Earnings Call Transcript - RYAN Q3 2021

Operator, Operator

Greetings and welcome to the Ryan Specialty Group Third Quarter 2021 Earnings Call. Please note that this conference is being recorded.

Noah Angeletti, Host

Thank you, operator. Good afternoon, and welcome to Ryan Specialty Group Holdings Third Quarter 2021 Earnings Call. This afternoon, the company released its financial results for the quarter ended September 30, 2021. The earnings release is available on the Investors section of the company's website at ryansg.com. I would like to remind everyone that certain statements made during this call are not based on historical information and may constitute forward-looking statements. Any statements that refer to projections, forecasts or other characterizations of future plans, events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. I refer you to the company's filings made with the SEC for a more detailed discussion of the risk factors that could cause actual results, levels of activity, performance or achievements to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that may be made during the course of this call, except as required by law. Additionally, certain non-GAAP financial measures will be discussed on this call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in our earnings release, which is available on the Investors section of the company's website at ryansg.com. With that, I'd now like to turn the call over to the Founder, Chairman and Chief Executive Officer of Ryan Specialty Group, Pat Ryan.

Patrick Ryan, CEO

Good afternoon, everyone. Thank you for joining us on our third quarter 2021 earnings conference call. On today's call, I will provide a brief overview of the quarter and our differentiated business model. Our President, Tim Turner, will then give an update on each of our 3 specialties. And finally, our CFO, Jeremiah Bickham, will walk you through the details of the quarter, and then we'll open it up for Q&A. We had an excellent quarter, which was our first quarter as a public company and a testament to our great team. We executed well on all facets of our business and grew our top line by nearly 50%. The majority of that growth was accomplished organically. This type of organic growth rate is seldom seen in the industry and is clear evidence of the differentiated value that the Ryan Specialty platform provides to its new and existing clients. Our team continues to demonstrate its talent and expertise to deliver critical solutions to our trading partners in placing these complex risks. It's vital to be a subject matter expert and to specialize in the product, the industry or both. And for us, that expertise is evident in our wholesale and our delegated underwriting authority specialties. We also continue to grow our bottom line, leading to another quarter of strong adjusted EBITDAC and expanding margins compared to the prior year period. We have a firm handle on our business. We continue to be the destination of choice with the best talent in our industry. And we are in a prime position to sustainably grow Ryan Specialty at an impressive pace for years to come. As we near the end of 2021, we continue to see strong trends in our industry. The $65-plus billion E&S market continues to expand faster than the admitted market as the complexity of risks continues to grow. This requires experience and knowledgeable producers and underwriters to guide clients with innovative and customized solutions. That's our power rally. Innovation is in our DNA. It provides us with a long-term opportunity to grow both sustainably and profitably. Pricing in the E&S market remains firm and resilient. And as a reminder, our model is built to outperform in any pricing environment. Retail broker panels and delegated underwriting authority remain fragmented to a very large extent, and a significant amount of consolidation has yet to occur. This will lead to a continued movement by retailers towards a singular solution for the E&S needs, which we are well positioned to serve. And our pipeline for M&A remains robust, and we continue to have productive conversations with potential targets to add to our platform. We will remain very active but disciplined with respect to M&A, and we'll execute only when the opportunity is right. Our independent, full-service model, scaled distribution platform and deep bench of experts gives us a clear advantage compared to our competition. We believe we have the most comprehensive product access, underwriting knowledge and extensive distribution network for both retail insurance brokers and carriers. This has enabled us to become a preferred and trusted partner. We're 97th of the top 100 retail insurance brokers in the country. Notably, we continue to prioritize our recruitment, development and retention of the top talent in the industry. We constantly recruit the most talented individuals to join Ryan Specialty, empower them to contribute diverse perspectives and thought leadership and enable them to become an integral part of our winning culture. As a result, they have incredible opportunities to succeed and are very well rewarded for their contributions. Looking ahead, our growth plans remain firmly intact, and we are well positioned to execute on them. As I noted on our prior call, we will continue to methodically invest in our growth and ensure Ryan Specialty remains a destination of choice for the industry's top-tier talent. We will continue to lead with innovation to meet the ever-changing needs of the market. We will continue to expand and deepen our relationships with our current clients as well as continue to win new clients. We will further enhance our future organic growth capabilities by executing strategically and prudently on M&A. In summary, I'm very proud of our team's tremendous efforts in the third quarter. Our dedication, empowered by our winning culture, has clearly contributed to our positive performance results. They continue to validate our business model and our value proposition to our trading partners. I remain very excited for the future growth of our company and our ability to continue to deliver long-term value for our shareholders. With that now, I'm very pleased to turn the call over to our President, Tim Turner. Tim?

