Ryan Specialty Holdings, Inc. (RYAN) Earnings

Management highlights

- Core Differentiating Strategic Factors • The company holds top positions in both specialty distribution and underwriting, giving a dual vantage point to identify risk needs earlier, innovate faster, and deepen client relationships in a self-reinforcing flywheel effect. • It operates in a market with strong secular tailwinds and a track record of consistent market share gains, particularly in the E&S market, where carriers have made significant long-term commitments. • The company attracts, retains, and develops top industry talent, with high retention rates driven by employee ownership, strong culture, and platform scale; the 2025 hiring class, the second largest in company history, continues to ramp up and become increasingly accretive to growth. • The company maintains a consistent focus on innovation and expanding its addressable market, leveraging insights across $32 billion of premium to identify new niches. It has launched over a dozen de novo specialty businesses, expanded into reinsurance underwriting (on track to place $2 billion in reinsurance premium in 2026), built in-house alternative capital management, launched an uncorrelated benefits division, and expanded captive management and structured alternative risk solutions. • It has a best-in-class disciplined M&A engine, only pursuing acquisitions that meet criteria for strong cultural fit, strategic alignment, and earnings accretion. • The platform is durable, built through years of deliberate reinvestment; the Empower operational efficiency program creates flexibility for ongoing investment to widen competitive moats and support modest long-term margin expansion. • All activities are supported by a disciplined capital allocation framework, prioritizing long-term organic and strategic investment. • The company has a seasoned, fully aligned leadership team focused on out-executing competitors. - Operational Updates • A planned leadership succession was announced for RT Specialty: Brendan Mulshine will become CEO, with outgoing CEO Ed McCormick transitioning to Vice Chairman. • AI and digital transformation continues to advance, anchored to improving client outcomes, employee productivity, and process speed/reliability. GenAI is already deployed in the property inspection process, reducing thousands of monthly manual touchpoints, improving underwriting accuracy, and cutting cycle times. The company's competitive advantage in AI comes from its proprietary data and embedded industry expertise that cannot be easily replicated by generic commoditized AI tools. AI tools have helped the average RSUM property employee deliver 11% more quotes per head year-over-year. - Capital Allocation • In Q2, the company repurchased 8.1 million shares for $260 million, and increased share repurchase program authorization by an additional $300 million for opportunistic deployment. It has repurchased an additional $42 million of shares in July 2026 to date. Net leverage ended the quarter at 3.3x, within the company's 3-4x target comfort range. Management prioritizes M&A and share repurchases (alongside a modest sustainable dividend) for capital deployment. A meaningful acquisition is unlikely to close in 2026, with the company targeting 2027 for meaningful M&A, though it will pursue high-quality assets that meet its criteria if they become available.

Guidance

- Organic revenue growth for full-year 2026 is maintained at a mid-single-digit target, with management now expecting growth to land at the higher end of the range, following stronger-than-expected Q2 performance. The full-year guide embeds expectations for a moderate full-year decline in the property book from ongoing pricing declines and heightened competition, increased casualty competition in new pockets, more normalized construction project growth in the second half (with continued lumpiness in timing), ongoing macro headwinds for builders' risk, and softer binding authority growth. - Full-year 2026 adjusted EBITDA margin is now guided to be 50 to 100 basis points lower year-over-year, revised from prior guidance. The downward revision reflects current market conditions, absorption of recent talent investments, lower fiduciary investment income, and higher healthcare/benefit costs, partially offset by disciplined cost management and early efficiency gains from the Empower program. - Management continues to expect modest adjusted EBITDA margin expansion in most future years after 2026. - The adjusted effective tax rate is expected to remain approximately 26% for the remainder of 2026. Full-year 2026 net interest expense (net of interest income on operating funds) is expected to be approximately $226 million, with $58 million expensed in Q3 2026.

