | Contingent consideration (Liabilities) | $0 | $0 | $22,924 | $22,924 | [Note 14. Commitments and Contingencies](index=26&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) This note addresses the company's legal commitments and contingencies, primarily focusing on Errors and Omissions (E&O) exposure and a specific issue regarding insurance policies placed through an unsatisfactory trading partner, including related loss contingencies and recovery estimates - The company faces ordinary course **E&O exposure**, with insurance coverage up to **$100.0 million** in excess of a **$2.5 million** per claim retention[108](index=108&type=chunk)[109](index=109&type=chunk) - Loss contingencies for outstanding E&O matters were **$13.0 million** as of March 31, 2023, down from **$26.1 million** at December 31, 2022[109](index=109&type=chunk) - A specific issue involved placing policies through an unsatisfactory trading partner, leading to an estimated loss contingency of **$9.7 million** as of March 31, 2023 (down from **$23.1 million** at Dec 31, 2022) for Replacement Costs[111](index=111&type=chunk) - A probable recovery of **$22.6 million** from E&O insurance carriers for this specific issue was recorded as of March 31, 2023, in excess of the **$2.5 million retention**[111](index=111&type=chunk) [Note 15. Related Parties](index=27&type=section&id=Note%2015.%20Related%20Parties) This note details the company's related party relationships, including its investment in Ryan Investment Holdings (RIH) and Geneva Re, service agreements with Geneva Re, and corporate jet leasing arrangements involving the Founder, Patrick G. Ryan - Ryan Specialty holds a **47% interest** in Ryan Investment Holdings (RIH), which in turn has a **50% non-controlling interest** in Geneva Re Partners, LLC (GRP), which wholly owns Geneva Re, Ltd[114](index=114&type=chunk) - The company has service agreements with Geneva Re, providing administrative and underwriting services, earning **$0.4 million** in revenue for Q1 2023[116](index=116&type=chunk) - The company charters executive jets from Executive Jet Management (EJM), with the Founder, Patrick G. Ryan, indirectly owning aircraft leased to EJM, resulting in a discount for the company[117](index=117&type=chunk)[118](index=118&type=chunk) - Expense related to business usage of aircraft was **$0.5 million** for Q1 2023, up from **$0.2 million** in Q1 2022[119](index=119&type=chunk) [Note 16. Income Taxes](index=28&type=section&id=Note%2016.%20Income%20Taxes) This note discusses the company's income tax expense, effective tax rate, deferred tax assets and liabilities, and the Tax Receivable Agreement (TRA) liabilities, including the estimated future payments under the TRA Income Tax Metrics - Three Months Ended March 31 | Metric | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Effective tax rate | 14.7% | (33.2)% | | Income tax expense (benefit) (in thousands) | $6,295 | $(4,503) | | Deferred tax assets (March 31, 2023) (in thousands) | $402,476 | N/A | | Deferred tax liabilities (March 31, 2023) (in thousands) | $618 | N/A | - The effective tax rate for Q1 2023 was **14.7%**, differing from the **21% statutory rate** primarily due to income attributable to non-controlling interests, while Q1 2022 had a **(33.2)% benefit** due to state tax rate changes and nondeductible expenses[121](index=121&type=chunk) - Deferred tax assets increased to **$402.5 million** as of March 31, 2023, mainly from LLC Common Unit exchanges[123](index=123&type=chunk) - Tax Receivable Agreement (TRA) liabilities increased by **$8.3 million** in Q1 2023 to **$303.6 million**, with estimated future payments of **$303.6 million** in aggregate based on current projections[125](index=125&type=chunk)[126](index=126&type=chunk) [Note 17. Supplemental Cash Flow Information](index=29&type=section&id=Note%2017.%20Supplemental%20Cash%20Flow%20Information) This note provides supplemental cash flow information, including cash paid for interest and income taxes, and details on non-cash investing and financing activities such as members' tax distributions and Tax Receivable Agreement liabilities Supplemental Cash Flow Information - Three Months Ended March 31 | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Cash paid for interest | $40,136 | $15,668 | | Cash paid for income taxes | $1,244 | $2,206 | | Members' tax distributions declared but unpaid | $12,272 | $7,356 | | Tax Receivable Agreement liabilities (non-cash) | $8,282 | $880 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, liquidity, and cash flows for the three months ended March 31, 2023, compared to the prior year [Overview](index=30&type=section&id=Overview) This section provides a high-level description of Ryan Specialty's business as a specialty insurance service provider and its focus on the Excess and Surplus market - Ryan Specialty is a service provider of specialty products and solutions for insurance brokers, agents, and carriers, offering distribution, underwriting, product development, administration, and risk management services[133](index=133&type=chunk) - The company primarily operates in the **Excess and Surplus (E&S) market**, which offers greater flexibility in terms, conditions, and rates compared to the Admitted market, enabling unique solutions for complex risks[134](index=134&type=chunk) [Significant Events and Transactions](index=30&type=section&id=Significant%20Events%20and%20Transactions) This section highlights key corporate actions and strategic initiatives, including the ACCELERATE 2025 program and the Griffin Underwriting Services acquisition - The company initiated the **ACCELERATE 2025 program** in Q1 2023 to drive growth, innovation, and productivity, expecting **$65.0 million** in cumulative one-time charges through 2024 and **$35.0 million** in annual savings by 2025[137](index=137&type=chunk)[138](index=138&type=chunk) - Restructuring costs of **$2.7 million** were incurred in Q1 2023, with **$0.7 million** workforce-related and the remainder in general and administrative costs[139](index=139&type=chunk) - On January 3, 2023, the company completed the acquisition of **Griffin Underwriting Services**, a binding authority specialist and wholesale insurance broker[140](index=140&type=chunk) [Key Factors Affecting Our Performance](index=31&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) This section identifies the primary internal and external drivers influencing the company's financial and operational results, including strategic initiatives and market conditions - The company's performance is driven by strategic acquisitions, deepening relationships with retail broker trading partners, and building its National Binding Authority Specialty[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - Investments