Timothy Turner, President

Thank you very much, Pat. As Pat highlighted, we had an outstanding quarter, and our success was broad-based across our 3 specialties. Our Wholesale Brokerage specialty is where we distribute a wide range and diversified mix of specialty insurance products and solutions from insurance carriers to retail brokerage firms. We experienced solid growth across property and casualty lines and especially in professional liability lines of business. This growth was driven by our continued strong performance in this prolonged hard market, combined with an increasing flow of business into the E&S channel. At our Binding Authority specialty, we continue to see strong growth within our small commercial lines of business. In addition, on our prior call, we noted the tremendous opportunity to address the highly fragmented delegated authority market where both M&A and panel consolidation are in their very early stages. For decades, companies that delegated binding authority did so on a state-by-state or geographical basis, which created thousands of binding authorities all over the country. This is a very inefficient model for retail brokers. Now that we can much more easily accumulate and analyze data, that inefficiency has become more evident than ever, and we view the consolidation of these fragmented binding authorities and intermediaries as inevitable. With the addition of All Risks last year, we now have a more robust infrastructure and an enhanced talent base for delegated underwriting authority firmly in place. Now we just need to continue to execute just as we've done every day. If we do what we do best, recruit and empower talent, train young professionals and make prudent strategic acquisitions, we believe we'll be on pace to build the first truly 50-state Binding Authority operation. It's an exciting time in our industry, and we are well prepared for it. Our Underwriting Management specialty also produced another excellent quarter led by our property and casualty lines as well as our transactional liability and national programs all performing exceptionally well. I would also be remiss if I did not congratulate Miles Wuller on his promotion to Chief Executive Officer of our Underwriting Management specialty. Miles has been with Ryan Specialty from the beginning and was the natural choice to succeed Tom. Miles was already the President of Underwriting Management, intimately familiar with the business and has hit the ground running in his expanded role leading the specialty. As Pat mentioned, the environment for M&A remains highly competitive, particularly with respect to Underwriting Management. As we have always done, we will remain disciplined in our approach to M&A in each of these specialties. We're able to do this because of our tried and true positioning and strategy of successfully recruiting and retaining talent, as evidenced by our industry-leading producer retention figures. This has enabled us to firewall the trends of talent migration we're seeing in the industry and allows us to continue adding new specialized talent to our managing underwriting specialty, along with developing our current roster, in order to continue growing the business. We also continue to make steady progress at developing our new employee benefit specialty, which will be focusing on wholesale benefits brokerage and managing general underwriting capabilities to serve the needs of retail brokers. Pat and I are very pleased with the breadth of opportunities that are coming to market. Speaking of opportunities, our pipeline for M&A remains deep, as Pat noted, and we will continue to make disciplined investment decisions where we see clear opportunities to partner with successful specialty firms that are aligned with our goals, culture, values and expectations for organic growth. We were all very focused on the IPO in H1. And with it behind us, our M&A program is back in full focus. To put a point on it, today's acquisition is tomorrow's organic growth, and we hope to be back to you soon with more updates. In terms of the E&S market, pricing remains robust. While we are seeing rate deceleration in a couple of lines such as excess casualty, we also see hardening and price acceleration in other lines, most notably cyber. But as we've noted, we see the increasing flow of business into the E&S channel and the continued expansion of the non-admitted market as the more significant driver of Ryan Specialty's growth. With these tailwinds, we're going to press our competitive advantages to continue to grow our business.

