Andersen Group Q1 2026 Earnings Call Transcript

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Provided by Quartr
May 12, 2026

Key Takeaways

  • Positive Sentiment: Q1 revenue rose 15.7% year over year to $240.7 million, beating the company’s prior guidance, with growth across all major service lines and regions.
  • Positive Sentiment: Adjusted EBITDA increased 26.4% to $72.3 million and margin expanded to 30%, reflecting strong operating leverage and organic performance.
  • Positive Sentiment: Revenue per professional increased 12.7%-13%, which management highlighted as its key operating metric, helped by improved productivity, pricing, and early benefits from technology investments.
  • Neutral Sentiment: The company raised its full-year 2026 revenue guidance to $980 million-$1.0 billion and increased inorganic revenue expectations to $55 million, though management said most acquisition contribution will come in the second half of the year.
  • Negative Sentiment: GAAP net income fell sharply versus last year because of $41.2 million of non-cash IPO-related equity compensation, higher interest expense, and transaction costs, and management expects a net loss in Q2 due to seasonality and these charges.
AI Generated. May Contain Errors.
Earnings Conference Call
Andersen Group Q1 2026
00:00 / 00:00

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Operator

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.

Gregory Vistica
Gregory Vistica
Managing Director, Investor Relations at Andersen

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?

Bill Deckelman
Bill Deckelman
Chief Legal Officer at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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%.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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%.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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

Operator

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.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

That's fantastic.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

Thanks, Mark.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

If I could squeeze-

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

Can we, Mark, do you mind if.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

Great. Thank you.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

Yeah, could you hold that while.

Mark Marcon
Mark Marcon
Senior Research Analyst at Baird

No, I'm good on that.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

Great. Thank you. Next question, please.

Operator

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

Faiza Alwy
Faiza Alwy
Managing Director and US Company Research Analyst at Deutsche Bank

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Faiza Alwy
Faiza Alwy
Managing Director and US Company Research Analyst at Deutsche Bank

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.?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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..

Faiza Alwy
Faiza Alwy
Managing Director and US Company Research Analyst at Deutsche Bank

Great. Thank you, Mark.

Operator

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

Toni Kaplan
Toni Kaplan
Executive Director and Equity Research Lead Analyst at Morgan Stanley

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Toni Kaplan
Toni Kaplan
Executive Director and Equity Research Lead Analyst at Morgan Stanley

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Toni Kaplan
Toni Kaplan
Executive Director and Equity Research Lead Analyst at Morgan Stanley

Thank you.

Operator

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

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thank you very much.

Operator

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

Kevin McVeigh
Kevin McVeigh
Managing Director at UBS

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Kevin McVeigh
Kevin McVeigh
Managing Director at UBS

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Kevin McVeigh
Kevin McVeigh
Managing Director at UBS

Thank you.

Operator

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

Analyst at Wells Fargo

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?

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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?

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Analyst at Wells Fargo

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

I would say the biggest issue.

Analyst at Wells Fargo

Sorry.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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?

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Neal Livingston
Neal Livingston
CFO at Andersen

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.

Operator

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

Andrew Nicholas
Andrew Nicholas
Research Analyst, Global services at William Blair

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Andrew Nicholas
Andrew Nicholas
Research Analyst, Global services at William Blair

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Andrew Nicholas
Andrew Nicholas
Research Analyst, Global services at William Blair

Great. Thank you.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

Thank you.

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

Thanks.

Gregory Vistica
Gregory Vistica
Managing Director, Investor Relations at Andersen

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

Mark Vorsatz
Mark Vorsatz
Global Chairman and CEO at Andersen

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.

Operator

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

Analysts
    • Andrew Nicholas
      Research Analyst, Global services at William Blair
    • Bill Deckelman
      Chief Legal Officer at Andersen
    • Faiza Alwy
      Managing Director and US Company Research Analyst at Deutsche Bank
    • Gregory Vistica
      Managing Director, Investor Relations at Andersen
    • Kevin McVeigh
      Managing Director at UBS
    • Mark Marcon
      Senior Research Analyst at Baird
    • Mark Vorsatz
      Global Chairman and CEO at Andersen
    • Neal Livingston
      CFO at Andersen
    • Tobey Sommer
      Managing Director at Truist Securities
    • Toni Kaplan
      Executive Director and Equity Research Lead Analyst at Morgan Stanley
    • Analyst at Wells Fargo
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