in operations and growth, along with the ability to generate commissions regardless of E&S market conditions, are crucial[145](index=145&type=chunk)[146](index=146&type=chunk) - Macroeconomic conditions, such as rising interest rates impacting construction and M&A activity, and the growth of the E&S market due to complex risks (e.g., natural disasters, cyber threats), significantly affect performance[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) [Components of Results of Operations](index=32&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the various revenue streams and expense categories that constitute the company's financial performance - Revenue primarily consists of Net Commissions and Fees from Wholesale Brokerage, Binding Authority, and Underwriting Management, including supplemental and contingent commissions, and Fiduciary Investment Income[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Expenses include Compensation and Benefits (salary, incentives, equity-based compensation), General and Administrative (office, professional fees), Amortization of intangible assets, Interest Expense (on debt, interest rate cap amortization), Other Non-Operating Loss (Income), Income Tax Expense, and Non-Controlling Interests[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) [Results of Operations (Comparison of the Three Months Ended March 31, 2023 and 2022)](index=34&type=section&id=Results%20of%20Operations%20(Comparison%20of%20the%20Three%20Months%20Ended%20March%2031,%202023%20and%202022)) This section provides a detailed comparative analysis of the company's financial performance, highlighting changes in revenue and expense categories year-over-year Revenue Performance - Three Months Ended March 31 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Net commissions and fees | $447,513 | $386,681 | +15.7% | | Fiduciary investment income | $10,086 | $209 | +4725.8% | | **Total revenue** | **$457,599** | **$386,890** | **+18.3%** | | Wholesale Brokerage | $285,850 | $244,827 | +16.8% | | Binding Authority | $69,526 | $62,993 | +10.4% | | Underwriting Management | $92,137 | $78,861 | +16.8% | | Supplemental and contingent commissions | $26,331 | $20,098 | +31.0% | Expense Performance - Three Months Ended March 31 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Compensation and benefits | $307,722 | $274,274 | +12.2% | | General and administrative | $51,699 | $42,361 | +22.0% | | Amortization | $25,185 | $26,663 | -5.5% | | Interest expense, net | $29,468 | $21,752 | +35.5% | | Other non-operating loss (income) | $(138) | $7,521 | -101.8% | | Income tax expense (benefit) | $6,295 | $(4,503) | -239.8% | | **Net income** | **$36,457** | **$18,076** | **+101.7%** | - Compensation and benefits expense ratio decreased from **70.9%** to **67.2% YoY**, despite a **12.2%** increase in absolute terms, driven by revenue growth and a decrease in acquisition-related long-term incentive and IPO-related compensation[172](index=172&type=chunk) - General and administrative expense ratio increased from **10.9%** to **11.3% YoY**, primarily due to a **$4.6 million** increase in travel and entertainment expenses returning to normalized levels[173](index=173&type=chunk) - Interest expense, net, increased by **35.5%** due to the issuance of Senior Secured Notes in February 2022 and rising floating interest rates on the Term Loan[175](index=175&type=chunk) [Non-GAAP Financial Measures and Key Performance Indicators](index=37&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) This section presents and reconciles non-GAAP financial measures and key performance indicators, offering additional insights into the company's operational performance Non-GAAP Financial Measures - Three Months Ended March 31 | Metric | 2023 | 2022 | | :------------------------------------ | :----- | :----- | | Organic revenue growth rate | 12.9% | 20.1% | | Adjusted compensation and benefits expense (in thousands) | $285,885 | $241,331 | | Adjusted compensation and benefits expense ratio | 62.5% | 62.4% | | Adjusted general and administrative expense (in thousands) | $46,699 | $38,296 | | Adjusted general and administrative expense ratio | 10.2% | 9.9% | | Adjusted EBITDAC (in thousands) | $125,015 | $107,263 | | Adjusted EBITDAC margin | 27.3% | 27.7% | | Adjusted net income (in thousands) | $71,785 | $64,732 | | Adjusted net income margin | 15.7% | 16.7% | | Adjusted diluted earnings per share | $0.26 | $0.24 | - Organic revenue growth rate decreased from **20.1%** in Q1 2022 to **12.9%** in Q1 2023[164](index=164&type=chunk) - Adjusted EBITDAC increased by **16.5% YoY** to **$125.0 million**, while Adjusted EBITDAC margin slightly decreased from **27.7%** to **27.3%**[164](index=164&type=chunk) - Adjusted net income increased by **10.9% YoY** to **$71.8 million**, but Adjusted net income margin decreased from **16.7%** to **15.7%**[164](index=164&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources and uses of cash, its debt capacity, and its ability to meet short-term and long-term financial obligations - Primary liquidity sources include cash and cash equivalents, cash flows from operations, and debt capacity under the Revolving Credit Facility, Term Loan, and Senior Secured Notes[207](index=207&type=chunk) - Primary uses of liquidity are operating expenses, working capital, business combinations, capital expenditures, TRA obligations, taxes, and LLC Unitholder distributions[209](index=209&type=chunk) - Fiduciary cash and receivables, totaling **$2.48 billion** as of March 31, 2023, cannot be used for general corporate purposes, though **$71.5 million** of cash and cash equivalents was available from fiduciary accounts for corporate use[25](index=25&type=chunk)[211](index=211&type=chunk) - The company expects sufficient financial resources for the next 12 months, with the ability to borrow under its **$600.0 million Revolving Credit Facility** and access capital markets for longer-term funding[212](index=212&type=chunk)[214](index=214&type=chunk) - Future payments under the Tax Receivable Agreement (TRA) are estimated at **$303.6 million** in aggregate as of March 31, 2023, expected to be funded by tax distributions from the LLC[220](index=220&type=chunk)[221](index=221&type=chunk) [Contractual Obligations and Commitments](index=44&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details the company's future cash outflow obligations arising from long-term incentive compensation and contingent consideration agreements Projected Future Cash Outflows for Long-term Incentive Compensation Agreements (in thousands) | Year | Amount | | :--- | :----- | | 2023 | $0 | | 2024 | $0 | | 2025 | $0 | | 2026 | $6,666 | | Thereafter | $265 | | **Total projected future cash outflows** | **$6,931** | Projected