Andersen Group Inc. (ANDG) Earnings Call Transcript

Greetings and welcome to the Q3 2026 Andersen Group earnings conference call. At this time, [Operator Instructions] As a reminder, this conference is being recorded. I'll now turn the conference over to Greg Vistica, Head of Investor Relations and Communication. Thank you, Greg. You may begin.

Thank you, Alicia. Good afternoon and welcome to Andersen's fourth earnings call as a public company. I am Greg Vistica, Head of Investor Relations and Communications. I want to thank our investors, the public, and the analysts that cover us for being on the call, for joining today. Today you will be hearing from Mark Vorsatz, Chairman and CEO of Andersen Group, and CFO Neil Livingston. Michael Mann, Andersen's Chief Legal Officer, will discuss our disclaimer.

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 third quarter of 2026 filed this afternoon. As except [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.

Mark, I will now turn it over to you. Thanks, Bill. Before we get started, I've got a couple of shout-outs. Matt, who's a good friend who's a waiter at Westlake Joe's in Daly City, California, which is one of our favorite restaurants, is an investor, and I know he's on this earnings call and he follows all the analyst reports, so I want to say hi to Matt. Number two, I've been traveling pretty much the last month or so because we're doing regional meetings this year. I did get to talk to our two granddaughters today. Maya just turned three since our last call and Lila just turned one, and Maya started preschool and she told me today that she had cheese and apples for snacks, and I know she's on this call somewhere. I wanted to say hi to her. I'm going to keep my comments real brief. I'll give you a quick overview on the third quarter. I would say fairly consistent. I wanna thank our partners and our people for another solid performance. Our revenue for the third quarter was about $337 million, which was about an 18.7% growth rate, or up about $53 million. Year-to-date, we're at about $795 million, which is an increase of about $127 million, or about 19.1%. For the third quarter, our adjusted EBITDA was about $154 million, which was an increase of about $24 million or 18.8%. And for the year-to-date, we're at about $277 million of adjusted EBITDA or an increase of a little over $60 million or an increase of about 27.8%. Third-quarter numbers are pretty consistent in terms of our margin. It is our best quarter because a lot of our recurring work is done during that quarter. So our adjusted EBITDA margin for the quarter was 45.8%. Last year was about 45.7%. Year-to-date, we're at about 34.8% versus last year about 32.5%. We had given guidance on the revenue side at $980 million to $1 billion. We're going to modify that slightly to $990 million to $1.01 billion. Our adjusted EBITDA guidance was at $225 million to $250 million. We're going to increase that to $255 million to $275 million. And for the year we expect the range in our revenue to be somewhere between about 18.1% to 20.5%. The margin's pretty consistent with what we did last year. Somewhere around high 25s to low 27s is what we're currently using for guidance. As I indicated on the August call, we are going to give guidance for 2027. Our guidance on the revenue side for 2027, I hope all the analysts have their pencils out: $1.275 billion to $1.325 billion, or approximately about a 30% increase. Adjusted EBITDA guidance will be $320 million to about $340 million, so a range somewhere of an increase from about 25% to 33%. I want to keep my comments brief because I want to give the analysts [an] opportunity to ask questions. I'm going to turn it over to Neil and he'll fill in a little more detail on the financial performance. He's also going to share with you our perspective on supplemental reporting. The first six deals that we did, the transaction costs on the earn-out are essentially all going to be treated as expense for accounting purposes. So the first five years we're not going to show any adjusted EBITDA out of those transactions or a nominal amount. As we discussed it internally, we felt that wasn't – that didn't give the investors and the analysts accurate information and performance. So Neil will also talk a little bit about what we've kind of agreed in terms of supplemental reporting. And with that, I'll turn it over to Neil.