Jeremiah Bickham, CFO

Thank you, Tim. In Q3, we grew total revenue nearly 50% year-over-year to $353 million. Our strong top line increase was driven by organic revenue growth of 28.9% for the quarter and contributions from the All Risks acquisition for the months of July and August. As a reminder, All Risks became part of our organic revenue growth calculation beginning in September of this year. Our exceptional organic revenue growth is attributable to a combination of new client wins and expanding relationships with existing clients. Also picking up on Tim's comments from a moment ago, as more risks flow into the E&S channel, our total addressable market expands, which provides additional opportunities for organic growth. Our revenue growth was further enhanced by multiple classes of risks, realizing year-over-year premium rate increases, which drives increases in commission revenue since it's generally calculated as a percentage of total premium. Total operating expenses for the third quarter were $353 million, a 68% increase year-over-year. A large driver of this increase was compensation and benefits expense, which grew 76% from the prior year period to $287 million in total. Now we expected this large increase in compensation expense for several reasons: first, compensation and benefits expense are heavily correlated to revenue growth as many of our producers are compensated based on a percentage of the revenue that they generate. Second, we incurred IPO-related compensation expense of $58 million in Q3. Now this number reflects multiple IPO-related events, including one-time payments made at the IPO, expense related to the revaluation of our pre-IPO equity awards, which includes additional expense recognized day 1, plus the first quarter of new expense related to those pre-IPO revalued awards. And it also includes the first period of expense related to new one-time IPO equity awards. And all of these, of course, were discussed in detail in our filings with the SEC at the time of the IPO. I should note also that the revaluation of the pre-IPO equity grant is a function of the fact that technically, there was an exchange of the old awards for new awards as part of the IPO. And as a reminder, these awards, along with all IPO-related employee equity grants, are included in our presentation of adjusted diluted earnings per share. We expect IPO-related compensation expense will decline by over 50% in Q4 relative to Q3 and then will continue to decline in future quarters as the equity awards are subject to a graded vesting schedule within our financial statements. And in the spirit of transparency, we've separated IPO-related compensation from our normal course equity-based compensation in the walk to adjusted EBITDAC. And finally, this quarter, we saw a large increase in acquisition-related long-term incentive compensation, which is primarily due to the All Risks acquisition. And as we've stated before, we think of these as earnouts and that they are non-operating in nature. Now despite the overall increase in our compensation and benefits expense, our adjusted compensation and benefits expense ratio improved 260 basis points to 60.3% for the quarter, highlighting the scalability of our platform. Our G&A expense was up $7 million or 24% period-over-period due to an increase in travel and entertainment costs to support revenue expansion and new costs related to being a public company as well as costs associated with the All Risks business. This increase was partially offset by a decrease in acquisition-related expenses compared to the prior year period. Now we expect both T&E and public company costs will continue to rise over the next several quarters as T&E normalizes to something closer to the pre-COVID levels as our public company costs roll into our results over the next 3 quarters. We note that adjusted EBITDAC for the quarter grew 56% year-over-year to $105 million, and our adjusted EBITDAC margin rose 140 basis points to 29.8% for the quarter. Primary drivers of this margin increase include our revenue growth leading to scale in adjusted compensation and benefits as well as continued realization of cost savings from our restructuring plan, which we initiated in 2020. As noted previously, when fully implemented by June 30, 2022, we expect to achieve $25 million in cumulative annualized savings from this plan. As we think about adjusted EBITDAC margin in Q4 and for 2022, it bears repeating that we still expect a more normalized pre-pandemic level of T&E expense as the world returns to a broader level of in-person meetings and events. We will also have a full year of public company costs in 2022 and will, as always, continue to invest in the long-term growth of our business, including the onboarding of additional talent. Over the medium and long term, we expect that our significant growth will yield sustainable operating leverage. GAAP net loss for Q3 2021 was $33 million and was primarily attributable to the $58 million of one-time IPO-related charges that I mentioned just moments ago. This quarter is our first quarter reporting EPS, and both basic and diluted loss per share were negative $0.16 for the period. Adjusted net income for the quarter, which excludes IPO and other unusual expenses, increased 51% year-over-year to $62.9 million. Adjusted net income margin was 17.8%, a 20 basis point year-over-year improvement, reflecting operating leverage as revenue growth outpaced our growth in operating expenses. We reported adjusted diluted earnings per share of $0.24 for the quarter and believe this metric provides a more comparable period-over-period measure for our operating performance. Please refer to the earnings release and our 10-Q where we further discuss the components of our adjusted diluted EPS. Given our strong Q3 results, we are raising our full year 2021 outlook for organic revenue growth and adjusted EBITDAC margin as follows: our organic revenue growth rate for the full year 2021 is now expected to be between 21.5% and 22.5%, which is above our previous guidance of 18% to 20%. As a reminder, with All Risks now part of our organic growth calculation, our organic growth comps will be more challenging going forward given the higher revenue base. Adjusted EBITDAC margin for the full year 2021 is now forecasted to be between 31.5% and 32.0%. And this is up from our prior guidance of 30.0% to 30.5%. With that, we thank you for your time and would now like to open up the call for Q&A.

