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Please note this conference is being recorded. I would now like to turn the conference over to Greg Vistica, Managing Director, Investor Relations. 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-$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 seven or eight 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 one 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, 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 25-30. 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 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-$1 billion of revenue because I think that our organic performance will continue to be much higher than we had originally anticipated.

I would say we also had a strong July. The third quarter is our biggest quarter because September is our busiest month in revenue, and August is our second busiest month. I actually view this as a positive. We are being deliberative, we are being measured, we are being disciplined about these transactions. We are going to do this right. We are not going to do it fast. We have quite a pipeline. Last year, every other year, we do a global partner meeting, which we had one in November in Las Vegas. This year, there are regional partner meetings. So we have meetings in Singapore, in Athens, in Barcelona, in Atlanta, and in Cancun. I am bringing our deal team with me to Singapore, Athens, Barcelona, and Cancun. I would say our dance card is completely full with meetings with new groups that want to join.

We have quite the pipeline. I would say our biggest challenge right now is maintaining our discipline on doing this thoughtfully and correct. I believe we have enough existing deals where we have active conversations that at a pace of two to three a month, we have enough deals in process through the end of next year. So while there is a little bit of slippage in terms of timing of closing, and so the deals we just announced, we have now completed a little over $130 million of deals this year in terms of annualized revenue. Some of that revenue will slip into 2027, but our organic performance for 2026 is so strong that we will compensate for that differential. Those are generally positive things.

I always say, when Kelly Rath sends me a note and says that we had a 73% acceptance rate, much like how I deal with my children, who are both adults, I say, "What happened to the other 27%?" So we obviously have areas for improvement. We still have areas for improvement in pricing. We have significant areas of improvement from productivity. Even though we have added gross client increase of 10%, I think we could do a much better job in that area. We had an internal board, our U.S. board, call yesterday, where we spent a fair amount of time talking about how we can do a better job on business development, and we are going to have a call on Sunday to talk through that in greater terms. We are starting to see some continued modest improvement in integration, but we are just scratching the surface.

Now, the way I look at it is, at 20% organic growth, better than 20% organic growth for the second quarter, and as my partners know, I'm never happy. I look at this and say, "The glass is half full, but it's half empty. Let's focus on how we can fill up the rest of the glass." I'm very confident that we're going to continue to execute, and we're going to do an even better job going forward. That's my overview. I'm going to turn it over to Neal.

Hey, Mark. Thanks very much, and good afternoon, everyone. Thanks for joining us today. Obviously, we appreciate the ongoing interest in Andersen. Our third earnings call as a public company, I'm going to cover our aspect of a financial performance that Mark has not already covered. Let me just start back with revenue. To reiterate the top-line numbers for the quarter, for the second quarter, revenue of $217.7 million. That equates to a $41.7 million or 23.7% increase year-over-year. Included in that is $5.5 million of revenue from acquisitions that were closed during the second quarter. If you take those out, excluding acquisitions, organic revenue increased 20.6% year-over-year for the quarter. That result exceeds the midpoint of the second quarter revenue guidance previously provided by around 10%, equating, we think, to a solid top-line beat for the quarter.

We've provided first half information as well. Mark's mentioned the revenue for first half, which was up 19.4% or 17.9% on an organic-only basis. Going forward, and you'll note in the 10-Q, we are now including last 12 months in financial information in the MD&A section of our quarterly reports. This is intentional to provide additional insight on the annualized performance of the business, excluding some of the seasonal effects that Mark mentioned, driven by U.S. tax filing deadlines. Looking at the last 12 months ended June 30, 2026, our revenue was $913 million. That equates to a year-over-year increase of $176 million or 18%. Again, taking out the inorganic piece of that on an organic-only basis, that equates to a revenue increase of 17.2%. Solid top-line momentum.

Breaking that revenue down, the growth in the second quarter was underpinned by solid growth across all of our service lines and U.S. regions. We had no large non-recurring items of revenue for the second quarter. Specifically, I'd call out business tax services, which reported strong growth of 36.9% for the quarter and accounted for 39.2% of revenues. Our largest service line, private client services, also reported solid growth of approximately 17% for the quarter. Mark mentioned it, but we are seeing positive momentum in consulting and mobility whilst continuing to invest. The revenue from those service lines is up on a year-over-year basis. Mark mentioned some of the underlying drivers that contributed to that growth. I will add one, which is increase in volume, up 5% as measured by chargeable hours for the first half of 2026.

Alongside the pricing increase and the productivity increases that Mark already mentioned, a nicely balanced picture in terms of underlying revenue drivers. We also added headcount for the quarter, albeit at a more moderate pace compared to prior periods on a net basis. Just a reminder that as part of our 2026 pricing strategy, we introduced a 3% tax surcharge, we discussed that previously, for client contracts that were signed from the second quarter of 2026. This has obviously contributed to the year-over-year revenue increase, and is over and above the rate increase that Mark mentioned previously. Overall, the picture is one of revenue growth that is well diversified across practice lines, U.S. regions, and by driver. Turning to net income for the second quarter, we recorded a net loss on a GAAP basis of $10.1 million.

That compares to a net loss of $96 million for the second quarter of 2025. Earnings per share for the second quarter was -$0.08 per share basic and -$0.09 per share on a diluted basis. That is also in line with previous guidance, where we indicated a net loss and negative earnings per share for the second quarter. For the first half of 2026, we recorded net income on a GAAP basis of $7.6 million. That compares to a net loss of $45.4 million for the same period of 2025. The smaller net loss in the second quarter and then the swing from a net loss to net income for the first half of 2026 is primarily attributable to combination of higher revenue and reduced equity-based compensation expense.

Turning back to non-GAAP measures, and I'll try not to repeat what Mark has already mentioned, but for the second quarter, we had adjusted net income of $39 million, with an adjusted net income margin of 17.9%. This compares to $28 million and 16% for the equivalent period in 2025. Our adjusted EBITDA was $45.9 million, an increase of approximately 55%, with an adjusted EBITDA margin of 21.1%. That compares to $29.7 million or 16.9% for the equivalent period in 2025. If you do the maths, you'll see that that is a margin increase for the quarter of approximately 420 basis points. Looking at the same numbers for the last 12 months, adjusted net income $240.6 million, with an adjusted net income margin of 28.8%, compared to $172.8 million and 23.2% for 2025. That's the adjusted net income.

Adjusted EBITDA was $262.9 million, about a 46% increase, with an adjusted EBITDA margin of 28.8%. That compares to $179.6 million and a 23.2% adjusted EBITDA margin for the same period in 2025. Once again, doing the margin expansion, the margin increase, that's an increase of 560 basis points for the last 12 months. Why is that? Lots of underlying reasons for that, but primarily what this does reflect is favorable operating leverage in our business, whereby if you look at our annualized revenue growth, it's consistently outpaced the growth in operating costs, excluding the non-cash equity restructuring cost and some of the stock-based compensation expense associated with the IPO and the vesting of Class X aggregator units. Costs have also improved in Q2 for similar reasons. Cost of services has reduced from 128% to 79.7% for the second quarter. SG&A decreased from 30.6% to 23.2%.

That is primarily related to equity-based compensation changes. Let me speak briefly to stock-based compensation, because that is an important part of our P&L. For the second quarter, stock-based compensation expense was $48.2 million, of which $42.3 million to be exact, or 88% was linked to the vesting of Class X aggregator units. For the first half, that stock-based compensation expense number was $93.9 million, of which $83.4 million or 89% was linked to the vesting of those Class X aggregate units. As a reminder, that expense item is a non-cash and non-dilutive expense with no cash flow or operational impact. I will briefly cover our balance sheet and cash flow, and also comment on the lock-up and tax receivable agreement, because we do get those questions from time to time.

