Ryan Specialty (RYAN) 1 Sep 212021 Q2 Earnings call transcript

Greetings. Welcome to the Ryan Specialty Group Second Quarter 2021 Earnings Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Noah Angeletti, Treasurer of Ryan Specialty Group. Thank you.

begin. may You

June Good company's Holdings' operator. the welcome Ryan Investors quarter to released is earnings Thank on at available Quarter afternoon, ryansg.com. XXXX Group the ended the for Second financial of afternoon, XXXX. Earnings Specialty The its release the you, section results and XX, website Call. company This

plans, underlying forward-looking statements. filings current discussion SEC everyone could are you results in statements. to results, These described refer to performance in I levels those risks of the of the a company's the could and for factors expectations activity, and this the cause call from not statements. circumstances, trends I to achievements to that actual on events or made the management's with may statements more forward-looking and or made detailed to the to any projections, cause may except or from statements those duty any statements law. would course other actual in beliefs statements of or future that forward-looking as subject are Any including today. statements course constitute like assumptions, are uncertainties during of materially by that The refer this undertakes be characterizations required that materially no certain to information implied and made based made remind that company differ forward-looking expressed on update call, historical differ forecasts of a any are based number forward-looking and of

non-GAAP this will Additionally, call. financial discussed on measures certain be

included accordance GAAP. measures most website our on to as at earnings section a which financial available the non-GAAP be to not Reconciliation is Investors information or of this release, the in with prepared the substitute presented isolation of ryansg.com. these of financial presentation Our is accordance GAAP comparable company's in intended information for is in closely with the in measures considered

the like Specialty Founder, over now Ryan. Officer turn Chairman and the Pat to Executive to of Ryan call Chief Group, that, With I'd

our Thank you. call XXXX Group. Good also afternoon, earnings conference of everyone. in Thank Specialty as on your and like company. to first for you call a support public Ryan and I'd joining second quarter us you thank interest for our

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Turner, Now it Tim? President, detail. more to into I'd over turn our to capable to like get Tim very

afternoon, Thank everyone. you and much, very Pat, good

As are is These complex the brokers significantly at placed hazard represents Specialty highlighted, them on to we Pat and E&S higher U.S. larger hard-to-place with of underwrite more with and complex risks. market, approximately Ryan insurance commercial our or policies assist agents bespoke, to retail Group, insurance the which market, partnering there focus in complex, XX% risks. freedom risks often where

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forced For disease associated industry and insurance deals the how the has it. contagious entire with it with pandemic risk reconsider to example, COVID-XX the

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would in that coverage We be unattainable. otherwise the facilitate to have ability many cases

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policies bind complexity, higher XX specialty example, a to and design, programs. Our underserved provided are with policies expertise marketplace and coverage managers and XX in of These have Management insurance today's market authority and for These level and coverage administer underwriting national through carriers Underwriting renewable coverage underwriting and have basis on underwrite complex bound for variable risks. for a carriers distinct offers specific the niches generally and cyber M&A, energy. us warranties, cost, in submitted specialty reps

avenues growth. for multiple sustainable Looking see ahead, we

retail that revenue to XXX, innovate growth continue clients with highlighting grow by and the as top most firm deepening will It's who our organic line, worth XXXX, largest faster the partners. with historically our driven trading broadening for top organically brokerage XX% ranked same growth exceeded have the coveted our and Insurance, business relationships. of In We Business we grown year. our by most have the E&S our

is recruitment also development Talent and essential.

heralded We talent will as best the generation. industry our professionals the new University, world-class the our development RSG for as next into well continue in to recruit and program through onboard training the industry

to that of to values. opportunities where with core see We select clear we acquisitions partner also continue our firms and successful aligned our plan our our making are with culture competency goals, specialty

with date. our Risks, founding, As firms our most we you acquisition know, have notably XX last year largest acquired over since to All

to together very major With platform. to acquisition be respect the of meaningful less market positive to in rewarding a All companies our we our both time authority we reach, very United wholesale segmentation, yielding deeper long-term one vision markets and a will provided where binding insurance expect the the way expanded smoothly. contributor footprint field. largest scale accelerated and had results, is it significant Risks, us States the already in distributor the #X with integration respect as domestic Producers that team a see and in It out of acquisition, the our at is to is combination working success. are in further previously at proceeding gave The All Risks, the us

will into the expand an benefits, wholesale industry over the brings be underwriting focus years who hired former specialty, brokers. proven of strategy seek is CEO of needs expert benefit and to We experience adjacencies. our new of We capabilities Global developing Solutions and John leader, also us retail brokerage on Health employment natural and which general managing will will to risk and recently XX to health our and He Aon. Zern, serve

panel E&S capabilities have consolidation a see of address XX-state All in With build M&A which are over operation. fragmented stages. we represented the truly where the and opportunity XXXX both very to in size premiums market, comprehensively and and Risks, early the first their binding XX% we addition, tremendous authority In the delegated to authority

updates provide continued our quarters to our in initiatives expect We progress the specialties and these ahead. on on