Mark, thanks very much. Good afternoon, everyone, and thanks again for joining us today. We appreciate the continuing support and interest in Andersen. So I'm going to try to cover, as per usual, some of the aspects of financial performance that Mark hasn't mentioned already, and I'll start, as usual, with revenue. Mark did mention our 3Q and year-to-date revenue numbers. Let me just supplement that with the last 12 months, which was $966 million, up 19.2%. So whether you look on a third-quarter, year-to-date, or LTM basis, you're seeing consistent top-line growth for the company. These numbers all include inorganic revenue from acquisitions and business combinations. What's pleasing is the diversification of that revenue. All of our service lines and geographic regions contributed to third-quarter revenue growth. And as we have reported previously, there were no large one-time revenue items in the third quarter. Overall, we think that top-line performance demonstrates the consistency and strength of those two complementary growth engines that we've been discussing: solid organic revenue growth and acquisitions providing the additional revenue on top. Obviously, as the acquired firms become more integrated into Andersen, we believe the combination of that organic and inorganic growth will become an increasingly important contributor to our long-term financial performance. Let me pivot to some of our key operating metrics. As we've discussed on previous operating calls, we track a number of metrics, including revenue per hour and revenue per person. Revenue per hour measures the value realized from client work. That was up 8.6% for 3Q and also 8.6% on a year-to-date basis. This includes the effect of the pricing initiatives that we discussed previously, notably the 3% technology surcharge which applied to client contracts signed from the second quarter of 2026. Revenue per person measures the value generated by our professionals on client work, and that was up 14.6% for 3Q and 13.1% on a year-to-date basis. So this obviously includes the impact of investments in technology and related resources and productivity initiatives. So solid growth drivers and solid metrics supporting that organic growth. Just to be clear, those metrics that I just shared are on an organic basis only. That excludes the effects of acquisitions and business combinations. I'll come on to that in a second. We ended the quarter with 2,930 employees, including 366 managing directors. That's up from 2,296 at year-end. And year-to-date, we've added, including inorganic, 2,800 client groups, that's a 24% increase, and 4,400 client engagements, that's a 21% increase. So hopefully that gives everybody on the call a little bit of a sense of the underlying drivers and key metrics that are driving that top-line performance. In terms of our GAAP net income results, net income for 3Q was $68 million. That compares to $111 million in the third quarter of 2025. There was a – in the third quarter, there was a net loss attributable to the Andersen Group of $9 million, or negative $0.55 per basic and diluted share of Class A common stock. The net income attributable to the non-controlling interest was $76.9 million. I would note the year-over-year comparison of our GAAP metrics is not like-for-like, and that's because the third quarter of 2025 obviously came before our IPO and the reorganization transactions that we undertook when the business previously operated as a partnership, without entity income tax and some of the equity-based compensation expense tied to our Class X aggregator units. Within that net income, I would note income tax expense for 3Q was $31.6 million with an ETR, effective tax rate, of 31.8%. On operating expense, operating expenses were $234.9 million for the third quarter, or 69.6% of revenue. That compares with 58.7% a year ago. The increase is primarily due to $40.4 million of non-cash equity-based compensation expense related to the vesting of our Class X aggregator units, which had no comparable expense in 2025. As a reminder, these are accounting-driven charges that have no impact on cash flow or operations, and they're excluded from our non-GAAP metrics. So if we exclude those charges, our total operating expense was 57.7% of revenue, and that compares to 58.7% a year ago, which is a reduction of approximately 110 basis points compared with 2025. Let me pivot to non-GAAP measures. Mark mentioned our adjusted EBITDA margins. Adjusted EBITDA for 3Q was $154.5 million, so that's up 18.8% from 3Q 2025, and margin's 45.8%, as Mark previously noted. Mark covered the nine-month adjusted EBITDA, so I will mention briefly our LTM number, with adjusted EBITDA at $287.4 million, that is up 37.5% from the last 12 months ending September 2025, with an adjusted EBITDA margin of 29.7% compared with 25.8% for 2025. That's an expansion of 3.9% or 395 basis points. Let me discuss briefly our supplemental inorganic information. As Mark's noted, inorganic is an increasing part of our growth story, and for this reason, we've provided