As of the end of June 30, 2026, our cash and cash equivalents were $175.6 million, and investments in U.S. Treasury securities of $2.1 million. We had no third-party debt, and the company continues to maintain a conservative stance towards financial leverage. Our net working capital, which we are defining as current assets less current liabilities, was stable at $220 million as of the end of June, as compared to $216 million at the end of December 31, 2025. I will repeat what we have said previously in terms of our funding needs. Historically, we have generated sufficient cash flow or cash to meet our funding needs. We believe that the existing cash and cash equivalents, cash flow from operations, and the residual proceeds from the IPO will be sufficient to meet our foreseeable funding requirements.

On the lock-up and tax receivable agreement, as of June 30, 2026, we had not yet incurred any liability in connection with the tax receivable agreement. I just wanted to make sure that is clear. As a reminder, there are limits on the number of Class X units and the paired Class B shares that can be exchanged for Class A shares post expiration of the IPO lock-up in the middle of June. There is a 10% cap that is relevant to us in aggregate. We wanted to make sure everybody understood that position post-lockup. I will just briefly reiterate our outlook and forward guidance. We are reaffirming our 2026 full-year guidance, which is revenue in the range of $980 million-$1 billion. That equates to annualized growth of approximately 18%. Adjusted EBITDA projected to be in the range of $225 million-$250 million.

That equates to growth of approximately 5%. Adjusted EBITDA margin, we are holding to a range of 22%-23%. Briefly in closing, really proud of our second quarter results, which surpassed the previous guidance. We think this financial performance is indicative of a business that is performing well and an affirmation of our no-audit business model and some of the discipline around client selection that I know Mark is very passionate about and our approach to client service. That is it from me. Thank you very much for listening. With that, we would be happy to take any questions.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one at this time. One moment while we poll for the first question. The first question comes from Toni Kaplan with Morgan Stanley. Please proceed.

Hey, good evening. This is Greg Parrish on for Toni. Thanks for taking our question. Congrats on another great result. Maybe just to start with business tax. It was a really fantastic quarter there specifically. Maybe anything to call out on what drove the strength there?

I will make a couple comments, this is Mark Vorsatz, and then I will let Neal respond. I think some of it is client focus. I often say that a couple of the considerations in why our financial performance continues to be very strong, and this is not like we just had a good quarter. We have had 96 good quarters. We have never had a down quarter in revenue or net income for the U.S. in 24 years. Part of it is client selection. It is the type of clients that we pursue and our business development strategy. When we started out, we had to do that just to survive. Today, we are a little bit better than that. I would say the other thing are the types of services that we are providing to those clients.

We are not providing services that I would consider to be more commoditized. We do not do audit work. We do not do, for the most part, large-scale tax compliance engagements. The reason I think we drive so well on the pricing side is because we try to build relationships with clients. The reason they hire us is not necessarily because we are the lowest cost provider. They hire us because they think we can add the most value. That is a focus that we drive through the organization across the board. It is embedded in our business development strategy that we want to help our clients be successful, and we want to help them from a financial perspective, achieve their objectives. Neal, you want to add some comments?

I come off mute. That's well said, Mark. Thank you. Nothing to add. Thanks for the question, Greg.

Great. Thanks for the color there. Just as a follow-up, maybe just add some color on the acquisitions this week. I think six of the eight were U.S.-based consulting firms, but you can correct that if that's wrong. Just given how fast technology is evolving with AI, how do you judge the capabilities of these firms and what really gives you confidence in their ability to continue to grow as technology evolves? Thanks.

I would say there's a couple of factors involved. First of all, we know these firms very well. I'm going to highlight several of the firms that have joined us. Zenger Folkman, they are not just a talent management firm. They are the benchmark of talent management firms. Unfortunately, Jack passed away about three or four weeks ago, but they have a very deep bench, and Joe is a superstar. Those two individuals have written 21 books on the subject. They are the standard. They are best in class, and it's totally consistent with our strategy around being in the C-suite. We want to be where the real decision-makers are. We're not interested in dealing with the head of procurement. We want to deal with the CEO. We want to deal with the board. We want to deal with the people that make the decisions around the company.

We have a forum to provide services to those groups to help them be successful. I was so impressed with them when we first started recruiting them that we hired them to do a program for us. They've now done a program for 75 of our partners. It's a group that we know very well. Amy Daniels out of Chicago. Amy used to work at Andersen. Amy has a very close relationship with Rosa De Luna, who is the head of our Chicago office. In fact, their husbands were roommates together in college. This isn't like dialing for dollars here where we said, "Well, geez, let's go talk to somebody." We have a long-time relationship. Her firm out of Chicago is also in the talent management space and gives a lot of depth. SPR, Rob, we've talked to for a long time.

Joe Karczewski, one of our best partners. It has been a client of Joe's for over 30 years. Long time relationship. I have spent a fair amount of time with Rob on working through some of the technical aspects of the deal. We traded two or three notes today because in every deal, we are giving RSUs to the managers and directors as a retention tool, but also because we want these people to participate in the financial upside of the business. Strategically, what you will see, while we will be opportunistic and we will continue to do deals in multiple jurisdictions, you will see a focus on the U.S., North America, Canada, and Mexico. We announced a deal with Alonso Montes' firm in Mexico. I have known Alonso for a very long time. They have been with us for 11 years.

I have known his father much longer than that because his father started at Arthur Andersen in 1968. His father and I were partners together at Arthur Andersen for 15 years. They share our values. They share our culture. We have an intimate familiarity. What is already transpiring, we had a board call this morning, and I made several comments to our board related to the transactions that are generating transactions. Alonso and I have a call within the next two weeks with a law firm in Mexico that has approached us that would like to merge into the business. We have already identified what we think is the best private client service practice in Ireland that we are advancing conversations with because they have a relationship with our colleagues in Ireland.

Our group in New Zealand sent me a note yesterday that they have two deals that have been approached since they have been announced that they are part of Andersen and part of the public company. What you will see strategically is we will do deals in North America because of the relationship with the United States and Canada and Mexico. We obviously announced the U.K.. Kevin Hindley, who is the managing partner there, we have worked with him for a long time. I helped to recruit Kevin when he came to the firm. That group was originally started by a former Andersen person, Paul Finlan, who has been affiliated with us for many years. Used to run our law firm called Garretts, where we had 1,000 lawyers in the U.K., at Arthur Andersen. These are people we have known for a long time.

You will see more deals in France, Germany, Italy, Spain, for obvious reasons, and we will be generating activity in Asia as well. We could walk and talk and chew gum at the same time, so we can have a lot of conversations. You will see some other deals in Latin America, more deals in Africa. Interesting phenomenon is that in South Africa, they may allow in the region legal services to be provided outside of the country, where the regulatory issue is more like it might be in the States, in the United States. We see a lot of opportunity in these spaces. We are looking at groups that we have a significant relationship with, where we believe that we can help leverage them into our business model and can add a lot of value to our clients.

Great. Thanks very much for that. That color is very helpful. Thank you again, and congrats again on the really strong quarter. Thanks.

Thanks, Greg. If I could say to the analyst, let's just ask one question this time around, and if we have time for follow-ups, we'll follow up. Thank you.

The next question comes from Andrew Nicholas with William Blair. Please proceed.

Hi, good afternoon. Appreciate you taking my question. Wanted to ask on EBITDA and maybe margins broadly. Another really good quarter in Q2. I understand you reaffirmed guidance on the top line, because maybe a little bit slower cadence of deals. But on the EBITDA front, I think even at the top end, it's implying a little bit of a step down year-over-year in the back half, which doesn't sound consistent with kind of the mid-teens, mid-teens plus organic growth that your guidance implies. So can you talk a little bit about the EBITDA guide, whether or not there's some conservatism in there and any potential impact from the deals you've announced? Thank you.

Thanks, Andrew. First of all, thank you for your note to Greg about you really nailed it about the inorganic revenue, and that's why I wanted to address it on this call. I think what's really exciting is these are just timing issues for us, okay? In some of the countries, it just takes a little more time to get deals done because we're actually, in some markets, we are creating the strategy. Getting regulatory issues even approved in Canada took us three or four months to get that approved. Yes, I will say that Neal advocated increasing our guidance on adjusted EBITDA, and I said no. Okay? Does that mean I'm any less bullish about it? As I've shared with you before, we haven't borrowed money since the first quarter of 2008, since we've been private, okay? I'm a conservative guy.