Future Cash Outflows for Contingent Consideration (in thousands) | Year | Amount | | :--- | :----- | | 2023 | $0 | | 2024 | $0 | | 2025 | $27,849 | | 2026 | $0 | | Thereafter | $0 | | **Total projected future cash outflows** | **$27,849** | [Critical Accounting Policies and Estimates](index=45&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies the accounting policies that require significant management judgment and assumptions, which could materially affect financial reporting - Critical accounting policies involve significant judgments and assumptions that could materially impact financial results[237](index=237&type=chunk) - Key critical accounting policies include revenue recognition, business combinations, goodwill and intangibles, income taxes, and tax receivable agreement liabilities[238](index=238&type=chunk) [Recent Accounting Pronouncements](index=45&type=section&id=Recent%20Accounting%20Pronouncements) This section confirms that there have been no material changes to the company's significant accounting policies since the prior annual report - There have been no material changes to the company's significant accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[41](index=41&type=chunk)[240](index=240&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section discusses the company's exposure to market risks, specifically foreign currency risk and interest rate risk, and how these factors could impact its financial performance [Foreign Currency Risk](index=45&type=section&id=Foreign%20Currency%20Risk) This section assesses the company's exposure to fluctuations in foreign exchange rates and its potential impact on financial results - Approximately **3% of revenues** for the three months ended March 31, 2023, were generated from activities in the United Kingdom, Europe, and Canada[243](index=243&type=chunk) - The company is exposed to currency risk from exchange rate changes between the US Dollar and various foreign currencies, but this exposure is considered immaterial[243](index=243&type=chunk) [Interest Rate Risk](index=45&type=section&id=Interest%20Rate%20Risk) This section evaluates the company's sensitivity to changes in interest rates, particularly concerning fiduciary investment income and floating-rate debt - Fiduciary investment income is sensitive to changes in short-term interest rates[245](index=245&type=chunk) - The company has **$1,608.8 million** outstanding on its Term Loan, which bears a floating interest rate (**Adjusted Term SOFR + 3.00%**, subject to a **0.75% floor**)[246](index=246&type=chunk) - An interest rate cap agreement with a **$1,000.0 million notional amount** and a **2.75% strike**, terminating on December 31, 2025, is in place to manage interest rate fluctuations on the Term Loan[247](index=247&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting, while also acknowledging the inherent limitations of any control system [Evaluation of Disclosure Controls and Procedures](index=45&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as assessed by its principal executive and financial officers - As of March 31, 2023, the company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were **effective at the reasonable assurance level**[251](index=251&type=chunk) [Changes in Internal Control](index=46&type=section&id=Changes%20in%20Internal%20Control) This section reports on any material changes to the company's internal control over financial reporting during the reporting period - There have been no material changes in internal control over financial reporting during the quarter ended March 31, 2023[253](index=253&type=chunk) [Inherent Limitations of Internal Control Over Financial Reporting](index=46&type=section&id=Inherent%20Limitations%20of%20Internal%20Control%20Over%20Financial%20Reporting) This section acknowledges that internal controls provide reasonable assurance but cannot guarantee the prevention or detection of all errors or fraud - Management acknowledges that disclosure controls and procedures provide reasonable, not absolute, assurance and may not prevent or detect all errors and fraud[255](index=255&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers additional disclosures not included in the financial statements, such as legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is involved in various legal proceedings in the ordinary course of business but does not currently anticipate any litigation outcomes that would have a material adverse effect on its business or financial condition - The company is not presently a party to any litigation that, if determined adversely, would individually or collectively have a material adverse effect on its business, operating results, cash flows, or financial condition[257](index=257&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section supplements the risk factors disclosed in the annual report, specifically highlighting the risk that the company may not achieve the intended results of its ACCELERATE 2025 restructuring program, which could negatively impact its business and financial performance - A key risk factor is the potential inability to achieve the intended cost savings, operating efficiencies, or other expected benefits from the **ACCELERATE 2025 restructuring program**[259](index=259&type=chunk) - Failure to successfully execute the ACCELERATE 2025 program could result from challenges in organizational change, economic conditions, changes in insurance markets, unanticipated costs, or loss of key personnel, potentially having a material adverse effect on the business[259](index=259&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities or use of proceeds to report[260](index=260&type=chunk) [Item 3. Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities to report for the period - There were no defaults upon senior securities to report[261](index=261&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the registrant[262](index=262&type=chunk) [Item 5. Other Information](index=47&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report for the period - There is no other information to report[263](index=263&type=chunk) [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of all exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including corporate governance documents, debt instruments, incentive plans, and certifications - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Registration Rights Agreement, Indenture for Senior Secured Notes, Tax Receivable Agreement, Omnibus Incentive Plan, and certifications from the CEO and CFO[264](index=264&type=chunk)[265](index=265&type=chunk)

c UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 001-40645 RYAN SPECIALTY HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 86-2526344 (State or Other J ...

