Ryan Specialty (RYAN) - 2025 Q2 - Quarterly Report

FORM 10-Q General Information This section provides general filing information for Ryan Specialty Holdings, Inc's Q2 2025 quarterly report - The document is a Quarterly Report on Form 10-Q for Ryan Specialty Holdings, Inc, for the quarterly period ended June 30, 2025[2] - The registrant is a large accelerated filer and has filed all required reports and interactive data files[4] Common Stock Outstanding (July 28, 2025) | Class | Shares Outstanding | | :-------------------- | :----------------- | | Class A Common Stock | 128,039,917 | | Class B Common Stock | 135,662,599 | | Total Common Stock | 263,702,516 | INDEX This section outlines the report's structure, divided into Part I (Financial Information) and Part II (Other Information) - The report is structured into two main parts: Part I Financial Information and Part II Other Information[6] - Part I includes Financial Statements, Management's Discussion and Analysis, Quantitative and Qualitative Disclosure About Market Risk, and Controls and Procedures[6] - Part II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information, and Exhibits[6] Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to substantial risks and uncertainties - The report contains forward-looking statements regarding financial condition, results of operations, plans, objectives, future performance, and business, which are subject to substantial risks and uncertainties[8] - Key risks include failure to recruit and retain key employees, loss of relationships with insurance carriers or clients, errors in underwriting models, damage to brand/reputation, and challenges in integrating acquired businesses[9] - Other significant risks involve market cyclicality, reduced insurer capacity, international operational risks (including exchange rate fluctuations), changes in interest rates, competitive pressures, and the impact of evolving technologies like artificial intelligence[9][15] Commonly Used Defined Terms This section defines key corporate, financial, and industry-specific terms used throughout the report - The section defines key terms such as 'we,' 'us,' 'our,' and 'Company' as referring to Ryan Specialty Holdings, Inc and its subsidiaries[16] - It clarifies financial instruments like '2030 Senior Secured Notes,' '2032 Senior Secured Notes,' 'Credit Agreement,' 'Credit Facility,' 'Revolving Credit Facility,' and 'Term Loan'[16][17] - Industry-specific terms like 'Admitted,' 'Binding Authority,' 'E&S' (Excess and surplus lines), 'MGA' (Managing general agent), 'MGU' (Managing general underwriter), 'Specialty,' and 'Wholesale Brokerage' are also defined[17][18] PART I. FINANCIAL INFORMATION This part presents the unaudited financial statements and management's analysis of the company's financial performance and condition ITEM 1. FINANCIAL STATEMENTS This item includes the Company's unaudited consolidated financial statements and accompanying notes, providing a comprehensive view of its financial position and performance Consolidated Statements of Income (Unaudited) This statement details the company's revenues, expenses, and net income for the three and six-month periods ended June 30, 2025 Consolidated Statements of Income (Unaudited) - Key Metrics | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :---------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Total Revenue | $855,170 | $695,441 | $159,729 | 23.0% | | Net Commissions and Fees | $840,857 | $680,248 | $160,609 | 23.6% | | Total Operating Expenses | $664,118 | $531,073 | $133,045 | 25.1% | | Operating Income | $191,052 | $164,368 | $26,684 | 16.2% | | Net Income | $124,705 | $118,038 | $6,667 | 5.6% | | Net Income Attributable to Ryan Specialty Holdings, Inc | $51,976 | $46,787 | $5,189 | 11.1% | | Basic EPS | $0.41 | $0.38 | $0.03 | 7.9% | | Diluted EPS | $0.38 | $0.37 | $0.01 | 2.7% | Consolidated Statements of Income (Unaudited) - Key Metrics (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :---------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total Revenue | $1,545,336 | $1,247,487 | $297,849 | 23.9% | | Net Commissions and Fees | $1,516,985 | $1,218,135 | $298,850 | 24.5% | | Total Operating Expenses | $1,254,049 | $1,010,470 | $243,579 | 24.1% | | Operating Income | $291,287 | $237,017 | $54,270 | 22.9% | | Net Income | $120,316 | $158,715 | $(38,399) | (24.2)% | | Net Income Attributable to Ryan Specialty Holdings, Inc | $24,334 | $63,322 | $(38,988) | (61.6)% | | Basic EPS | $0.19 | $0.52 | $(0.33) | (63.5)% | | Diluted EPS | $0.18 | $0.49 | $(0.31) | (63.3)% | - Interest expense, net significantly increased by 87.4% for the three months and 86.4% for the six months ended June 30, 2025, primarily due to increased debt from recent acquisition activity[21] Consolidated Statements of Comprehensive Income (Unaudited) This statement presents net income and other comprehensive income items, such as foreign currency translation adjustments Consolidated Statements of Comprehensive Income (Unaudited) - Key Metrics | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $124,705 | $118,038 | $120,316 | $158,715 | | Total Other Comprehensive Income (Loss), net of tax | $10,883 | $(193) | $17,151 | $2,827 | | Comprehensive Income Attributable to Ryan Specialty Holdings, Inc | $62,859 | $46,594 | $41,485 | $66,149 | - Foreign currency translation adjustments contributed significantly to other comprehensive income, with a gain of $10,436 thousand for the three months and $18,917 thousand for the six months ended June 30, 2025[23] Consolidated Balance Sheets (Unaudited) This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity as of June 30, 2025 Consolidated Balance Sheets (Unaudited) - Key Metrics | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :---------------- | :--------- | :--------- | | Total Assets | $10,625,772 | $9,649,918 | $975,854 | 10.1% | | Total Liabilities | $9,443,623 | $8,551,633 | $891,990 | 10.4% | | Total Stockholders' Equity | $1,182,149 | $1,098,285 | $83,864 | 7.6% | - Current assets increased by $477,485 thousand, primarily driven by an increase in fiduciary cash and receivables from $3,739,727 thousand to $4,474,847 thousand[25] - Non-current assets increased by $498,369 thousand, largely due to increases in Goodwill ($438,506 thousand) and Customer relationships ($141,906 thousand), reflecting recent acquisitions[25] Consolidated Statements of Cash Flows (Unaudited) This statement details the cash inflows and outflows from operating, investing, and financing activities for the six-month period Consolidated Statements of Cash Flows (Unaudited) - Key Metrics (Six Months) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | | :---------------------- | :----------------------------- | :----------------------------- | :--------- | | Cash Flows From Operating Activities | $210,760 | $154,288 | $56,472 | | Cash Flows From Investing Activities | $(618,980) | $(236,698) | $(382,282) | | Cash Flows From Financing Activities | $234,370 | $72,191 | $162,179 | | Net Change in Cash, Cash Equivalents, and Fiduciary Capacity | $(162,043) | $(12,229) | $(149,814) | - Cash used in investing activities significantly increased due to $565,133 thousand for business combinations in 2025, compared to $214,093 thousand in 2024[27] - Cash flows from financing activities were positively impacted by $187,748 thousand net borrowings on the Revolving Credit Facility and a $166,304 thousand net change in fiduciary liabilities in 2025[28] Consolidated Statements of Stockholders' Equity (Unaudited) This statement shows the changes in stockholders' equity, including net income, dividends, and equity-based compensation Consolidated Statements of Stockholders' Equity (Unaudited) - Key Changes (Six Months Ended June 30, 2025) | Item (in thousands) | Amount | | :-------------------- | :----- | | Net income | $124,705 | | Class A common stock dividends and Dividend Equivalents paid | $(15,962) | | Distributions and Declared Distributions to non-controlling LLC Unitholders | $(6,907) | | Foreign currency translation adjustments | $27,783 | | Equity-based compensation | $19,925 | - Total stockholders' equity increased from $1,098,285 thousand at December 31, 2024, to $1,182,149 thousand at June 30, 2025[30] - Non-controlling interests increased from $470,623 thousand at December 31, 2024, to $572,063 thousand at June 30, 2025[30] Notes to the Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and supplemental information for the consolidated financial statements 1. Basis of Presentation This note describes the Company's nature of operations, its organizational structure, and the basis for preparing the unaudited interim financial statements - Ryan Specialty Holdings, Inc is a service provider of specialty products and solutions for insurance brokers, agents, and carriers, primarily acting as a wholesale broker and managing underwriter[34] - The Company consolidates Ryan Specialty, LLC (LLC) as a Variable Interest Entity (VIE) because it is the primary beneficiary, owning 48.4% of outstanding LLC Common Units as of June 30, 2025[36][40] - No material changes occurred in the Company's significant accounting policies from those disclosed in the 2024 Annual Report on Form 10-K[44] 2. Revenue from Contracts with Customers This note disaggregates revenue by its three Specialties, showing significant growth across all segments, particularly in Underwriting Management Revenue from Contracts with Customers by Specialty (in thousands) | Specialty | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Wholesale Brokerage | $477,165 | $444,129 | $837,953 | $767,574 | | Binding Authority | $94,524 | $80,630 | $196,474 | $169,265 | | Underwriting Management | $269,168 | $155,489 | $482,558 | $281,296 | | Total Net commissions and fees | $840,857 | $680,248 | $1,516,985 | $1,218,135 | - Underwriting Management experienced the highest growth, increasing by 73.1% for the three months and 71.5% for the six months ended June 30, 2025[47] - Contract assets, primarily from supplemental and contingent commission arrangements, increased to $41.3 million as of June 30, 2025, from $35.6 million at December 31, 2024[48] 3. Mergers and Acquisitions This note details the Company's acquisition activities in 2025 and 2024, including purchase prices and acquired assets - In 2025, the Company acquired Velocity Risk