Quarterly report pursuant to Section 13 or 15(d)

Equity-based Compensation

v3.23.3
Equity-based Compensation
9 Months Ended
Sep. 30, 2023
Share-Based Payment Arrangement [Abstract]  
Equity-based Compensation
9.
Equity-Based Compensation

The Ryan Specialty Holdings, Inc., 2021 Omnibus Incentive Plan (the “Omnibus Plan”) governs, among other things, the types of awards the Company can grant to employees as equity-based compensation awards. The Omnibus Plan provides for potential grants of the following awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock awards, (iv) performance awards, (v) other stock-based awards, (vi) other cash-based awards, and (vii) analogous equity awards made in equity of the LLC.

IPO-Related Awards

As a result of the Organizational Transactions, pre-IPO holders of LLC Units that were granted as incentive awards, which had historically been classified as equity and vested pro rata over five years, were required to exchange their LLC Units for either Restricted Stock or Restricted Common Units. Additionally, Reload Options or Reload Class Incentive Units were issued to employees in order to protect against the dilution of their existing awards upon exchange to the new awards.

Separately, certain employees were granted one or more of the following new awards: (i) Restricted Stock Units (“RSUs”), (ii) Staking Options, (iii) Restricted LLC Units (“RLUs”), or (iv) Staking Class C Incentive Units. The terms of these awards are described below. All awards granted as part of the Organizational Transactions and the IPO are subject to non-linear transfer restrictions for at least the five-year period following the IPO.

Incentive Awards

As part of the Company’s annual compensation process, the Company issues certain employees and directors equity-based compensation awards (“Incentive Awards”). Additionally, the Company offers Incentive Awards to certain new hires. These Incentive Awards typically take the form of (i) RSUs, (ii) RLUs, (iii) Class C Incentive Units, and (iv) Stock Options. The terms of these awards are described below.

Restricted Stock and Restricted Common Units

As part of the Organizational Transactions, certain existing employee unitholders were granted Restricted Stock or Restricted Common Units in exchange for their LLC Units. The Restricted Stock and Restricted Common Units follow the vesting schedule of the LLC Units for which they were exchanged. LLC Units historically vested pro rata over 5 years.

 

 

Nine Months Ended September 30, 2023

 

 

 

Restricted Stock

 

 

Weighted Average Grant Date
Fair Value

 

 

Restricted
Common Units

 

 

Weighted Average Grant Date
Fair Value

 

Unvested at beginning of period

 

 

1,984,939

 

 

$

21.15

 

 

 

3,238,597

 

 

$

23.84

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Vested

 

 

(969,178

)

 

 

21.15

 

 

 

(1,999,365

)

 

 

23.84

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Unvested at end of period

 

 

1,015,761

 

 

$

21.15

 

 

 

1,239,232

 

 

$

23.84

 

Restricted Stock Units (RSUs)

IPO RSUs

Related to the IPO, the Company granted RSUs to certain employees. The IPO RSUs vest either pro rata over 5 years from the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Incentive RSUs

As part of the Company’s compensation process, the Company issues Incentive RSUs to certain employees. The Incentive RSUs vest either 100% 3 or 5 years from the grant date, pro rata over 3 or 5 years from the grant date, over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5, or over 7 years from the grant date, with 20% vesting in each of years 3 through 7.

Upon vesting, RSUs automatically convert on a one-for-one basis into Class A common stock.

 

 

Nine Months Ended September 30, 2023

 

 

 

IPO RSUs

 

 

Incentive RSUs

 

 

 

Restricted
Stock Units

 

 

Weighted Average Grant Date
Fair Value

 

 

Restricted
Stock Units

 

 

Weighted Average Grant Date
Fair Value

 

Unvested at beginning of period

 

 

3,771,624

 

 

$

23.00

 

 

 

984,439

 

 

$

34.64

 

Granted

 

 

 

 

 

 

 

 

871,823

 

 

 

41.19

 

Vested

 

 

(372,466

)

 

 

22.43

 

 

 

(68,325

)

 

 

34.77

 

Forfeited

 

 

(31,287

)

 

 

22.56

 

 

 

(11,628

)

 

 

34.39

 

Unvested at end of period

 

 

3,367,871

 

 

$

23.07

 

 

 

1,776,309

 

 

$

37.85

 

Stock Options

Reload and Staking Options

As part of the Organizational Transactions and IPO, certain employees were granted Reload Options or Staking Options that entitle the award holder to future purchases of Class A common stock, on a one-for-one basis, at the IPO price of $23.50. The Reload Options vest either 100% 3 years from the grant date or over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5. In general, vested Reload Options are exercisable up to the tenth anniversary of the grant date. The Staking Options vest over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10. In general, vested Staking Options are exercisable up to the eleventh anniversary of the grant date.

