Q2 2024 Ryan Specialty Holdings Inc Earnings Call
Speaker Change: Good afternoon, and thank you for joining us today for Ryan Specialty Holdings' second quarter 2024 earnings conference call.
Operator: October 24, 2024, Earnings Conference. In addition to this... The company filed a press release with the SEC earlier this afternoon, which has also been posted to his website at ryanspecialty.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. However, investors should not place undue reliance on any forward-looking statement. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today.
Speaker Change: 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.
Operator: Listeners are encouraged to review the more detailed discussion of these risk factors contained in the company's filings with the SBA. The company assumes no duty to update such for the purposes of this discussion, except as required by law. Additionally, certain non-GAAP financial measures will be discussed, but they should not be considered in isolation or as financial information presented in accordance with GAAP.
Investors should not place undue reliance on any forward-looking statement.
These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today.
Listeners are encouraged to review the more detailed discussion of these risk factors contained in the company's filings with the SEC. The company assumes no duty to update such forward-looking statements in the future except as required by law.
Speaker Change: Additionally, certain non-GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute.
The financial information presented in accordance with GATT.
Reconciliation of these non-GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in the earnings release which is filed with the SEC and available on the company's website.
Operator: Reconciliation of these non-GAAP financial... The most closely comparable measures prepared in accordance with GAAP are included in the Errands Manual, which is filed with the SEC and is available on the company's website. With that, I'd now like to turn the call over to the founder, chairman, and chief executive officer of Ryan Specialty at Ryan. Good afternoon, and thank you for joining us to discuss our second quarter results, as well as today's announcement of our agreement to acquire U.S. Assure him
Speaker Change: With that, I'd now like to turn the call over to the founder, chairman, and chief executive officer of Ryan Specialty, Pat Ryan.
Patrick Ryan: We have included a supplemental presentation on our investor relations website regarding the acquisition, which we will refer to during today's call. On today's call is our president, Tim Turner, our CFO, Jeremiah Bickham, and our CEO of Underwriting Managers, Miles Wuller. Also with us is our Chief Accounting Officer and incoming CFO, Janice Hamilton, and our Director of Investor Relations, Nick Messick. Our second quarter continued our strong momentum, excellent top and bottom line results, reflecting our formidable value proposition, differentiated talent, and niche specializations.
Pat Ryan: Good afternoon and thank you for joining us to discuss our second quarter results, as well as today's announcement of our agreement to acquire U.S. Assure.
Speaker Change: We have included our supplemental presentation on our investor relations website regarding the acquisition, which we will refer to during today's call.
Speaker Change: With me on today's call is our President, Tim Turner, our CFO , Jeremiah Bickham, and our CEO of Underwriting Managers, Miles Wuller.
Speaker Change: Also with us is our Chief Accounting Officer and incoming CFO , Janice Hamilton, and our Director of Investor Relations, Nick Messick.
Speaker Change: Our second quarter continued our strong momentum of excellent top and bottom line results reflecting our formidable value proposition, differentiated talent, and niche specialization.
Patrick Ryan: Total revenue grew 18.8% year-over-year to $695 million, driven by organic growth of 14.2%, on top of the strong growth we posted in the second quarter of 2023. Justin Ivedek grew 27.6% to $248 million. Trusted EVADAC margin expanded 240 basis points to 35.6%, driven by another quarter of strong revenue growth, savings from Accelerate 2025, and underlying margin improvement in our business. Adjusted diluted EPS increased 28.9% to 58 cents per share.
Speaker Change: Adjusted diluted EPS to 28.9% to 58 cents per share.
Patrick Ryan: I'm turning to slide three of our supplemental presentation. Today we announce an agreement to acquire U.S. Assure, a leading program focused exclusively on builder's risk insurance. We're excited about this transaction for several reasons, and it is significantly expanding Ryan Specialty's broker relationships and total addressable market.
Speaker Change: I'm turning to slide three of our supplemental presentation.
Speaker Change: Today, we announced an agreement to acquire U.S. Assure, a leading program focused exclusively on builder's risk insurance.
Speaker Change: are significantly expanding Ryan Specialty's broker relationships and total addressable market.
Patrick Ryan: Assure meaningfully increases our footprint in the program segment of Delegated Underwriting Authority. We're pleased to be executing our M&A focused in this area as we see it as ripe for consolidation. We're deepening our capabilities in this attractive market. We will enhance our capabilities in the attractive SME segment of the builder's risk and construction market, which more broadly is a major and fast-growing component of U.S. GDP. We're adding a strong and valuable solution set.
Speaker Change: U.S. Assure meaningfully increases our footprint in the program segment of Delegated Underwriting Authority.
Patrick Ryan: Having placed business online for over 25 years, U.S. Assurance's Distribution Portal is a unique asset, offering an efficient and cost-effective tool that provides a one-stop solution accessed by over 20,000 retailers. This innovative offering provides fully automated, rapid, and seamless quote-bind initial capabilities, which has yielded high retention with brokers and agents. We see further optionality to distribute more products and drive deeper engagement through this portal. We expect to make a great business even better. U.S.
Speaker Change: We're adding a strong and valuable solution set.
Speaker Change: This innovative offering provides fully automated, rapid and seamless quote-bind initial capabilities, which has yielded high retention with brokers and agents.
Patrick Ryan: Assure has a long and enviable track record of strong growth and robust margins, driven by high client retention, efficient distribution via its tech-enabled online portal, as well as consistently profitable underwriting results for its capacity provider. We believe we can further enhance this business through our track record of productivity improvement, including Expanded Solutions, the addition of new brokers, as well as product innovation. For many quarters, we've discussed M&A as our top capital allocation priority. We've consistently noted that we only move forward with an acquisition when all our criteria for M&A are met.
Speaker Change: U.S. Assure has a long and enviable track record of strong growth and robust margins, driven by high client retention, efficient distribution via its tech-enabled online portal, as well as consistently profitable underwriting results for their capacity provider.
Speaker Change: We believe we can further enhance this business through our track record of productivity improvements, including expanded solutions, the addition of new brokers, as well as product innovation.
Speaker Change: For many quarters, we've discussed M&A as our top capital allocation priority. We've consistently noted that we only move forward with an acquisition when all our criteria for M&A are met.
Patrick Ryan: The deal must be a strong cultural fit, strategic, and acquisitive. U.S. Assure fits these criteria perfectly, and aligns with our mission of providing innovative, industry-leading solutions for insurance brokers, agents, and carriers. We will be acquiring U.S. Assure for $1.075 billion, which represents approximately 12.8 times trailing 12-month EBITDA. There's also contingent consideration of up to $400 million.
Speaker Change: We will be acquiring U.S. Assure for $1.075 billion, which represents approximately 12.8 times trailing 12-month EBITDA.
Patrick Ryan: This transaction will be immediately accretive to adjusted EPS, which Jeremiah will further address shortly. With that, I'm going to turn it over to Miles to discuss the business in more detail. Thank you.
Miles Wuller: Thank you very much, Pat. I want to echo Pat's comments on how excited we are to execute on our M&A strategy. Turning to slide four.
Speaker Change: Thank you very much, Pat.
Speaker Change: I want to echo Pat's comments on how excited we are to execute on our M&A strategy. Turning to slide four, delegated authority continues to be an enormous long-term opportunity and one of the core reasons for Ryan Specialty's founding.
Miles Wuller: Delegated Authority continues to be an enormous long-term opportunity and one of the core reasons for Ryan Specialty's founding. We have focused intently on building Ryan Specialty as a home where the best underwriters are empowered to innovate. We approach delegated authority through multiple avenues.
Miles Wuller: Each is a touchpoint for Ryan Specialty to deliver value to carriers along the entire continuum of binding, programs, and MGUs. Our program business targets niche industry verticals with a defined product set with typically smaller average premiums than our MGUs. This is the most significant enhancement to our program business since adding All Risk National Programs Unit in 2020 and adds what we believe is one of the largest independent programs. We believe there's a long runway for consolidation and innovation in the program segment. With the U.S.
Speaker Change: We approach delegated authority through multiple avenues, each a touch point for Ryan Specialty to deliver value to carriers along the entire continuum of binding, programs, and MGUs.
Speaker Change: We believe there's a long runway for consolidation and innovation in the program segment.
Miles Wuller: Assure, our underwriting management specialty, will now make up 28% of Ryan Specialty's total revenue and, coupled with finding authority, takes delegated authority to 41%, highlighting the diversification of our platform. We will be larger, more diversified, and better equipped to provide innovative, industry-leading solutions to our insurance brokers, agents, and carriers. Turning to slide five.
Speaker Change: With U.S. Assure, our underwriting management specialty will now make up 28% of Ryan Specialty's total revenue, and coupled with finding authority, takes delegated authority to 41%, highlighting the diversification of our platform.
Miles Wuller: U.S. Assure has been in business since 1977 and has a remarkable track record of success, which is a testament to the strong leadership of CEO Tai Pettway, President Alan Ferguson, and CFO Selena Breedlove. Culturally, we've been extremely impressed with everyone at U.S. Assured, and we're thrilled to welcome them all to the Ryan Specialty family.