Underwriters, LLC ($548.6 million cash), USQRisk Holdings, LLC ($28.7 million cash), and 360° Underwriting ($28.2 million cash), along with contingent consideration for each[49][50][51] Estimated Fair Value of Aggregate Assets and Liabilities Acquired (Six Months Ended June 30, 2025, in thousands) | Item | Amount | | :-------------------- | :--------- | | Total assets acquired | $838,825 | | Goodwill | $401,087 | | Customer relationships | $247,803 | | Total liabilities assumed | $189,273 | | Net assets acquired | $649,552 | - Acquisition-related expenses for 2025 acquisitions totaled $9.5 million for the six months ended June 30, 2025, recognized in General and administrative expense[54] 4. Receivables and Other Current Assets This note provides details on commissions and fees receivable, net of an allowance for credit losses, and other current assets Commissions and Fees Receivable – net (in thousands) | Date | Amount | | :------------ | :--------- | | June 30, 2025 | $528,561 | | Dec 31, 2024 | $389,758 | Allowance for Expected Credit Losses (in thousands) | Period (Six Months Ended June 30) | 2025 | 2024 | | :-------------------------------- | :-------- | :-------- | | Beginning of period | $3,018 | $2,458 | | Write-offs | $(2,211) | $(1,285) | | Increase in provision | $2,899 | $1,980 | | End of period | $3,706 | $3,153 | Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Prepaid expenses | $46,317 | $51,701 | | Insurance recoverable | $975 | $20,155 | | Interest rate cap | $7,013 | $13,936 | | Other current receivables | $26,389 | $24,159 | | Total Other current assets | $80,694 | $109,951 | 5. Leases This note outlines the Company's operating lease commitments, primarily for office space, with terms extending through September 2038 Lease Costs (in thousands) | Item (Six Months Ended June 30) | 2025 | 2024 | | :------------------------------ | :-------- | :-------- | | Operating lease costs | $16,860 | $15,739 | | Short-term lease costs | $1,054 | $447 | | Sublease income | $(265) | $(296) | | Lease costs – net | $17,649 | $15,890 | - Cash paid for operating leases was $16,876 thousand for the six months ended June 30, 2025, compared to $14,651 thousand in the prior year[71] - The weighted average remaining lease term for operating leases was 7.2 years as of June 30, 2025, with a weighted average discount rate of 5.4%[71] 6. Debt This note provides a detailed summary of the Company's outstanding debt, including term loans, senior secured notes, and revolving credit facilities Outstanding Debt (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Term debt | $1,666,100 | $1,672,532 | | 2030 Senior Secured Notes | $402,171 | $401,676 | | 2032 Senior Secured Notes | $1,208,727 | $1,198,183 | | Revolving debt | $185,464 | $1,207 | | Premium financing notes | $6,216 | $5,863 | | Units subject to mandatory redemption | $3,399 | $3,399 | | Total debt | $3,472,077| $3,282,860 | - The Term Loan principal increased from $1,650.0 million to $1,700.0 million in September 2024, with $1,691.5 million outstanding as of June 30, 2025[73] - The Revolving Credit Facility had a borrowing capacity of $1,400.0 million, with $184.1 million drawn as of June 30, 2025[74] 7. Stockholders' Equity This note details the Company's authorized and outstanding stock, dividend declarations, and 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, and 500,000,000 shares of preferred stock[79] - Class A common stock has one vote per share, while Class B common stock has 10 votes per share but no dividend or liquidation rights[81] - The Company declared a regular quarterly cash dividend of $0.12 per share on Class A common stock for the three months ended June 30, 2025, with $30.2 million paid during the six months ended June 30, 2025[87] - As of June 30, 2025, the Company owned 48.4% of the economic interests in the LLC, with non-controlling interests holding the remaining 51.6%[88] 8. Equity-Based Compensation This note details the Company's equity-based compensation plans, including various award types, vesting schedules, and unrecognized expense - The Ryan Specialty Holdings, Inc, 2021 Omnibus Incentive Plan governs various equity-based awards, including stock options, RSUs, performance awards, and LLC equity awards[91] - Awards include Restricted Stock, Restricted Common Units, Restricted Stock Units (RSUs), Stock Options, Restricted LLC Units (RLUs), Class C Incentive Units (profits interests), and Performance Stock Units (PSUs) and Performance LLC Units (PLUs)[95][97][101][105][109][112] Unrecognized Equity-Based Compensation Expense (as of June 30, 2025, in thousands) | Award Type | Amount | Weighted Average Remaining Expense Period (Years) | | :-------------------------- | :-------- | :------------------------------------------------ | | Restricted Stock | $236 | 0.2 | | IPO RSUs | $21,830 | 4.0 | | Incentive RSUs | $70,553 | 3.0 | | Reload Options | $473 | 0.7 | | Incentive Options | $271 | 1.4 | | PSUs | $42,227 | 4.7 | | Restricted Common Units | $136 | 0.2 | | IPO RLUs | $14,365 | 4.5 | | Incentive RLUs | $15,402 | 2.7 | | Reload Class C Incentive Units | $306 | 1.0 | | Staking Class C Incentive Units | $7,536 | 4.2 | | Class C Incentive