Jeremiah Chief you you. Bickham, With to financials. like our Financial quarter that, our Thank give more Officer, detail second to now I turn the over call on who will would

and everyone. Thank hello, you, Tim,

quarter go results. our Let's right into second

a So over revenue, $XXX QX million for increase year. generated of total last of million represents $XXX the the which XX% second quarter, we in

to E&S strong Risks, All a was of was exceptional commission growth increases, and flow the of with risks of growth combination and market market, of the attributable is is XXXX, rate Further, our out growth Our September acquisition drives completed clients total a higher of as organic realized which new to multiple XX.X%. risks This client driven we rate growth which which the as premium. in a into where total for both our market revenue percentage revenue calculated quarter we and typically of organic of majority admitted place which revenue year-over-year addressable through wins, relationships expanding revenue existing in classes premium continue of the business. growth, of the

of was board, our by marked growth solid organic growth and acquisition. strong each At All the revenue X Risks from specialties, contributions revenue across the

period with breaking Wholesale last as So $XX posted Net the million by Brokerage very business to also million XX% same strong fee year. and in to $XX in Binding were relative million solid million, revenue they the the very net increase year. Authority results and $XXX XX% commission specialty, the a last period our at is of prior $XXX grew revenue which commission to total down compared fees

an million year. to Finally, of Management compared Underwriting fees and the revenue increase this QX net quarter, $XX commission grew last to is in which XX% $XX million

are an for the same quarter and compared or of percentage increase This revenue important quarter year. expense primarily on and to Moving second many growth expense compensated due $XXX were the million XX% producers is to a $XXX based with benefits that of down the last of was as heavily benefits compensation the operating that is company. million, increase correlated P&L. period. to revenue Total compensation from generate It's the expenses XX% for the which they note our of prior year a

both an compensation compensation, saw in long-term to as the primarily the increase acquisition-related All well. second quarter due noncash also We in equity-based which Risks acquisition, is and

expense and XX.X%. points Now I'm proud expense compensation year-over-year XXX compensation improved to adjusted our benefits ratio ratio and benefits and basis to report our improved basis that XXX XX.X%, points to

well by General into million XX% $X and as and revenue growth driven increase during spending an the restrictions entertainment business and or a P&L up uptick was the administrative travel expenses year Risks though flowing in All This period-over-period. cost as to increase support were compared saw in quarter This to partially acquisition-related prior offset by was decrease to COVID-XX relax. we begin the as period. our the expenses

Now our G&A ratio X.X%. basis to points expense year-over-year improved XXX

X.X% ratio Our QX adjusted due in was restrictions pandemic this increased was compared relax. in entertainment this spend and to last X.X% as same increase to The quarter travel G&A in expense year began ratio year. the to primarily

not However, of levels pandemic, our impact spending. returned given yet quarterly lingering the have we to ongoing T&E and still pre-COVID the of

period-over-period, $XX expense acquired due acquisition. intangibles Finally, the amortization increased million to from of Risks the primarily All amortization

EBITDAC million second period. year to grew year-over-year million the quarter in to XX% prior the $XXX compared for Adjusted $XX

basis adjusted to XX.X% margin to year increased points EBITDAC compared Our quarter. XXX the XX.X% in prior

included: the When execution initiated which and G&A; XXXX. restructuring driving we and benefits and compensation in continued two, Now the be of of primary by growth revenue in complete, expect in we we of XX this company's plan savings, next the drivers scale this $XX June anticipate year. one, remaining cumulative actions our achieve expense executed will that annualized to is plan million and plan,

quarters adjusted and are quarters regarding Now basis, the first terms lower. fourth in on typically and a third while Historically, margin EBITDAC of the margin. seasonal the our strongest are second

the to to material expect additional wholesale of investments continue mentioned towards Further, long-term working ahead, T&E platform costs previously pre-pandemic we levels as continue long-term costs being a specialty so in now and normalize associated business, can as we in growth growth employee invest with we months opportunities. to the coming company. in also benefit public have our we our our Additionally, well including

the maintain annual to current with such, term relatively are are our looking in medium we margins As levels. consistent that

not the quantifying yield Over our exceptional point. expect growth that leverage, that do but at we this we're long operating term, will