Operator, Operator

First question comes from Michael Zaremski with Wolfe Research.

Michael Zaremski, Analyst

I guess the first question, which is a good issue to have, is that organic growth continues to be incredible. I know you provided a lot of details in your prepared remarks, but I'm trying to understand if there are specific drivers we should consider more closely. Or is the overall E&S market expanding more than we might realize? Perhaps there are areas like cyber or certain property markets in specific states that deserve more attention? It seems like your win rate compared to the industry or the E&S market has been improving in recent quarters.

Patrick Ryan, CEO

Now that is a great way to ask that question because we anticipated the question, obviously, but I like the way you asked it, Mike, because there are a lot of nuances. And so I'd like to ask Tim to answer the part about the areas of focus that are really expanding more rapidly than originally expected and are remaining very strong.

Timothy Turner, President

Happy to. Thanks, Mike. The market, as we know, continues to expand in the non-admitted P&C market in North America. We get monthly stamping results from WSIA and all point to increase in non-admitted surplus lines business, more dumping and shedding from the standard companies here in the U.S. But inside that market, we have these niche-firming phenomenons that we've referred to several times. And some of those are really emerging today and driving a lot of this growth where we're very well positioned. Health care would be an example of that; construction; cyber very, very accelerated firming in the cyber market. Transportation continues to be a challenge in the U.S. And we're very well positioned in each of these specialties. We're deep in broking talent and deep in underwriting talent and very well prepared to absorb the new flow but to try and get market share at the same time. So very dynamic marketplace that we're in, and we're battling the very best E&S brokers and underwriters every day for that market share.

Patrick Ryan, CEO

I want to emphasize that the way you framed your question allows us to highlight our two specialties: wholesale broking and delegated authority, including underwriting, administration, and distribution. While these areas share some similarities, they also have their distinct differences. In our wholesale market, 71% is focused on the excess and surplus (E&S) market, with the remaining portion consisting of workers' compensation and auto, which must be included in the market by law. In our delegated authority managing underwriting, our Binding Authority business is primarily in the E&S market except for workers' comp and auto, as we don't handle much comp in binding. There is also an aspect of delegated authority that caters to admitted products due to the distribution of those lines. For instance, mergers and acquisitions, and representations and warranties predominantly exist in admitted markets. Currently, the E&S market is experiencing more growth due to favorable market conditions, although traditionally it has been largely admitted. In the delegated authority business, we prioritize our duty of care differently than in wholesale broking. In wholesale, our obligation is to our retail broker, while in managing underwriting, our primary responsibility lies with the capital provider, who entrusts us with their resources and expects us to generate underwriting profits. We take this commitment seriously. In the wholesale business, brokers strive to secure the best terms to meet the needs of our retail brokers and their clients. In our successful delegated authority segment, we have new leadership, including CEO Miles Wuller and Chair Nick Cortezi, supported by Chief Underwriting Officer Kieran Dempsey and an excellent team. They must remain focused on delivering profits to the capital providers, as maintaining that relationship is crucial for sustaining the business. If we're not producing profits, the providers may reconsider their willingness or change underwriters. It's essential to pay attention to these distinctions.

Michael Zaremski, Analyst

I appreciate the insights, and there's a lot for us to explore. I have a quick follow-up, probably for Jeremiah. I know people will likely focus on margins during the Q&A, but I noticed that free cash flow conversion hasn't improved as much in terms of percentage of revenues. Is that something your team is concentrating on? Also, is the fourth quarter still generally a weaker quarter for free cash flow?

