Ryan Specialty Holdings, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. Ryan Specialty provides specialty insurance distribution, underwriting management, and related services, primarily in the excess and surplus (E&S) market. It generally does not assume insurance underwriting risk, except through an equity-method investment.
Financial performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Total revenue | $1,725.2 million | $1,432.8 million | +20.4% |
| Operating income | $289.5 million | $186.6 million | +$102.9 million |
| Net income | $163.3 million | $56.6 million | +$106.7 million |
| Net income attributable to Ryan Specialty Holdings, Inc. | $61.1 million | $65.9 million | Down |
| Diluted EPS | $0.52 | $(0.07) | Improved |
| Operating cash flow | $335.5 million | $273.5 million | +$62.0 million |
| Adjusted EBITDAC margin (non-GAAP) | 30.0% | 32.1% | Down 2.1 percentage points |
Net income margin increased to 9.5% from 4.0%. Organic revenue growth was 16.4%, versus 22.4% in 2021; acquisitions and other items accounted for the remainder of reported revenue growth. Adjusted diluted EPS, a non-GAAP measure, was $1.15, compared with $1.08.
Revenue by specialty: Wholesale Brokerage $1,129.2 million (+21.2%); Binding Authority $231.0 million (+10.2%); and Underwriting Management $351.6 million (+21.0%). Revenue is principally net commissions and fees. Approximately 74% of premiums placed were in the E&S market.
Expenses, liquidity and debt
- Compensation and benefits were $1,129.0 million, up 13.9%; the expense ratio improved to 65.4% from 69.2%. General and administrative expense rose 41.8% to $197.0 million, with its revenue ratio increasing to 11.4% from 9.7%.
- Net interest expense increased 32.0% to $104.8 million, reflecting the 2022 notes issuance and higher floating rates on the term loan.
- Cash and cash equivalents were $992.7 million at year-end, compared with $387.0 million. Operating cash flow was $335.5 million; investing activities used $22.4 million and financing activities provided $314.8 million.
- Cash balances include amounts held in fiduciary accounts; fiduciary cash and receivables are not generally available for corporate purposes. The filing states $66.2 million of collected revenue held in fiduciary accounts was available to transfer to operating accounts.
- Year-end debt principal was approximately $2.013 billion, including $1.613 billion under the term loan and $400 million of 4.375% senior secured notes due 2030; there were no material revolver borrowings. The balance sheet reports total debt of $1.982 billion after discounts and other adjustments. Approximately $599.3 million remained available under the $600 million revolving facility, subject to customary conditions.
- The term loan is floating-rate; its rate was 3.00% plus Adjusted Term SOFR at year-end, subject to a 0.75% floor. A $1.0 billion notional interest-rate cap with a 2.75% strike runs through December 31, 2025. The company reported compliance with debt covenants and expects liquidity to cover needs for the next 12 months and beyond.
Material changes and notable items
- Reported revenue growth slowed to 20.4% from 40.7%, and organic growth moderated to 16.4% from 22.4%. Adjusted EBITDAC margin declined despite higher adjusted EBITDAC dollars.
- G&A growth reflected, among other factors, increased travel and entertainment as pandemic restrictions eased, public-company costs, business expansion, and higher E&O-related costs. Compensation expense benefited from lower IPO-related and acquisition-related incentive costs than in 2021.
- The company issued $400 million of senior secured notes in February 2022 and paid $25.5 million for the interest-rate cap. It repaid $16.5 million of term debt.
- Centurion was acquired in November 2022 for $7.7 million. Griffin Underwriting Services was acquired in January 2023 for $116.7 million.
- A 2022 placement issue involving coverage underwritten by a carrier Ryan Specialty and insureds considered unsatisfactory resulted in a $23.1 million estimated replacement-cost liability and a $20.6 million probable insurance recovery, for a $2.5 million net expense. The filing says related exposure estimates could change; it cannot estimate certain possible additional losses.
- Recorded E&O and other loss contingencies were $26.1 million at year-end, excluding recoveries. E&O coverage has a $100 million limit and up to a $2.5 million retention per claim. Management reported no current litigation expected to have a material adverse effect.
- The Tax Receivable Agreement (TRA) liability was $295.3 million. The company generally pays certain former and current LLC unitholders 85% of specified realized or deemed tax benefits; payments may vary and can accelerate in specified circumstances.
Outlook, risks and governance
Management expects continued opportunity from specialty-risk demand, E&S market growth, hiring, acquisitions, and deeper retail-broker relationships, but gives no specific revenue or earnings forecast in the supplied filing text. It notes that rising interest rates have delayed some construction and M&A activity, affecting related insurance placements, and that public-company D&O pricing and placement conditions softened during 2022.
In February 2023, the company announced ACCELERATE 2025, a two-year restructuring program expected to incur approximately $65 million of cumulative one-time charges through 2024 and generate approximately $35 million of annual savings in 2025. The filing also cites risks involving producer retention and succession, insurer and client relationships and capacity, underwriting performance, market cycles and competition, acquisitions and integration, cyber and data security, regulation and E&O claims, debt service and interest rates, and the TRA. The company reported effective disclosure controls and internal control over financial reporting; the auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- Reconcile consolidated net income of $163.3 million with $61.1 million attributable to Ryan Specialty Holdings, Inc.; assess the effects of non-controlling ownership and the dual-class structure.
- Review the drivers of weaker organic growth and the decline in adjusted EBITDAC margin, including the quality and sustainability of non-GAAP adjustments.
- Confirm current debt balances, floating-rate exposure, revolver availability, covenant headroom, and cash available for corporate use apart from fiduciary funds.
- Track the replacement-coverage matter, E&O claims accruals and recoveries, and any additional customer or legal exposure.
- Assess whether ACCELERATE 2025 delivers the stated savings and how its charges affect reported results and cash flow.
- Monitor acquisition integration, the Griffin purchase, the $295.3 million TRA liability, and potential acceleration of TRA payments.