Speaker Change: Turning to slide 5.
Miles Wuller: Assured targets builder's risk and construction projects in the SME market, specifically sub-$50 million in hard costs, and writes on minute paper provided by Zurich, with whom they've had a 44-year relationship. The business has an extremely valuable brand and is considered a first call for builder's risk in the SME segment as it is favored for its efficiency, responsiveness, and targeted industry solutions.
Speaker Change: U.S. Assured targets builders' risk and construction projects in the SME market, specifically sub-$50 million in hard costs, and writes on a minute paper provided by Zurich, with whom they have had a 44-year relationship.
Speaker Change: The business has an extremely valuable brand and is considered a first call for builder's risk in the SME segment as it's favored for its efficiency, responsiveness, and targeted industry solutions.
Miles Wuller: Assures a long track record of servicing over 20,000 existing brokerage relationships, many of whom will be new relationships to Ryan Specialty. We expect these additional relationships will drive significant new submission flow into our ecosystem. U.S.
Speaker Change: U.S. Assure has a long track record of servicing over 20,000 existing brokerage relationships, many of whom will be new relationships to Ryan Specialty. We expect these additional relationships will drive significant new submission flow into our ecosystem.
Miles Wuller: Assured Digital services the majority of their policies through their highly efficient portal, a hallmark of their business for over 25 years. US Assure has delivered strong growth consistent with Ryan Specialty's targeted double-digit organic growth. Underpinning its strong stand-alone revenue growth is its diversified product mix across residential and commercial construction, as well as remodeling, with a 50-state reach. Turning to slide six.
Speaker Change: U.S. Assured Digitally services the majority of their policies through their highly efficient portal, a hallmark of their business for over 25 years.
Speaker Change: U.S. Assure has delivered strong growth consistent with Ryan Specialty's targeted double-digit organic growth. Underpinning its strong standalone revenue growth is their diversified product mix across residential and commercial construction as well as remodeling with a 50-state reach.
Miles Wuller: As Pat outlined, this acquisition is a strategic fit for many reasons. First, U.S. Assure adds connectivity with a broader set of SME-focused retail brokers, where Ryan Specialty can drive deeper, multifaceted relationships. They expand our total addressable market into the SME-admitted segment and perfectly complement Ryan Specialty's existing builders' risk and construction capabilities, which tend to focus on larger projects on a non-admitted basis. The acquisition also expands our relationship with Zurich, a leading global insurer.
Speaker Change: Turning to slide 6.
Speaker Change: As Pat outlined, this acquisition is a strategic fit for many reasons.
Speaker Change: First, U.S. Assure adds connectivity with a broader set of SME-focused retail brokers, where Ryan Specialty can drive deeper, multifaceted relationships.
Pat Ryan: They expand our total addressable market into the SME-admitted segment and perfectly complement Ryan Specialty's existing builders' risk and construction capabilities, which tend to focus on larger projects on a non-admitted basis.
Miles Wuller: Second, the acquisition deepens our capabilities in attractive markets. The construction industry has strong macro tailwinds given domestic housing dynamics and secular growth factors, such as the undersupply of homes, the age of the national housing stock, and new home inventories remaining modest by historical standards. Third, their unique distribution portal.
Speaker Change: The construction industry has strong macro tailwinds given domestic housing dynamics and secular growth factors, such as the undersupply of homes, the age of national housing stock, and new home inventories remaining modest by historical standards.
Miles Wuller: Over the last 25 years, the team has developed an online portal with unmatched ease and efficiency. A fully automated quote, find, and issuance system drives high client retention. Additionally, U.S. Assured delivers valuable new product capabilities and further enhances our value proposition to clients and trading partners.
Speaker Change: Third, is their unique distribution portal.
Speaker Change: Over the last 25 years, the team has developed an online portal with unmatched ease and efficiency. A fully automated quote, find, and issuance system drives high client retention.
Speaker Change: Additionally, U.S. Assured delivers to us valuable new product capabilities and further enhances our value proposition to clients and trading partners.
Miles Wuller: Assure significant knowledge of builders risk insurance in the SME segment, which is highly valued by brokers and speaks to that we are continuing to enhance our intellectual capital, and forth with a history of strong double-digit growth, a diversified product mix with a 50-state reach, secular growth factors, and our track record of productivity improvements, we are confident in the long-term growth of this business. This transaction will be immediately accretive to adjusted EPS. For the full year 2024, we expect U.S. Assured to generate $123 million in revenue, with a long-term sustainable margin in the mid-60s. Turning to slide seven.
Speaker Change: US Assure has significant knowledge of builders' risk insurance in the SME segment, which is highly valued by brokers and speaks to how we are continuing to enhance our intellectual capital.
Speaker Change: And fourth, with a history of strong double-digit growth, a diversified product mix with a 50-state reach, secular growth factors, and our track record of productivity improvements, we are confident in the long-term growth of this business.
Speaker Change: This transaction will be immediately accretive to adjusted EPS. For the full year 2024, we expect U.S. Assured to generate $123 million of revenue with a long-term sustainable margin in the mid-60s.
Miles Wuller: U.S. Assure is poised to thrive within our ecosystem. We see numerous levers to sustain and improve U.S. Assure's growth. We believe we can further enhance this business through our track record of productivity improvements, including expanded solutions, the addition of new brokers, as well as product innovation. We believe there are substantial opportunities to find E&S solutions for existing submissions that were declined by the admitted market and believe our capabilities in placing difficult risks will bear fruit. We can leverage each firm's vast and complementary network by going deeper with key brokers and agents while working to develop the new retail broker relationship. We will drive more submission flow into the U.S.
Speaker Change: We see numerous levers to sustain and improve U.S. Assure's growth. We believe we can further enhance this business through our track record of productivity improvements, including expanded solutions, the addition of new brokers, as well as product innovation.
Speaker Change: We believe there are substantial opportunities to find ENS solutions for existing submissions that were declined by the admitted market, and believe our capabilities in placing difficult risks will bear fruit.
Speaker Change: We can leverage each firm's vast and complementary network by going deeper with key brokers and agents who are working to develop the new retail broker relationships.
Miles Wuller: Assured as RT will find the best solutions for their retail clients. We also expect to develop new products and innovate on behalf of these SME builders risk insured. We see opportunities to partner with RSUM's existing construction MGU, technical risk underwriters, in order to assist U.S. Assure in implementing these incremental solutions for the SME segment.
Speaker Change: We will drive more submission flow into U.S. Assured as RT will find the best solutions for their retail clients.
Miles Wuller: We have a longstanding track record of innovation, and believe the construction industry has all the hallmarks we look for to develop successful delegated authority solutions. Given these levers, we expect double-digit growth moving forward, and we are confident in the long-term growth of this business. With that, I'll turn it back to Pat.
Speaker Change: We have a long-standing track record of innovation and believe the construction industry has all the hallmarks we look for to develop successful delegated authority solutions.
Speaker Change: Given these levers, we expect double-digit growth moving forward, and we are confident in the long-term growth of this business. With that, I'll turn it back to Pat.
Patrick Ryan: Thank you, Miles. Furthering our delegated authority strategy, we're also pleased to announce a strategic relationship with MAG Mutual, a leader in the physicians and hospital professional liability segment of the healthcare market. We will be joining our healthcare practices together. Our healthcare MGU, Sapphire Blue, will become MAG Mutual's exclusive underwriter for senior living and allied healthcare risk.
Pat Ryan: Thank you, Miles.
Pat Ryan: Furthering our delegated authority strategy, we're also pleased to announce a strategic relationship with MAG Mutual, a leader in the physicians and hospital professional liability segment of the healthcare market, where we will be joining our healthcare practices together.
Patrick Ryan: The collective experience, expertise, and brand recognition of our two organizations is unique in the healthcare liability marketplace. Together, we will expand our healthcare liability products and offerings to better serve our clients. Turning to another recent announcement, we are pleased to form an exclusive distribution partnership with Private Client Select, or PCS, and MGU focused on high and ultra-high net worth homeowners insurance primarily owned by AIG and Stone Point. This exclusive distribution partnership with PCS will further enhance our national wholesale brokerage business and the superior service that Ryan Specialty provides to the high net worth focused retail brokers that we serve. PCS's strategic use of VNS paper creates flexible solutions to address coverage gaps in the high and ultra-high net worth homeowner segment of the residential market.
Speaker Change: The collective experience, expertise, and brand recognition of our two organizations is unique in the healthcare liability marketplace.
Speaker Change: Together, we will expand our healthcare liability products and offerings to better serve our clients.
Speaker Change: Turning to another recent announcement.
Speaker Change: We are pleased to form an exclusive distribution partnership with Private Client Select, or PCS, an MGU focused on high and ultra-high net worth homeowners insurance.
Speaker Change: primarily owned by AIG and Stone Point. This exclusive distribution partnership with PCS will further enhance our national wholesale brokerage business and the superior service that Ryan Specialty provides to the high net worth focused retail brokers that we serve.