Units | $4,408 | 3.3 | | PLUs | $8,612 | 3.5 | | Total | $186,355| | 9. Earnings Per Share This note provides the calculation of basic and diluted earnings per share for Class A common stock Net Income Attributable to Ryan Specialty Holdings, Inc. (in thousands) | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Three Months | $51,976 | $46,787 | | Six Months | $24,334 | $63,322 | Earnings Per Share of Class A Common Stock | Period (Ended June 30) | Basic 2025 | Basic 2024 | Diluted 2025 | Diluted 2024 | | :--------------------- | :--------- | :--------- | :----------- | :----------- | | Three Months | $0.41 | $0.38 | $0.38 | $0.37 | | Six Months | $0.19 | $0.52 | $0.18 | $0.49 | - Diluted EPS calculation includes the effect of potentially dilutive shares, such as LLC equity awards and non-controlling interests' LLC Common Units exchangeable into Class A common stock[122] 10. Derivatives This note describes the Company's derivative instruments used for risk management, specifically an interest rate cap - The Company previously used a deal-contingent foreign currency forward to manage GBP appreciation risk for the Castel acquisition, which was executed and recognized losses through earnings in 2024[125][128] - An interest rate cap with a $1,000.0 million notional amount and 2.75% strike, terminating December 31, 2025, is designated as a cash flow hedge to manage Term Loan interest rate exposure[126] - The Company expects $7.0 million of unrealized gains from the interest rate cap to be reclassified into earnings over the next six months[127] 11. Variable Interest Entities This note clarifies that Ryan Specialty Holdings, Inc consolidates Ryan Specialty, LLC (LLC) as a Variable Interest Entity (VIE) - The Company consolidates the LLC as a Variable Interest Entity (VIE) under ASC 810, as it is the primary beneficiary with power to direct activities and absorb losses/benefits[130] - The Company's financial position, performance, and cash flows effectively represent those of the LLC, with specific exceptions for certain assets and liabilities attributable solely to Ryan Specialty Holdings, Inc[130] 12. Fair Value Measurements This note describes the Company's fair value measurements, categorizing financial assets and liabilities into a three-tier hierarchy - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[131] - The fair value of the interest rate cap is determined using Level 2 inputs, while contingent consideration and contingently returnable consideration are Level 3 fair value measurements[135][136] Assets and Liabilities Measured at Fair Value (June 30, 2025, in thousands) | Item | Level 1 | Level 2 | Level 3 | | :------------------------ | :------ | :------ | :-------- | | Assets: Interest rate cap | $— | $7,013 | $— | | Assets: Contingently returnable consideration | $— | $— | $5,340 | | Liabilities: Contingent consideration | $— | $— | $114,627 | 13. Commitments and Contingencies This note addresses the Company's legal and operational commitments, primarily focusing on Errors and Omissions (E&O) exposure - The Company faces ordinary course Errors and Omissions (E&O) exposure and maintains E&O insurance with aggregate coverage of $150.0 million in excess of a $5.0 million per claim retention[141][142] - Loss contingencies for outstanding E&O matters were $7.2 million as of June 30, 2025, up from $4.9 million at December 31, 2024[142] - For a specific policy misplacement issue, the Company collected $21.1 million from E&O insurance carriers during the six months ended June 30, 2025, and recorded a loss recovery of $1.0 million as of June 30, 2025[144] 14. Related Parties This note discloses the Company's relationships and transactions with related parties, including Ryan Investment Holdings, LLC and Geneva Re, Ltd - The Company holds a 47% interest in Ryan Investment Holdings, LLC (RIH), which is a related party variable interest entity but not consolidated[147] - The Company has service agreements with Geneva Re, Ltd, earning $0.8 million in revenue for services provided by Ryan Re and incurring $5.4 million in expense for subcontracted services for the six months ended June 30, 2025[150][152] - The Company recognized $0.2 million in expense for business usage of aircraft from Executive Jet Management for the six months ended June 30, 2025, where Mr Ryan indirectly owns aircraft leased to EJM[153] 15. Income Taxes This note explains the Company's income tax structure, effective tax rates, and Tax Receivable Agreement (TRA) liabilities Effective Tax Rate | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | 9.60% | 13.70%| | Six Months | 36.30%| 13.70%| - The effective tax rate for the six months ended June 30, 2025, was higher primarily due to a $48.0 million non-cash deferred income tax expense from the Common Control Reorganization (CCR) related to the Velocity acquisition[155][158] Tax Receivable Agreement (TRA) Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | TRA Liabilities | $461,112 | $436,296 | | Exchange Tax Attributes | $271,094 | $253,233 | | Pre-IPO M&A Tax Attributes | $84,591 | $83,415 | | TRA Payment Tax Attributes | $105,427 | $99,648 | 16. Accumulated Other Comprehensive Income (Loss) This note reconciles the changes in Accumulated Other Comprehensive Income (Loss) (AOCI), net of tax Accumulated Other Comprehensive Income (Loss) (in thousands) | Item (as of) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Balance | $15,355 | $(1,796) | | Foreign Currency Translation Adjustments | $15,907 | $(3,010) | | Gain on Interest Rate Cap | $208 | $1,435 | - Foreign currency translation adjustments significantly contributed to the increase in AOCI, with $18,632 thousand before reclassifications for the six months ended June 30, 2025[164] 17. Segment Reporting This note states that Ryan Specialty operates as a single operating and reporting segment and provides a geographic breakdown of revenue - Ryan Specialty is organized as a single operating and reporting segment, with its Chief Executive Officer serving as the chief operating decision maker (CODM)[165] - The CODM utilizes consolidated net income as the primary metric to monitor budget versus actual results, assess business performance, and make resource allocation decisions[166] Geographic Revenue (in thousands) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $801,491 | $664,541 | $1,450,588 | $1,201,706 | | Foreign | $53,679 | $30,900 | $94,748 | $45,781 | | Total revenue | $855,170 | $695,441 | $1,545,336 | $1,247,487 | 18. Supplemental Financial Information This note provides supplemental details on cash paid for interest and taxes, and non-cash investing and financing activities Cash Paid for (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :-------------------- | :------- | :------- | | Interest, net | $95,414 | $62,153 | | Income taxes, net of refunds | $6,371 | $10,523 | Non-Cash Investing and Financing Activities (Six Months Ended June 30, 2025, in thousands) | Item | Amount | | :---------------------------------------- | :------- | | Tax Receivable Agreement liabilities | $24,460 | | Contingent consideration liabilities | $44,091 | - On May 1, 2025, the Company acquired a 9.9% interest in Velocity Specialty Insurance Company (VSIC) for $16.6 million, accounted for under the equity method[172][173] 19. Subsequent Events This note discloses events that occurred after the reporting period, including an acquisition and a dividend approval - On July 1, 2025, the Company acquired certain assets of J.M Wilson Corporation, an MGA and surplus lines broker, for approximately $70.0 million cash and $20.0 million LLC Common Units[175] - On July 31, 2025, the Board of Directors approved a quarterly cash dividend of $0.12 per share of outstanding Class A common stock, payable on August 26, 2025[176] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial condition, results of operations, liquidity, and cash flows Overview This overview describes Ryan Specialty Holdings, Inc as a service provider of specialty insurance products and solutions in the Excess & Surplus (E&S) market - Ryan Specialty is a service provider of specialty products and solutions for insurance brokers, agents, and carriers, founded in 2010[179] - The Company primarily operates as a wholesale broker and a managing underwriter or program administrator with delegated authority from insurance carriers[179] - A significant majority of premiums are placed in the E&S market, which offers more flexibility for complex risks[180] Significant Events and Transactions This section highlights the Company's corporate structure and details recent acquisition activities in 2025 - The Company is a holding company that operates and controls the business of Ryan Specialty, LLC (LLC) through New LLC, consolidating its financial results[182] - Recent 2025 acquisitions include Velocity Risk Underwriters, LLC (February 3), USQRisk Holdings, LLC (May 1), and 360° Underwriting (May 16)[183][184] - Subsequent to the reporting period, on July 1, 2025, the Company acquired certain assets of J.M Wilson Corporation[184] Key Factors Affecting Our Performance This section outlines the critical drivers of the Company's financial performance, including acquisitions, relationships, and market conditions - The Company's performance is driven by pursuing strategic acquisitions, deepening relationships with retail broker trading partners, and building its Delegated Authority business[186][187][188] - Other key factors include investing in operations and growth, generating commissions regardless of E&S market conditions, and managing changing macroeconomic conditions[189][190][191] - The Company leverages the growth of the E&S market, driven by complex risks, but acknowledges that market dynamics can shift[192][193][194] Components of Results of Operations This section defines the key revenue and expense components that make up the Company's results of operations - Revenue is primarily derived from Net Commissions and Fees across Wholesale Brokerage, Binding Authority, and Underwriting Management Specialties, and Fiduciary Investment Income[196][201] - Key expenses include Compensation and Benefits (largest expense), General and Administrative, Amortization (primarily from acquired intangible assets), and Interest Expense, Net[202][203][204][205] - Income Tax Expense includes taxes on the Company's allocable share