While I am very bullish on our third quarter, and I think you'll see an increase in our adjusted EBITDA in the third quarter because it's clearly every year our best quarter, we're going to continue to be relatively modest about how we communicate things. I had played when I was younger, I played football in high school and college, and when our team scored a touchdown, I didn't give any high fives. I looked around on the field to see if there were any flags. Then I ran down and got on the kickoff team. We have a lot more work to do. Am I any less bullish? I'm even more bullish. We've had two outstanding back-to-back months. Far exceeded my expectations. When we gave guidance at 13% for the second quarter, that was conservative. I think we'd come in at 23.7%.

If you had said to me in May, "Take the over-under on 23.7%," I would've been a little bit balanced in my view. Okay? I would just say this, we're going to continue to focus on those areas of improvement in the firm. We're not taking anything for granted. We get up every day, and I always say to people, what I do for a living is I pound rocks, and I just get up early and I work late, and we pound rocks, and we're going to continue to give our clients the best-in-class service that we can. Fortunately, our clients have been very generous with us in rewarding us with new business and new business opportunities.

Andrew, I will say, I will volunteer that for some of the projections that we looked at multi-year, that we probably have $100 million of revenue that has joined us that will not hit in the 2026 numbers at all, $100 million of annualized revenue. As you guys evaluate or reevaluate your projections, you should think about that. You should probably also understand that we have quite a few conversations going. I can't guarantee anything. What I would say, realistically, is I would be disappointed if we didn't sign another eight to 10 deals between now and the end of the year. I think we're at a point where we can do two or three deals a month. It's not every month. Some months we get four or five, some we don't get any.

But I think that is a realistic benchmark for us to consider because we are adding more resources in this area. And in some countries where we have built the prototype, it is much easier for us to do a second and a third deal in that country, and the process is much quicker.

Thanks, Mark.

The next question comes from Kevin McVeigh with UBS. Please proceed.

Great. Thanks so much. Obviously, a lot to like here. Mark, I think one of the, it is hard to say understated, but understated parts of the story is the client success you have, right? And maybe help us understand why you continue to add at such a high level. My sense is there is probably some incubation that is kind of perpetual, but help us understand that client add motion a little bit.

I would say, Kevin, some of it's our frame of reference, some of it's orientation. If you look at the groups that have joined us, and if you look at the original group, we had to go get business to survive. When I was a partner at Arthur Andersen, I used to say most of our partners thought business development was answering your telephone. We're not in that position. We're never going to be in that position. We're always going to have an edge. We go out and we hustle. Now we've got a responsibility, not just to each other and to our people, but we've got a responsibility to our investors. We are putting more and more energy. What I've said my strategy initially was, let's build a platform. We checked that box. We got 1,100 in locations.

We started with six. Many of those groups will end up becoming part of the public company. The second was, let's build out content. We're probably 50% of the way there. My anticipation is that Andersen Consulting organically in the second half of next year should be in the black. We're hoping Global Mobility will be in the black in 2028. We're continuing to make continued investments in those areas because we think we can differentiate ourselves in the marketplace. I've already got two or three new businesses in mind, and we're very gradually going to add resources in those because we're going to balance profitability with investment. Then I'd say the third thing that's a little bit different is, we're not selling commodities. We're not selling audits. We're not selling large-scale tax compliance engagements.

What we're trying to do is build relationships with clients, establish value, sell value, and get paid something fair for it. Very easy for us in the U.S. to quantify tax benefit. I had a situation just recently where a client of mine, it's a family office, we identified an area of opportunity that will be very extensive engagement for us, but we think we can save that client $200 million. I think the cost for that client are going to end up being somewhere between $3 million and $5 million, and it will be more along the lines of a flat fee for services.

The principal is an entrepreneur, and if I were to say to him, "Hey, you've got an opportunity to make 50 to one on your investment in 12 months. What do you think?" He's not going to ask me what my billing rate is or how fast I read. A lot of that is our client selection and the types of services that we provide, which is why, as you've observed over the last five or six years that you've had information for, we continue to be able to improve our pricing because it's the type of services that we're providing.

No problem. Thank you.

Thanks, Kevin. Appreciate it.

The next question comes from Tobey Sommer with Truist. Please proceed.

Thanks. I wanted to talk to you about your senior hires or organic hires. If you could talk about the profile of where they are coming from and what you see their revenue generation look like and how it compares to the existing staff at that level resident within the organization.

Tobey, we look at two different areas. One is entry-level. These are typically people coming out of graduate school or undergraduate. I would say today probably about 70% of our new hires have interned with us, and this is a program that we implemented about 15 years ago. I did the initial program. Dan DePaoli now does it. We do what we call an InternConnect program in St. Charles every year. It's a great way to get all of our summer interns together. We typically have somewhere probably around 300-400 people. All of those people we've had an opportunity to work with, and I would say we probably give offers to about 75% of those people, and we probably get about an 80% acceptance rate or better.

At the entry-level, we've done a much better job of getting people on board that are known quantities. About 15 years ago, I analyzed some information, and I found that our retention rate for people who had interned with us was about 50% better than the retention rate of people that did not intern with us. On the lateral side, it's more driven by focus and needs. We're expanding our tax controversy practice. We're in discussions with a lateral hire from a major U.S. law firm. I'm not sure if we're going to do that deal. I'm not sure if we'll be able to get it done.

We've targeted an area there where we see a lot of opportunity, where we can go to clients and represent them in a way that will quantify for a tax benefit that many of the accounting firms don't do extensive tax controversy work. Maybe they handle an audit. On the federal level, they don't do appeals. On the state level, they don't do appeals, and they certainly don't do tax litigation. More of that, Tobey, is driven by our targeting what our needs are. In our internal call yesterday, two of the areas I focused on, Silicon Valley, and I could just say Silicon Valley, Silicon Valley, and Silicon Valley because the marketplace is reminding me right now of 1998. If you've seen the housing prices, number one market for rent increases in the United States is San Francisco. Explosive.

There was an article in the paper about three months ago, the San Francisco Chronicle, that said, "Unless you're prepared to overbid on a house by $1 million or more, don't waste your time writing an offer." The explosion in artificial intelligence, about 50 of the top 100 companies in the world are in Silicon Valley. The other market that I find particularly interesting, we talked about this yesterday, we have not given it near the level of attention we should, is the huge migration of wealth to Florida. We've got three different locations in Florida, but we see that as a market that we're not serving adequately. We see adding additional resources there. There was a recent article. Some of these numbers are staggering. The potential transition from this generation of wealth is $125 trillion.

We see ourselves at a significant competitive advantage in servicing that market and the value that we think we can bring to the relationships. It tends not to be price sensitive because we are able to quantify cost benefit. One of the things we are going to do on Sunday, in addition to moving forward with implementing a more comprehensive business development program for selected directors and managers, is to talk specifically about which markets in the U.S. we want to prioritize adding resources and making more investments. The interesting thing is if you looked at our top five offices in terms of maturity, that would be Southern California, Northern California, Chicago, Boston, and New York. The worst margin is 27.7%. The best margin is Northern California at 38.8%.

We see as we mature some of the markets in Texas, in Florida, build out further in Seattle, we see moving the margin higher because we think we will get more critical mass, more economies of scale, and more resources. Thanks for the question, Tobey.

Thank you.

Next question comes from Mark Marcon with Baird. Please proceed.

Hey, good afternoon, and let me add my congratulations. Terrific organic performance. I was wondering if we could focus on the inorganic growth in terms of just the range of acquisitions that you recently announced. I know that you know them extremely well, Mark. I was wondering if you could give us a little bit more feel in terms of what the growth rates have been with these various organizations, either as a consolidated group or individually. Also if you could talk a little bit about the terms that you purchased them under. Did it follow kind of the blueprint that we've talked about before in terms of cash upfront relative to SBC and earn-outs, et cetera?