Speaker Change: PCS's strategic use of VNS paper creates flexible solutions to address coverage gaps in the high and ultra-high net worth homeowner segment of the residential market.
Patrick Ryan: We look forward to working closely with PCS and AIG to deliver new products and services to this highly coveted segment of the market. It has clearly been an exciting time for Ryan Specialty, particularly with the leadership succession plan previously announced that goes into effect on October 1st. Tim Turner will become our new CEO. Jeremiah Bickham will be promoted to president, and Janice Hamilton will be promoted to chief financial officer.
Speaker Change: We look forward to working closely with PCS and AIG to deliver new products and services to this highly coveted segment of the market.
Speaker Change: It has clearly been an exciting time for Ryan Specialty, particularly with the leadership succession plan previously announced that goes into effect October 1st.
Speaker Change: Tim Turner will become our new CEO .
Speaker Change: Jeremiah Bickham will be promoted to president, and Janice Hamilton will be promoted to chief financial officer.
Patrick Ryan: I will assume the role of executive chairman. Success in planning is a matter that is a top priority for both myself and the board. We view attracting and developing top talent as a core competency and central to our long-term success, and are thrilled to promote from within, ensuring continuity with leaders who are ready for their new role and are emblematic of the depth of talent they have successfully cultivated. Tim has established himself as an insurance industry leader with an uncanny ability to perceive market trends, is joining Ryan Specialty at its founding in 2010.
Ryan Specially: I will assume the role of Executive Chairman.
Speaker Change: Success in planning is a matter that is a top priority, both myself and the board.
Speaker Change: We view attracting and developing top talent as a core competency and central to our long-term success.
Speaker Change: are thrilled to promote from within, ensuring continuity with leaders who are ready for their new roles.
Speaker Change: and are emblematic of the depth of talent they have successfully cultivated.
Speaker Change: Tim has established himself as an insurance industry leader with an uncanny ability to perceive market trends.
Speaker Change: Since joining Ryan Specialty at its founding in 2010, he's been critical to our success, particularly in creating and developing RT Specialty and quickly allowed the business to become one of the top wholesale distributors of specialty insurance in the country.
Patrick Ryan: He's been critical to our success, particularly in creating and developing RT specialties and quickly allowed the business to become one of the top wholesale distributors of specialty insurance in the country. Tim has been integral in the development of Ryan Specialty over the years, having the vision to align RT Specialty with the deep product set at Ryan Specialty Underwriting Managers. He has the support of our brokers, underwriters, and the entire Ryan Specialty team. The board and I are confident that he will be an excellent CEO.
Speaker Change: having the vision to align R.T. Specialty with the deep product set at Ryan Specialty Underwriting Managers.
Speaker Change: He has the support of our brokers, underwriters, and the entire Ryan Specialty team. The board and I are confident that he will be an excellent CEO .
Patrick Ryan: Jeremiah and Janice's promotions represent a seamless transition as these are well-respected leaders who know our strategy and culture well. Jeremiah has shown outstanding leadership, as well as financial and operational expertise, since joining us in 2011. Janice, with over 20 years of experience in the insurance industry, has proven her keen financial acumen and understanding of our business since she rejoined our firm over six years ago. Your promotions are well deserved and reflect our commitment to developing talent within the organization.
Speaker Change: Jeremiah and Janice's promotions represent a seamless transition as these are well-respected leaders who know our strategy and culture well.
Speaker Change: Jeremiah has shown outstanding leadership as well as financial and operational expertise since joining us in 2011.
Speaker Change: Janice, with over 20 years experience in the insurance industry, has proven her keen financial acumen and understanding of our business, having rejoined our firm over six years ago.
Patrick Ryan: I look forward to partnering with them when I move into my new role as Executive Chairman and continue leading our Board of Directors. I will continue to play an active role on our executive team and will now emphasize the coach and Flaherty, which will further empower Tim, Jeremiah, and Janice. Ryan Specialty is stronger than ever.
Speaker Change: I look forward to partnering with them when I move into my new role as Executive Chairman and continue leading our Board of Directors.
Patrick Ryan: As evidenced by our outstanding first half of 2024, Sustainable Secular Factors, and our unique competitive position. The succession plan comes as we pass the three-year anniversary of our IPO, have clear positive momentum, and a roster of world-class talent. This was the right time to put the pieces in place for our long-term success. A new leadership team is more than ready to continue successfully delivering innovative solutions to our clients, generating industry-leading organic growth, executing on our M&A strategy, increasing profitability, and delivering additional value to our shareholders. I'm very pleased to turn the call over to Tim.
Speaker Change: Ryan Specialty is stronger than ever, as evidenced by our outstanding first half of 2024, sustainable secular factors, and our unique competitive position.
Speaker Change: have clear positive momentum and a roster of world-class talent.
Ryan Specially: This was the right time to put the pieces in place for our long-term success.
Ryan Specially: A new leadership team is more than ready to continue successfully delivering innovative solutions to our clients, generating industry-leading organic growth.
Speaker Change: executing on our M&A strategy, increasing profitability, and delivering additional value to our shareholders.
Tim Turner: I'm very pleased to turn the call over to Tim. Tim.
Timothy Turner: Thank you very much, Pat. I am honored to become CEO of this great firm in October and to lead our talented teams in delivering value for our clients, trading partners, and shareholders. It has been a privilege to work alongside Pat and learn from his leadership since Ryan Specialty was founded. Pat is a true pioneer in the insurance industry.
Tim Turner: Thank you very much, Pat. I am honored to become CEO of this great firm in October and to lead our talented teams in delivering value for our clients, trading partners, and shareholders.
Tim: It has been a privilege to work alongside Pat and learn from his leadership since Ryan Specialty was founded.
Tim Turner: Pat is a true pioneer in the insurance industry.
Timothy Turner: His commitment to innovation, execution, and exceptional outcomes for clients and trading partners is unparalleled. Under Pat's leadership, Ryan Specialty has grown into an extraordinary company with a dynamic and differentiated business model. Looking ahead, we will continue to execute our strategy, which remains unchanged. We will stay focused on delivering innovative solutions to our clients, generating industry-leading organic growth, executing on our M&A strategy, increasing profitability, and delivering additional value to our shareholders. I am pleased that Pat will remain regularly involved and will continue to be a valuable resource for the strategic direction of the firm.
Speaker Change: His commitment to innovation, execution, and exceptional outcomes for clients and trading partners is unparalleled.
Speaker Change: Under Pat's leadership, Ryan Specialty has grown into an extraordinary company with a dynamic and differentiated business model.
Speaker Change: Looking ahead, we will continue to execute our strategy, which remains unchanged.
Speaker Change: We will stay focused on delivering innovative solutions to our clients, generating industry-leading organic growth, executing on our M&A strategy, increasing profitability, and delivering additional value to our shareholders.
Timothy Turner: And along with the promotions of Jeremiah and Janice, we are in a position of strength to advance our strategy and drive long-term growth. Before diving into the quarter, I'd like to touch on the recent announcement of PCS selecting Ryan Specialty as its exclusive distribution partner. In response to the evolving needs of our clients, we are pleased to announce this innovative strategy, which combines the strength and skills of PCS with the unique distribution capabilities and technical expertise of Ryan Specialty.
Tim Turner: And along with the promotions of Jeremiah and Janice, we are in a position of strength to advance our strategy and drive long-term growth.
Timothy Turner: We believe this initiative will increase the ability to handle more volume for both firms. AIG has a long history in the high and ultra-high network segment, along with the deep bench to be able to effectively service the select customer base. The blend of ENS and admitted products with a single carrier helps simplify the placement of these accounts, which have become increasingly difficult in recent years.
Timothy Turner: Through this partnership, our vast network of retail brokers will be able to access a broad range of solutions from PCS. As a result, we are in a prime position to capture broader ENS tailwinds and further capitalize on the accelerated growth in the segment. Now moving to Q2.
Timothy Turner: We had another excellent quarter of double-digit growth across our specialties, driven by an incredible team effort. Our Wholesale Brokerage Specialty generated strong growth across property and casualty. In property, we continue to see strong new business and high retentions as risks remain in the ENS channel. Given years of significant rate increases and no mega-catastrophe event last year, underwriting appetite has picked up, taking rates off their peak as additional capacity enters the market
Tim Turner: Our wholesale brokerage specialty generated strong growth across property and casualty. In property, we continue to see strong new business and high retentions as risks remain in the E&S channel.
Timothy Turner: That said, the market continues to be impacted by elevated levels of attritional and secondary perils, including severe convective storms, which are off to another record year on top of a record high in 2023. Given higher retentions of risk and growing property exposures in both high-value and catastrophe-prone areas, any mega-event could have a material impact on the property market.
Tim Turner: Given higher retentions of risk and growing property exposures in both high-value and catastrophe-prone areas, any mega-event could have a material impact on the property market.
Timothy Turner: Our deep roster of talented professionals continues to successfully navigate this dynamic environment, finding the best solutions for our retail clients and winning market share from our competitors. We continue to believe property will be a strong contributor of growth for Ryan Specialty in 2024. Our casualty practice had another excellent quarter. The casualty market continues to experience an increasing number of classes face higher loss costs. This is driving rate increases to accelerate and broaden out across industry classes.