of LLC's taxable income and impacts from the Common Control Reorganization (CCR)[207] Results of Operations This section provides a detailed comparison of the company's operational results for the three and six-month periods Comparison of the Three Months Ended June 30, 2025 and 2024 For Q2 2025, total revenue increased by 23.0% year-over-year, driven by strong growth across all Specialties, while net income increased by 5.6% - Total revenue increased by $159.7 million, or 23.0%, to $855.2 million, driven by a $160.6 million increase in Net commissions and fees[210][214] Net Commissions and Fees Growth by Specialty (Three Months Ended June 30) | Specialty | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | :--------- | | Wholesale Brokerage | $477,165 | $444,129 | $33,036 | 7.4% | | Binding Authority | $94,524 | $80,630 | $13,894 | 17.2% | | Underwriting Management | $269,168 | $155,489 | $113,679 | 73.1% | - Net income increased by $6.7 million, or 5.6%, to $124.7 million, despite a significant increase in interest expense, net ($27.2 million, or 87.4%)[210][229][233] Comparison of the Six Months Ended June 30, 2025 and 2024 For H1 2025, total revenue increased by 23.9% year-over-year, but net income decreased by 24.2% due to a substantial increase in income tax expense - Total revenue increased by $297.8 million, or 23.9%, to $1,545.3 million, driven by a $298.8 million increase in Net commissions and fees[210][235] Net Commissions and Fees Growth by Specialty (Six Months Ended June 30) | Specialty | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :-------------------- | :------------------ | :------------------ | :--------- | :--------- | | Wholesale Brokerage | $837,953 | $767,574 | $70,379 | 9.2% | | Binding Authority | $196,474 | $169,265 | $27,209 | 16.1% | | Underwriting Management | $482,558 | $281,296 | $201,262 | 71.5% | - Net income decreased by $38.4 million, or 24.2%, to $120.3 million, primarily due to a $43.3 million increase in income tax expense from the Common Control Reorganization[210][249][250] Non-GAAP Financial Measures and Key Performance Indicators This section defines and reconciles various non-GAAP financial measures used by management to assess operating performance Organic Revenue Growth Rate The Organic Revenue Growth Rate, a non-GAAP measure, was 7.1% for Q2 2025 and 9.6% for H1 2025 - Organic Revenue Growth Rate is defined as the percentage change in Net commissions and fees, adjusted for revenue attributable to acquisitions, sold businesses, contingent commissions, and foreign exchange rates[254] Organic Revenue Growth Rate (Non-GAAP) | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | 7.1% | 14.2% | | Six Months | 9.6% | 14.0% | Adjusted Compensation and Benefits Expense and Adjusted Compensation and Benefits Expense Ratio Adjusted compensation and benefits expense increased, while the adjusted ratio decreased, indicating improved efficiency relative to total revenue - Adjusted compensation and benefits expense excludes equity-based compensation, acquisition and restructuring related compensation expense, and other exceptional items[256] Adjusted Compensation and Benefits Expense (in thousands) | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Three Months | $453,414 | $383,960 | | Six Months | $850,842 | $713,982 | Adjusted Compensation and Benefits Expense Ratio | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | 53.0% | 55.2% | | Six Months | 55.1% | 57.2% | Adjusted General and Administrative Expense and Adjusted General and Administrative Expense Ratio Adjusted general and administrative expense increased, and the adjusted ratio also increased, indicating a higher proportion of administrative costs - Adjusted general and administrative expense excludes acquisition and restructuring general and administrative related expense and other exceptional items[259] Adjusted General and Administrative Expense (in thousands) | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Three Months | $93,350 | $63,790 | | Six Months | $185,587 | $128,592 | Adjusted General and Administrative Expense Ratio | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | 10.9% | 9.2% | | Six Months | 12.0% | 10.3% | Adjusted EBITDAC and Adjusted EBITDAC Margin Adjusted EBITDAC increased for both the three and six-month periods, with the margin also showing slight improvement - Adjusted EBITDAC is Net income before Interest expense, net, Income tax expense, Depreciation, Amortization, and Change in contingent consideration, adjusted for certain non-recurring items[261] Adjusted EBITDAC (in thousands) | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Three Months | $308,406 | $247,691 | | Six Months | $508,907 | $404,913 | Adjusted EBITDAC Margin | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | 36.1% | 35.6% | | Six Months | 32.9% | 32.5% | Adjusted Net Income and Adjusted Net Income Margin Adjusted net income increased for both periods, while the adjusted net income margin decreased - Adjusted net income is tax-effected earnings before amortization and certain non-recurring items, assuming 100% ownership of the LLC[265][266] Adjusted Net Income (in