Segment performance

Ryan Specialty Holdings reports total Q2 2026 revenue of $917 million, growing 7.2% year-over-year, with 6.7% organic growth and a small contribution from M&A. Adjusted EBITDA grew 6% to $327 million, with an adjusted EBITDA margin of 35.7% (down 40 bps year-over-year). Adjusted EPS grew 12.1% to $0.74. For H1 2026, organic revenue grew 8.9%, adjusted EBITDA grew 9.8%, and adjusted EPS grew 16.2%. 1. Wholesale Brokerage: - Property: Challenged by material pricing declines for CAT-exposed and large accounts, ongoing capacity growth and intense competition from the admitted market, but the book only saw a modest decline, outperforming management expectations, with performance improving throughout Q2, especially in June. - Casualty: Had a very strong quarter, with strong construction activity carried over from Q1 translating to bound growth from the built pipeline. A better-than-expected June performance was driven by large project wins in construction and data centers. Professional lines significantly outperformed the market despite ongoing pricing pressure, supporting overall quarter growth. 2. Binding Authority (Delegated Authority): - Faced heightened competition in Q2, but still delivered year-over-year revenue growth. Some business has moved to the admitted market, creating softer growth expectations for the full year. 3. Underwriting Management (Delegated Authority): - Delivered an excellent quarter, with strong performance across transactional liability, transportation, international specialty, casualty, and reinsurance, with maintained underwriting discipline. Transactional liability outperformed expectations, supported by a more constructive global M&A environment. Ryan Re delivered strong renewal retention in a tough pricing environment. Builders' risk continues to face pressure from macroeconomic headwinds, consistent with prior quarters. RSUM launched a new Lloyds Consortium stamp that will take a 15% line on RSUM's syndicated business starting August 1, accelerating innovation and speed to market.

Risks & headwinds

- Cyclical industry headwinds: Property pricing has declined materially for CAT-exposed and large accounts, with growing capacity and intense competition from the admitted market leading to ongoing pressure on revenue and margins. - Increasing casualty competition: New competition has emerged in small commercial and middle market casualty segments, driven by an influx of new capital and facilities, leading to pricing moderation and growth headwinds. - Macroeconomic and geopolitical uncertainty: Broader macro and geopolitical volatility create uncertainty around construction activity, insurance pricing, and demand, with the builders' risk segment already facing ongoing pressure from macro headwinds. - Timing risk for large project business: Large construction and data center project bindings are inherently lumpy and difficult to predict, creating volatility in quarterly growth results. - Intrasector competition: The growth of new E&S players and additional capacity in the E&S channel has increased competition, particularly in property, driving further pricing softness. - M&A timing uncertainty: While the company actively pursues acquisition opportunities, it is unlikely to close a meaningful transaction in 2026, which could near-term growth contributions from M&A.

Analyst Q&A

• Q: What drove Q2 margin outperformance versus guidance, and what prompted the full-year margin guidance revision?

  A: Q2 margin beat expectations primarily due to stronger-than-forecast organic revenue growth, paired with intentional expense discipline and cost management. Early progress from the Empower operational efficiency program also contributed. The full-year margin guidance revision accounts for these positive factors, shifting the expected year-over-year decline to 50-100 bps from prior expectations.

• Q: With 8.9% organic growth in H1 2026 implying under 3% growth in H2 to hit the high end of the mid-single-digit full-year guide, how is pricing trending in E&S casualty, and what downside risks exist?

  A: The E&S casualty market remains generally firm but bifurcated: segments including transportation, habitational, sports/entertainment, healthcare, public entity and human services continue to firm, while small/medium hazard risks see some softening. Downside risks include larger-than-expected property pricing declines and rapidly intensifying casualty competition, while upside could come from moderating property pricing and a strong pipeline of construction, data center and transactional liability deals.

• Q: How large is the share of your business in non-cyclical segments like captive management and employee benefits, and what is their strategic purpose?

  A: These businesses are all relatively new de novo or modestly acquired lines, designed to balance the company's portfolio against the inevitable softening of the E&S P&C pricing cycle. Non-cyclical or counter-cyclical segments include reinsurance underwriting, alternative risk and employee benefits. While they remain smaller than core wholesale and underwriting management businesses, they are now starting to contribute material incremental growth, margin and EPS.

• Q: What drove the better-than-expected modest decline in the property book in Q2, and how do new E&S competitors change your outlook?

  A: The better-than-expected performance stemmed from property brokers winning more head-to-head competitions and retaining higher levels of existing business than forecast, even with CAT book prices down 25-35%. While new E&S players have increased competition (driving property price softening), most new E&S capacity is actually a net opportunity for Ryan Specialty: new carriers use the company's wholesale distribution and underwriting management services, so the firm captures additional flow even as competition rises.