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion, and market risk disclosures [Financial Statements (Unaudited)](index=8&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Ryan Specialty Holdings, Inc.'s unaudited consolidated financial statements for Q2 2022 show **$70.1 million net income** and detailed financial positions [Consolidated Financial Statements](index=8&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements reflect significant year-over-year growth in revenue and net income, with total assets reaching **$6.44 billion** by June 30, 2022 Consolidated Statements of Income Highlights (in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total revenue** | $491,292 | $390,012 | $878,182 | $701,470 | | **Operating income** | $105,528 | $92,262 | $148,915 | $132,105 | | **Net income** | $70,120 | $63,407 | $88,196 | $59,606 | | **Net income attributable to Ryan Specialty** | $24,501 | $63,407 | $31,412 | $57,156 | Consolidated Balance Sheet Highlights (in thousands) | | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $3,955,440 | $3,011,007 | | **Total assets** | $6,442,417 | $5,458,708 | | **Total current liabilities** | $3,347,339 | $2,918,141 | | **Total liabilities** | $5,740,903 | $4,863,931 | | **Total stockholders' equity** | $701,514 | $594,777 | Consolidated Statements of Cash Flows Highlights (in thousands) | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Cash flows provided by operating activities** | $164,711 | $107,715 | | **Cash flows used for investing activities** | $(6,790) | $(155) | | **Cash flows provided by (used in) financing activities** | $379,757 | $(19,421) | [Notes to the Consolidated Financial Statements (Unaudited)](index=14&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes detail accounting policies, revenue disaggregation, debt structure including a **$400 million** senior secured note, and a **$293.8 million** Tax Receivable Agreement liability Revenue from Contracts with Customers by Specialty (in thousands) | Specialty | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Wholesale Brokerage | $574,051 | $447,083 | | Binding Authority | $122,744 | $108,641 | | Underwriting Management | $180,113 | $145,466 | | **Total Net commissions and fees** | **$876,908** | **$701,190** | - The restructuring plan initiated in 2020 was fully actioned by June 30, 2022, incurring cumulative costs of **$30.9 million** against an expected range of **$30.0-$35.0 million**, and is expected to generate annual savings of **$25.0 million**[61](index=61&type=chunk) - In February 2022, the LLC issued **$400.0 million** of **4.38% senior secured notes** due 2030. As of June 30, 2022, total debt was approximately **$1.98 billion**[69](index=69&type=chunk)[73](index=73&type=chunk) Tax Receivable Agreement (TRA) Liabilities (in thousands) | | Exchange Tax Attributes | Pre-IPO M&A Tax Attributes | TRA Payment Tax Attributes | Total TRA Liabilities | | :--- | :--- | :--- | :--- | :--- | | **Balance at Dec 31, 2021** | $136,704 | $83,389 | $52,007 | $272,100 | | Exchange of LLC Common Units | $9,897 | $1,435 | $3,159 | $14,491 | | Remeasurement - change in state rate | $2,884 | $1,759 | $2,530 | $7,173 | | **Balance at June 30, 2022** | **$149,485** | **$86,583** | **$57,696** | **$293,764** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2022 performance, highlighting **26.0% total revenue growth**, **22.3% organic growth**, and strong liquidity with **$866.7 million cash** [Results of Operations](index=47&type=section&id=Results%20of%20Operations) Q2 2022 total revenue grew **26.0%** to **$491.3 million**, driven by organic growth and acquisitions, with net income increasing to **$70.1 million** Q2 2022 vs Q2 2021 Revenue by Specialty (in thousands) | Specialty | Q2 2022 | Q2 2021 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Wholesale Brokerage | $329,225 | $255,959 | $73,266 | 28.6% | | Binding Authorities | $59,751 | $53,596 | $6,155 | 11.5% | | Underwriting Management | $101,251 | $80,291 | $20,960 | 26.1% | | **Total** | **$490,227** | **$389,846** | **$100,381** | **25.7%** | - Compensation and benefits expense for Q2 2022 increased by **$73.3 million (30.9%)** year-over-year, primarily driven by a **$33.9 million** increase in commissions, a **$14.1 million** increase from IPO-related compensation expense, and growth in headcount[228](index=228&type=chunk)[229](index=229&type=chunk) - General and administrative expense for Q2 2022 increased by **$17.8 million (58.0%)** year-over-year, mainly due to a **$7.8 million** increase in travel and entertainment, **$2.4 million** in higher insurance costs as a public company, and **$2.0 million** in restructuring costs[231](index=231&type=chunk) [Non-GAAP Financial Measures and Key Performance Indicators](index=52&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) Non-GAAP metrics for Q2 2022 show **22.3% organic revenue growth**, **$166.1 million Adjusted EBITDAC**, and **$106.4 million Adjusted Net Income** Organic Revenue Growth Rate Reconciliation | | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Total revenue growth rate (GAAP) | 26.0% | 25.2% | | Less: Mergers and acquisitions | (2.8%) | (3.1%) | | Change in other | (0.9%) | (0.8%) | | **Organic revenue growth rate (Non-GAAP)** | **22.3%** | **21.3%** | Adjusted EBITDAC Reconciliation (in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net income** | **$70,120** | **$63,407** | | Interest expense, net | 24,846 | 18,986 | | Income tax expense | 11,168 | 2,332 | | Depreciation | 1,229 | 1,222 | | Amortization | 26,233 | 