additional disclosures with our 10-Q filed today. The information that we disclosed is on a 12-month basis, and in that 12 months ended September 30, 2026, we completed a total of eight acquisitions, including Canada and Switzerland in the third quarter. These eight transactions contributed $16.2 million of revenue. The annual acquired revenue, by which we mean the local currency revenue for the four quarters prior to completion translated into US dollars under GAAP, was $37.2 million. To be clear, this figure is not audited and is not comparable to revenue recognized in our consolidated results, but we hope gives everyone an idea of the size of the other businesses that are being acquired. Our purchase multiple, which is calculated as GAAP purchase consideration divided by annual acquired revenue, was 0.67x for those eight transactions. We treat a transaction as inorganic for 12 months after it closes. We do plan to present these disclosures going forward, although we do not plan to report an inorganic P&L separately or to adjust our non-GAAP metrics for inorganic activity other than stock-based compensation expense, which is standard practice. Internally, we track margins on inorganic activity on a pro forma basis, by which we mean excluding the effects of GAAP acquisition accounting, which as Mark noted varies by transaction. This provides consistency and comparability across transactions. On this basis, for the eight inorganic transactions completed year-to-date, margins averaged 15% to 25% with negligible impact on our adjusted EBITDA margin for the last 12 months. Margins on inorganic activity may start out below organic for a number of reasons. Firstly, acquired firms tend to be smaller with fewer organic economies of scale; integration synergies materialize over time; and certain consulting and other service lines have lower margins compared to the organic U.S. tax business. As such, we anticipate margins to improve as more transactions are completed and as integration efforts ramp up over time. I'll cover briefly our balance sheet and cash flow. The company continued to maintain a healthy balance sheet as of September 30. Cash and cash equivalents stood at $193.6 million. That compares with $250 million at year-end. Net working capital, measured as total current assets less current liabilities, was $301.5 million compared with $216.2 million at year-end. We had no borrowings under our $50 million asset-based revolving credit facility with JPMorgan Chase, which matures in June 2029, and just $1.5 million of standby letters of credit outstanding at quarter-end. Other debt on the balance sheet consists of $287.7 million of notes issued in conjunction with the IPO, down from $350 million at year-end. As a reminder, these are subordinated amortizing related-party obligations, not third-party borrowings. Net cash provided by operating activities was $142.8 million for the nine months for year-to-date, that's up from $101.9 million in 2025, or a 40% increase. Capitalization and our Q3 secondary offering. As I'm sure everyone is well aware, in August, our selling stockholders completed an underwritten secondary offering of 4.9 million shares of Class A common stock. Andersen did not sell any shares and did not receive any proceeds as part of this offering. The offering reduced the non-controlling interest in AT Umbrella by approximately 4%, which increases the company's share of AT Umbrella's earnings. The exchange also increased the tax basis of AT Umbrella's assets. We recorded a deferred tax asset of $87.5 million and a tax receivable agreement liability of $74.4 million equal to 85% of expected cash tax savings with the 15% difference booked to equity. As of September 30, no TR agreement payments had been made. As of September 30, the company had approximately 16.2 million of Class A common stock outstanding on a weighted-average basis, and this is what was used to calculate the earnings per share on a basic and diluted basis. In addition, there was approximately 92.7 million Class X units, 5 million restricted stock units, and 1.6 million L-CIP units outstanding. These securities were excluded from the calculation of diluted earnings per share, both for the quarter and year-to-date, because including them would have been anti-dilutive. We continue to evaluate further secondary offerings to increase the public float and to provide our partners with opportunities to diversify their holdings. As I'm sure you would all expect, this will be done in a controlled and orderly manner, consistent with the aggregate and individual annual redemption limits prescribed in our agreements. Mark has already covered our guidance, so I'm not going to repeat that, but briefly in closing, our third-quarter results, we hope you will agree, reinforce our confidence in Andersen's growth strategy. We continue to generate strong organic revenue growth, substantial profitability, and to expand our capabilities through disciplined acquisitions. Thank you very much for listening. Mark, it's back to you for a wrap-up.