Tim Turner: Our deep roster of talented professionals continues to successfully navigate this dynamic environment.
Tim Turner: finding the best solutions for our retail clients and winning market share from our competitors.
Tim Turner: We continue to believe property will be a strong contributor of growth for Ryan Specialty in 2024.
Timothy Turner: This trend is driven by many factors, notably an acceleration of social inflation marked by increased frequency, more prolonged legal cases, higher settlements, judgments, and nuclear verdicts, all amplified by litigation finance, and the ongoing impact of reserve changes on the 2015 to 2019 accident years with growing recognition of reserve inadequacy for more recent years. Similar to the recent trend we saw in property, these factors are driving more casualty risks into the E&S market. E&S is better suited to handle a more uncertain loss environment as it offers significantly more freedom of rate and form and the ability for insurers and underwriters to adjust more quickly.
Tim Turner: Similar to the recent trend we saw on property, these factors are driving more casualty risks into the E&S market.
Tim Turner: E&S is better suited to handle a more uncertain loss environment as it offers significantly more freedom of rate and form, and the ability for insurers and underwriters to adjust more quickly.
Timothy Turner: We continue to see the E&S market respond well, yet with acute discipline and tight limit management. In this environment, it is critical for clients to receive specialized industry and product-level knowledge. And that is exactly where we excel, thanks to our world-class team.
Tim Turner: In this environment, it is critical for clients to receive specialized industry and product-level knowledge. And that is exactly where we excel, thanks to our world-class team.
Timothy Turner: We are confident that casualty will continue to be a strong driver of our 2024 growth. Overall, our Wholesale Brokerage Specialty Team remains committed to delivering innovative strategies and products to meet the ever-changing needs of our clients. Now, turning to our Delegated Authority Specialties, which include both Binding Authority and Underwriting Management.
Timothy Turner: Our Binding Authority Specialty had another strong quarter thanks to our top talent and new proprietary products that offer a seamless experience for clients who have small but tough-to-place commercial P&C risks. We continue to believe the consolidation of panels and binding authority remains a long-term growth opportunity, and we are well-positioned to capitalize. Our Underwriting Management Specialty had an excellent quarter, led by property and casualty and transactional liability, as well as meaningful contributions from our recent acquisitions.
Tim Turner: Now turning to our Delegated Authority Specialties.
Tim Turner: which include both binding authority and underwriting management.
Tim Turner: Our Binding Authority Specialty had another strong quarter thanks to our top talent and new proprietary products that offer a seamless experience for clients who have small but tough-to-place commercial PNC risks.
Timothy Turner: We are thrilled with today's announcement of U.S. Assure, which we expect will complement our capabilities in the specialty niche. Turning to price, while we continue to experience various micro cycles across insurance lines broadly, we continue to see two important trends: property continues to see pricing moderation and stabilization after years of large increases, and Casualty is seeing price increases accelerating and broadening out across industry classes. Across both major industry classes, there remains heightened uncertainty in the loss environment.
Speaker Change: We are thrilled with today's announcement of U.S. Assure.
Tim Turner: Turning to price, while we continue to experience various microcycles across insurance lines broadly, we continue to see two important treads.
Tim Turner: Property continues to see pricing moderation and stabilization after years of large increases.
Tim Turner: And Casualty is seeing price increases accelerating and broadening out across industry classes.
Tim Turner: Across both major industry classes, there remains heightened uncertainty in the loss environment.
Timothy Turner: This is driving new risks into and risks to remain in the E&S marketplace. As we've noted consistently 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 rate or flow in the aggregate.
Tim Turner: This is driving new risks into, and risks to remain in, the E&S marketplace.
Tim Turner: As we've noted consistently in any cycle, as certain lines are perceived to reach price adequacy, admitted markets tend to step back in on certain placements.
Tim Turner: However, this is still not playing out, and the standard market has not meaningfully impacted rate or flow in the aggregate.
Timothy Turner: We are well positioned to assist our trading partners in navigating this ever-changing insurance landscape. We continue to expect the flow of business into the non-admitted market to be a significant driver of Ryan Specialty's growth, more so than rate. With that, I will now turn the call over to our Chief Financial Officer, Jeremiah Bickham.
Jeremiah Bickham: With that, I will now turn the call over to our Chief Financial Officer, Jeremiah Bickham, who will give you more detail on the financial results of our second quarter and more financial information on the U.S. Assure acquisition. Thank you.
Jeremiah Bickham: We will give you more detail on the financial results of our second quarter and more financial information on the U.S. Assure acquisition. Thank you. Thank you, Tim.
Jeremiah Bickham: Before diving into the quarterly results and acquisition details, I want to express my gratitude for the opportunity to become president of Ryan Specialty. I've dedicated the last nearly 13 years of my career to Ryan Specialty, and I'm incredibly fortunate to have worked so closely with Pat, Tim, Miles, and the entire team as we have built this exceptional firm. I would like to thank Pat for continuing to be a part of the executive team as a true player coach.
Jeremiah Bickham: Thank you, Tim. Before diving into the quarterly results and acquisition details, I want to express my gratitude for the opportunity to become President of Ryan Specialty.
Jeremiah Bickham: I've dedicated the last nearly 13 years of my career to Ryan Specialty, and I'm incredibly fortunate to have worked so closely with Pat, Tim, Miles, and the entire team as we have built this exceptional firm.
Speaker Change: I would like to thank Pat for continuing to be a part of the executive team as a true player-coach.
Jeremiah Bickham: My charge is to continue building on what Pat and Tim have created at Ryan Specialty, delivering innovative solutions to our clients, generating industry-leading organic growth, executing on our M&A strategy, increasing profitability, and delivering additional value to our shareholders. I've worked closely with Janice for many years, and I am thrilled that she will be taking over as CFO come October 1st. Her strong financial expertise and dynamic leadership will help us build on our proven strategy.
Speaker Change: My charge is to continue building on what Pat and Tim have created at Ryan Specialty. Delivering innovative solutions to our clients, generating industry-leading organic growth, executing on our M&A strategy, increasing profitability, and delivering additional value to our shareholders.
Speaker Change: I've worked closely with Janice for many years and I am thrilled that she will be taking over as CFO come October 1st. Her strong financial expertise and dynamic leadership will help us build on our proven strategy.
Jeremiah Bickham: Now turning to the quarter. Total revenue grew 18.8% period over period to $695 million, fueled by another very strong quarter of organic growth at 14.2% and contributions from M&A, which added nearly five percentage points to our top line. Growth was once again driven by very strong renewal retention, ongoing tailwinds in much of the E&S market, and our ability to win substantial amounts of new business. Adjusted EBITDAC grew 27.6% period over period to $248 million. Adjusted EBITDAC margin improved 240 basis points to 35.6%, driven by another quarter of strong revenue growth, savings from Accelerate 2025, and underlying margin improvement in our business. Adjusted diluted EPS grew 28.9% to $0.58 per share.
Speaker Change: Now turning to the quarter. Total revenue grew 18.8 percent period over period to $695 million, fueled by another very strong quarter of organic growth at 14.2 percent and contributions from M&A, which added nearly five percentage points to our top line.
Jeremiah Bickham: Growth was once again driven by very strong renewal retention, ongoing tailwinds in much of the E&S market, and our ability to win substantial amounts of new business.
Jeremiah Bickham: Adjusted EBITDAC grew 27.6% period over period to $248 million.
Jeremiah Bickham: Adjusted EBITDAC margin improved 240 basis points to 35.6 percent, driven by another quarter of strong revenue growth, savings from Accelerate 2025, and underlying margin improvement in our business.
Jeremiah Bickham: Adjusted diluted EPS grew 28.9% to $0.58 per share.
Jeremiah Bickham: Earlier today, our board declared a regular quarterly dividend of $0.11, payable later this month. Turning to our Accelerate 2025 program, we had approximately 8 million charges for the quarter, bringing our total thus far to $85 million, and we remain on track to achieve annual savings of approximately $60 million in 2025. We continue to expect that approximately half of these savings will be realized in 2024, with the majority of those savings falling to our bottom line. These savings will be paired with underlying margin expansion in our business, and we expect further underlying margin expansion in the years to come. Our adjusted effective tax rate was 26.1% for the quarter.
Speaker Change: Earlier today, our board declared a regular quarterly dividend of $0.11, payable later this month.
Speaker Change: Turning to our Accelerate 2025 program, we had approximately 8 million charges for the quarter, bringing our total thus far to $85 million, and we remain on track to achieve annual savings of approximately $60 million in 2025.
Speaker Change: We continue to expect that approximately half of these savings will be realized in 2024, with the majority of those savings falling to our bottom line.
Speaker Change: Those savings will be paired with underlying margin expansion in our business, and we expect further underlying margin expansion in the years to come.
Speaker Change: Our adjusted effective tax rate was 26.1% for the quarter. Based on the current environment, we would expect a similar tax rate for the remainder of 2024.