27,319 | | Change in contingent consideration | (251) | 1,723 | | **EBITDAC** | **$133,345** | **$114,989** | | Adjustments (Acquisition, Restructuring, Equity-comp, etc.) | 32,730 | 25,498 | | **Adjusted EBITDAC** | **$166,075** | **$140,487** | Adjusted Net Income Reconciliation (in thousands) | | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net income** | **$70,120** | **$63,407** | | Adjustments (Amortization, Equity-comp, Restructuring, etc.) | 73,053 | 59,626 | | **Adjusted income before income taxes** | **$143,173** | **$123,033** | | Adjusted tax expense | (36,724) | (30,758) | | **Adjusted net income** | **$106,449** | **$92,275** | [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$866.7 million cash**, supported by credit facilities and a **$293.8 million** estimated TRA liability - Primary sources of liquidity are cash from operations, a **$600 million Revolving Credit Facility**, a **$1.65 billion Term Loan**, and **$400 million Senior Secured Notes**[289](index=289&type=chunk)[294](index=294&type=chunk)[296](index=296&type=chunk) - As of June 30, 2022, the company had **$866.6 million** in cash and cash equivalents and **$811.0 million** in cash held in a fiduciary capacity[292](index=292&type=chunk) - The company expects future payments under the Tax Receivable Agreement (TRA) to total **$293.8 million** in aggregate based on transactions as of June 30, 2022[301](index=301&type=chunk) All Risks Long-Term Incentive Plan Future Cash Outflows (in thousands) | Period | Projected Future Cash Outflows | | :--- | :--- | | 2022 | $106,618 | | 2023 | $0 | | 2024 | $0 | | 2025 | $0 | | Thereafter | $0 | [Quantitative and Qualitative Disclosure About Market Risk](index=66&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) Market risk is primarily from interest rates, mitigated by a **$1.0 billion** interest rate cap on its variable-rate term loan, with foreign currency risk being immaterial - Foreign currency risk is considered immaterial, with approximately **3% of revenues** for the six months ended June 30, 2022, generated from activities in the UK, Europe, and Canada[322](index=322&type=chunk) - To manage interest rate risk on its **$1.62 billion variable-rate Term Loan**, the company entered into an interest rate cap agreement on April 7, 2022. The cap has a **$1.0 billion notional amount**, a **2.75% strike rate**, and terminates on December 31, 2025[325](index=325&type=chunk)[326](index=326&type=chunk) [Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that as of June 30, 2022, the company's disclosure controls and procedures were **effective at a reasonable assurance level**[330](index=330&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[332](index=332&type=chunk) PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other material information [Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not presently a party to any litigation the outcome of which, if determined adversely, would individually or taken together have a **material adverse effect** on its business, operating results, cash flows or financial condition[334](index=334&type=chunk) [Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - There have been **no material changes** to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021[335](index=335&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None [Other Information](index=68&type=section&id=Item%205.%20Other%20Information) On August 9, 2022, the company amended its Tax Receivable Agreement (TRA) to limit elective termination and scope of payment obligations - On August 9, 2022, the Company amended and restated the Tax Receivable Agreement to limit its ability to electively terminate the agreement and to limit the reference property giving rise to payment obligations[339](index=339&type=chunk)

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the nature of forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are subject to **substantial risks and uncertainties**, many amplified by the COVID-19 pandemic, potentially causing actual results to differ materially from expectations[10](index=10&type=chunk) - Key risk factors include failure to retain senior management, market cyclicality, reduced insurer capacity, loss of client relationships, competitive pressures, decreased commission rates, and M&A integration impacts[11](index=11&type=chunk)[12](index=12&type=chunk) - The company cautions that listed factors may not be exhaustive and undertakes no obligation to update or revise any forward-looking statement[15](index=15&type=chunk) [Commonly Used Defined Terms](index=6&type=section&id=Commonly%20Used%20Defined%20Terms) This section defines key terms used in the Form 10-Q for clarity and consistent understanding of company and industry-specific terminology [PART I. FINANCIAL INFORMATION](index=9&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=9&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including income, comprehensive income, balance sheets, cash flows, and equity [Consolidated Statements of Income (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) The Consolidated Statements of Income show significant profitability improvement for Q1 2022, with **total revenue increasing by 24.2%** and a shift from net loss to net income Consolidated Statements of Income (Unaudited) (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :--------- | | Net commissions and fees | $386,681 | $311,344 | $75,337 | 24.2% | | Fiduciary investment income | $209 | $114 | $95 | 83.3% | | **Total