thousands) | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Three Months | $184,682 | $160,554 | | Six Months | $292,521 | $255,971 | Adjusted Net Income Margin | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | 21.6% | 23.1% | | Six Months | 18.9% | 20.5% | Adjusted Diluted Earnings Per Share Adjusted diluted earnings per share increased for both the three and six-month periods - Adjusted diluted earnings per share is calculated by dividing Adjusted net income by diluted shares outstanding, adjusted for the effect of 100% exchange of LLC Common Units and equity awards[270] Adjusted Diluted Earnings Per Share | Period (Ended June 30) | 2025 | 2024 | | :--------------------- | :---- | :---- | | Three Months | $0.66 | $0.58 | | Six Months | $1.05 | $0.93 | Liquidity and Capital Resources This section discusses the Company's ability to generate cash flows to meet its business needs, highlighting primary liquidity sources - The Company believes its balance sheet and strong cash flow profile provide adequate liquidity, with primary sources being cash, operating cash flows, and debt capacity[276] - Fiduciary cash and receivables, totaling $4,474,847 thousand as of June 30, 2025, cannot be used for general corporate purposes[25][279][280] - The Company expects to have sufficient financial resources to meet its business requirements for the next 12 months and beyond[276][281] Credit Facilities This sub-section details the Company's debt instruments, including the Term Loan, Senior Secured Notes, and Revolving Credit Facility - The Term Loan principal increased to $1,700.0 million in September 2024, with an interest rate of Adjusted Term SOFR + 2.25%[285] - The Revolving Credit Facility's borrowing capacity increased from $600.0 million to $1,400.0 million in July 2024, with its maturity extended to July 30, 2029[284] - The LLC issued $1,200.0 million of 5.875% Senior Secured Notes due August 1, 2032, in September and December 2024[286] Tax Receivable Agreement This sub-section explains the Tax Receivable Agreement (TRA), under which the Company pays 85% of realized tax savings to LLC Unitholders - The Tax Receivable Agreement (TRA) obligates the Company to pay 85% of net cash savings in U.S income taxes to current and certain former LLC Unitholders[288] - As of June 30, 2025, estimated future payments under the TRA total $461.1 million, which the Company expects to fund with tax distributions from the LLC[289][290] Tax Receivable Agreement Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | TRA Liabilities | $461,112 | $436,296 | | Exchange Tax Attributes | $271,094 | $253,233 | | Pre-IPO M&A Tax Attributes | $84,591 | $83,415 | | TRA Payment Tax Attributes | $105,427 | $99,648 | Comparison of Cash Flows for the Six Months Ended June 30, 2025 and 2024 This sub-section compares the Company's cash flow activities for H1 2025 and H1 2024 - Cash flows from operating activities increased by $56.5 million to $210.8 million in 2025, driven by higher deferred income tax expense and increased amortization[291] - Cash flows used in investing activities increased by $382.3 million to $619.0 million in 2025, primarily due to $565.1 million spent on business combinations[292] - Cash flows provided by financing activities increased by $162.2 million to $234.4 million in 2025, largely due to $187.7 million in net borrowings on the Revolving Credit Facility[293] Contractual Obligations and Commitments This sub-section outlines the Company's principal commitments, including long-term incentive compensation and contingent consideration Long-term Incentive Compensation Agreements (in thousands) | Item | June 30, 2025 | | :------------------------ | :------------ | | Total liability | $32,368 | | Projected future expense | $35,510 | | Total projected future cash outflows | $67,878 | Contingent Consideration (in thousands) | Item | June 30, 2025 | | :------------------------ | :------------ | | Total liability | $114,627 | | Projected future expense | $13,842 | | Total projected future cash outflows | $128,469 | - Projected future cash outflows for long-term incentive compensation are highest in 2028 ($35,591 thousand), while for contingent consideration, they are highest in 2027 ($80,364 thousand)[298][299] Critical Accounting Policies This section refers to the Company's Annual Report on Form 10-K for a detailed description of its critical accounting policies - Critical accounting policies are described in the Annual Report on Form 10-K for the year ended December 31, 2024[301] - These policies involve significant estimates, judgments, and assumptions, where changes could materially impact financial position and reported results[300] - Key critical accounting policies include revenue recognition, business combinations, goodwill and intangibles, income taxes, and tax receivable agreement liabilities[300] Recent Accounting Pronouncements This section directs readers to Note 1, 'Basis of Presentation,' for information on recently adopted and issued accounting standards - Information on recently adopted accounting pronouncements and recently issued accounting standards not yet adopted is provided in Note 1, 'Basis of Presentation,' to the unaudited consolidated financial