Yeah, I would say for the most part, the basic concept's the same. We made an exception for the U.K. because the U.K., over the last five years, has had annual revenue growth of over 30%. Now, a lot of that work is coming from the network. I would say probably 85% of their work is coming from the network. We see the U.K. for us as being a potential huge market. We currently have about eight affiliations in consulting. We're starting discussions with those groups about merging them into the public company. I would suggest that probably over the next couple of years, we will focus on adding a law firm there. So while today in the U.K. we have about $20 million of revenue in tax, I view that as a market potential between tax, legal, and consulting down the road as being as high as $600 million.

Okay? So we did that deal at 12x earnings. I'm very transparent. Everybody knows the deals. Most of the deals are at 10x earnings. We accommodate in some ways where maybe somebody is a little bit older, and wants a little cash sooner. But the basic construct, Mark, is the same for every deal. As we view these deals, we view them in some markets as an ability to add other groups systematically. So for example, we have active conversation with two consulting groups in Mexico. Our law firm that we just added in Mexico, I've asked both the two consulting groups that we would both waive conflicts because we could streamline those deals and get them on board.

One of those consulting groups, since they've been affiliated with us, has already done three acquisitions of their own, and so we see the ability to leverage that presence in those markets. As far as the margins go, what I can speak more authoritatively with is what we're doing in tax and legal globally. The growth rates last year were a little over 13% collectively in revenue. So not much different than the United States. The margins are pretty much all over the map, but as part of the deal, we have a contractual agreement on what their compensation in total can be as a percentage of revenue, and that is what drives the economics of the transaction. So if you say you want to continue to take most of the money out, then it's probably a lower acquisition price that we're paying.

If you want to say, "Hey, last year I made $500,000, pay me $300,000," and that's a sustainable partner compensation in our market, and we're going to capitalize on an after-tax basis the other $200,000, we do that. Our teams now, we've been through enough deals now. We signed 16 deals. We've closed eight of those. My hope and desire is the other eight will get closed by the end of the year, but probably later in the fourth quarter. That's why we're not going to have a lot of revenue from those deals. As I indicated earlier, there's probably $100 million of revenue at least that will be from existing deals that we've already signed that will come in next year that we won't have in 2026. As you think about your projections, you might want to take that into consideration.

That's great. Very helpful. Thank you.

Did I address your question adequately, Mark?

You did. Thank you.

The next question comes from Jason Haas with Wells Fargo. Please proceed.

Hey, good afternoon. Thanks for taking my question. I am curious if you could talk more about how you are integrating technology and AI into your process. Thank you.

Sure. Thanks, Jason. As I think I have mentioned before, we started off, about a year ago, we entered into an agreement with University of San Francisco. They have an agreement with Anthropic. We also are using Accordance in that program. We have done four pilot programs. We did one in November, one in December. We debriefed on those. We worked with University of San Francisco on restructuring those. Jeff Malo has been running that program and doing a terrific job. We launched our internal program on May 8. We have now trained, I think, over 500 of our people. It is a systematic process. It is both a technical and non-technical program where you actually are given projects to do, both technical and non-technical.

We are seeing this in our system. I had a technical matter last week that I used it for, which was a project that we have a fixed fee on.

It has to do with the liquidation of certain trusts, and I was able to identify a strategy on how to do that liquidation, and I used artificial intelligence to refine the technical sources. In literally an hour, I was able to draft a memorandum with all the technical sources that normally would have taken me six, eight, 10 hours. We are doing systematically, we will move more of this to fixed pricing or project pricing. We are always going to be in time and materials because we are a relationship business and because we spend time with our clients. There will always be some component of our practice time and materials. However, I think we will see systematic improvement because more of our work is going to fixed fee.

I have a current situation right now where we're going to do over 50 valuation projects for a client, and those valuation projects are all going to be done on a fixed fee basis. We want to share the efficiency with our client, but we don't want to give away the efficiencies. We think there's a way to do things much more efficient, that the client saves money, and we are more profitable, and that's a program that we're going to systematically implement. I'm hoping that we'll be done with it in the U.S. by the end of this year. I'm hoping that after October 15th, which is our heavy recurring compliance time period, that we will continue to advance our strategic approach on how we implement that. It's really going to be implemented, in my opinion, in three different ways.

One is identifying client opportunities, and I've used this as an example before. Cost segregation studies. Anybody who's done an acquisition or improvement over $50 million is a huge client opportunity for cost seg study. I have one client we did a project for in December that generated a $19.9 million deduction for the client, so the client didn't have to pay any taxes last year. Huge value add. So one is identifying those opportunities. The second is using artificial intelligence to source solutions. Then the third component is using artificial intelligence for implementation.

I sent out a note to our partners today that was forwarded to me by somebody that runs a litigation support practice that's part of our U.S. affiliation about some of the challenges the Big Four are having because some of the artificial intelligence solutions that are being implemented are not being done with much supervision. I can tell you there have been two firms I'm aware of outside of the United States that have been fined because of hallucinations in their work product. So we think that it's not that artificial intelligence is going to replace us. We think that people who understand artificial intelligence are going to be people that are going to drive the marketplace. So it's a combination. There's a human component, there's a technology component, and it's something we're very focused on. We view it as a tailwind, not as a headwind.

We see it as an opportunity for us because we're not running these massive projects where you load up a bus and send people out on an audit. As I've said on numerous conversations before, in the next five years, I think our business model will go from six professionals per partner to three and a half professionals per partner. They will be a lot more profitable. Our partners will be a lot more productive in terms of their chargeability or their client work. We think we'll have a flatter pyramid, and I've gone through with our board about three or four months ago, an analysis on that to show them how it will drive our profitability geometrically. Because we make four times as much profit on a director as we do on a new associate.

Our pyramid will continue to evolve, but we don't have 500,000 people in India that are doing compliance-type services. I think as you've seen with some of the layoffs from many of the larger firms, they got a challenge. They've got to figure out how to deploy this. I don't know what they're going to do with all these people, particularly on some of the levers types of services they have. We think we're well-positioned. Jeff Malo has done a terrific job. He is all over this. We have regular conversations. He's on our U.S. internal board. He talked about this yesterday on our call. We think we're pretty well-positioned. We don't overestimate where we are, but we do think we're making systematic progress and we're measuring it.

That's great. Very helpful color. Thank you.

Thank you. At this time, I would like to turn the call back to management for closing comments.

Thank you, Latonya. Mark, Neal, would you like to make some closing comments?

I just want to thank everybody for attending. I want to continue to thank our partners and our people because this is a people business. Our product are our people, and they enable us to be successful. I want to thank the investors for the loyalty that you've extended. I want to thank the analysts because I've learned a lot from you guys. I've done a lot of transactions over 40 years. I've done probably over 500. I've done over 500 transactions just in our firm. But it's continued to be a learning process. I want to thank our directors. We have an all-star board. Our board is superb. We had a call earlier today. We are blessed to have such talented people. All five of our outside directors understand the professions. It's a refreshing conversation to have with them, and they challenge me, and I love challenges.

I love to be challenged, and they're going to continue to challenge me, and I think we have a lot of opportunity ahead of us. Neal, comments?

Yeah. Thanks, Mark. Great summary. I just want to appreciate everyone who's dialed in today. There's a lot of you on the line. We know that, and we really welcome your engagement. This is about building relationships with our investors. We are a people business, and it's important that we invest in and we build those relationships. So really appreciate your engagement. Thanks very much.

Take care, everybody.

Thanks, Neal.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Gregory Vistica, Managing Director, Investor Relations. Thank you. You may begin.

Thank you, Diego. Good afternoon, everyone, and thank you for joining the Andersen call to discuss our first quarter earnings results with Andersen Global Chairman and Chief Executive Officer, Mark Vorsatz, and CFO Neal Livingston. After their presentation, we will take questions from the analyst. Our call today is scheduled for approximately 45 minutes, but before we begin, our Chief Legal Officer, Bill Deckelman, will discuss forward-looking statements. Bill?