revenue** | **$386,890** | **$311,458** | **$75,432** | **24.2%** | | Compensation and benefits | $274,274 | $214,486 | $59,788 | 27.9% | | General and administrative | $42,361 | $27,545 | $14,816 | 53.8% | | Amortization | $26,663 | $27,794 | $(1,131) | (4.1%) | | Total operating expenses | $343,501 | $271,615 | $71,886 | 26.5% | | **Operating income** | **$43,389** | **$39,843** | **$3,546** | **8.9%** | | Interest expense, net | $21,752 | $20,045 | $1,707 | 8.5% | | Income (loss) before income taxes | $13,573 | $(1,567) | $15,140 | (966.2%) | | Income tax expense (benefit) | $(4,503) | $2,234 | $(6,737) | (301.6%) | | **Net income (loss)** | **$18,076** | **$(3,801)** | **$21,877** | **(575.6%)** | | Net income (loss) attributable to Ryan Specialty Group Holdings, Inc. | $6,911 | $(6,251) | $13,162 | (210.6%) | | Basic EPS | $0.07 | — | — | — | | Diluted EPS | $0.06 | — | — | — | [Consolidated Statements of Comprehensive Income (Unaudited)](index=10&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) The Consolidated Statements of Comprehensive Income show a shift from a comprehensive loss in 2021 to a comprehensive income in 2022, primarily driven by improved net income Consolidated Statements of Comprehensive Income (Unaudited) (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :---------------------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Net income (loss) | $18,076 | $(3,801) | | Net income (loss) attributable to Ryan Specialty Group Holdings, Inc. | $6,911 | $(6,251) | | Foreign currency translation adjustments | $(58) | $(352) | | Change in share of equity method investment in related party other comprehensive loss | $(1,302) | $(738) | | Total other comprehensive loss, net of tax | $(1,360) | $(1,090) | | **Comprehensive income (loss) attributable to Ryan Specialty Group Holdings, Inc.** | **$5,551** | **$(7,341)** | [Consolidated Balance Sheets (Unaudited)](index=11&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) The Consolidated Balance Sheets indicate a stable financial position with a slight increase in total assets and a decrease in total liabilities from December 31, 2021, to March 31, 2022 Consolidated Balance Sheets (Unaudited) (in thousands) | Asset/Liability Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------- | :-------------------- | | Cash and cash equivalents | $706,370 | $386,962 | $319,408 | | Commissions and fees receivable – net | $189,709 | $210,252 | $(20,543) | | Fiduciary cash and receivables | $2,123,702 | $2,390,185 | $(266,483) | | Total current assets | $3,040,635 | $3,011,007 | $29,628 | | Goodwill | $1,314,266 | $1,309,267 | $4,999 | | Other intangible assets | $549,125 | $573,930 | $(24,805) | | Deferred tax assets | $391,777 | $382,753 | $9,024 | | **Total assets** | **$5,485,637** | **$5,458,708** | **$26,929** | | Accrued compensation (current) | $231,387 | $386,301 | $(154,914) | | Fiduciary liabilities | $2,123,702 | $2,390,185 | $(266,483) | | Total current liabilities | $2,505,309 | $2,918,141 | $(412,832) | | Long-term debt | $1,956,631 | $1,566,627 | $390,004 | | Tax receivable agreement liabilities | $272,730 | $272,100 | $630 | | **Total liabilities** | **$4,861,598** | **$4,863,931** | **$(2,333)** | | Total stockholders' equity | $624,039 | $594,777 | $29,262 | [Consolidated Statements of Cash Flows (Unaudited)](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) The Consolidated Statements of Cash Flows show a significant increase in cash, cash equivalents, and cash held in a fiduciary capacity, primarily driven by financing activities Consolidated Statements of Cash Flows (Unaudited) (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------------ | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | | Net income | $18,076 | $(3,801) | $21,877 | | Total cash flows used for operating activities | $(65,470) | $(74,805) | $9,335 | | Total cash flows used for investing activities | $(2,721) | $(2,208) | $(513) | | Total cash flows provided by (used for) financing activities | $308,731 | $(138,166) | $446,897 | | Net change in cash, cash equivalents, and cash held in a fiduciary capacity | $241,356 | $(215,963) | $457,319 | | Cash, cash equivalents, and cash held in a fiduciary capacity—Ending balance | $1,381,017 | $679,741 | $701,276 | [Consolidated Statements of Mezzanine Equity and Stockholders'/Members' Equity (Unaudited)](index=13&type=section&id=Consolidated%20Statements%20of%20Mezzanine%20Equity%20and%20Stockholders'%2FMembers'%20Equity%20(Unaudited)) The Consolidated

Part I [Business](index=8&type=section&id=Item%201.%20Business) Ryan Specialty Group is a leading specialty insurance service provider, primarily operating as a wholesale broker and managing underwriter in the E&S market, driving growth through organic expansion, M&A, and technology - Ryan Specialty is a **service provider** of specialty insurance products, focusing on distribution, underwriting, and risk management, primarily acting as a **wholesale broker** and **managing underwriter**[25](index=25&type=chunk) - A significant majority of premiums placed are in the Excess & Surplus (E&S) market, which offers greater flexibility in terms and rates. In 2021, **73%** of total premiums placed were in the E&S market[26](index=26&type=chunk)[29](index=29&type=chunk) Revenue Contribution by Specialty (FY 2021 & 2020) | Specialty | FY 2021 Net Commission & Fees (millions) | % of Total | FY 2020 Net Commission & Fees (millions) | % of Total | | :--- | :--- | :--- | :--- | :--- | | **Wholesale Brokerage** | $932.0 | 65.1% | $673.1 | 66.2% | | **Binding Authority** | $209.6 | 