Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Thomson Reuters Corp (TRI, Financial) reported a 7% organic revenue growth for the third quarter, surpassing expectations.
- The Big three segments, including Legal, Corporates, and Tax & Accounting, achieved a 9% organic revenue growth.
- The company increased its full-year 2024 organic revenue growth outlook to approximately 7%, with the Big three segments expected to grow by 8.5%.
- Thomson Reuters Corp (TRI) is investing over $200 million annually in AI, which is expected to drive future growth.
- The company remains well-capitalized with an estimated $10 billion of capital capacity through 2027, up from the previously discussed $8 billion through 2026.
Negative Points
- Adjusted EBITDA fell 4% to $609 million, reflecting a 430 basis points margin decline to 35.3%.
- Print revenues declined by 6%, in line with expectations, indicating a continued challenge in this segment.
- The divestiture of Findlaw is expected to reduce total company organic revenue growth by approximately 30 basis points.
- The company faces difficult comparisons for Reuters News in the next two quarters due to previous AI content licensing revenue.
- The acquisitions of Safe Sign Technologies and Material are expected to be loss-making in 2025, although they are absorbed within the financial framework.
Q & A Highlights
Q: Given the capacity on the balance sheet, particularly for AI deals, are you more comfortable looking at larger deals involving Gen AI components, or does the risk-reward become more challenging with larger deals?
A: Steve Hasker, CEO: We are happy with the deals we've done and will continue to pursue similar-sized deals if they meet our criteria. For larger deals, we will maintain a high bar and remain disciplined in our approach. Michael Eastwood, CFO, added that they consider financial capacity and integration capabilities when evaluating M&A opportunities.
Q: With 15% of ACV from Gen AI-enabled products, mostly in legal and tax & accounting, what is the expected growth for this percentage?
A: Michael Eastwood, CFO: The 15% primarily relates to Westlaw Precision AI and PracticalLaw Dynamic. We expect this percentage to continuously increase as we introduce new Gen AI-enabled products and enhance existing offerings.
Q: Can you clarify the $200 million Gen AI investment and its impact on the P&L?
A: Michael Eastwood, CFO: The $200 million includes both operating expenses and capital expenditures, excluding acquisition costs. It's split roughly 50-50 between OpEx and CapEx. This investment is part of our strategy to enhance our Gen AI capabilities.
Q: How are law firms responding to Thomson Reuters' Gen AI-enabled products in terms of hiring and billing practices?
A: Steve Hasker, CEO: It's too early to see significant changes in hiring or billing practices. Law firms are actively discussing the impact of Gen AI on their operations, but no major shifts have been observed yet.
Q: Does the sale of Findlaw indicate a shift in strategy regarding small law firms?
A: Steve Hasker, CEO: The sale does not represent a shift away from small law firms. We remain committed to this segment, and the divestiture was due to Findlaw not aligning with our core strategy and being a distraction.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