Okay. Thank you, Greg. 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 our SEC filings, including our Form 10-K for the year ended December 31, 2025. 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. With that, Mark, I will turn the call over to you.

Thanks, Bill. Good day to everybody. This is Mark Vorsatz. I'm gonna keep my comments real short, then I'm gonna turn it over to Neal to talk about our guidance for the balance of the year. We had a First of all, I wanna thank the investors who have been along with us on this ride, we definitely appreciate the support. I also wanna thank our partners and our people. We had a very solid first quarter. Greg had circulated a little bit ago the release on our earnings. Our revenue came in at a little under $241 million. That was an increase of 15.7%. That does not include any inorganic growth on the acquisitions that we have completed.

That was about 4.5% better than what we had included in the projections that we had provided to the analysts. The financial performance was broad-based. If you look at the 10-Q, you'll see that we were up across all four major areas of our tax service lines. All were up more than double digits, each at least 12% in growth. An important statistic I wanna highlight, and we'll talk about this more on future calls, is revenue per professional. For me, that's probably the number one metric that I focus on. We had excellent growth in that area in the first quarter, at 12.7%. A combination of some moderate improvement in productivity and also moderate improvement in pricing.

A little bit of that as we're edging forward is on the technology side, and we're making very good progress in that area. On the adjusted EBITDA numbers, we came in at around $72.3. That was an increase of 26.4% over first quarter last year. The adjusted EBITDA number was, the margin was 30%. That includes about a $7.4 million loss in global mobility and consulting. We are starting to get more traction in those areas, as we had anticipated, we're gonna lose money in both of those practices this year. That's part of our continued investment and expansion. Without that loss, our adjusted EBITDA number would have been 33%. I think very strong across the board.

Those are my comments on our financials for the first quarter, and I'm gonna turn it over to Neal. He can fill in some additional detail, and he'll talk about guidance for the balance of the year.

Mark, thanks very much. Good afternoon, everyone, and thanks for joining us today. It's Neal Livingston here, Chief Financial Officer. This is our second earnings call as a public company, and we very much appreciate the ongoing interest from the analysts and investors alike. As Mark's noted, I will cover our financial performance for the most recent quarter in some detail and then provide updated guidance for the next quarter and also for the full year 2026. Let me start with revenue. As Mark has noted, revenue for the first quarter 2026 was $240.7 million. That was an increase of $32.7 million, equating to 15.7% growth over the same quarter last year.

As Mark noted, that exceeded the midpoint of the guidance that we had provided on our last earnings call, where you may recall, we indicated first quarter revenue of between $230 million and $235 million. We exceeded that by approximately $8.2 million. As Mark noted, revenue across all of our key service lines, private client services, business tax, alternative investment funds, and valuation services all increased for the quarter.

Our largest service line, private client services, reported strong revenue growth of 18.2% for the quarter, resulting in that service line representing approximately 51.2% of revenues, up from 50.1% in the same quarter of 2025. Pleasingly, and linking to Mark's comments about investment, revenue increased in both Andersen Consulting and Global Mobility, being our newer practice areas where we continue to invest in alignment with our expansion strategy. At a regional level, all of the three regions recorded increases in revenue, with the East region in particular, reporting strong revenue growth of 22.4% for the quarter. The growth was driven by a balanced mix of drivers with no large one-time or project-related items for the quarter.

Just to reconfirm, there was no inorganic or M&A revenue recorded in the first quarter of 2026. In terms of the underlying business drivers, the strong top-line performance is driven by a number of factors. At a macro level, obviously, this very much links to our business model and client selection criteria. At an operational level, I would note a couple of points. Firstly, that we continue to maintain favorable operating leverage, whereby annual revenue growth has consistently outpaced the growth in our core operating costs, highlighting platform scalability and opportunities for margin expansion. We have continually demonstrated good pricing power, illustrated by revenue per hour, which increased 8%. As Mark noted, revenue per professional, which increased 13% for the previously.

That was introduced for client contracts signed in the first quarter of 2026. I'd say that has met, if not exceeded, our internal expectations, and it will provide a meaningful source of incremental revenue for 2026, which will be reflected in the revised full-year guidance I'll provide later on the call. In terms of headcount, our capacity to support clients increased by 2.8% in the quarter or 62 additional colleagues. That's in line with expectations for single-digit growth and enabling ongoing tight control of staffing costs. Within that, the ratio of managing directors to non-managing directors remained stable during the quarter.

In terms of client groups, our active client groups increased 3.5% for the quarter, and the number of client engagements that we undertook for those client groups increased 2%, confirming the ongoing growth and demand for the firm's services. Turning now to net income. On a GAAP basis, our net income for the quarter was $17.7 million, with a net income margin of 7.4%. That compares to net income of $50.6 million and a net income margin of 24.3% for the same quarter of 2025. The reduction in net income and net income margin was primarily attributable to $41.2 million of non-cash equity-based compensation expense associated with the equity granted in connection with the IPO and the reorganization.

These expenses did not exist in the first quarter of 2025 when the firm was still privately held. In addition, interest expense increased $6 million for the quarter. This is due to the related party notes issued as part of the IPO reorganization, and transaction costs increased by $2.6 million in the first quarter as compared to the previous year in support of the firm's ongoing inorganic expansion plans. This equated to net income per share EPS of $0.04 on a basic and $0.03 on a diluted basis. Let me pivot now to the non-GAAP measures. Again, comparing to the first quarter of 2025, our adjusted net income was $62.9 million, compared to $55.2 million for 2025, an increase of approximately 14%.

The adjusted net income margin was 26.1%, compared to 26.5% in 2025. Looking at adjusted EBITDA, the adjusted EBITDA for the first quarter of 2026 was $72.3 million, as Mark noted. That compares to $57.2 million for 2025, an increase of 26%. This again exceeded the midpoint of the guidance provided on our 96%. The adjusted EBITDA margin for Q1 was 30%. That compares to 27.5% in the prior year. Again, that exceeded the midpoint of the guidance provided, where we had indicated an EBITDA margin between 25%-26%. A healthy 4.5% or 450 basis point excess. I'll briefly cover costs, balance sheets and cash flow.

Cost of services increased by approximately 41% for the first quarter. SG&A increased approximately 36% in the first quarter. The majority of these increases was again attributable to the $41 million of non-cash equity-based compensation expense that I mentioned previously, which did not occur in the first quarter of 2025. As a reminder, these equity-based compensation charges are non-cash and non-dilutive, as no incremental equity was issued as part of these awards. In terms of the firm's balance sheet, the balance sheet remains liquid and provides significant flexibility to support growth. As of March 31st, 2026, our current assets comprised cash and cash equivalents of approximately $207 million, and accounts receivable, including both billed and unbilled services, net of allowances for credit losses of approximately $214 million.

On the short-term liability side of the balance sheet, we had accrued payroll and benefits of approximately $50 million and distributions and short-term notes payable of approximately $85 million. At the end of the quarter, the firm had no third-party debt, and we continue to maintain a conservative stance towards the use of financial leverage. We believe that our existing cash and cash equivalents, the cash flow from operations, and the net proceeds from the IPO remain sufficient to meet our working capital investment and other general corporate funding requirements for the foreseeable future. I'll pivot now towards the outlook and forward guidance. We are going at some pace here, hopefully leaving time for questions. Looking ahead, we are providing updated guidance on today's call, which obviously reflects our current best judgment.

For the second quarter of 2026, we are expecting revenue in the range of $190 million-$205 million, equating to a growth of approximately 13%, 13%. We are anticipating a net loss for the quarter and negative EPS. That is due to seasonality and principally the aforementioned non-cash equity-based compensation expenses. Looking to the full year, we currently expect revenue in the range of $980 million-$1 billion, equating to a growth rate of approximately 18%, 18%. We are anticipating positive net income and EPS for the full year. We expect adjusted EBITDA in the range of $225 million-$250 million, with an adjusted EBITDA margin in the range of 23%-25%.