statements[303] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK This item discusses the Company's exposure to various market risks, specifically foreign currency risk and interest rate risk Foreign Currency Risk This sub-section addresses the Company's exposure to foreign currency fluctuations, which is deemed immaterial - Approximately 6% of the Company's revenues for the six months ended June 30, 2025, were generated from international activities[306] - The Company is exposed to currency risk from potential changes between the exchange rates of the US Dollar, British Pound, Euro, and other currencies[306] - The exposure to foreign currency risk from changes between the USD and other currencies is considered immaterial[306] Interest Rate Risk and Credit Risk This sub-section details the Company's exposure to interest rate changes on its floating-rate debt and cash holdings - The Company's Term Loan, with $1,691.5 million outstanding principal as of June 30, 2025, bears interest at a floating rate, exposing it to interest rate changes[309] - An interest rate cap agreement with a $1,000.0 million notional amount and 2.75% strike is used to manage interest rate fluctuations[310] Impact of Hypothetical 100 BPS Interest Rate Change (June 30, 2025, in thousands) | Item | 100 BPS Increase | 100 BPS Decrease | | :------------------------------------ | :--------------- | :--------------- | | Net exposure to Interest expense, net | $5,189 | $(5,189) | | Net exposure to Fiduciary investment income | $13,462 | $(13,462) | | Impact to Net income | $8,273 | $(8,273) | ITEM 4. CONTROLS AND PROCEDURES This item addresses the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting Evaluation of Disclosure Controls and Procedures The Company's principal executive and financial officers concluded that its disclosure controls and procedures were effective as of June 30, 2025 - As of June 30, 2025, the Company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective at the reasonable assurance level[316] - Disclosure controls and procedures are designed to provide reasonable assurance that information required for SEC reports is recorded, processed, summarized, and reported timely[316] Changes in Internal Control There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025 - There have been no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[318] Inherent Limitations of Internal Control Over Financial Reporting This sub-section acknowledges that no control system can prevent or detect all errors and fraud - Disclosure controls and procedures are designed to provide reasonable assurance, but management does not expect them to prevent or detect all errors and fraud[319] - Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that its objectives will be met[319] PART II. OTHER INFORMATION This part contains other required disclosures, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS The Company is involved in various legal proceedings but does not believe the outcome would have a material adverse effect - The Company is involved in various legal proceedings and claims that arise in the ordinary course of business[321] - Management does not believe that the outcome of any current litigation would individually or collectively have a material adverse effect on the Company's business, operating results, cash flows, or financial condition[321] ITEM 1A. RISK FACTORS This item states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report - There have been no material changes to the risk factors disclosed under the heading 'Risk Factors' in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[322] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This item indicates that there were no unregistered sales of equity securities or use of proceeds to report - There were no unregistered sales of equity securities and use of proceeds to report[323] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item indicates that there were no defaults upon senior securities to report - There were no defaults upon senior securities to report[323] ITEM 4. MINE SAFETY DISCLOSURES This item states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[324] ITEM 5. OTHER INFORMATION This item indicates that there is no other information to report - There is no other information to report[324] ITEM 6. EXHIBITS This item provides a list of exhibits filed as part of the Form 10-Q, including corporate governance and financial agreement documents - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws of Ryan Specialty Holdings, Inc[325] - Indentures for the 4.375% Senior Secured Notes due 2030 and 5.875% Senior Secured Notes due 2032 are filed as exhibits[325] - Other key exhibits include the Amended and Restated Tax Receivable Agreement, the Seventh Amendment to the Credit Agreement, and various equity incentive plan documents[325][326] SIGNATURES This section contains the required signatures for the Form 10-Q, certifying its submission on behalf of the Company - The report is signed by Janice M Hamilton, Executive Vice President and Chief Financial Officer of Ryan Specialty Holdings, Inc[330] - The signing date for the report is July 31, 2025[330]