Jeremiah Bickham: Based on the current environment, we would expect a similar tax rate for the remainder of 2024. Turning to our acquisition of U.S. Assure and slide eight of our supplemental presentation. As Pat, Tim, and Miles have mentioned, we are very excited to announce this acquisition as it clearly fits within our long-term strategy and represents a meaningful boost to our delegated authority offering. We are requiring 100% of the equity interest of U.S. Assure for a base purchase price of $1.075 billion in cash, which represents 12.8 times trailing 12-month EBITDA.
Jeremiah Bickham: There is also contingent consideration of up to $400 million available if the company meets certain growth and profitability targets. Please note that this acquisition is an asset deal for tax purposes. We will be funding the upfront consideration of the acquisition through a combination of cash on hand and proceeds from newly issued debt.
Speaker Change: Turning to our acquisition of U.S. Assure and slide 8 of our supplemental presentation. As Pat, Tim, and Miles have mentioned, we are very excited to announce this acquisition as it clearly fits within our long-term strategy and represents a meaningful boost to our delegated authority offering.
Speaker Change: We are requiring 100% of the equity interest of U.S. Assure for a base purchase price of $1.075 billion in cash, which represents 12.8 times trailing 12-month EBITDA.
Speaker Change: There is also contingent consideration of up to $400 million available if the company meets certain growth and profitability targets.
Speaker Change: Please note that this acquisition is an asset deal for tax purposes.
Speaker Change: We will be funding the upfront consideration of the acquisition through a combination of cash on hand and proceeds from newly issued debt.
Jeremiah Bickham: We recently upsized our revolving credit facility to $1.4 billion and executed a $500 million, 364-day bridge facility, which we intend to replace with proceeds from a syndicated market transaction in Q3. Importantly, following the close of this transaction, we expect no change in our financial policy, including our leverage comfort corridor of three to four times total net leverage, and expect our credit ratings to remain consistent. Assuming the transaction and debt raise are completed by 9-1, we expect GAAP interest expense excluding the amortization of deferred issuance cost of approximately $35 million in Q3 and approximately $46 million in Q4. These estimates are based on our current assessment of market conditions and subject to the terms we achieve under our upcoming debt offering. The U.S.
Speaker Change: We very recently upsized our revolving credit facility to $1.4 billion and executed a $500 million, 364-day bridge facility, which we intend to replace with proceeds from a syndicated market transaction in Q3.
Jeremiah Bickham: Assure is expected to be immediately accretive. We expect adjusted EPS accretion of approximately 1 to 2 cents from September through December and approximately 6 cents in year one. Turning to guidance, we are now guiding our organic revenue growth rate for the full year 2024 to be between 13.0 and 14.0%, which reflects an increase of 50 basis points to the floor compared to our previous guidance range of 12.5 to 14.0%. Assuming the U.S.
Speaker Change: Importantly, following the close of this transaction, we expect no change in our financial policy, including our leverage comfort corridor of three to four times total net leverage, and expect our credit ratings to remain consistent.
Speaker Change: These estimates are based on our current assessment of market conditions and subject to the terms we achieve under our upcoming debt offering.
Jeremiah Bickham: Assure the transaction is completed on 9-1, we are guiding to a full-year adjusted EBITDAC margin between 32.0% and 32.5%, up from our prior guide range of 31.0% to 31.5%. In summary, it is a very exciting time at Ryan Specialty. We continue to perform at a very high level. We once again grew market share in several of our businesses while continuing to invest in our platform. And we executed on significant M&A that will strengthen our organic growth engine for years to come.
Jeremiah Bickham: Looking ahead, we will continue to invest organically in our business to support sustainable and profitable growth. Additionally, we will continue to execute on our disciplined M&A strategy with high-quality acquisitions. And we will maintain our strong balance sheet while returning excess cash, all of which should create long-term sustainable value for shareholders. Our dynamic and differentiated business model continues to position us well to serve our clients and deliver innovative solutions that our clients have come to expect as a hallmark of Ryan Specialty. With that, we thank you for your time and would like to open up the call for Q&A. Operator.
Speaker Change: With that, we thank you for your time and would like to open up the call for Q&A. Operator?
Operator: Thank you. At this time, we will be conducting a question and answer session. Who would you like to ask... Thanks. At this time, we would like to conduct a question and answer session. If you would like to ask a question, please press star 1 on your touch screen. The confirmation tool will indicate whether your line is in service. You may press star 2 if you would like to remove your question.
Speaker Change: Thank you. At this time, we will be conducting a question and answer session.
Speaker Change: Thank you.
Operator: If you are using speaker equipment, it may be necessary to pick up your handset before pressing start. One moment, please, while we poll for questions. Our first question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions. Hi, thanks. Good evening.
Speaker Change: One moment, please, while we poll for questions.
Elyse Greenspan: My first question is on, I guess, the margin guidance. Is the upside solely from the transaction? And then with this, I guess this would be the new baseline that we want to think about margin improvement for, you know, we're thinking about 2025. Hi Elyse, we haven't given an updated margin guidance with and without the U.S. Assure, but to clarify, the new margin guidance does include U.S. Assure, and the significant uptick is almost entirely due to U.S.
Elyse Greenspan: And then it would be the right baseline when thinking about 25, because there's not like any, you'll just have, assuming you complete the deal at the start of September, and then we can just think about a normal level of margin expansion off of that base. Yes, there's nothing.
Speaker Change: Hi, thanks. Good evening. My first question is on, I guess, the margin guidance.
Speaker Change: Is the upside solely from the transaction and then with this, I guess this is would be the new baseline that we want to think about margin improvement for, you know, we're thinking about 2025?
Jeremiah Bickham: There's not a non-recurring element to how we'll finish 24. And when we update guidance for 25 early next year, it'll be off. This is a baseline.
Speaker Change: Yes, there's nothing, there's not a non-recurring element to how we'll finish 24 and when we update guidance 425 early next year, it'll be off this as a baseline, yes.
Elyse Greenspan: And then on organic growth, you know, you guys did see some sequential acceleration, about 50 basis points in the quarter. I thought Q2, you guys, like the industry skew a bit more towards property, which it sounds like from your comments, rates are decelerating. So did you see, perhaps within the numbers, a slowdown in property growth offset by strong organic growth within casualty? Or what led, I guess, you know, we get some more color and what led to the sequential, you know, acceleration within organic?
Jeremiah Bickham: Yep, so there's a couple pieces to that. I'll answer it from a numbers perspective and from Q2 and maybe a little bit beyond that. And then maybe toss it over to Tim to talk about the market dynamics underpinning that. So, first off, property was an extremely strong contributor in Q2 and H1 overall. And as a reminder, Q2 is our highest percentage of property from a seasonality perspective, so it was a really tough comp.
Timothy Turner: And as Tim mentioned, there has been some rate moderation and even, in some cases, deceleration. That being said, because the flow of business into E&S is still healthy and because our team presents unique solutions and products, we were able to produce very solid double-digit growth from our property portfolio. And as we've said in our prepared remarks, we believe property will be a strong contributor to growth for the remainder of the year.
Timothy Turner: Tim, you want to add to that? I would just add that the property market remains, overall, very firm, even with the modest rate decelerations that we're seeing. Our flow of new business is double-digit, we're capturing new business, we're retaining our book at a high level, and we have a very strong, heavy windstorm season ahead, as well as a wildfire season throughout the summer. Thanks.
Speaker Change: Tim, you want to add to that? I would just add that the property market remains, overall, very firm. Even with the modest rate decelerations that we're seeing, our flow of new business is double-digit.
Elyse Greenspan: And then my last question, I guess, is on the agreement you guys were talking about with AIG. How big of an opportunity is this for you guys? And, you know, is there some level of revenue from this relationship embedded within your new organic revenue growth guidance? I'll take that last part and then kick it back to Tim and Elyse. There is no revenue either in Q2 or embedded in the guidance.
Speaker Change: Thanks. And then my last question, I guess, is on the agreement you know you guys were talking about with AIG. How big of an opportunity is this for you guys?
Speaker Change: I'll take that last part and then kick it back to Tim, Elyse.
Jeremiah Bickham: It's all upside, and it is a very exciting opportunity, which Tim, take it away. High net worth has increasingly become an E&S product line, and we've developed broker expertise, and very technical underwriting expertise. And we've been able to strike this key exclusive with PCS and AIG.
Speaker Change: And we've developed broker expertise, very technical underwriting expertise.
Speaker Change: And we've been able to strike this key exclusive with PCS and AIG.
Timothy Turner: We're excited about it. The market demands for our services and product line are increasing every day, and we know that we can add tremendous value to our customer base. Thank you.
Speaker Change: We're excited about it. The market demands for our services and product line are increasing every day, and we know that we can add tremendous value for our customer base.
Speaker Change: Thank you.
Operator: Our next question comes from the line of Grace Carter with Bank of America. Please proceed with your question. Hi everyone.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Grace Carter with Bank of America. Please proceed with your question.
Grace Carter: Looking at the U.S. Assured Deal, I was hoping you could all help us out on if there's any notable seasonality in the revenue or in the margins that we should be thinking about as we're looking at the modeling for this. Hi, this is Miles.
