Ryan Specialty Holdings, Inc. Class A

Good afternoon, and thank you for joining us today for Ryan Specialty Holdings third quarter 2024 earnings conference call. In addition to this call, the company filed a press release with the SEC earlier this afternoon, which has also been posted to its website at ryanspecialty.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Investors should not place undue reliance on any forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to risk and uncertainty. That could cause actual results to differ materially from those discussed today. Listeners are encouraged to review the more detailed discussions The more detailed discussion of these risk factors contained in the company's filings with SCC. The company assumes no duty to update such forward-looking statements in the future, except as required by law. Additionally, certain non-GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute for the financial information presented in accordance with the GAAP. Reconciliations of these non-GAAP financials measures to the most closely comparable measures prepared in the coordinates GAAP are included in the earnings release, which is filed with the SEC and available on the company's website. With that, I'd now like to turn the call over to Founder and Executive Chairman of Ryan Specialty, Pat Ryan.

Good afternoon, and thank you for joining us to discuss our third quarter results. With me on today's call is our CEO, Tim Turner, our president, Jeremiah Bickham, our CFO, Janice Hamilton, our CEO of Underwriting Managers, Miles Wooler, and our Director of Investor Relations, Nick Messick. We delivered an excellent third quarter by all measures. We grew total revenue 20.5%, which includes strong organic revenue growth of 11.8% and meaningful contributions for M&A. I'd like to pause for a moment to express how proud I am of these accomplishments this quarter, most specifically our organic growth. Our organic growth in Q3 of last year was 15% and was buttressed by a surge of growth in property. So that's quite a comp in which to compound. In contrast, this past quarter, we faced what we believe to be short-term headwinds as property rate deterioration accelerated in September prior to the hurricane's Helene, and Milton. We're taking market share of both new risks and renewals in the E&S market wherever came these headwinds and posted very healthy growth in property and in our overall portfolio. All in all, 20.5% total growth and 11.8% organic growth for the quarter under these circumstances is further proof of Ryan Specialty's resilience and growth engine. We grew adjusted EBITDA 29.4% to $190 million. Adjusted EBITDA margin expanded 220 basis points to 31.5%, and adjusted diluted EPS grew 28% to $0.41 per share. We also had a very active quarter for acquisitions, which aligns with our discipline long-term M&A strategy. We target high-quality businesses with differentiated talent, which provides us with more capabilities to meet our clients' evolving and growing needs. We're very excited about the talent and tools we added to Ryan's specialty in Q3, which Tim will discuss shortly. Further, our leadership succession plan was executed seamlessly on October 1st. I'm very proud to have Tim sitting next to me today. as Ryan Specialty's new CEO. I'm confident that we have the right team in place to continue executing our winning strategy today and over the long term. Ryan Specialty is stronger than ever, and our teammates are excited for the future. We believe that we will continue to deliver innovative solutions to our clients, generate industry-leading organic growth, execute our M&A strategy, continue to increase profitability, and create additional value for our shareholders. Now I'm pleased to turn the call over to Tim. Tim.