partially XXXX to change in income Net of $XX was XX.X% $XX Net prior in which a is Risks acquisition. million quarter compared year connection in income acquired increase was certain income from XX% related interest to this period. and operating compared the second XX.X% expense charges taken for Risks is used offset the the of that This of million, the an All quarter due year. IPO, fact increase debt to margin to the last with QX was the the assets intangible by to nonoperating fund acquisition in the amortization All

revenue out look a both ahead visibility provide is to we and course, third we a IPO, as XXXX the of XXXX related revenue providing in rate as the the be follows: which To year for year are expect the to growth is, equity-based point record we EBITDAC we that nature. significant onetime expected XX%. to quarter, for full to organic compensation year want expense well, As margin -- XXXX to outlook full Organic growth and adjusted XX% between additional

part of All beginning calculation for and September Adjusted in growth year to EBITDAC a become XX.X% of margin full will the XXXX between As be expected is XX.X%. Risks the organic XXXX. reminder, revenue

very the Operator? we'd With much Q&A. to that, like open you thank up call for your for now time, we and

Weston of Bloomer Our Instructions] from is first UBS. question [Operator

believe expand half. on My well. the was or client how of I expand XX versus in XX% to should about the year and thoughts growth. kind second on of first shaping the wins can is organic in on the the that XX% how outlook in you're we -- the you out about around maybe as new also XQ dynamics and XQ pricing half question the thinking E&S then hoping implies I in around think second

Go ahead.

for Weston. Thanks question, your

giving this growth growth, certainly and math had by don't like are is numbers not QX correct. But for organic quarter. yes, your roughly for plan HX we quarter. every guidance We exceptional

don't factor dynamic into E&S we flow now, current budget and forecast in market. and of achievable. we're the like seeing the pricing heavy right And market the that way course, Our the are, prudent they dynamics and

overall And quarter guidance you as see the can the will, of that XX% view opportunity question? itself. when to the opportunity want we're for Tim, achievable. the course of XXXX quarters you of XX% we of add if prior that the very exceeding part is there, and capable to to we -- anything did pricing presents So from this dynamic

the always industry. Sure. business our flow rise. the We on in flow And from standard focus and market. business It's more into rates the on don't continuing the dumping is of of channel, shedding to the the that

Our E&S very overall opportunities to continues to we in growth space. the increases. very, in continue increase but The see and percentage in grow, or deceleration non-admitted lines rate continued X that X business modest rate

That's great.

Just way one through you're a you talk think for can in Is as slight as that just second into we pricing. expecting like the different more of strength avenues on into we move half. and about there second the move pricing through the deceleration XXXX? next? It a year to sounds And half

that to phenomenon, and business cyber and care to increase and be refer to like continue of lines we niche-firming as and continues substantially. to health firm others There transportation what continue rates

So talk that us. channel. deceleration That's have into for about again, in this the come flow governing data a Again, on we don't of is the We and opportunities really modest. lot very rate our measure increase factor that.

I M&A. it. And one in Got on more then could if sneak

terms to come in table. deals are in seeing what you've seeing become public the targets you're you to all -- pipeline, on company, the Just since or at currently? of And more multiples a your curious more what come if people in pipeline if that's changed of and size that's helped your

Pat. of finding is opportunities a why and are across answer part. board strong flow There's been are people opportunities, different program benefits. first This selling. transactional There I'll the wholesale lots the and reasons

tax-motivated. them the there's a are in industry. consolidation of But probably of on lot going Some

to had that doing as expecting to IPO, strong, we we're had So outlined discussions quality. hold the people, pipeline the confident be on back, and high S-X. we've very planner, And the is we've our in with obviously, but we're

of Fargo. Elyse is Our next question Wells from Greenspan

the on off starting question, first organic side. My

of give us want by half don't think to give guidance -- half, to you whether just that new components, the about the expecting recognizing are quarter it's I'm you QX bit and a we slowdown. in but the little quarters So And the just do market you less was type you business second easiest you a slowdown comp. trying somewhat of as level last can XX% first perhaps expect to should at just understand just that the actually lower or might business? year, then lead if represent a to what E&S come look your of to of the

conservatism So is some guidance? embedded organic just level within your -- this within growth there of

bake definitely want we I wouldn't -- call prudence. conservatism but And it favorable don't It's we like to in, said, dynamics. market

you the are quarter, our QX the market function outlook to that flow forecast. is of of of is for meant terms -- I'm the we're of E&S asked terms for on comp QX or the seeing in easiest in a You anything whipsaw QX a signal the not more in It's of HX just of side. we the that should out the smallest glad major QX pricing comps, reversal right is because traditionally our but X. is certainly hardest. And how a

growth. recognizing, given seen the this I'd in say third And you to slowdown into X obviously, revenue have quarter in at point, seen that the of any September have we're months slowdown quarter? -- into terms just guys we date a you just are