Okay, I don't really have any other comments, Neil. Thanks very much for the detail on all that. I hope it's very helpful to the analysts and the investors. Greg, how about if we take some questions?

Sounds good. If we could start off with one question per person, and if there's time for follow-up afterwards, we'll then take more questions. Mark Marcon, do you want to start us off?

Thanks for taking my questions and congratulations on the strong quarter. I was wondering if you could talk just a little bit about the – you know, the acquisition path. You've made some acquisitions that were Andersen related. You've made some that are, you know, companies that weren't Andersen branded. Can you just talk a little bit about philosophically how you're looking at the non-Andersen branded acquisitions and what the integration plan is for those? And secondly and relatedly, can you discuss in terms of the – the guidance for 2027 that you mentioned, how much of that is inorganic, and are any additional acquisitions that have not yet been completed, are included or not included in that guidance? Thank you.

Let me answer the second question first, which is we've included those transactions that we've closed as well as those transactions that we've signed and some additional – a handful of additional transactions that we think will either close by the end of this year or early in the – in the first quarter. When we had the call in August, I said that I thought between now and the end of the year, we'd sign another eight to ten deals. We've signed eight to date. We do have an expectation that we'll sign additional deals before the end of the year. Whether someone was branded as Andersen in a member firm or whether they were just a collaborating firm, they still participated in our global affiliate organization on a very similar basis. They didn't have any financial arrangement, they weren't part of the Swiss Verein, but I would say the vast majority of our partners wouldn't know who was a collaborating firm or who was a member firm. Every other year we do regional meetings. So in the first week of October – and I usually do the kickoff – we had a meeting in Singapore for Asia, Central Asia, and the Middle East. The next week we had a meeting in Barcelona for consulting. The following week we had a meeting in Athens for Europe and the Middle East. Earlier this week we had a meeting in Atlanta for North America, and I'm leaving on Saturday because we start some internal discussions and have a meeting in Cancun for Latin America. Those include all partners, whether they're part of a member firm or whether they are part of just a collaborating firm. I've taken the opportunity at these meetings to have individual meetings with firms that have expressed interest [in the] possibility of joining us. To give you some idea of the activity level, for the month of October, I met with in person 41 firms. So we have quite a bit of interest. We have increased the resources that we have on the acquisition team. So Ed Prokop who works with me on that – Ed has 20 years experience at Sidley Austin and Ken [Winston] doing acquisitions. Tatum Sorenberger has been involved from the beginning of the acquisitions. She's also a lawyer. Nick Rowan, who – congratulations Nick – just got promoted to partner, which will be effective in January, has been heading due diligence. Because of the level of activity we've had, we hired another lawyer in July, Angelina Dita. Also Oscar Alcantara, who has worked with me in our legal department on most of our affiliates, the agreements both of the Swiss Verein and with respect to the member firm, is now hopefully going to spend about 50% of his time on transactions, and we're in the process of hiring another full-time lawyer. So that will give us about the equivalent of about four and a half full-time lawyers working on the transactions. Ryan Guthrie, who heads our due diligence practice – I met with Ryan on Monday in Atlanta – and Ryan is also going to spend some time on this. We have about four or five people on the due diligence team on the financial matters. We leverage off of our U.S. M&A practice on the technical side, of which we have about 60 people that work in that area. We also leverage off of our cross-border practice. So in our release that Greg sent out on Tuesday, we've now signed 24 deals so far since March. We would expect those that have not closed yet – we've closed 16. We think the other eight will close no later than the end of the first quarter. But I would say we're not lacking interest in the marketplace. Some of the collaborating firms that have joined us have been with us probably for at least three years. The other thing, Mark, that I've been doing strategically is we – we signed and closed the deal in Switzerland. Apollo Mondia co-manages Europe. We have signed a deal in Italy, which we should close in the first quarter. Andrea Devecchi co-manages Europe with Apollo. We have signed a deal in the UK and closed the deal in the UK. Paul Finlan has oversight of UK, Scandinavia. We're advancing conversations with our practice in Spain. Jose Vicente Morote, who's the co-managing partner of Spain and Portugal, is on our Swiss Verein Board. And as we indicated, we just signed a deal, I think it was last Friday, with Poland, and Marcin Majchrzak also is on our Swiss Verein Board. So the two members of our Swiss Verein Board, we either signed or are in discussions. We had the two co-managing partners from Europe who oversee Europe, the person who has oversight for mostly Northern Europe. And then we are in discussions with our practice in Slovenia, and Katarina Krusat oversees the Balkans and CIS. So part of the thought process here is you can't add all these people in if you don't have a management structure in place. We are essentially lifting out the existing management structure that we have in the firm. That's a strategic approach. The reason we did the deal in Nigeria is because Leah, who is the managing partner of our practice in Nigeria, co-manages Africa. One of the reasons we did the legal practice in Uruguay is because Juan Federico Fisher is on our Swiss Verein Board. So we are lifting out our management structure from our existing group and prioritizing those. So I hope that is helpful. And as Neil had indicated, we will be providing in the future more information on the range of EBITDA. But I think you hit the point well. We think in the first 12 to 18 months, some of those will be down a little bit. But I think in the intermediary time period that those practices will get the leverage of the organization and should generate EBITDA numbers that are similar or approach what we do in the U.S. on an organic basis. Thank you, Mark.

Hey Mark, let's move on to another question. Kevin McVeigh from UBS.

Thank you so much, Greg, and congratulations on the results. I guess just to follow up on that a little bit, is there any way to frame in '27 what the inorganic contribution is to revenue and then what the inorganic contribution is to EBITDA, you know, just based on the numbers on the guidance you have out there right now?