Incentive Options

As part of the Company’s compensation process, the Company may issue Incentive Options to certain employees that entitle the award holder to future purchases of Class A common stock, on a one-for-one basis, at the respective exercise prices. The Incentive Options vest over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5. In general, vested Incentive Options are exercisable up to the tenth anniversary of the grant date.

 

 

Nine Months Ended September 30, 2023

 

 

 

Reload Options1

 

 

Staking Options1

 

 

Incentive Options

 

 

Incentive Options
Weighted Average
Exercise Price

 

Outstanding at beginning of period

 

 

4,554,749

 

 

 

66,667

 

 

 

170,392

 

 

$

34.39

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(6,555

)

 

 

 

 

 

(2,293

)

 

 

34.39

 

Outstanding at end of period

 

 

4,548,194

 

 

 

66,667

 

 

 

168,099

 

 

$

34.39

 

 

1 As the Reload and Staking Options were one-time grants at the IPO, the weighted average exercise price for any movements in these awards will perpetually be $23.50. As such, the values are not presented in the table above.

 

Restricted LLC Units (RLUs)

 

IPO RLUs

Related to the IPO, the Company granted RLUs to certain employees that vest either pro rata over 5 years from the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Incentive RLUs

As part of the Company’s compensation process, the Company issues Incentive RLUs to certain employees. The Incentive RLUs vest pro rata over 3 or 5 years from the grant date or over 7 years from the grant date, with 20% vesting in each of years 3 through 7.

Upon vesting, RLUs convert on a one-for-one basis into either LLC Common Units or Class A common stock at the election of the Company.

 

 

Nine Months Ended September 30, 2023

 

 

 

IPO RLUs

 

 

Incentive RLUs

 

 

 

Restricted
LLC Units

 

 

Weighted Average Grant Date
Fair Value

 

 

Restricted
LLC Units

 

 

Weighted Average Grant Date
Fair Value

 

Unvested at beginning of period

 

 

1,515,858

 

 

$

25.06

 

 

 

145,527

 

 

$

34.86

 

Granted

 

 

 

 

 

 

 

 

379,148

 

 

 

41.14

 

Vested

 

 

(67,731

)

 

 

24.41

 

 

 

(42,045

)

 

 

34.86

 

Forfeited

 

 

 

 

 

 

 

 

(301

)

 

 

34.85

 

Unvested at end of period

 

 

1,448,127

 

 

$

25.09

 

 

 

482,329

 

 

$

39.80

 

Class C Incentive Units

Reload and Staking Class C Incentive Units

As part of the Organizational Transactions and IPO, certain employees were granted Reload Class C Incentive Units or Staking Class C Incentive Units, which are profits interests. When the value of Class A common stock exceeds the IPO price of $23.50, vested profits interests may be exchanged for LLC Common Units of equal value. On exchange, the LLC Common Units are immediately redeemed on a one-to-one basis for Class A common stock. The Reload Class C Incentive Units vest either 100% 3 years from the grant date or over 5 years from the grant date, with one-third of the grant vesting in each of years 3, 4 and 5. The Staking Class C Incentive Units vest either pro rata over 5 years from the grant date or over 10 years from the grant date, with 10% vesting in each of years 3 through 9 and 30% vesting in year 10.

Class C Incentive Units

As part of the Company’s compensation process, the Company issues Class C Incentive Units to certain employees, which are profits interests. When the value of the Class A common stock exceeds the participation threshold, vested profits interests may be exchanged for LLC Common Units of equal value. On exchange, the LLC Common Units are immediately redeemed on a one-to-one basis for Class A common stock. The Class C Incentive Units vest over 8 years from the grant date, with 15% vesting in each of years 3 through 7 and 25% vesting in year 8, or over 7 years from the grant date, with 20% vesting in each of years 3 through 7.