Jeremiah Bickham, CFO

Mike, when you mention that the cash flow wasn't quite up to expectation, are you referring to cash flow from operations after deducting CapEx, as is traditionally done?

Michael Zaremski, Analyst

I'm currently reviewing our model and calculating free cash flow before a couple of items divided by revenue. I can provide you with the specific statistic later. There isn't a clear consensus on free cash flow figures, but it does seem to be weaker than we anticipated. There are complexities in this quarter, so perhaps I could ask it another way: do you believe free cash flow came in lower than what you expected, or is it operating effectively with some nuances, and has there been no significant change since what you communicated during the IPO regarding how to interpret these figures?

Jeremiah Bickham, CFO

So Mike, when you consider our adjusted free cash flow, excluding items like the IPO and our usual nonrecurring adjustments, we are very much on track and nothing appears unusual. Sometimes, people misinterpret conventional free cash flow calculations by looking at cash from operations and subtracting CapEx. It's important to note that we inherited these earnout payments as liabilities with the All Risks acquisition. As we reduce these payments—having paid down $30 million to $31 million of those long-term incentive plans—we view them as earnouts in Q3, which affects operating cash flow and is really more akin to investing cash flow. That adjustment alone likely brings a lot of normality to your calculations, I would assume.

Operator, Operator

Next question, Adam Klauber with William Blair.

Adam Klauber, Analyst

There's a significant amount of disruption happening in the property markets due to weather events. Can you discuss how you're addressing the demand in the Underwriting Management area, particularly in wholesale? Specifically, how are you assisting clients in adapting to this disruption in Underwriting Management?

Patrick Ryan, CEO

I’ll begin by addressing that question and then hand it over to Tim. We have been working hard throughout the year to increase our capital in those facilities, and we are seeing considerable success. You’ve highlighted an important point, Adam, as many are scaling back their support for property cat. However, in preparation for that, I believe our team has performed well. We have been focused on finding replacements for that. Now, Tim, could you elaborate on this?

Timothy Turner, President

Sure, Pat. Adam, great question. There's no doubt about the property market continuing to firm. It was already very firm, but these storms, like the Texas freeze and Ida, aspects of those storms were poorly modeled by many carriers. And so we see a constriction in the marketplace, more dumping and shedding from the standard markets, and we're ready for it. We're geared up for it. We have lots of very top-rated property brokers across the country. We're loaded up in the hubs. We can take a huge influx of property business coming into the channel. And as Pat mentioned, we've been building out our proprietary MGUs and underwriting platforms in cat property. So we're ready for it. We believe the first quarter heavy-buying season will increase the flow into our channel exponentially. So we're excited about it. We think we can bring even more value to our retail customers.

Adam Klauber, Analyst

It seems like you're in a great position right now. Could you provide us with an estimate of the capacity you have in place? Additionally, do you anticipate being able to expand that capacity, considering there may be significant demand next year? Any additional insights you can share would be appreciated.

Patrick Ryan, CEO

I will begin, and then I'll hand it over to Tim. A few years ago, as London was reducing its activity, a significant portion of our business, especially in delegated authority, was redirected into London. We have since replaced that with capital from Europe, the U.S., and Bermuda, and to a lesser extent, Asia. This has been a lengthy process, as you know, taking over two years, during which we dedicated a substantial amount of time throughout 2021. What Tim was referencing is our confidence in being able to better assist our clients during the buying season in the first quarter, particularly as their needs are increasing and the available capital is transitioning.

Timothy Turner, President

Just in addition to that, Adam, we have a myriad of platforms and facilities and cat property. So the largest MGU gem and true doubled their capacity over the last 12 months, so very, very well prepared and a deep, deep arsenal in our top MGU. But it's beyond that. We have multiple programs, property programs, cat programs embedded in the RT offices around the country. And of course, we have programs that we picked up from the All Risks acquisition that are very helpful as this market gets tougher in property. So it's a combination of those efforts, all led by a top fleet of property brokers across the country that do the battling upfront and get control of these marketing exercises. So we're very, very excited and think we can be an industry leader in capturing this new flow that's anticipated in the channel.