14.6% | $144.8 | 14.2% | | **Underwriting Management** | $290.6 | 20.3% | $198.8 | 19.6% | - The company has a strong M&A track record, having acquired **over 40 firms** since inception. The largest acquisition was **All Risks** in September 2020, which was the **fourth largest US wholesale distributor** at the time[41](index=41&type=chunk)[44](index=44&type=chunk) - The company utilizes a digital marketplace called **'The Connector'** for retail clients and internal producers to receive quotes and bind policies online, enhancing efficiency for smaller-premium accounts[46](index=46&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including leadership succession, market cyclicality, M&A integration, cybersecurity threats, substantial indebtedness, and concentrated voting control - The business is **highly dependent** on its senior management, particularly founder Patrick G. Ryan, and its ability to recruit and retain key revenue producers. Failure in succession planning or retention poses a a **significant risk**[126](index=126&type=chunk)[128](index=128&type=chunk) - The company's revenues are subject to the **cyclicality** of the P&C insurance market. A "soft" market with declining premium rates could **negatively impact** commission revenues, which are typically a percentage of premiums[129](index=129&type=chunk) - The company faces **risks from its M&A strategy**, including the potential for not realizing anticipated benefits, challenges in integrating acquired businesses, and risks associated with unaudited historical financials of acquired entities[184](index=184&type=chunk)[185](index=185&type=chunk) - **Significant cybersecurity risks** exist, including system disruptions from cyberattacks, ransomware, and security breaches. A cyber-phishing event in April 2021 resulted in unauthorized access to five employee email accounts, potentially exposing PII of **fewer than 2,000 individuals**[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk) - The company has **substantial indebtedness** (**$2.029 billion** as of Dec 31, 2021, pro forma for a February 2022 notes issuance), which could restrict operational flexibility, require significant cash flow for debt service, and limit the ability to pursue business opportunities[260](index=260&type=chunk) - The **dual-class stock structure** concentrates approximately **71% of voting power** with the Ryan Parties, limiting the influence of Class A stockholders on major corporate decisions and potentially creating conflicts of interest[304](index=304&type=chunk) [Unresolved Staff Comments](index=62&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are **no unresolved staff comments**[334](index=334&type=chunk) [Properties](index=62&type=section&id=Item%202.%20Properties) The company's corporate headquarters are in Chicago, with extensive leased office space across the U.S., Canada, and Europe, while exploring remote work flexibility - The corporate headquarters are in **Chicago, Illinois**, with a lease for **56,250 square feet** expiring in 2028[335](index=335&type=chunk) - The company leases a total of approximately **1,115,000 square feet** for its additional office locations across the U.S., Canada, and Europe[335](index=335&type=chunk) [Legal Proceedings](index=62&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, with management expecting no material adverse effect on its business or financial condition - The company is **not currently a party** to any litigation that is expected to have **no material adverse effect** on its business or financial condition[336](index=336&type=chunk) [Mine Safety Disclosure](index=62&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This disclosure item is not applicable to the company's operations - **Not applicable**[337](index=337&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=63&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ryan Specialty's Class A common stock trades on the NYSE, with no anticipated cash dividends, and its 2021 IPO generated $1.448 billion in net proceeds for corporate purposes - Class A common stock is traded on the **NYSE** under the symbol **'RYAN'**. Class B common stock is not listed or traded[340](index=340&type=chunk) - The company **does not anticipate paying cash dividends** in the foreseeable future, prioritizing the use of funds for business growth and debt repayment[341](index=341&type=chunk) - The company closed its **IPO** on July 26, 2021, receiving net proceeds of approximately **$1.448 billion**, which have been used for general corporate purposes[345](index=345&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=65&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2021, revenue grew 40.7% to $1.43 billion, driven by acquisitions and organic growth, while net income decreased, but Adjusted EBITDAC and its margin significantly improved, supported by strong liquidity and strategic initiatives FY 2021 Financial Performance Highlights | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $1,432.8M | $1,018.3M | +40.7% | | **Organic Revenue Growth** | 22.4% | 20.4% | +2.0 p.p. | | **Operating Income** | $186.6M | $158.5M | +17.7% | | **Net Income** | $56.6M | $70.5M | -19.7% | | **Net Income Margin** | 4.0% | 6.9% | -2.9 p.p. | | **Adjusted EBITDAC** | $460.2M | $293.5M | +56.8% | | **Adjusted EBITDAC Margin** | 32.1% | 28.8% | +3.3 p.p. | | **Adjusted Net Income** | $290.1M | $185.4M | +56.5% | - The **40.9% increase** in Net commissions and fees in 2021 was driven by **18.3% growth** from the All Risks and Crouse acquisitions and **22.4% organic