Andersen Group Inc. 2026 Q2 Earnings Call

Please proceed. Thank you, Latonya, and welcome everyone, and thank you all for joining the Andersen call to discuss our second quarter earnings.

I'm Greg Vistica, Head of Investor Relations, and joining us today are Mark Vorsatz, our Chairman and CEO, Neal Livingston, Chief Financial Officer, Bill Deckelman, Chief Legal Officer. With that, Bill, I'll turn it over to you to read our disclaimer.

Okay. Thank you, Greg. Before we begin, please note that certain statements made on this call are forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks and uncertainties are described in our earnings release and SEC filings, including our 10-Q for our second quarter of 2026. Except as required by law, we undertake no obligation to update any forward-looking statements. We will also reference certain non-GAAP financial measures today. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and will be available on our website. Now, Mark, I will turn the call over to you.

Thanks, Bill. I'm going to cover three things. I'm going to talk briefly. I'll highlight an overview of the financial information that was already distributed. I'm going to comment on a few key financial factors that are probably not included in that information, but I think will be important to you in terms of evaluating our company. The third thing I'm going to talk about is our transactional strategy. I first want to thank our partners and our people. I think we had a very solid second quarter. I also want to thank our board for all the support that they've given and also those investors that have taken this journey with us, along with the analysts who have given me a lot of good personal input, for which I'm extremely appreciative.

We had indicated in the call we had on May that we gave guidance for the second quarter a 13% increase in revenue with a range of $190 million to $205 million. We came in at about $217.7 million, so that is an increase of 23.7%. Of particular relevance is our organic growth rate was about 20.5%. I have all of our financials for the last 24 years, and I went back and looked at each quarter, and I stopped at about years 7 or 8 earlier. This is the best second quarter we have had in terms of percentage growth, which considering the size that we are getting in terms of revenue, is particularly relevant. On the adjusted EBITDA side, we came in for the second quarter, a little under $46 million versus about $30 million for 2025.

We had increased about 54%. For the first half, our revenue was about $458 million, or an increase of over $74 million, which was 19.3%. Keep in mind, the inorganic revenue was really nominal in the second quarter, so most of that growth rate is just pure organic. Our adjusted EBITDA year to date is up over 41%. If you look at our margin and compare it June 30, 2026 to June 30, 2025, we are at 26.8% versus 22.6%. Keep in mind, we are still investing in Global Mobility and consulting, and so the margins would be much higher but for those investments. Several key statistics that I think are relevant if I were sitting on the other side of the call.

I mentioned Dan DePaoli has been working on our productivity. While the productivity growth has been modest year to date, it is at an increasing rate. For the first half of the year, our productivity has increased 3.9%. That may not sound like a lot, but what I had indicated before is if we add an hour a week based on our effective rate, that is about $40 million at the bottom line. Our rate per hour continues to be very strong. It has come in year-over-year at a 10.1% increase. We had a rate adjustment in July, so I would expect we may get some modest improvement on that in the second half of the year. I will talk about the client selectivity issue in a minute because I think that is a big factor in our growth of clients that is driving that number.

I indicated on the last call that the one statistic I am particularly focused on, and I mentioned that based on Accounting Today, on which they track about 60 tax firms, we have been number 1 last year in revenue per professional. Our revenue per professional through the first half of the year was up 16.4%. That is a very, very important statistic in how I view our business. On the client side, on a gross basis, we added over 1,300 clients, which was 10.6% increase. We had a modest net increase because we have had some clients where we have either completed work or we have had clients where we terminated the relationship because we did not view it as productive as we would like. On the attrition rate, because that may be an issue that you are focused on, Alexa LaBianca, I give her a shout-out.

She tracks all this stuff in HR. While our attrition is up a little bit, we have a rating system of one to five, with five being the highest, and we probably have a lousy curve because if you are below four, maybe you should not be working here. 70% of our attrition was at ratings of one to three. I view that as a positive, not a negative. Kelly Rath, who runs our recruiting group, has done a terrific job. We have a great recruiting team. The first half of this year, for 26 hires, we have had the best year we have ever had in 24 years with acceptance rate. Most of our candidates have multiple offers. We are not just competing with accounting firms, but we are competing with law firms. By way of example, in San Francisco, probably about 70%-75% of our hires are lawyers.

Our acceptance rate is tracking for 2026 starts at about 73%. When we were WTAS, we would run at about 36%. When we flipped to the Andersen brand, we were at about 65%. There is probably a lot of factors involved, but I think execution is a very important one. Certainly, being public and the brand, I think is also particularly relevant. The last topic I am going to touch on briefly, and then I am going to turn it over to Neal Livingston, is the transactions. I do not call these acquisitions because these are our partners. I have been involved in transactions for over 40 years, and I will tell you, I have done hundreds, if not a thousand transactions, and some of them very large. It has been my observation that the reason transactions do not work is not because of economics, it is because of culture.

Our whole process in identifying firms and in having the collaboration agreement, in working with those firms, and how we interact with the firms comes down to values. We want to be best in class. We want to make this a better place for the next generation. We think we can do those types of things and also reward our investors. That is a really, really important litmus test for us. I would say the acquisitions are taking longer than I would hope and a little longer than expected, and I will comment about what the economics of that will be. As you have seen now, because we had to disclose for financial purposes, we included two acquisitions that we did on Monday and Tuesday. We now have signed 16 transactions. Eight of those have closed. That represent over $130 million of revenue.

That based on our 2025 revenue, and I am sure the analysts will be all over this, would be about a 15.5% increase in our revenue over and above what the inorganic revenue will likely be for this year. We had originally planned that we would do about $55 million of inorganic revenue. One of the analysts had sent Greg a note, which he forwarded to me, and I thought we would address it on this call so we could deal it in a comprehensive fashion. We are going to come in far short of that, so it is likely that we will probably come in at somewhere around 25 to 30. It is not because of a lack of opportunity. It is because these transactions take longer than we would hope. We have added additional resources. We now have three full-time lawyers in-house working on the transactions.

Ed Prokop, who leads that group, spent 20 years at Sidley in Austin and was a partner, then 10 years as a partner at Winston & Strawn. We have added now two more people in the finance side. We have four full-time people on finance. We are supplementing that with our skills internally because we have about 60 people in the U.S. in M&A. We have deep skills in cross-border taxation. There are requirements for us to go through from a regulatory standpoint, which sometimes takes the deals a little bit longer. As we do deals in each country, we are building a prototype, and I hope in the future those deals will go a little bit faster. We are not changing our guidance at $980 million to $1 billion of revenue because I think that our organic performance will continue to be much higher than we had originally anticipated.