As we've announced separately, the combinations in the pipeline, we are raising our full-year inorganic revenue guidance from $33 million to $55 million. This is included in the full-year numbers, which I mentioned previously. We'll be updating the impact of closed acquisitions and business combinations on both our GAAP and non-GAAP financial metrics in conjunction with our 2nd quarter financial results. A final point. stated in the 3rd quarter. This creates some uncertainty in projecting full-year results, which is reflected in our updated guidance. As before, our guidance is based on multiple assumptions, including macroeconomic conditions, levels of client demand, staffing, investment, the impact of AI, integration of acquired firms, and so forth. These assumptions are, of course, dynamic and subject to change.

In closing, I'd say on behalf of the team, we are extremely proud to announce a back-to-back set of quarterly financial results that exceeds our previously issued guidance and the base case projections published by most of the analysts who cover our stock. Moreover, these financial results provide a solid foundation for ongoing value creation over the medium term. Thank you very much for listening. With that, we'd be happy to take any questions, or Mark, if you'd like to make any summary comments.

No, that's fine. We'll go to questions.

Thank you. At this time, we'll conduct our Q&A session. To get through as many questions as we can in the time remaining, please limit yourselves to one question and one follow-up question. To ask a question, press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And your first question comes from Mark Marcon with Baird. Please state your question.

Good afternoon, and congratulations on the strong results, to Mark and the whole team. I was wondering, can you talk a little bit about, you know, you had very strong growth in private client services. To what extent are you already starting to feel the impact of, you know, all of the various initiatives, you know, that we're reading about, whether it's in California with the potential, you know, billionaire tax, New York in terms of various proposals to raise taxes, even more moderate states like Virginia or Washington that are now proposing, you know, increased taxes. What are you seeing at this point? Where do you think we are in terms of, you know, potentially leveraging?

Are evaluating alternatives. I'll use the Washington State tax as an example. For those that are not familiar with it, the governor had signed legislation on March 31st to create an income tax for anyone who makes over $1 million at a 9.9% tax rate. Literally within two weeks of the signing of that legislation, litigation was filed on the basis that it's unconstitutional. This is going to play out for a while. I think a lot of people are evaluating how to deal with these things. We certainly have had discussions with a number of clients about it.

Although we have had some clients, particularly in California, that had decided last year to relocate, we're really expecting that to the extent that these types of legislative acts pass, a lot of that work is gonna be in the future. I wouldn't say that's a material amount of our revenue. I'd say the bigger issue on the PCS practice is we continue to add more clients and larger clients. I think that's, I mean, just this morning I had a discussion with a new client that is worth several billion dollars. I'm gonna put a younger partner on the job with me to do most of the real work. We're seeing more and more of those kind of opportunities.

I would say the second thing, and it's just really at a very early stage, is we're doing a little bit better on the integration side. If you looked at our valuation performance in the first quarter was 17.3% growth rate just behind PCS. Most of that work is internal feed. It's internal referrals. I think on the integration side, we're making some moderate progress. We have a lot more to do. What's exciting to me about the financial results we announced today is that we have a lot of room for improvement.

That's fantastic. You mentioned the pricing and the revenue per hour being up nicely. Did the January price increase go through as you expected?

Yeah, I think pretty much. I mean, on the pricing side, we're coming in about where we had anticipated. I would say where I think for the balance of the year, we'll see much greater lift will be on the productivity side. I can tell you that we really have started getting some benefit of that starting around the end of February, but it's carrying through. As I commented on the last call, I'm very excited. You know, we're doing fine. These are solid numbers. Eight deals in the last 10 weeks. I'm not gonna suggest that that is an indicator of future activity. A lot of these transactions take quite a long time to put to a conclusion.

I will say that we expect in a systematic fashion that we'll be continuing to add groups in key markets. What's particularly important about that is the managing partner of that practice co-manages Europe. As I indicated on the last call, similar with our practice in Nigeria, similar with our practice in Uruguay, we're focused on adding groups that are have a significant role in the management of our Swiss Verein. As we add more practices, we've got the management already put in place.

That's fantastic. Just with regards to the guidance, you know, the second quarter I fully recognize is seasonally slower. Do you have any of the acquisitions built in for the second quarter? If, you know, the full year guidance, you know, basically anticipates a fairly significant acceleration. How should we think about that? What's being layered in? What are the key drivers for the acceleration for the full year? Thank you.

I would say that we have some very modest revenue included in these second quarter numbers. It's a little less than $7 million. When we've announced deals, most of the deals, any of the deals that we announce after May 1 will not close until July 1st. That revenue won't be until the second half of the year. As Neal indicated, what we had previously given the analyst was $33 million of actual revenue for 2026 from acquisitions. We've now increased that to $55 million. That's not an annualized number. That's the revenue that we expect on those deals will hit our financials this year. That is primarily, almost exclusively in the second half of the year. Ergo, we anticipate this will continue to go up.

One other thing I would mention, 'cause I expect we'll get a question on this. We just started the implementation of our artificial intelligence, I'll call it technology plan, on Friday. As I mentioned on the prior call, we are still doing two more pilots with the University of San Francisco. One is in process in May. It started yesterday. The other is in June. We actually started the rollout of our internal training. We're doing it in increments of 500 people. And that started on Friday, which I participated in. That is something that we expect over time is going to increase our efficiency. Some of that efficiency will go to our clients, some of it will go to us.

We do anticipate that that number of revenue per professional, pay attention to that each quarter 'cause that's the number one factor I look at. We anticipate that's gonna continue to increase at a healthy pace.

That's fantastic.

Thanks, Mark.

If I could squeeze-

Can we, Mark, do you mind if.

Great. Thank you.

Yeah, could you hold that while.

No, I'm good on that.

Great. Thank you. Next question, please.

Your next question comes from Faiza Alwy with Deutsche Bank. Please state your question.

Yes. Hi, thank you so much. I wanted to follow up on the M&A transactions that you've done so far. Could you comment on, you know, the structure of the deals? I know that you're not, you know, making upfront payments as you're completing these acquisitions, but it was interesting to me that your EBITDA margin guide is above where it was last quarter. So I'm curious to see if that's more related to, you know, underlying margin expansion organically or if these deals are actually margin accretive.

All the margin expansion for the first quarter is 100% organic because there is no revenue in the first quarter from any of the acquisitions. What I've kind of agreed conceptually with Neal is any transaction that is done in a quarter will be closed on the first of the beginning of the following quarter. Most of the transactions that we've closed won't hit the numbers until the second quarter. Again, they're fairly modest. I will tell you from a conceptual standpoint, we are focusing on adding quality platforms where we have a relationship. Paolo Mondia is the Managing Partner of Switzerland, who co-manages Europe. Paolo has been with us for 12 years, and they've used the brand during that period of time. This was an easy thing for us.

A lot of legal work, a lot of paperwork. We've got separate law firms in each country working on us. We have quite a few conversations going, so it takes a lot of time. None of that's in our numbers. In each deal, there'll be some level of transition costs, so we expect that margins on the acquisition component may slide a little bit in the short term simply because we've got to get groups integrated. That just takes time. This is no different than if we hire a lateral partner in the U.S.. We go through those issues. All of the growth and the EBITDA and the margin is purely organic. I think we're doing a little bit better in how we're running the firm.

Great. That's very helpful. Mark, could you comment a bit more on the pipeline? I know this is, you know, it's part of your strategic plan, and I'm curious, as you've become a public company, sort of is the pipeline in line with your expectations? What has been the feedback with, you know, potential companies that you might acquire outside the U.S.?

I'm not gonna give you the specifics, and I'm not gonna speculate on how many or revenue or those factors, I will say this: our biggest challenge right now is execution. We are adding another full-time attorney in the transaction group. That will give us three full-time attorneys in the transaction group. In addition to that, I've spoken with Bill Deckelman and Oscar Alcantara in the legal department, who both can spend time swinging in that area. Oscar has worked with me on the expansion. That will give us now three full-time lawyers and four full-time people on the financial side. We do not lack opportunity. It's just a question of how fast can we manage the opportunities. In each deal, there are some components of it that we have to negotiate economics and negotiate specific terms.