Operator, Operator

Next question, Tracy Benguigui with Barclays.

Tracy Dolin-Benguigui, Analyst

Just a quick question on your updated guidance on organic revenue. I know you don't provide quarter-by-quarter guidance, but we could all calculate the implied 4Q being sequentially down. And I understand on a seasonality perspective, 1Q, 3Q are seasonally low on revenue, but 2Q and 4Q are seasonally higher. So maybe you could just help me understand what's behind the prudence of your implied 4Q organic revenue since you sound so upbeat about your business conditions.

Jeremiah Bickham, CFO

Definitely. So your math is correct, Tracy. The guidance does imply organic revenue growth for Q4 that's lower than Q2 and Q3. You probably got to the same math, mid-teens, which I'll explain in a minute, but I hope we all agree that in isolation, that's still a fantastic quarter in terms of organic revenue growth. But I know the heart of your question is it's different, and the answer is no. So our Q4 organic guidance does not represent a slowdown in flow or a significant change in market conditions, as you probably picked up from Tim and Pat's comments. So just to help break it down where we're coming from, so our Q4 last year was enormous, partially because of pent-up COVID demand, and Pat touched on that a little bit. But a good example of what we experienced in Q4 of 2020 was our 2 transactional liability MGUs had record quarters in Q4 of last year. And looking at Q4 this year, I mean, M&A is hard enough to forecast, and they're definitely not forecasting back-to-back record-breaking Q4s. And also, and this will be possibly thematic for us for a little while, the growth rate of 2 successive quarters doesn't necessarily imply a trend. So for example, our organic growth rate in Q1 this year was only 18%, but that was lower than our organic growth rate in Q4 of last year, which is 22%. But clearly, it would have been a mistake to extrapolate that because we've been 20-plus for the last 2 quarters. And in general, you mentioned prudence, Tracy. Look, clearly, our business is capable of growth rates much higher than mid-teens. And when the opportunity presents itself, we'll grab it. But those opportunities are often hard to predict. And you're right, it wouldn't be prudent of us to put that in the forecast. And so because our business is seasonal, because prior year comps are always a factor, we advise actually looking at growth trends on an annual basis, and that's why we give annual guidance versus quarterly guidance. And so to put it all together, we grew 20% organically on a full-year basis in 2020, and we're on pace to exceed that exceptional annual growth rate in 2021 by potentially several hundred basis points, and we're really excited about that.

Tracy Dolin-Benguigui, Analyst

Okay. Excellent. And then I also want to touch on delegated underwriting authority. You mentioned that you're constructive, you could be the first 50-state player. Can you just remind us how many states you're in now to better assess how transformative that may be?

Timothy Turner, President

The Binding Authority encompasses a broad array of products and appointments. When we mention a 50-state platform, it refers to multiline offerings, including auto, property and casualty, and package policies. Numerous carriers in the Binding Authority sector grant us authority in a more unified 50-state manner, a shift from the historical state-by-state approach. We have consolidated this platform and continue to acquire these 50-state appointments. Currently, we have sufficient products across all 50 states to engage with the top 100 retail clients, aiming to participate in the consolidation of fragmented intermediaries. Ensuring we have ample product availability has been integral to this 50-state initiative. Historically, carriers needed to adapt to this repositioning, with leading companies like Scottsdale, Nationwide, and AIG transitioning to these 50-state distribution models. Overall, this culmination has positioned us strongly with our clients. Being licensed in all 50 states is crucial, and we now have extensive depth and breadth with underwriters in each state.

Operator, Operator

Next question, Elyse Greenspan with Wells Fargo.

Elyse Greenspan, Analyst

My first question, you guys also seem pretty positive just on the M&A outlook. I think you used the words like you hope to be back soon with more updates. Can you just give us a sense of what the pipeline looks like in terms of just size of deals and which part of your businesses you think you might be the most active when it comes to M&A?