No.

to tracking the on to quarter QX, I track stop but or for plan. of We QX. are are we color giving want on our going past short

-- you have a of terms give company in us you can like your just the margin, then right, also, And guys public cost. will Okay. sense

there larger the be You the second kind the right? half, half the is mentioned T&E from in was normalizing pieces represents margin and in of of year. pricing margin deceleration first the investing in internally. Because Can some which you sense give half to us -- the second going the to where a

so buckets. think X hit -- you Elyse, all I on Well Yes. correctly

we the how from HX it, year-end public company T&E seasonality, to get those our, margin So is call costs. guidance things, and so X

and reminder, is and QX being terms with quarters weakest So a of QX QX are QX revenue, margin highly our in as strongest. and the correlated

often, fact, our strongest quarter. QX margin is In

circumstances, normal would boost And growth. well be no margin. under to it annual exception, exceptional even forecasted revenue year our of expect this QX So has the is above we although

our coming number with The annual quarter. highest QX offset seasonality, is below likely QX. QX So one, annual closer our well margin. margin It's the to historically that typically to margin,

for is perhaps run that to end we're of December restrictions the by a at to context in by and not rate or expecting but the spending. pre-COVID COVID additional to levels continue of November but full be year Now QX, relax to began increasing be us closer

be drag And on to then going of a in that's course, we July. public margin So went well. as

So no costs represented public And impact not That to course, margins only cost in of public the the but QX. there is next for on we'll P&L year HX. through T&E. have of going a year, material into looking be ongoing full were then,

tweaking So you're that your model. in keep mind as

Our next question is from Tracy Benguigui Barclays. of

basically is in much, rehash too figures? to agnostic is expectation to it Not in say fair it or any where you're rate rate neutralizing your that those but outlook increases to

organization, market, segments rates lines' surplus the to based in offices and into shedding the increase measurably national specialty in. that business the channel, that our Again, we on lines continues of the No. most through in will the flow We really we're to that standard flow and stamping believe increase measure and continue dumping WSIA.

we no in slowdown see So all. at that

Okay.

is on variability the So slowdown basically?

slowdown into whatsoever. us in a metric It's channel we than rate. measurement for flow see our again, And stronger no

helpful. That's Okay.

Tracy... But

Okay. Go ahead.

Go ahead.

fine. ahead. Go No, no. We're

X potential? have you organic the and margin ones how your largest would segments, would Okay. And -- you to revenue growth characterize of out which

single a we, manage Tracy, So business segment. the operating as

basis. So we that's we organic think of on -- a consolidated We budget. blended how

revenue how we do that's show So financials. the by report. in disaggregation specialty We

things. remember our One, double-digit fundamental engine to They that's is pricing growth cylinders all benefit from conditions. allow market And all firing to important that double-digit So from growth the building thing us blocks the current organic all capture now other X are all agnostic is that X But the they're thing capable helpful. of organic benefiting specialties growth. all hopefully, on of organic and cycles. right of

next Instructions] KBW. Meyer of [Operator question is Our Shields from

of impacting fact assessment of advantage take to that units? How Delta going variant September is I'm also. the the clients' it's exposure

commercial and now. small authorities on impact our direct and a binding but saw we point, -- this that's At recovered

surge. opportunities. any measurable gatherings We're back there impact converting variant more some have cancellations. or industry actually, the and some more meetings, our more productive. So of been slowed But hasn't affected efficient. we our Delta from and We're down It's have we're really material

while best So we're and a making remote. working opening. area. on commercial minor Small much moment, see There's we businesses setback are distraction small a the really the small the at it's construction even recovery. in going more it of And

moving are really along E&S things channel. the So uninterrupted in

changes, call. Okay. guidance this half think for bringing in lot the should about I of it know increases? the is talked assuming we changes apologize organic I that? helpful. Perfect. the the How again. growth And rate of is implicit That's about that no we've up no for year, rate on But a the second pace

hard but really budgets market. They're again, very as like little we're the want not in current be predict. in to it seeing of signal we're it's meant market. market of Think dynamics. They what separate It's we unexpectedly, seeing factor rate can impact of increases. a change from the we what don't impact our additional Again, just into to -- the from that to

said, the Tim of the E&S As very healthy. market are vital signs

out year? in way market what of Is teasing the helpful. was there That's first think any half impact of Okay. you the maybe the

I'm sorry. Hello?

I'm like you sorry. to Would repeat that question?