It will be easier for us to replicate transactions in countries, where we do a deal, for example, let's say we do a deal in South Africa. We have four or five other opportunities in South Africa of parties that are interested in moving forward. The time it takes is to build that prototype for that country. Once we have the prototype built, those subsequent transactions can be done in probably 90-120 days. I would say as a practical matter, while we'll be a little slow out of the box this year on a relative basis for us, I do think that what we'll see is in 2027, as we have more resources and we've built this model, that we'll have plenty of opportunity to continue to add groups.

Keep in mind, many of these groups are groups that have been with us for a long time. In total, we have over 400 groups between consulting in the U.S. and other practices, consulting, legal, tax, et cetera, outside the U.S..

Great. Thank you, Mark.

Thank you. Your next question comes from Toni Kaplan with Morgan Stanley. Please state your question.

Thanks so much. Nice job on the quarter. Given AI increasing efficiency, I was hoping you could talk about if you're thinking about changing from a rate per hour to a different monetization model and what potential options you'd consider, and if you are talking to clients about that, you know, their receptivity to that. 'Cause I know you, I think, want to maybe move to a per value type of model. Maybe you could just talk about what's going on with that.

I would say, Toni, there are gonna be components of both time and materials and components of an increasing amount on fixed fees. I'll give you an example. We like to consider ourself a relationship firm, not a commodity firm. Most of the services that we provide, we believe are relationship-driven. I had an example I had on a different client this morning. We have a family group that is looking at diversifying their asset base, and that is an opportunity for them to sell a portfolio of real estate that has a gross value of about $2 billion. I have another client that has some substantial investors in Japan, and those substantial investors may be interested in the opportunity to acquire a portfolio of like that.

With the second group, I set up a call on Friday with the principal to explore a discussion. Obviously, if we're able to bring that transaction to a conclusion, that lends itself to a value fee. There are some components of that where technology will be very helpful in making the delivery of our service more efficient. The reason we have that opportunity is because I got relationships with two different groups that we do continuing work on, and those relationships are pretty extensive, and that's just an illustration of what we do in our practice. That's different, and I don't mean this in a disrespectful way to other types of firms. We're not providing an audit because a client has a covenant with a lending institution, and typically those clients don't necessarily assign a lot of value to that.

As I've said on a number of occasions, one of the advantages and what drives our pricing, there are really a multitude of things, but the two that stick out the most, one is our client selection. The second are the types of services that we focus on. More and more, where we can use technology to increase the value that we can provide, those types of engagements will lend themselves to fixed fees. On some work for that client, we may bill time and material, some will do fixed fee. This is part of a internal training that we're going to go through with all 2,000 of our line people. We started on Friday with the first 500. We all have separate case studies to do. One is technical, one's not technical. We're going to build those skills.

It isn't gonna happen tomorrow, isn't gonna happen next week. It will happen over time. We do see a much higher yield, and we also see a much better delivery system for our clients and bringing them more cost-effective value services.

That's terrific. I guess my follow-up is exactly on that topic. Are there any sort of targets or milestones that we should be thinking of in terms of what you're hoping to accomplish with that technology program? I know you talked about increased yield, et cetera, but anything we should be aware of and be able to sort of understand the timing and implication of how much of an impact you should get from it. Thanks.

I would just say it's a little premature to be in a position to give you information on that. Even if I could, I probably wouldn't, because that gets into projections on things that I don't think today we are prepared to do. What I will say is I anticipate our continued focus on areas of improvement. Sometimes people say to me they're a little surprised at our margins. They're probably more surprised that I think we have an ability to improve our business. It's all about execution. Execution, integration, providing great client service in areas that they value. We think that's the secret to improving our profitability.

Thank you.

Your next question comes from Tobey Sommer with Truist Securities. Please state your question.

Thank you. As you look at the opportunity for acquisitions over time, how big an opportunity do you see to reassemble and sort of assimilate these partner firms over the next two or three years? Has that changed since we were leading up to the IPO, you know, around six months or so ago?

Tobey, I would say that what we have stopped is we're not soliciting new groups, although we're still adding. You guys may get announcements from us on new collaborating relationships. That collaboration process is a great form of due diligence. We typically have at least two or three years of a collaborating relationship. We're not proactively seeking those because we have currently about 436 groups. Okay? Not all of those are gonna make sense to merge into the public company, either because they're too small or they're in markets that aren't appropriate for us as a public company. We do need the footprint, we wanna maintain those relationships.

We see this as We have an existing pipeline that if I had 100% capacity, I could spend the next three years just working on deals with people that we already have a relationship with. As I indicated, it is not a lack of opportunity, it is just a question of we have to manage this in a deliberative, thoughtful way that is profitable for us. I have some conversations going with a very large firm outside the United States. What I basically suggested to them that I would not consider a deal with them at this point because I do not think they need to improve their profitability too much before we would entertain that. We have a plan with them that I am working on, and I am hoping to visit them in June.

They would be a terrific addition and bring in an area of geography where we would have a major presence. We're gonna be very deliberative about this. We're gonna be very responsible financially. You know, I think, Tobey, when we talked, you know, with this group, I've explained to you that I'm pretty conservative. We drew on our operating line one time in the first quarter of 2008. When we paid off our MBO debt about 10 or 12 years ago, we've never borrowed any money. We're being very financially responsible, and we're gonna do this with the acquisitions.

Thank you. I was wondering if you could comment a bit more on the growth and arc of profitability within global mobility and consulting as you see it now, sort of when does the profitability start to close its gap and start inching towards breakeven and eventual positive?

I think second half of this year in both, we see a big pickup in revenue. We're still investing in headcount because we think we can grow the practice. I would like to lose money on a more moderate basis, I don't wanna sacrifice growth for immediate profitability because we have to build out an infrastructure for those practices. I would say as between the two, it's more likely that consulting could be in the black second half of next year. Global mobility, I would say probably 2028. It's educated guesswork. We're still working on building out the platform in global mobility. With respect to consulting, at this juncture, it's a question more of executing on implementing the integration of practices. You will see that we will add practices in consulting in the third quarter.

We have a number of conversations going with consulting groups, primarily initially in the U.S., because from a pure integration standpoint, those are gonna be much easier for us to execute.

Thank you very much.

Thank you. Your next question comes from Kevin McVeigh with UBS. Please state your question.

Great. Thanks so much, and congratulations on the results. Mark, I think you'd mentioned or you know, the rate per hour increased 8%, but, the growth of the professionals was 13%. Help us understand the delta, the 8% to 13% and it sounds like you're relatively new, in terms of the phasing of AI. Is there any way to think about what that 13% can become over time as, you know, it's, it becomes more embedded in the organization?

Kevin, it's a little bit tough to estimate specifics. I haven't taken out pen and paper and cranked through the numbers, and I haven't asked anybody else to do that. I will say this: We have a lot of room for improvement, and I discussed on the last call, Dan DePaoli has taken on responsibility. You know, we run as a team. Nobody worries about titles or what position they play. Everybody just wants to make a contribution. Dan is a terrific partner. Dan has taken on the productivity responsibility. We think that we'll move this for our non-partners. We will continue to do that in a responsible way.

I wanna see all the investors make a lot of money, we're only gonna balance the growth in the global mobility and consulting area with profitability. As I indicated on our last call, last year, we were up 48% in net income at a traditional price-earnings basis. On a pro forma basis, if we excluded consulting and global mobility, that would have been 64%. To me, that is a very good way to balance growth with profitability. I don't think any business would mind growing their net income 48%, but we also have to expand, and we have to invest in our people. Ergo, we're gonna see some modest volatility in productivity because of the artificial intelligence training.

We have to invest in our people, and we have to build their skill set so that we can continue to perform very strong in the future.