Patrick Ryan, CEO

Sure. The pipeline is strong, and we're at various stages of development with several promising opportunities similar to our past endeavors. There are a few smaller initiatives, but they're strategically important as they involve one of our major retail clients, which will strengthen our overall relationship. We have also launched a new vertical focused on benefits, and discussions are ongoing. While we are optimistic, it's challenging to predict when these will turn into binding agreements. Generally, we announce once a binding agreement is finalized, though it may sometimes occur earlier. These are currently in progress, and there is no guarantee of outcomes. Some potential deals could be larger, especially in wholesale at this stage of discussions. Overall, we are quite positive about maintaining our historical record of M&A activities. We believe our growth and success, alongside the IPO, have enhanced our brand, leading to increased interest from sellers. They often engage a banker, or we assist them in finding one to ensure they receive proper advice. We feel very confident about our position in M&A activities.

Timothy Turner, President

And Elyse, just for the sake of clarity, when Pat references a binding agreement, we are talking about a definitive purchase agreement, not an LOI. I know some people will report on LOIs. That's not our plan.

Elyse Greenspan, Analyst

Okay. That's helpful. And then my second question. You guys continue to show a pretty robust margin improvement. I know, Jeremiah, you mentioned some of that is COVID, which you don't expect to continue. But I imagine that some of that is also just better leverage given stronger revenue growth. So as we think about 2022, has the kind of margin base been lifted? I know you guys have kind of spoken about targeting a margin within the vicinity of 30. Has the strong revenue growth perhaps opted out margin somewhat?

Jeremiah Bickham, CFO

So you've got a good memory, Elyse. So aside from our commitment to continually invest in our business, there will be 2 impactful themes for next year in terms of margin, and that's returning to, god-willing, a normal T&E environment and the annualization of our public company costs. It's a correct observation that the outsized growth these quarters has yielded operating leverage, and we think that we can retain some of that. But we're going to be as helpful and transparent as we can when we release guidance for 2022 next spring when we put out our audit because you will see an impact of T&E coming back to normal and us having a full year of public company costs.

Operator, Operator

Next question, Alex Scott with Goldman Sachs.

Alex Scott, Analyst

First one I had to you is just the infrastructure bill. I was just interested if you could help us think through the impact of that bill and potential opportunities for growth that you'll see out of that.

Patrick Ryan, CEO

Sure. We hope a lot of that infrastructure bill gets spent in terms of construction because we all know, the country needs a lot of investment in infrastructure. It's hard to predict how the politicians will roll out that bill and where the money will get allocated early and then later. We hope that they're alert to investing. And you'll recall backing away, pulling on a shovel-ready. We hope we don't have a repeat shovel-ready and that there's really a serious construction investment, bridges, tunnels, airports, lots of private investment. We expect that really, but there's no way of knowing. But because of the scale of it, it ought to be a material impact on areas of business that we focus in on. We have a very strong construction practice, and we have a lot of infrastructure capability. So they're saying they're going to invest in one of our sweet spots. We just hope that they do it quickly.

Alex Scott, Analyst

And I guess, follow-up I had was on the All Risks transaction. And just as that starts to come into organic growth in a more full way, I guess, starting next quarter, is there anything we should be thinking about in terms of the way that business is growing versus the existing business and sort of thinking through what that could look like over the next few quarters?

Patrick Ryan, CEO

Yes. I will begin and then hand it over to Jeremiah. There is typically a period after an acquisition where there may be some loss of business that we consider when determining the purchase price. That consideration has already taken place. The positive aspect is that All Risks, due to their exceptional talent and strong franchises, has not needed an extensive adjustment period after the acquisition. There hasn't been any informal gatherings among the staff, which is a good sign. The new team members have integrated exceptionally well. Now, as we enter the fourth quarter, they are performing at their best. There is minimal difference between our RT wholesale and legacy business and All Risks. Everything we anticipated has happened, and the adjustment period was much shorter than what is typical for most transactions. They integrated quickly, both emotionally and physically. We are very satisfied with the initial outcomes, and as you know, we are now moving into our second year.

Operator, Operator

Next question, Meyer Shields with KBW.

Meyer Shields, Analyst

Two quick questions. First is, I think, a follow-up on Elyse's. When you've got a quarter like this one where it's almost impossible to maintain investments at the same pace as organic growth, does that imply a catch-up in investments that we should factor into future quarters' margins?