Yes.

obviously was we was how from of rate that first of organic in, a at but first in not half the the of of a is growth, I us year. impact the I'm when was again sorry. much market contributor sense asking look half just year the way saying, the okay, any there give path of budgeted increases, So to this

meaningfully. going rate measure are to of harder even specifically. impact out and I to break It's not Meyer, the hard we interpret to -- So

As Tim said, more the is the we meaningful E&S metric into track market. that flow

So direction. in or impact let's think been we've the double able at a heavy those increase, in flow Historically, bundle. opposite to rates digits with where of least grow years low were fact several of no going as rate

you -- perfect current to high but the whole seeing and you XXs. are when as thing teens not remember to because not to this go on organic the these even it's like not opportunities growth, important the teens at from or are can Meyer, quarter we're I growth, low dynamics is forever. there, is that dependent a last market But walk, we least year is our meant now demonstrates. see dynamics difference contributing market mean that when So plus to this market growers double-digit are are

Our next Zaremski from Wolfe question of Mike is Research.

looking Maybe we you there going is -- kind guys kind helpful. switching a environment. should transactions of Or and at? like of Any color are Kind to gears broad would Is of of transactions tuck-ins? flavor curious, a kind of be for it a tuck-ins? of mix of second mostly it larger M&A to smaller is size the be

our acquisitions beneficial always are to Well, at offering to to at our acquisitions that, Mike, shareholders. we we to our that clients. improve look Parallel look

And authority can but current activity expertise interest be But -- larger often ask be because status, that in managing managing have tell lines different there's robust the specialty tuck-in more generally underwriting so delegated of tuck-ins. in growth. I tuck-in it you underwriting. There's been and would that you can are

buyers there, And sellers. so are that's attracted out and

now, And right the being would we're larger to that average exposed than is so norm. that say I the deal

chunkier guys cylinders? more just we That's just all Okay. focus really there like around one-off some Anything -- previous the to have saying I'm any not been more what kind trying the growth And in were not of quarter. focus the larger, growth. hitting be flavor a context all organic on you on to to through. kind account there questions. just everything Pat. maybe thinking Perhaps on is placements but be it back trend? just might of segments forward-looking of are But Maybe acceleration the this or lot I'm should moving that came going of that helpful, is some kind Or about? a near-term of

It's flow of in a into capturing the channel, It's and more the a large measurable that. we're latter. of share real, increase

renewal. percentage world it's us our So more out we into look at to accurate very for how difficult that to and much the and pull how much new It's it's capture. rate versus again, on can of -- of much non-admitted flows overall business

example, We So read it's as again. by very discipline. specialized construction day. every it picking But all about up is an

infrastructure is top our and that really one pick starting of projects, up to So construction, of boom, and residential all specialties. that's

we So flow. -- can this and see lots that increase of other segments in

maybe the shareholders. it. forward for rate sneak and one going last to Is A about a the I'll going Class -- Got guess be And there and the tax in. cash GAAP one Okay. thinking potential I tax difference between rate

I because the you the won't of can through So don't show I be that. Group The walk, tax owns of best C-corp guidance -- how up LLC the an -- go that what's we Specialty understand for C-corp up best to give view Mike, called know adjusted show going that the income you net in I expense. at the details on -- taxes adjusted basically versus is where us taxes comparable most way a assumes how an of P&L And all Ryan or LLC. show our

the XX%, the you And LLC. only owns company C-corp rate in the see right so of reality, for pubco, XX% when entire consistent the now, tax

cash pays tax all the I the -- and reality, a taxes one the owns thinking as So the of to forma income C-corp. C-corps be to that tax XX%, other basically are will piece, to that to in the cash directly for behalf holders about then best the a your the small adjusted think government expense, company model that there's is government on the and holding LLC, to which over paid calculation go pro us distributions taxes piece use time that C-corp C-corps, that C-corp including to because be of the is the going pubco it. in pubco changes that relative LLC of The

tax the that in adjusted net simplest, the So most income adjusted comparable, fair expense walk. income is view

more time. questions are at no There this

the session. will I call end Pat Ryan of question-and-answer the We to closing for turn back the reached remarks. now over have

Thank joining thank you, to and gentlemen. ladies this speaking highest I entire that with everyone, a a continue position talent to quarterly for us earnings and really in Ryan has our the next tremendous dedication for Specialty for we and good to evening. closing, to always Have In very much. our delivering all Thanks and their to quality our operator, future. believe Thanks, thank forward delivering service exceptional clients. like you, team inaugural us the into work at quarter. you I'd our and well call, point here to get look

conference. today's concludes This

have lines at time. your your may participation, You this you Thank disconnect for and wonderful day. a