No, that's helpful. Then, Mark, I think you'd mentioned that, you know, if I interpret it right, that, you know, the source of the upside was greater client wins. I wonder, where are those clients coming from, and is it, you know, the constant rhetoric from the governments around, you know, taxes and things like that that's driving that? Is it, you know, the public, you know, structure you're in now or just scale or, you know, 'cause obviously the numbers are terrific, but when you think about, you know, where you're sourcing those clients from, maybe we can understand that a little bit more?

I would just say it's the quality of our services, okay. I don't think any of the noise around wealth taxes or anything else right now is really been much of a catalyst to our business. The call that myself and a younger partner had today was somebody who was referred to me by a law firm, and they have an inflated view of my capabilities. I'm not gonna try to dissuade them from that. I'mo gonna try to demonstrate that they're making a good decision. I would say more often than not, our partners get work because we focus on trying to provide great service to clients, and we try to focus also on those opportunities that create the greatest value to clients. I would say, you know, it's not really anyone thing, it's a combination of things.

Where I think we can get a geometric multiplier is going to be on the integration of services. We're already starting to see traction with the groups that are affiliated with us in consulting in the United States, and we're building on that. That brings another dimension of capabilities to the relationship. We think that's a huge factor in the opportunity for growth for our business.

Thank you.

Your next question comes from Jason Haas with Wells Fargo. Please state your question.

Hi, this is Junyi on for Jason Haas. Relative to your own projections that you gave back in 4Q for 1Q, where did you outperform the most at a segment level? Excluding the change in inorganic revenue, you only increased the full year revenue guide by $5.5 million at the midpoint. Why not flow through more of the beat there?

I would say, Jason, that is a question that Neal probably should comment on. I would say we tend to be conservative. I would say the area that probably surprised me the most in the first quarter, the two areas were both PCS and valuation. 18.2% growth rate in PCS is probably a little higher than I would have anticipated. Valuation, there are some projects that we're getting, that I think we're executing better on, integration. So those two numbers surprised me. Am I surprised that we came in at 15.7%, 14.6%, 15%, 15.7%, 13.3%, you know, 17%? Well, you know, I expect we're gonna be somewhere in those ranges. Neal, do you wanna comment?

I think that's right, Mark. Those are the areas where we've had sort of outperformance, if you will, or where, you know, we've kind of raised the profile at a service line level. If you look across the business from an organic perspective, just putting aside inorganic for now, you'll see that pretty much, you know, our numbers have been taken up across the board. I wouldn't say there's any one specific service line or region or area of the business. We, you know, we're taking the overall organic up considerably, about 2.5% from where we were in the original projection. We think that's a meaningful increase.

Got it. Your client group count growth was 3.5% in the first quarter. Seems a bit lower than historical growth rates. Curious if that was in line with your expectations. Given the revenue outperformance, it sounds like maybe you guys are winning some larger clients. Curious if there's a shift in your strategic focus and your go-to-market.

I would say the biggest issue.

Sorry.

I would say the biggest issue is our client penetration. By that I mean, we are doing more things for clients. As we build more dimensions of the business, I think that will be a big factor. Neal, you wanna comment?

No, I agree with that, Mark. I would say, the previous numbers that we've shared in terms of client group growth and engagement growth, you know, we're very strong. Bear in mind, what we are measuring here is active clients on the platform for the time period that's under measurement. If you're looking just for the quarter, we're comparing Q1 with Q1, and which, you know, clients that are actually active on the platform. When you look across the full financial year, you'll get a different readout. The underlying point here to mention is that seasonality in the business. We don't think those numbers are unusual.

In fact, you know, we're very pleased to see both the engagement and the client group numbers grow, because that, you know, that gives us that tailwind.

Thank you. Your next question comes from Andrew Nicholas with William Blair. Please state your question.

Hi, good afternoon. Mark, the first question I wanted to ask was just on the M&A strategy. You've mentioned both this quarter and last quarter about all the different things that you're kind of contemplating as you kind of line people up in the pipeline. Is there a way for us to think about kind of prioritization of targets here? Is it about, you know, the leadership and involvement with the Swiss Verein? Is it specific types of work, consulting versus tax versus legal, geography? Profitability, I think was another metric that you're looking at. Just kinda curious how you stack them up, 'cause it doesn't sound like there's a shortage of opportunities. Just trying to figure out, you know, how you prioritize within that group.

Sure. Number one, I think you'll see us continue to add practices that have existing management for our group. Okay? We are in discussions with several other firms who provide existing management to regions. I would say second of all, you'll probably see this year a concentration in Europe. Our practice in Asia is relatively immature because that's the last region that we started building out. I'm hoping that as the structure in place on this, I can move to some of those groups that are not part of the Swiss Verein who have an interest. Also, I've started some conversations with a couple of larger groups that are completely unaffiliated from the firm. In fact, I'm gonna be in the East Coast in June, having a very preliminary conversation with one of those groups.

For the most part, I'm not interested in pursuing practices that are fully mature. The ideal practice for me is one where we have an existing platform, but it's much more cost-effective for us to expand that platform than to buy a practice that's very mature. Sometimes people can look at deals and say, "Why would you be interested in a practice that has 20 people?" I can say, "'Cause I know where the next 300 people are coming from, and it's gonna be much easier for me to get to 400 people and much more cost-effective for me to do that than to go out and buy a practice that's got 400 people." That practice that I'm describing has a lot more upside, and that's a real fact pattern that I'm working on right now.

That is one country in particular where we actually have a practice that has 22 people, and there are five other groups that we have a verbal agreement with to go forward. It's not inconceivable we will get all six of those deals done in one country this year. That will give us a very significant position in that market. I'd say I'm looking at where we can replicate opportunities by adding other complementary practices. Uruguay was a good example. We added a tax practice. We also added a legal practice. Those are both very strong businesses run by Cecilia and Federico, and they've been with us for over eight years. We are now a very significant presence in markets, Andrew.

It's something that's important to me because when you start looking at the efficiencies of economies of scale, cross-selling, integration, you're gonna drive your profitability.

Very helpful. Thank you. Just for my follow-up. In the release this afternoon, you mentioned accelerating momentum in Andersen Consulting. Can you just flesh that out a little bit more, where you're seeing success, how headcount growth looks and your ambitions near term there? Thanks, Mark.

I would say the greatest penetration we're getting is in the United States because it's easier because we've got a significant presence in the United States. We actually have 22 affiliates, 24 affiliates in the United States. in consulting. We have active conversations going with six of those groups. That would provide us a very good initial platform and would be the first steps in the process. I would say those groups are already reasonably integrated into the firm, but we have a lot of improvement to do there. I would say on the consulting side, we're gonna probably start with the United States., and from a revenue standpoint, it's by far the biggest market. It also is the most profitable market. That doesn't mean that we aren't focused on the other areas.

There are three other countries in Europe where I have suggested to our consulting leadership. I have given them a list where we have eight or nine affiliates in each of those three countries, and those three countries in consulting will be high priorities probably around the fourth quarter of this year. Andrew, I have literally my own back-of-the-envelope plan that I don't share widely. I have a plan with conversations that would go all the way through the third quarter of next year. That doesn't mean we're gonna close all those deals, but we have a known pipeline of firms that would give us plenty to do for the next 18 months in terms of implementation.

Great. Thank you.

Thank you.

Thanks.

That's all the questions we have today. I'll hand it back to Mark Vorsatz for closing remarks.

I just wanna thank everybody for taking the time. I know how busy people's schedules are. I am actually in Maui right now, and we had an event in Hawaii on Thursday with our think tank, and we did a think tank board meeting on Wednesday, and we had a PubCo board meeting on Friday. When I surveyed everybody about whether that was a good venue, I had unanimity that everybody would like to do an annual board meeting in Hawaii. I'm limiting it to one, but I'm going home tomorrow and I always keep myself busy wherever I am. My wife is very supportive, and she's part of the team. Thank you all for taking the time out of your busy schedules to share the time with us. Thanks, everybody.

Thank you. That concludes today's call. All parties may disconnect. Have a good day.