Grace Carter: Hi everyone. Looking at the U.S. Assured Deal, I was hoping y'all could help us out on if there's any notable seasonality in the revenue or in the margins that we should be thinking about as we're looking at the modeling for this.
Miles Wuller: We appreciate the question. And no, there is not noticeable seasonality. As indicated in the release, this is a substantial amount of enforced policies, approximately $150,000. However, these are small tickets taking place over the course of the year. And embedded in that question, I know you reference PCs, and you're probably looking at the back of the deck and seeing the different numbers. There is, look, less predictability, like PCs are harder to model than our base fees and commission. But the U.S.
Speaker Change: Hi, this is Miles. We appreciate the question, and no, there is not noticeable seasonality.
Speaker Change: As indicated in the release, this is a substantial amount of enforced policies, approximately $150,000. These are small tickets taking place over the course of the year.
Speaker Change: And embedded in that question, I know you referenced PCs, and you're probably looking at the back of the deck and seeing the different numbers. There is – look,
Speaker Change: less predictability, like PCs are harder to model than our base.
Miles Wuller: Assure has a 44-year relationship with Zurich, a really long history of delivering profitable underwriting results. And there is significant carrier profitability represented by the estimated 2024 PC figure in the deck. And we fully expect U.S.
Speaker Change: fees and commission.
Speaker Change: But U.S. Assure has a 44-year relationship with Zurich, a really long history of delivering profitable underwriting results.
Speaker Change: And there is significant carrier profitability represented by the estimated 2024 PC figure in the deck. And we fully expect U.S. Assured to continue delivering exceptional underwriting results for Zurich going forward.
Grace Carter: Assure to continue delivering exceptional underwriting results for Zurich going forward. Thank you. And I guess moving back to your standalone book, just given kind of all of the noise in the casualty market these days, I was wondering if there's any impact on how you're thinking about the outlook for contingents in your business or if you expect things to continue to perform pretty much in line with how they have been the past several quarters. Thank you. Thank you. We're proud that we spotted the need for rape and casualties several years ago.
Speaker Change: Thank you. And I guess moving back to y'all's stand-alone book.
Speaker Change: Just given kind of all of the noise in the casualty market these days, I was wondering if there's any impact on how you're thinking about the outlook for contingents in your business, or if you expect things to continue to perform pretty much in line with how they have been the past several quarters. Thank you.
Speaker Change: Yeah, thank you.
Speaker Change: We're proud that we spotted the need for rape and casualty several years ago. We've been introducing it broadly across our product set.
Jeremiah Bickham: We've been introducing it broadly across our product set. We think we've been a deliberate product to our carriers, particularly over the most recent parts of the cycle, and so we do expect continued attractive profit commissions from the business we've placed. Thanks, and just one more question, kind of given the freedom of rate and form in the non-admitted market and what you referenced about just how firm the rates have been in casualty in the non-admitted market for a while, I mean, would it be reasonable to assume that there would be less reserving concerns on the non-admitted casualty side relative to the admitted casualty side, just kind of given that...
Speaker Change: We think we've been a deliberate product to our carriers, particularly over the most recent parts of this cycle, and so we do expect continued attractive profit commissions from the business we've placed.
Speaker Change: Thanks, and just one more if I can, just kind of given the freedom of rate and form in the non-admitted market and
Speaker Change: What you referenced about just how firm the rates have been in casualty in the non-admitted market for a while. I mean would it be reasonable to assume
Speaker Change: That there would be less reserving concerns on the non-admitted casualty side relative to the admitted casualty side, just kind of given that the assumption that some of these accounts would be more challenging in the first place, and that would be taken into account during the initial underwriting process.
Grace Carter: I think it's becoming widely known that the loss-cost adjustment factors on long-tail high-hazard casualty business are accelerating at such a high rate that while we know the 2015 to 19 accident years were grossly under-reserved, the industry is questioning the reserves in 2021 and 2022, and there's a lot of discussion about rate adequacy in those years as well. So rates continue to go up, losses in the high-hazard segments that we specialize in continue to firm, and our services are in high demand. Thank you. Thank you. Our next question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your... Hey guys, congrats to everyone on the new roles.
Speaker Change: I think it's becoming widely known that the loss cost adjustment factors on long tail high hazard casualty business are accelerating at such a high rate.
Speaker Change: That while we know the
Speaker Change: 2015 to 19 accident years were grossly under-reserved.
Speaker Change: We're, the industry's questioning the reserves in 20, 21, and 22, and there's a lot of discussion about rate adequacy in those years as well.
Speaker Change: So rates continue to go up, casualty in the high hazard segments that we specialize in continue to firm, and our services are in high demand.
Speaker Change: Thank you.
Robert Cox: Thank you, Rob, and on, U.S. Assure. So when you say the margin is in the mid-60s, I just wanna confirm that that's adjusted EBITDAG margin. And could you just walk us through how the margin is sustainably that high? Yeah, have a nice day, and confirm that that is the adjusted EBITDAC margin that we believe is very sustainable long-term in the mid-60s. As to why, there's a couple reasons, and I'll let Pat take those.
Speaker Change: Thank you. Our next question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your question.
Rob Cox: Hey guys, congrats to everyone on the new roles.
Speaker Change: Thank you Rob. I just wanted to start with a question on U.S. Assure.
Rob Cox: So when you say the margin is in the mid-60s, I just want to confirm that that's adjusted EBITDAG margin?
Rob Cox: And could you just walk us through how the margin is sustainably that high, just given that's materially higher than some of the other programs that we've seen? And then just, yeah, how about I stop there?
Speaker Change: Confirmed that that is the adjusted EBITDAC margin that we believe is
Pat Ryan: very sustainable long-term in the mid-60s. As to why, there's a couple reasons and I'll let Pat take those. I think the biggest reasons are that
Patrick Ryan: They have been in this business space for 44 years. They have a highly efficient system and operating cost structure. This is a very high-value product, small contractors, and As you know, people require insurance when they hire a contractor. And these are very low average premiums. They're micropremiums.
Pat Ryan: They have been in this business space.
Pat Ryan: for 44 years.
Pat Ryan: They have a highly efficient...
Pat Ryan: system and an operating cost structure.
Pat Ryan: This is a very high value product to small contractors.
Speaker Change: As you know,
Pat Ryan: People require insurance when they hire a contractor.
Pat Ryan: And these are very low average premiums.
Patrick Ryan: A lot of people would say you can't make a profit on this size premium. But the U.S. Assured team, several decades ago, figured out how to do that, and so it's a very high value proposition for the contract. And they have a very long-term sustainable, High Profit, result with the syrup. You'll see in the deck that we just renewed, or extended, I should say, a 10-year contract with U.S. Assure and Zurich, to solidify the long term, it's very unusual to have a very long-term contract on delegated authority; often they're a year at a time and sometimes less.
Pat Ryan: They're micro-premiums.
Speaker Change: A lot of people would say you can't make a profit on this size premium.
Speaker Change: The U.S. Assured Team.
Speaker Change: Several decades ago, figured out how to do that.
Pat Ryan: And so, it's a very high value proposition to the contractor.
Pat Ryan: And they have a very long-term sustainable.
Pat Ryan: High Profit
Pat Ryan: result with the Zurich.
Pat Ryan: You'll see in the deck that we just renewed, or extended I should say, a 10-year contract with U.S. Assure and Zurich.
Pat Ryan: to solidify the long-term. It's very unusual to have a very long-term contract on delegated authority. Often they're a year at a time and sometimes less.
Patrick Ryan: So Zurich is so committed to this that they wanted a fresh start with us, and we agreed with them to have a 10-year contract. So this is a very efficient value-add to contractors, which helps people that are remodeling their homes or building new homes. They're very tough competitors.
Pat Ryan: So Zurich is so committed to this that they wanted a fresh start with us and we did with them to have a 10-year contract.
Speaker Change: So, this is a very efficient value-add to contractors, which helps people that are remodeling their homes or building new homes.
Pat Ryan: And they're very tough competitors.
Jeremiah Bickham: And also, Rob, the numbers that you're looking at in the deck are not adjusted on a trailing 12 basis. Those are reported. So to get to the mid-60s, there are not heroic assumptions.
Pat Ryan: And also, Rob, the numbers that you're looking at in the deck are not adjusted on the trailing 12 basis. Those are reported.
Jeremiah Bickham: As Pat said, it's a highly efficient tech-enabled platform. The majority of their policies don't even require a human touch before they're bound. And then, of course, profit commissions are really high-margin revenue. So we're very confident that that margin range is sustainable. Okay, and on that point, I mean, the profit commissions are about 16% of the total revenue. Is that a...
Rob Cox: So, to get to the mid-60s, there's not...
Pat Ryan: Heroic Assumptions. As Pat said, it's a highly efficient, tech-enabled platform. The majority of their policies don't even require a human touch before they're bound. And then, of course, profit commissions are really high margin revenue. So we're very confident that that margin range is sustainable.
