Ryan Specialty (US:RYAN)2023-08-04 11:33Filing Information 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, 20232 - Ryan Specialty Holdings, Inc. (RYAN) Class A Common Stock is registered on The New York Stock Exchange (NYSE)4 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 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 - 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 Agreement1113 - The company undertakes no obligation to update or revise any forward-looking statement, except as required by law15 Commonly Used Defined Terms 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 Agreement1718 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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) 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 202321 Consolidated Statements of Comprehensive Income (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 earnings23 Consolidated Balance Sheets (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 thousand25 Consolidated Statements of Cash Flows (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 year28 Consolidated Statements of Stockholders' Equity (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 thousand30 Notes to the Consolidated Financial Statements (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 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 201034 - 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 LLC3640 - 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 LLC36 2. Revenue from Contracts with Customers 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, 202345 - Contract liabilities (deferred revenue) decreased from $1.4 million at December 31, 2022, to $0.5 million at June 30, 202345 3. Mergers and Acquisitions 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 goodwill46 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, 202348 4. Restructuring 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 202549 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 compensation50 5. Receivables and Other Current Assets 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 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, 202254 - Weighted average operating lease discount rate was 5.1% as of June 30, 2023, up from 4.5% as of June 30, 202254 7. Debt 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, 20275658245 - 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, 202657 - The $400.0 million Senior Secured Notes issued on February 3, 2022, have a 4.375% interest rate and mature on February 1, 203059 8. Stockholders' Equity 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 stock60 - 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 rights62 - 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 9. Equity-Based Compensation 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 years727475787981828485 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 types89 10. Earnings Per Share 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 Units91 11. Derivatives 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 exposure92 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 expense95 12. Variable Interest Entities 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 LLC96 - 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: $415,00096 13. Fair Value Measurements 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 volatilities100 - 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)101102 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 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)106107108 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 carriers109 15. Related Parties 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, Ltd112 - 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 2023115 - 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 usage117 16. Income Taxes 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 Attributes123124248 17. Supplemental Cash Flow Information 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 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 million128 - 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 stock129 - Valuation of contingent considerations and purchase price allocations for these July 2023 acquisitions have not yet been completed130 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 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 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 2010134 - 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 solutions135 Significant Events and Transactions 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 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 LLC137 - 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 partnership137 ACCELERATE 2025 Program 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 2025138 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 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 2023141 - 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 services142143 Key Factors Affecting Our Performance 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 firms145146147148149150151 Components of Results of Operations 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 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 retention154155156157 - Fiduciary investment income is interest earned on insurance premiums and surplus lines taxes that are held in a fiduciary capacity158 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 outstanding159160161162163164165 Results of Operations 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 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 $78.9 million (16.1%) to the increase in Net commissions and fees, driven by a growing E&S market and new business, particularly in the property portfolio178 Expense Performance (3 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change ($) | 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 services184 Comparison of the Six Months Ended June 30, 2023 and 2022 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 $128.7 million (14.7%) to the increase in Net commissions and fees, driven by a growing E&S market and new business, particularly in the property portfolio193 Expense Performance (6 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change ($) | 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 services202 Non-GAAP Financial Measures and Key Performance Indicators 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 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 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 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 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 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 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 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 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, 2030241242243245 - The Company was in compliance with all covenants under its Credit Agreement as of June 30, 2023245 Tax Receivable Agreement 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 Attributes246 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 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 2023250 - Financing cash flows decreased primarily because of the $394.0 million bond issuance in H1 2022 that did not recur in H1 2023251 Contractual Obligations and Commitments 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 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 liabilities262 Recent Accounting Pronouncements 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 Presentation265 Item 3. Quantitative and Qualitative Disclosure About Market Risk 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 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 Canada268 - 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 immaterial268 Interest Rate Risk 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 - 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 fluctuations271 - Fiduciary investment income is also affected by changes in international and domestic short-term interest rates270 Item 4. Controls and Procedures 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 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 level274 - Disclosure controls and procedures are designed to provide reasonable assurance that information required for Exchange Act reports is recorded, processed, summarized, and reported timely274 Changes in Internal Control 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