 

 

Nine Months Ended September 30, 2023

 

 

 

Reload Class C Incentive Units1

 

 

Staking Class C Incentive Units1

 

 

Class C
Incentive Units

 

 

Class C Incentive Units Weighted Average Participation Threshold

 

Unvested at beginning of period

 

 

3,911,490

 

 

 

1,996,668

 

 

 

300,000

 

 

$

34.39

 

Granted

 

 

 

 

 

 

 

 

195,822

 

 

 

40.90

 

Vested

 

 

 

 

 

(119,999

)

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Unvested at end of period

 

 

3,911,490

 

 

 

1,876,669

 

 

 

495,822

 

 

$

36.96

 

 

1 As the Reload and Staking Class C Incentive Units were one-time grants at the IPO, the weighted average participation threshold for any movements in these awards will perpetually be $23.50. As such, the values are not presented in the table above.

 

Non-Employee Director Stock Grants

The Company grants RSUs (“Director Stock Grants”) to non-employee directors serving as members of the Company's Board of Directors, with the exception of the one director appointed by Onex in accordance with Onex’s nomination rights who has agreed to forgo any compensation for his service to the Board. The Director Stock Grants are fully vested upon grant. The Company recognized $0.2 million of expense related to the Director Stock Grants during the three months ended September 30, 2023 and 2022, and $0.8 million and $1.8 million during the nine months ended September 30, 2023 and 2022, respectively.

Equity-Based Compensation Expense

As of September 30, 2023, the unrecognized equity-based compensation costs related to each type of equity-based compensation award described above and the related weighted-average remaining expense period were as follows:

 

 

Amount

 

Weighted Average
Remaining Expense
Period (years)

 

Restricted Stock

 

$

4,496

 

 

0.9

 

IPO RSUs

 

 

43,600

 

 

4.0

 

Incentive RSUs

 

 

48,295

 

 

2.7

 

Reload Options

 

 

3,092

 

 

1.4

 

Staking Options

 

 

335

 

 

5.6

 

Incentive Options

 

 

1,165

 

 

2.3

 

Restricted Common Units

 

 

3,034

 

 

0.5

 

IPO RLUs

 

 

23,079

 

 

5.1

 

Incentive RLUs

 

 

15,186

 

 

2.3

 

Reload Class C Incentive Units

 

 

3,492

 

 

1.5

 

Staking Class C Incentive Units

 

 

13,698

 

 

4.7

 

Class C Incentive Units

 

 

7,953

 

 

4.6

 

Total unrecognized equity-based compensation expense

 

$

167,425

 

 

 

The following table includes the equity-based compensation the Company recognized by award type from the view of expense related to pre-IPO and post-IPO awards. The table also presents the unrecognized equity-based compensation expense as of September 30, 2023 in the same view.

 

 

Recognized

 

Unrecognized

 

 

 

Three Months Ended

 

Nine Months Ended

 

As of

 

 

 

September 30, 2023

 

September 30, 2023

 

September 30, 2023

 

IPO awards

 

 

 

 

 

 

 

IPO RSUs and Staking Options

 

$

3,654

 

$

12,599

 

$

43,935

 

IPO RLUs and Staking Class C Incentive Units

 

 

2,738

 

 

8,866

 

 

36,777

 

Incremental Restricted Stock and Reload Options

 

 

1,156

 

 

3,723

 

 

5,340

 

Incremental Restricted Common Units and Reload Class C Incentive Units

 

 

1,779

 

 

5,779

 

 

5,616

 

Pre-IPO incentive awards

 

 

 

 

 

 

 

Restricted Stock

 

 

646

 

 

2,144

 

 

2,248

 

Restricted Common Units

 

 

308

 

 

1,224

 

 

910

 

Post-IPO incentive awards

 

 

 

 

 

 

 

Incentive RSUs

 

 

5,237

 

 

13,896

 

 

48,295

 

Incentive RLUs

 

 

1,214

 

 

3,329

 

 

15,186

 

Incentive Options

 

 

125

 

 

368

 

 

1,165

 

Class C Incentive Units

 

 

521

 

 

1,385

 

 

7,953

 

Other expense

 

 

 

 

 

 

 

Director Stock Grants

 

 

230

 

 

823

 

N/A

 

Total equity-based compensation expense

 

$

17,608

 

$

54,136

 

$

167,425

 

 

The Company recognized equity-based compensation expense of $18.1 million and $61.1 million for the three and nine months ended September 30, 2022, respectively.