Speaker Change: Okay and on that
Pat Ryan: On that point, I mean, the profit commissions are about, I think,
Speaker Change: In the 2024 year projection, 16% of the total revenue, is that a solid normal run rate going forward?
Robert Cox: It's not 60% of total revenue; it's going to be a large amount of revenue in Q4 because profit commissions are sometimes booked unevenly. If you look at the 2024 E number, and you get the 20 part of 123, it's a little bit more representative, but again, those can go up and down. What we're confident in is because US Assure has such a consistent disciplined underwriting approach and they've turned out profits for so many years, the number again will be a little bit harder to forecast and base commissions and fees, but it's going to be consistent, and over the long term, that number is going to go up.
Speaker Change: It's not 60% of total revenue. It's going to be a high amount of revenue in Q4 because profit commissions are sometimes booked unevenly.
Speaker Change: If you look at the 2024E number...
Robert Cox: And you get the 20 part of 123 is a little bit more representative, but again, those can go up and down. What we're confident in is because U.S. Assure has such a...
Robert Cox: consistent, disciplined underwriting approach, and they've turned out profits for so many years that the number, again, will be a little bit harder to forecast in base commission and fees, but it's gonna be consistent, and over the long term, that number's gonna go up.
Robert Cox: Okay, got it. And maybe just lastly, on the organic growth profile, historically, I know you guys mentioned the total revenue growth was double digits, but is the organic growth profile also that high? Yes. Yes, it is.
Robert Cox: Okay, got it. And maybe just lastly on the organic growth profile of...
Speaker Change: For sure. Historically, I know you guys mentioned the total revenue growth was double digit, but is the organic growth profile also that high?
Jeremiah Bickham: And we think that there's upside to that on our platform. We're, um, we're. During the first year that we own a company, there's a little bit of a ramp-up that occurs during integration. But long term and in short order, we think we can assure returns to its historically double-digit plus organic growth profile, and on our platform, because we've got a long track record of making great businesses even better, there's upside to their growth profile. As you know, we increase, I'm sorry, go ahead. All right, no, no, you go ahead.
Jeremiah Bickham: Yeah.
Jeremiah Bickham: Yes, it is, and we think that there's upside to that on our platform.
were
Jeremiah Bickham: During the first year that we own a company, there's...
Speaker Change: A little bit of a ramp-up that occurs during integration, but...
Jeremiah Bickham: Long-term and in short order we think U.S. Assure returns to its historically what's been double-digit plus organic growth profile and on our platform because we've got a
Jeremiah Bickham: Long track record of making great businesses even better, there's upside to their growth profile.
Speaker Change: As you know, we're increasing...
Speaker Change: I'm sorry, go ahead.
Patrick Ryan: Okay, we have a history with our acquisitions, as you know, of really helping them to improve productivity. And that's been representative of just about every acquisition we've done. And we expect that to be a significant opportunity to help lift our traditional organic rates of growth because we can get them into more brokers, and they will have the ability to place business at Zurich. It doesn't have the appetite for it.
Speaker Change: All right, no, no, you go ahead.
Patrick Ryan: Okay, we have a history with our acquisitions, as you know.
Patrick Ryan: of really helping them to improve productivity.
Patrick Ryan: And that's been represented in just about every acquisition we've done. And we expect that to be a significant opportunity to help lift our traditional organic rates of growth because we can get them into more brokers.
Patrick Ryan: We...
Patrick Ryan: will have the ability to place business at Zurich.
Patrick Ryan: But we can take those from the admitted market with the declination by Zurich and two others. We can then produce those in the E&S market for them. So instead of just having that business fall out, there's an opportunity to put them into the market that they belong in. Additionally, the online portal has significant opportunities to expand something that we've been working very hard on for a long time, and that is electronic trading products, and this group started that in 1997, very early in terms of electronic trading. So they're quite proficient at it.
Speaker Change: doesn't have the appetite for.
Patrick Ryan: But we can take those from the admitted market with the declination by Zurich and two others,
Patrick Ryan: admitted carriers, we can then produce those in the E&S market for them. So instead of just having that business fall out, there's an opportunity to put them into the market that they belong in.
Speaker Change: Additionally, the online portal has significant opportunities to expand something that we've been working very hard on for a long time, and that is electronic trading products. And
Patrick Ryan: started that in 1997.
Speaker Change: It's very early.
Speaker Change: in terms of electronic trading. So they're quite proficient at it. So we believe that working together with them will expand opportunities for electronic trading. And as you know, binding of business is really principally SME.
Patrick Ryan: So we believe that working together with them will expand opportunities for electronic trading. And as you know, the target of business is really principally SME. So we have a very strong SME market share, as you've seen our contract binding business grow very rapidly. This adds to that very significantly, so it's been a strategy for our firm, since 2015, to expand into what we call our SPARC strategy into smaller. [inaudible] could have anticipated that.
Patrick Ryan: So we have a very strong SME market share as you've seen our binding contract binding business grow Very rapidly this adds to that very significantly, so it's been a strategy for our firm
Speaker Change: since 2015, to expand.
Speaker Change: into what we call our SPORC strategy into a smaller
Speaker Change: cities, not small towns.
Speaker Change: The city is at another.
Speaker Change: You know, the urban hubs.
Patrick Ryan: and Wright Small Commercial, and we've been moving that into electronic trading. So this fills our SME strategy, this enhances our electronic trading strategy, and so the strategic rationale for this is as fulsome as we've...
Speaker Change: Thank you.
Robert Cox: Thank you. Thank you. Our next question comes from the line of Meyer Shields with KBW. Thank you for seeing me, Chairperson.
Meyer Shields: Thank you. Our next question comes from the line of Mayor Shields with KBW. Please proceed with your question. Great, thanks so much and good afternoon everyone.
Meyer Shields: Great, thanks so much, and good afternoon everyone. Hoping to understand how the U.S. Assurance Portal interacts with the connector that you talked about as Ryan sort of automated. Well, presently, they are independent, but RT will have expanded access to the U.S.
Meyer Shields: I'm hoping to understand how U.S. Assurance Portal interacts with the connector that you talked about as Ryan sort of automated
Speaker Change: portal for UNESCO.
Meyer Shields: Presently, they are independent.
Meyer Shields: RT will have expanded access to the U.S. Assured Portal currently. It's a relatively limited appointment basis.
Miles Wuller: Assured Portal. Currently, it's a relatively limited appointment basis. That'll be opened up, as Pat touched on. We expect the addition of incremental flow from RT and incremental flow from Ryan Aligned Retailers to the incremental submissions into the platform. So they're independent today; it is possible in the future that we could offer a quote on U.S. Assured through the connector, or they can come direct to the U.
Miles Wuller: That will be opened up. As Pat touched on...
Miles Wuller: We expect the addition of incremental flow from RT and incremental flow from Ryan Aligned Retailers to the incremental submissions into the platform. So they're independent today.
Miles Wuller: Assured portal. Okay, perfect, that's helpful. Um, second question, just looking at the forecast. It seems like expected profit, you know, most more than half come in the fourth quarter. That means that it's 2024 experience that drives us assures. I'm going to think about that for a second. My they are on a three-year average.
Miles Wuller: So anything collected this year is the result of 24 to 36 months ago. I want to reiterate what some of my colleagues said. This is a book of substantial policy count, typically a lower limit. Business and a lot of the other delegated authority in our family, there is not material cat exposure, and therefore the team feels good about the projections within the book. We are expecting it later in the year.
Miles Wuller: 24 to 36 months ago.
Miles Wuller: This is a book of substantial policy count,
Speaker Change: Business and a lot of the other delegated authority in our family.
Speaker Change: Okay, thank you very much.
Miles Wuller: Thank you very much. Our next question comes from the line of Mike Zaremski with BMO. Please proceed with your question. Hey, thanks.
Speaker Change: Thank you. Our next question comes from the line of Mike Zaremski with BMO. Please proceed with your question.
Mike Zaremski: Okay, thanks. Okay, lots of exciting things going on.
Mike Zaremski: Okay, lots of exciting things going on. First question on... The margins this quarter on expenses, you know, the margins were. [inaudible] Well, as we said, we were going to resume underlying margin expansion in the business. So that's a factor; the continued impact of Accelerate 2025 is in there. But remember, seasonally, Q2 is our biggest quarter. So it's got the highest dollar amount of revenue, and margin will follow revenue seasonality to a degree.
Speaker Change: First question on
Mike Zaremski: The margins this quarter on expenses, you know, the margins were...
Speaker Change: I think meaningfully healthier, you could say, than expected. It doesn't look like it was driven by contingents or subs. Anything you'd want to mention there?
Mike Zaremski: Well as as we said we were going to resume underlying margin expansion in the business so that's a factor the continued impact of Accelerate 2025 is in there but remember
Mike Zaremski: Seasonally, Q2 is our biggest quarter, so it's got the highest dollar amount of revenue and margin will follow revenue seasonality to a degree, so it follows that this would be a very high margin quarter, but we're also thrilled to see our efforts.
Jeremiah Bickham: So it follows that this would be a very high-margin quarter. But we're also thrilled to see our efforts, represented through underlying margin expansion and Accelerate 2025, born out in the numbers.
