Ryan Specialty Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing provides annual results and does not provide standalone fourth-quarter financial results in the supplied text.
Business context
Ryan Specialty distributes specialty insurance and provides underwriting management, product development, administration and risk-management services through Wholesale Brokerage, Binding Authority and Underwriting Management. It primarily serves brokers and carriers and generally does not assume insurance underwriting risk, except through its equity-method investment. 78% of premiums placed in 2023 were in the excess and surplus (E&S) market.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $2,077.5 million | $1,725.2 million | +20.4% |
| Net commissions and fees | $2,026.6 million | $1,711.9 million | +18.4% |
| Operating income | $359.1 million | $289.5 million | +24.0% |
| Net income | $194.5 million | $163.3 million | +19.1% |
| Net income attributable to Ryan Specialty Holdings, Inc. | $61.0 million | $61.1 million | Approximately flat |
| Diluted EPS | $0.52 | $0.52 | Flat |
| Adjusted diluted EPS (non-GAAP) | $1.38 | $1.15 | +20.0% |
| Cash from operating activities | $477.2 million | $335.5 million | +$141.7 million |
Organic revenue growth, a non-GAAP measure, was 15.0%, down from 16.4%. Adjusted EBITDAC was $624.7 million, with a 30.1% margin, versus $517.4 million and 30.0%. GAAP net income margin was 9.4%, compared with 9.5%. The compensation and benefits ratio improved to 63.6% from 65.4%, while the general and administrative expense ratio rose to 13.3% from 11.4%.
Growth was broad across the three specialties: Wholesale Brokerage net commissions and fees rose 16.8% to $1,319.1 million; Binding Authority increased 19.4% to $276.0 million; and Underwriting Management rose 22.8% to $431.6 million. Management cited organic growth, acquisitions and increased fiduciary investment income. Property business benefited from higher insurance pricing and more risks moving into E&S; slower public-company D&O, construction and M&A activity partly offset growth.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $838.8 million at year-end, down from $992.7 million. Separately, $917.5 million of fiduciary cash was held for clients and insurers and is not available for general corporate use.
- Debt principal was approximately $2.013 billion, including $1.596 billion outstanding on the floating-rate term loan and $400 million of senior secured notes due 2030. The revolving facility had $599.7 million available and was essentially undrawn. The company reported compliance with debt covenants.
- Operating cash flow of $477.2 million was largely offset by $476.2 million of investing outflows, including $446.7 million for acquisitions and $29.8 million of capital expenditures. Financing activities used $12.6 million.
- Net commissions and fees receivable were $294.2 million, up from $231.4 million. The company reported total liabilities of $6.268 billion and stockholders’ equity of $979.6 million.
- The Tax Receivable Agreement (TRA) liability was $358.9 million. The agreement generally requires payments to certain current and former LLC unitholders equal to 85% of specified realized or deemed tax savings.
Material changes, outlook and notable items
- Five acquisitions completed in 2023: Griffin, ACE Benefit Partners, Point6 Healthcare, Socius and AccuRisk. The acquisitions contributed $47.2 million of revenue after their respective closing dates. A proposed Castel acquisition was expected to close in the first half of 2024, subject to approvals and customary conditions.
- The ACCELERATE 2025 restructuring program is expected to incur about $90 million of cumulative one-time costs through 2024 and generate approximately $50 million of annual savings in 2025. The company incurred $48.4 million of restructuring costs in 2023; management said progress was in line with expectations, while noting estimates and timing could change.
- No specific consolidated revenue or earnings guidance is provided in the supplied filing text. Management expects to continue investing in people, operations, technology and acquisitions, and believes available cash, operating cash flow and revolving-credit capacity will meet liquidity needs for the next 12 months and beyond.
- Interest expense rose to $119.5 million from $104.8 million, reflecting higher floating rates and outstanding debt. A $1 billion-notional interest-rate cap partially mitigates term-loan exposure through December 2025. In January 2024, the term-loan spread was reduced from SOFR plus 3.00% to SOFR plus 2.75%.
- In February 2024, the board declared a one-time $0.23-per-share special dividend and initiated a $0.11-per-share quarterly dividend. Future dividends remain subject to board approval, capital availability, laws and debt agreements.
- A significant unusual matter relates to 2022 policies placed through a trading partner that were represented as backed by highly rated insurance capital but were instead underwritten by a carrier Ryan Specialty and insureds considered unsatisfactory. The company committed to obtaining replacement coverage where commercially available. The recorded related loss contingency was $0.2 million at year-end 2023, with a $20.6 million insurance recovery recorded; further exposure could not be estimated.
- Other key risks include producer and leadership retention and succession, carrier or broker relationship changes, E&O claims, cyber and privacy incidents, acquisition integration, insurance-market cycles and capacity, rising rates, and debt and TRA obligations. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Investor verification priorities
- Reconcile consolidated net income growth with nearly unchanged income attributable to Ryan Specialty Holdings, Inc., considering non-controlling interests and LLC ownership.
- Assess the quality and durability of 15.0% organic growth, including the effect of pricing, E&S market migration, acquisitions and fiduciary interest income.
- Track whether ACCELERATE 2025 delivers the stated $50 million annual savings in 2025 and whether total restructuring costs remain near the $90 million estimate.
- Review acquisition purchase-price allocations, integration progress, contingent consideration and the pending Castel transaction, including its financing and foreign-exchange exposure.
- Monitor floating-rate debt, refinancing and covenant flexibility, available liquidity excluding fiduciary funds, and the timing and amount of TRA payments.
- Follow developments in the replacement-coverage matter, including ultimate claims, insurance recoveries and any additional losses.
- Confirm the sustainability and funding of the newly initiated dividend and its interaction with debt restrictions and LLC tax distributions.