Patrick Ryan, CEO

I'd like to start with that, and I'll let Tim take over. One of the things Tim has done effectively is influence the managing underwriters to anticipate growth and hire in advance. You've heard us mention before that this business is not just about quality but also about quantity. You need enough people to serve your clients. Tim recognized the market shift back in 2019 and encouraged the teams to hire extensively, which they did. There hasn't been a sudden spike in hiring; instead, there's been a consistent and significant increase in staff. We believe we are well prepared, so Tim, please continue from here.

Timothy Turner, President

Sure. Thanks, Pat. Meyer, right from the get-go in 2010, part of our culture was this commitment to constantly be recruiting, constantly training and developing. So it's a part of our daily life. Not a day goes by that we're not trying to recruit a broker or an underwriting specialist. There's days where we bring a half a dozen new people on at a time. So it's constant, aggressively recruiting and developing talent. And that's worked really well for us. We've got great metrics. We've got a great management team that helps us manage and balance those expenses. But we do very well, if I might say so myself, in terms of anticipating this growth and these surges of flow into the channel. And so as Pat mentioned, in the first and second quarter of '19, we saw the market firming. We saw the percentage of not have been in business don't being into the channel. But more specifically, we saw it by class. We saw it by region, and we were able to accelerate and add people to capture as much of that business as we could. So we'll continue to do that. We have lots of opportunities. As Pat mentioned, we're more attractive now to the talent in the industry. Going public has made us even more attractive. And so aspects of that recruiting are getting a little easier. And we'll continue to bring in the most talented brokers and underwriters in the country.

Meyer Shields, Analyst

Okay. That was very helpful. Second question, same sort of concept. When you've got organic growth coming in so significantly ahead of guidance, are there any catch-up incentive compensation expenses? Obviously, the overall ratio went down, but wondering whether there are any timing issues related to a look back at the first or second quarter of this year.

Jeremiah Bickham, CFO

Any compensation, which we refer to as gearing, varies by terminology. When individuals exceed their baseline bonus due to outperformance, and we have seen some outperformance this year, that is reflected in the full-year guidance we are providing.

Operator, Operator

Your final question comes from Weston Bloomer with UBS.

Weston Bloomer, Analyst

My first question is a follow-up on Alex's inquiry regarding All Risks. If I calculate the numbers, it seems that business has experienced growth in the high single digits. This growth appears to be inorganic. Can we consider a level of organic growth for that business in the long term? Or am I misunderstanding this and should focus more on the potential synergies it could create across various business lines? I believe it may be experiencing a slower growth rate at the moment.

Timothy Turner, President

Pat gave some good context on All Risks specifically and then just sort of what the first 12 months are often like for a new acquisition, but we're excited about welcoming them into our organic growth calculation. I mean when you add several hundred million of revenue to the base, it makes comps tougher. But remember, All Risks, one of the reasons they were the crown jewel of wholesale acquisitions is because they had a very, very strong organic growth engine of themselves. They were consistent double-digit growers before we bought them. And generally, when we buy companies, we enhance their growth opportunities, not the opposite. So we're not expecting All Risks to be a drag at all.

Patrick Ryan, CEO

Not a drag right now at all.

Timothy Turner, President

Exactly. Yes.

Weston Bloomer, Analyst

Got it. Second question, just a follow-up on the new hires commentary. Is there a time period where the new producers or either from M&A or just as you make new hires like are a positive benefit to margin? And how should we think about that over the next year or 2?

Jeremiah Bickham, CFO

Well, each hire is a little bit different from the next, but we pride ourselves in accelerating their ability to be accretive. And we have models to look at that and analyze it, but they come in different shapes and sizes, different state regulations that restrict us in terms of moving business. So we look at each one of those separately. But the key is to accelerate the accretive impact of these producers and underwriters as quick as possible. And we've done that consistently, and we plan to continue to do that.

Operator, Operator

I would like to turn the floor over to Pat for closing remarks.

Patrick Ryan, CEO

Okay. Well, thank you for the great questions. And we're very confident of our future. We feel really grateful for you following our business and your interest in joining us and investing with us, and look forward to speaking with you again when we will be discussing our year-end results for 2021. The year has gone very quickly. Thanks for your interest and your good questions. Have a good evening.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.