It's a work in process and I would say this, Kevin, I think you guys will gain an appreciation, as I've told you before, we have borrowed from a bank facility one time, that was the first quarter of 2008. We paid off our MBO debt 10 or 12 years ago. We've never borrowed any money from a bank, although we have a credit facility. I think as you get acclimated, you will realize that I'm trying to manage expectations by presenting you information that I have a confidence level that we will execute. So as the year develops next year, we will probably provide some additional information on the inorganic. As I indicated, not all 41 of those groups that I met with personally in October are we going to do deals with, but I would say there's a fair number there that are in our queue and we're advancing conversations. Ergo, we're bringing more resources in. If you put it into context, we basically have signed 24 deals in nine months. Now, I'm not going to suggest to you that we're going to do that every nine-month period. But when people ask me about what I think the future holds, I would say to me, tomorrow looks quite a bit like yesterday, and I think yesterday looks pretty good. So what we have provided in terms of guidance and revenue, I'm very comfortable with. About a week or so ago, I had a meeting with our board, including both our inside and outside directors, and reviewed the financial information with them. And they were comfortable that the financial information we were providing was consistent with the way we're communicating information in the marketplace. So I would not suggest to you in any way that the numbers I gave you in terms of guidance are aggressive. I think they're very doable.

Thank you, Mark. Thanks. And if we do have time, we will have follow-up questions. Mark, I didn't mean to cut you off there. Let's go to Faiza Alwy from Deutsche Bank.

Sure, yes. So I wanted to ask about the organic performance in the quarter, which was pretty strong at 15%, in line with your historical growth rate. I know this is the largest quarter of the year. So just wanted to get a bit more perspective. I know you talked about improved productivity. Maybe just talk about where you're seeing the most traction, whether it's more new clients, sort of more cross-selling with existing clients. Just a bit more perspective on the organic strength of the quarter would be helpful.

Sure. So, I usually indicate that I've been doing this a while and the third quarter usually is a predictor of what we're going to do next year. After we released fourth-quarter earnings last year, we had an investor that said, on a call that Greg and I had, he said, you know, great quarter, congratulations. And I kind of jokingly said, what about the 93 quarters before that? So yes, I recognize that relative to the marketplace, our performance in revenue and adjusted EBITDA or margin is very high. As you know from the S-1, we have averaged 15% growth for 24 years in the United States. And since 2008, the first year we were private, we have averaged growth of over 25% a year in net income. And last year, our growth in net income was 48%, even though we lost $22 million in global mobility and consulting. On a pro forma basis, our net income growth would have been 65%. So I would tell you, Faiza, I don't see anything much different tomorrow. I'll tell you there are several things we're working on. Even though we're adding in the U.S. about 200 new clients a month, notwithstanding that, I think we have a lot of areas for improvement. From 9/25 to 9/26, our new client growth was over 2,300 – 2,376. From January 1st through 9/26, it was 1,804. Both of those are about 200 a month, but we can do a better job. We're implementing a new training program. Every year we do a new partner meeting, and that is all firms globally. This year, because of my travel schedule, we're doing it in San Francisco. We're running concurrently with that a new business development program. I'm – as you'll get to know me better, you'll know – I've never achieved a goal in my life because I always reset the goalposts and I always focus on those areas that are room for improvement. And the two that are three areas where we have a lot of room for improvement: one is adding new clients; number two, our productivity has a lot of room for improvement (it's only up 4% year-over-year, our revenue per professional up about 13%, which is a little bit better number); and even our pricing – and I think Neil commented on this – it's a little under 9%. I think artificial intelligence for us is a tailwind, not a headwind. On my own personal book of business, my recovery rate is up quite a bit this year. And I think those are three areas that we can do a better job: new client acquisitions, productivity in our people, and pricing. And I know some might question that, but I would say on the pricing side, again, we've averaged 9% growth a year for the last six years, but I still think there's opportunities there because I think there's opportunities for us to drive more efficiencies, shift more to a billing process of fixed fee, and continue to focus more on value for services where I think you're going to see a lot of people see in the industries where there's got to be a lot of fee pressure is on those businesses that use large leverage or are really in businesses that are more commodities than value services. In general terms, we're not seeing nearly as much pressure in that area as most of the other firms that we compete with. Thank you, Mark.

Thanks, Faiza. Toby Sommer of Truist. Toby?

Thank you, Greg. I wanted to ask another question about the –

– the acquisition program, maybe a little bit longer term. Mark, have you changed your assessment as far as how much an aggregate of member and affiliate firms may make sense to be part of a public company? And you've also made a comment about like how many you've done and signed over the last nine months. It's maybe not every nine-month period will be that way. But isn't there sort of a reason to think that over time you could do more quantity, not less as you start to repeat and triple up on deals in the same countries?