revenue growth**[401](index=401&type=chunk) - Compensation and benefits expense increased by **44.5% increase** in 2021, driven by higher commissions from revenue growth, **$75.9 million** in IPO-related compensation expense, and costs associated with the All Risks acquisition[410](index=410&type=chunk)[413](index=413&type=chunk) - The company initiated a **Restructuring Plan** in 2020, which is expected to generate **$25.0 million in annual savings** by June 30, 2023, with cumulative one-time charges of **$30.0-$35.0 million**[362](index=362&type=chunk) - The company entered into a **Tax Receivable Agreement (TRA)** in connection with its IPO, recording a liability of **$272.1 million** as of December 31, 2021, for expected future payments to pre-IPO unitholders[472](index=472&type=chunk)[475](index=475&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=94&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from interest rate changes on its $1.63 billion floating-rate debt, while foreign currency risk is minimal - Foreign currency risk is **minimal**, with approximately **3%** of 2021 revenues generated from operations in the UK, Europe, and Canada[509](index=509&type=chunk) - The company has **significant interest rate risk** due to **$1.629 billion** of outstanding floating-rate term loan borrowings as of December 31, 2021, which are subject to LIBOR changes above a 0.75% floor[512](index=512&type=chunk) [Financial Statements and Supplementary Data](index=95&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for Ryan Specialty Group Holdings, Inc., including income, balance sheets, cash flows, and equity, along with auditor's report and notes - The financial statements were audited by **Deloitte & Touche LLP**, which issued an **unqualified opinion**. Critical audit matters identified were related to the valuation of **Equity-Based Compensation** following the IPO modification and the realizability of **Deferred Tax Assets**[520](index=520&type=chunk)[524](index=524&type=chunk)[525](index=525&type=chunk)[528](index=528&type=chunk) Consolidated Statements of Income (in thousands) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Total revenue** | $1,432,771 | $1,018,274 | $765,111 | | **Total operating expenses** | $1,246,147 | $859,736 | $664,073 | | **Operating income** | $186,624 | $158,538 | $101,038 | | **Net income** | $56,632 | $70,513 | $63,057 | | **Net income attributable to Ryan Specialty** | $65,873 | $68,104 | $64,166 | Consolidated Balance Sheets (in thousands) | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $3,011,007 | $2,493,350 | | **Total non-current assets** | $2,447,701 | $2,036,032 | | **Total Assets** | **$5,458,708** | **$4,529,382** | | **Total current liabilities** | $2,918,141 | $2,482,321 | | **Total non-current liabilities** | $1,945,790 | $1,736,336 | | **Total Liabilities** | **$4,863,931** | **$4,218,657** | | **Total stockholders'/members' equity** | $594,777 | $71,090 | Consolidated Statements of Cash Flow (in thousands) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | $273,493 | $135,393 | $149,507 | | **Net cash used for investing activities** | ($457,937) | ($768,508) | ($147,997) | | **Net cash provided by financing activities** | $429,284 | $1,125,304 | $62,274 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=151&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - **None**[802](index=802&type=chunk) [Controls and Procedures](index=151&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls during Q4 2021 - The company's principal executive and financial officers concluded that disclosure controls and procedures were **effective** as of December 31, 2021[803](index=803&type=chunk) - A management report on internal control over financial reporting is **not included** due to the **transition period** for newly public companies[804](index=804&type=chunk) - **No material changes** were made to internal control over financial reporting in Q4 2021[805](index=805&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=152&type=section&id=Items%2010-14) This section incorporates information on directors, executive officers, corporate governance, compensation, and security ownership by reference from the 2022 Proxy Statement - Information required for Items 10, 11, 12, 13, and 14 is **incorporated by reference** from the company's 2022 Proxy Statement[809](index=809&type=chunk)[811](index=811&type=chunk)[813](index=813&type=chunk)[814](index=814&type=chunk)[815](index=815&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=153&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements from Item 8 and all exhibits filed with the Form 10-K, including corporate governance documents and material agreements - This section lists **all exhibits** filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications[820](index=820&type=chunk) - All financial statement schedules are **omitted** as the required information is either inapplicable or included within the consolidated financial statements and related notes[819](index=819&type=chunk) [Form 10-K Summary](index=155&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that no Form 10-K summary is provided - **None**[823](index=823&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40645 RYAN SPECIALTY GROUP HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 86-2526344 (State or Other J ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40645 RYAN SPECIALTY GROUP HOLDINGS, INC. Two Prudential Plaza 180 N. Stetson Avenue Suite 4600 Chicago, IL 60601 (Address of principal exe ...