Thank you very much, Pat. I'm honored to take the baton from Pat and speak with everyone today as Ryan's specialty CEO. For nearly 15 years, I've dedicated myself to the success of this firm and our teammates, and I couldn't be prouder of what this team has achieved thus far. In many ways, we have already accomplished more than we imagined in 2010 when Pat and I were just getting started. What has me so energized and so motivated right now, though, is my belief that we have the opportunity to dwarf our accomplishments to date. As Pat said a moment ago, we are stronger than ever and have growth opportunities now that did not exist for us previously. Our conviction to put our clients first, our focus on specialized expertise, our commitment to rewarding top talent, and our dedication to excellence in everything we do is being validated by the market every day. Our exceptional growth, our success at recruiting, and our unique M&A opportunities are all a reflection of that. Rather than being satisfied with our accomplishments thus far, we are doubling down on our strategy and putting everything we have into capitalizing on the opportunities in front of us. Our goal is not just to continue our momentum, but to accelerate it. As we pull ahead of the competition, we're charging harder than ever. We have more firepower, more passion, and a better story to tell than we've ever had before. I couldn't be more excited. With that as a backdrop, I'd like to set the stage with three important points. After that, I will walk through our performance by specialty, observations on industry trends, progress on our M&A strategy, and investments that we're making in the business. The first point I would like to make is on independence. We are very serious about putting our clients first. And a key element of independence is that we don't compete with the retail brokers and agents we aim to serve. With each passing day, the value of independence is becoming more and more of an obvious truth. However, this has been a cornerstone of our strategy and the North Star of our client-first philosophy since our founding. We believe this commitment to our clients has been a crucial part of our success and will be going forward. The second point I would like to make is on the durable value proposition of delegated underwriting authority. This is a principle that our firm was founded on, and it's one that's gained significant traction in recent years. It is our closely held belief that delegated authority is not only here to stay, but will continue gaining momentum as the value proposition is self-evident. However, the long-term success of the model is dependent on intermediaries like Ryan Specialty, who manage delegated authority with the highest professional standards. We honor our fiduciary responsibility to our capital providers and have demonstrated to them that we're not interested in growth at any cost. Their profitability has to come first. Doing this the right way requires not only that commitment, but the ongoing investment in talent, technology, and governance to make sure that commitment is honored. This is an area that sets us apart and one we will continue to leverage to deepen our penetration in the delegated authority space. But the third and final point I'll make before getting to the results is on panel consolidation. There is a growing recognition among retail brokers of the need to optimize client outcomes, minimize E&Os, and invest in long-term strategic relationships that help them win. As the world continues to get riskier and more complex, we believe that deep industry specialization and a focus on fast, consistent execution is the only way to earn and keep business in our industry. and we stand ready to deliver that to our clients every single day. Now on to the results. As Pat noted, it was another exceptional quarter for Ryan's specialty. We executed well across our strategic, financial, and operational objectives. We had broad base growth across our specialties, meaningful contributions from our recent acquisitions, and delivered strong underwriting profit for our carrier trading partners. Diving into our specialties, our wholesale brokerage specialty generated another quarter of strong growth. Our property practice had another impressive quarter of growth. We overcame what we believed to be short-term headwinds as property pricing deteriorated throughout the quarter and prior to Hurricane Celine and Milton. We also overcame a tough comparable and a market that was seeing strong pricing increases in the prior year. We overcame these trends as we generated excellent new business, took share of strong flow into the channel, and won head to head against our competitors and had high retention. Prior to this year's hurricane season, we continued to see expanded catastrophe appetite as additional capacity entered the market. Recently, The market has been working through the impact of two devastating hurricanes and a record year of severe convective storms. It is still too early to know for sure how the insurance and reinsurance markets will react, but many industry sources are pointing to renewals being flat to up by 1.1. We can deliver significant value to our clients in any market cycle through our deep specialty and industry capabilities. and ability to navigate this dynamic environment. Property will be an important contributor to our growth moving forward and a very strong part of our portfolio over the long term. Our casualty practice had another excellent quarter. A challenging loss environment is driving higher loss costs in numerous casualty classes. This is partly driven by social inflation marked by increased frequency and more prolonged cases, higher settlements, judgments, and nuclear verdicts, and amplified by litigation finance, and partly by reserve charges related to the 2015 through 2019 accident years, and the