Jeremiah Bickham: represented through underlying margin expansion and Accelerate 2025 borne out in the numbers.
Mike Zaremski: Moving to M&A and the acquisition, I guess... I'm doing it quickly, looks like your leverage levels will be meaningfully higher, so should we be, remind us what your comfort level is on leverage levels, because then we can figure out whether we should kind of de-sell future M&A, definitely don't do that last part. So we've had, we've been storing up dry powder for just an opportunity like this.
Mike Zaremski: Okay.
Mike Zaremski: Moving to M&A and the acquisition, I guess
Mike Zaremski: It looks like your leverage levels will be meaningfully higher, so remind us what your comfort level is on leverage levels, because then we can figure out whether we should kind of de-sell future M&A.
Mike Zaremski: definitely don't don't do the that last part so we've had we've been storing up dry powder for just an opportunity like this so we've had pretty low leverage far below our comfort corridor we will be we anticipate
Jeremiah Bickham: So we've had pretty low leverage, far below our comfort corridor. We anticipate just contemplating closing US Assure that our high point leverage certificate will be something with a very low three times, right around the three, three to three and a quarter total net leverage. But our comfort corridor, and where we expect to spend a lot of time while we're highly acquisitive, is three to four times that leverage. So we still have a lot of room to run, which is great because the cupboard is not bare when it comes to M&A.
Jeremiah Bickham: Just contemplating closing U.S. Assure that our high point Leverage certificate will be something with like a very low three times Right around the three three to three and a quarter total net leverage
Jeremiah Bickham: But our comfort corridor and where we expect to spend a lot of time while we're highly acquisitive is the three to four times that leverage. So we still have a lot of room to run, which is great because the cupboard is not bare when it comes to M&A.
Jeremiah Bickham: And lastly, the answer is probably just goodwill; maybe I'm missing something, but the EPS accretion is very low, single digits, you know, relatively, you know, with the EBITDA accretion being much higher. Is that... What's going on here?
Speaker Change: Got it. And...
Jeremiah Bickham: Lastly, the answer is probably just goodwill, maybe I'm missing something, but the EPS accretion is very low, single digits, you know, relative, you know, with the EBITDA accretion will be much higher. Is that...
Jeremiah Bickham: But what's going on there?
Jeremiah Bickham: Succinctly, look, there's just not a lot of heroic assumptions in there, but pick up for a second. We've done nearly 60 acquisitions, and as Pat said, we've got a really high batting average at making great businesses even better, and we're confident that we will enhance this already high-performing platform and that it'll be a bullseye strategic fit for us. As I mentioned, there is a ramp-up period during the first 12 months of ownership while we're integrating the business. So, for example, our EPS estimates for our first year of ownership do not include any revenue synergies.
Jeremiah Bickham: Um
Jeremiah Bickham: Succinctly, look, there's just not a lot of heroic assumptions.
Jeremiah Bickham: there but just pick up for a second we've done nearly 60 acquisitions and as Pat said we've got a really high batting average at making great businesses even better and we're confident that we will enhance this already high-performing platform and that it'll be a bullseye strategic fit for us
Jeremiah Bickham: As I mentioned, there is a ramp-up period during the first 12 months of ownership while we're integrating the business. So, for example, our EPS estimates in our first year of ownership do not include any revenue synergies.
Jeremiah Bickham: However, as we said earlier, we are very confident that U.S. Assure can grow as it has historically in the double-digit range and sustain the mid-60s margin. So while we're being prudent in how we're talking about first-year EPS, which obviously includes higher interest expense because of the marginal debt we're raising, a business like this with this financial profile, along with their consistent profitable underwriting discipline, is not only accretive to EPS but also to our brand and our overall platform. Okay, congrats, and thank you.
Jeremiah Bickham: However, as we said earlier, we are very confident that U.S. Assure can grow as it has historically in the double-digit range and sustain the mid-60s margin. So while we're being prudent in our
Jeremiah Bickham: And how we're talking about first year EPS, which obviously includes higher interest expense because of the marginal debt we're raising.
Jeremiah Bickham: A business like this, with this financial profile, along with their consistent, profitable underwriting discipline, is not only accretive to EPS, but also our brand and our overall platform.
Jeremiah Bickham: Okay, congrats. Thank you.
Mike Zaremski: Thank you. Our next question comes from the line of Bryan Meredith with UBS. Please proceed with your question. What is the economic sensitivity of the business, and how is it sensitive to, perhaps inflation as well?
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Brian Meredith with UBS. Please proceed with your question.
Bryan Meredith: What is the economic sensitivity of the business and how is it sensitive to inflation as well?
Bryan Meredith: Yeah, well, thank you. I mean, we want to emphasize that the US is an exceptional double-digit grower throughout the cycle. You know, certainly over the last 18 months, higher interest rates have put pressure on housing starts. They've grown throughout that pressure we want to highlight. And it also doesn't change the macro-addressable opportunity. Thus, the US has a structural housing shortfall of over 2 million units. The vacancy levels in new and used homes are at multi-decade lows.
Bryan Meredith: Thank you. We want to emphasize that the U.S. assures an exceptional double-digit grower throughout the cycle. Certainly over the last 18 months, higher interest rates have put pressure on housing starts.
Bryan Meredith: They've grown throughout that pressure we want to highlight, and it also doesn't change the macro-addressable opportunity. So the U.S. has a structural housing shortfall of over 2 million units.
Bryan Meredith: The vacancy levels in new and used homes are at multi-decade lows. We have an aging housing stock in the U.S.
Miles Wuller: We have an aging housing stock in the US. And so, looking ahead, interest rates are, in fact, poised to subside. Building materials and inflationary pressures are now down to pre-COVID levels, at least for building material costs. And so our view is this, this business has been capturing the opportunity and is poised to really move ahead and grow in the coming years. Great, thank you. And then another just a quick one here. Any thoughts on what the CrowdStrike event could mean for the cyber markets here? for his pricing and terms and conditions.
Miles Wuller: And so, looking ahead, interest rates are, in fact, poised to subside.
Miles Wuller: Building materials and inflationary pressures are now down to pre-COVID levels, at least on building material costs, and so our view is this business has been capturing the opportunity and is poised to really move ahead over the coming years.
Speaker Change: Great, thank you. Then another just quick one here, any thoughts on what the CrowdStrike event could mean for the cyber markets here?
Miles Wuller: Yeah, we appreciate that question. So we have highlighted terms and conditions, particularly in Fortune 1000 type businesses, which have been under pressure for the last several quarters. Damages from the CrowdStrike error are still being tallied.
Speaker Change: As far as pricing and terms and conditions.
Miles Wuller: Yeah, we appreciate that question. So we have highlighted terms and conditions particularly in Fortune 1000 type business has been under pressure for the last several quarters.
Miles Wuller: Damages of the CrowdStrike error are still being tallied. We want to emphasize, cyber tends to have a longer tail than most folks imagine, but initial estimates are it could be as much as two billion.
Miles Wuller: We want to emphasize that cyber crime tends to have a longer tail. Thank you. Initial signs are that this, as a single event, is not on track to create a V-shaped change in pricing. However, we absolutely think it'll firm current levels. It'll inspire incremental buyers. And perhaps more importantly, the event is a reminder of how dependent we are on web-based delivery as an economy. It's really incomprehensible how many companies still remain underinsured. So, we do, there might not be immediate changes in pricing. There will be changes in buying habits.
Bryan Meredith: Thank you. Thank you. And as a reminder, if anyone has any..., you may press star one on your telephone keypad to join the queue and ask. And it looks like there are no further questions. Therefore, I'll turn the call back over to Pat Ryan for closing comments. Thank you very much.
Speaker Change: Initial signs are this as a single event.
Speaker Change: is not on track to create a V-shaped change in pricing. However, we absolutely think it'll firm current levels.
Pat Ryan: It will inspire incremental buyers.
Speaker Change: And perhaps more importantly, the event is a reminder of how dependent we are becoming on web-based delivery as an economy. It's really incomprehensible how many companies still remain underinsured. So we do, there might not be immediate changes in pricing. There will be changes in buying habit.
Pat Ryan: Thank you.
Bryan Meredith: Thank you and as a reminder if anyone has any questions you may press star 1 on your telephone keypad to join the queue and ask a question.
Bryan Meredith: And it looks like there are no further questions.
Bryan Meredith: Therefore, I'll turn the call back over to Pat Ryan for closing comments.
Patrick Ryan: Thanks for the opportunity to answer those questions. I'm very proud of how our team performed. We are very proud of how the company, the firm, has performed over the first six months. We thank you all for your support. We look forward to speaking to you in the near future. Have a good evening. And this concludes today's conference. You may disconnect your line. Thank you for your participation.
Patrick Ryan: Thank you very much. Great questions.
Patrick Ryan: Thanks for the opportunity to answer those questions. Very proud of how our team performed. Very proud of how the company, the firm, has performed over the first six months. We thank you all for your support, and we look forward to speaking to you in the near future. Have a good evening.
Patrick Ryan: And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.