recognition of reserve inadequacy for more recent years. The market is reacting to these trends by raising prices, focusing on limit management and moving risks into the specialty and ENS market. As a result, the need for our specialized industry and product-level knowledge has never been greater, and our value proposition to our clients has never been stronger. We remain confident that casualty will be a strong driver of our growth moving forward and that we will continue to be a leader in casualty solutions for years to come. Now turning to our delegated authority specialties, which include both binding and underwriting management. Our binding authority specialty continues to perform very well, driven by our top-tier talent and expanding product set for small, tough-to-place commercial P&C risks. We continue to believe panel consolidation in binding authority and programs remains a long-term growth opportunity. and we are well positioned to capitalize. Our underwriting management specialty had another outstanding quarter, particularly in M&A, transactional liability, healthcare, and property and casualty. Growth was aided by meaningful contributions from recent acquisitions and contingent commissions as we delivered strong underwriting profit for our carrier trading partners. Stepping back, Our delegated authority specialties remains very well positioned to execute on both organic and inorganic growth opportunities. We are confident in our talent, our platform, and our ability to remain a destination of choice for high quality MGUs and their specialized talent. We believe this combination paired with our skill to manage the business through the insurance cycle ensures our ability to deliver consistently profitable underwriting results, growth, and scale over the long term. Our success and track record of excellent underwriting results have accelerated our speed to market, developed broader and deeper relationships across our carrier trading partners, and onboarded additional capacity. Turning to price. After years of significant pricing increases, including in the prior year's quarter, property pricing was down in Q3 with a deterioration that accelerated in September, which we believe may change course. Meanwhile, casualty pricing accelerated and broadened out across an increasing number of classes. Across both major industry classes, there remains heightened uncertainty in the loss environment. This is driving new risks into the ENS marketplace and causing existing risks to remain there. We have consistently noted that in any cycle, as certain lines are perceived to reach price adequacy, admitted markets tend to step back in on certain placements. However, this is still not playing out, and the standard market has not meaningfully impacted the rate or flow of our portfolio in the aggregate. We continue to expect the flow of business into the ENS and specialty market to be a significant driver of Ryan Specialty's growth, more so than rate. Now, turning to M&A, we continue to execute on our acquisition strategy. First, we completed the acquisition of U.S. Assure. They are performing very well and integration is underway. We completed two more delegated authority transactions in the quarter and two earlier this month. Greenhill, an MGU focused on SME allied healthcare, will expand our healthcare MGU, Sapphire Blue. The PNC underwriting business acquired from Ethos, with approximately 11 million of revenue, will add eight niche specialty solutions across property and casualty classes. Eversports will add approximately 10 million of revenue and enhance our sports, leisure, and entertainment, MGU, a live risk. GEO Underwriting Europe, with a focus on financial lines, will further expand our underwriting footprint in the Netherlands and Germany. And as we just recently announced, we are in the process of acquiring Innovisk and expect to close in November. With approximately $58 million of annual revenue, Innovisk brings intellectual capital across seven unique MGUs and an excellent track record of delivering strong underwriting profits to its capital providers. Innovisk adds product offerings to Ryan's specialty, including environmental liability, attorney E&O, and tax credit protection coverage. They also provide us with access to incremental segments, such as international SME for professional lines. and will continue expanding our international footprint. We expect each of these acquisitions to contribute to our long-term growth for years to come. We believe we can further enhance these already great businesses through our track record of productivity improvements, including the trusting and reliable trading relationships we have built with our distributors and our capital providers. Further on the M&A front, our outlook remains ambitious. Our pipeline continues to be robust, including both tuck-ins and large deals. As we previously noted, our overall strategy aims to anticipate and meet the evolving and growing needs of our clients and trading partners so that our value proposition to them remains dynamic and robust. We only move forward when all of our criteria for M&A are met. Each acquisition must be a strong cultural fit, strategic and accretive. Turning to talent, we continued to invest strategically in our business in the quarter, adding new talent to our world-class team. These investments across Ryan's specialty and our commitment to independence, innovation, and excellence continue to enable industry-leading organic growth and strengthen our competitive position for years to come. I couldn't be prouder of what this team has achieved over the last nearly 15 years, but we are just getting started. We are doubling down on our strategy and will capitalize on the opportunities in front of us. With that, I will now turn the call over to Jeremiah to dive deeper into what distinguishes Ryan's specialty from the competition.